<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION STATEMENT NO. 333-92677
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
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>
500 UNICORN PARK DRIVE
WOBURN, MA 01801
(781) 376-5600
(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.
500 UNICORN PARK DRIVE
WOBURN, MA 01801
(781) 376-5600
(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. [ ]
------------------------
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 FEBRUARY 10, 2000
[fairmarket LOGO]
- --------------------------------------------------------------------------------
5,000,000 Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of FairMarket, Inc. We are offering
5,000,000 shares of our common stock.
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 $9.00 and $11.00. 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 STATE SECURITIES
COMMISSION 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 5,000,000 shares of common stock, the
underwriters have the option to purchase up to an additional 750,000 shares from
FairMarket at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares to purchasers on , 2000.
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
PROSPECTUS DATED , 2000.
<PAGE> 3
Inside Front Cover Graphics
Text: Who we are. FairMarket SM provides outsourced, networked online auction
services for companies that desire to develop or enhance their Internet
marketplaces.
[Logo of FairMarket]
Text: What we do. We develop, host and maintain private label online auction
sites for business merchants, Internet portal sites and other companies that
have a presence on the web. We host these auction sites on our central
operating system, which gives us the ability to aggregate listings of goods and
services available for sale on each of our customers' auction sites and make
those listings available for display and sale on auction sites of other
FairMarket customers. We refer to this network of customer auction sites as the
FairMarket Network.
Gatefold Graphics
Text: The FairMarket Network. 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.
For example, a computer listed for auction by a merchant such as CompUSA appears
not only on CompUSA's auction site but also on FairMarket Network community
auction sites including those of MSN.com, Excite.com and Lycos. Similarly,
listings posted by a seller on a community auction site in the FairMarket
Network automatically appear on other FairMarket Network community customer
auction sites.
[Logo of FairMarket in the center of the page. The FairMarket logo is
surrounded by the logos of our clients: Lycos, Alloy Online, msn, CBS
SportsLine, Vh1.com, citysearch.com. Zones@auction, Xoom.com, Quokkasports,
Outpost.com, New Line Cinema, CompUSA, autobytel.com, Excite and boston.com.
<PAGE> 4
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.
FAIRMARKET, INC.
FairMarket provides outsourced, networked online auction services for
companies that desire to develop or enhance their Internet marketplaces. Our
primary service offering consists of the development, hosting and maintenance of
private-label online auction sites for business merchants, Internet portal sites
and other companies that have a presence on the web. We host these auction sites
on our central operating system, which gives us the ability to aggregate
listings of goods and services available for sale on each of our customers'
auction sites and make those listings available for display and sale on auction
sites of other FairMarket customers. We refer to this network of customer
auction sites as the FairMarket Network. For example, a computer listed for
auction by a merchant like CompUSA appears not only on CompUSA's auction site
but also on FairMarket Network community auction sites like those of MSN.com,
Excite.com and Lycos. Similarly, listings posted by a seller on a community
auction site in the FairMarket Network automatically appear on other FairMarket
Network community customer auction sites.
Our primary sources of revenue are service fees and network fees. Service
fees include one-time auction site set-up fees and monthly fees for hosting and
maintaining customers' auction sites and providing customer support services.
Network fees include success fees charged to sellers upon a completed sale,
listing fees and merchandising fees, which are fees charged for the prominent
display of a particular seller or listing.
Today, over 90 businesses, including CompUSA, Outpost.com and
SportsLine.com, Inc., and several top Internet portal sites, including MSN.com,
Excite.com and Lycos, are members of the FairMarket Network. A representative
list of our customers appears on page 38.
Our goal is to become a leading provider of outsourced, networked
e-commerce services. Key elements of our strategy include:
- expanding the number of customers for whom we host e-commerce
applications;
- increasing traffic and transactions across the FairMarket Network of
customer sites;
- continuing to provide new e-commerce service offerings;
- expanding into additional international markets; and
- applying our expertise to further penetrate the business-to-business
market.
We are a Delaware corporation formed in February 1997. We were formed in
February 1997 and therefore have a limited operating history in the highly
competitive market for e-commerce services. We have incurred net losses since we
were formed. For the year ended December 31, 1999, we recognized total revenue
of approximately $2.1 million and incurred a net loss of approximately $16.5
million. We have not yet achieved profitability and as of December 31, 1999, we
had an accumulated deficit of approximately $18.5 million. Our executive offices
are located at 500 Unicorn Park Drive, Woburn, Massachusetts 01801 and our
telephone number is (781) 376-5600. Our web site is located at
www.fairmarket.com. The information contained on our web site does not
constitute part of this prospectus.
The names FairMarket, FairMarket Network, AuctionPlace, AutoMarkdown, Quick
Win and our logo are names and service marks that belong to us. We claim rights
in other names and marks. This prospectus also contains the trademarks and trade
names of other entities which are the property of their respective owners.
1
<PAGE> 5
THE OFFERING
Shares offered by FairMarket....... 5,000,000 shares
Common stock to be outstanding
after this offering.............. 26,556,111 shares(1)
Estimated net proceeds to
FairMarket....................... $45,200,000
Use of proceeds.................... For general corporate purposes, including
working capital, hiring personnel, capital
expenditures, expansion of sales and
marketing activities and development of
technology.
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 5,243,226 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 December 31, 1999. It excludes:
- any shares of common stock to be issued upon exercise of the
overallotment option granted to the underwriters;
- 3,711,249 shares of common stock issuable upon exercise of employee stock
options outstanding as of December 31, 1999;
- 188,487 shares of common stock available for future grant under our
employee stock option plans as of December 31, 1999;
- 5,225,000 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 that are currently exercisable; and
- 595,000 shares of common stock issuable upon exercise of a performance
warrant outstanding as of December 31, 1999 that is not currently
exercisable.
2
<PAGE> 6
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 unaudited pro forma information in the following table
gives effect, as of December 31, 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>
YEAR ENDED
DECEMBER 31,
----------------------------
1997(1) 1998 1999
------- ------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 3 $ 4 $ 2,121
Operating expenses:
Cost of revenue, exclusive of $83 reported below as equity
related charges......................................... -- -- 1,051
Sales and marketing, exclusive of $4,734 reported below as
equity related charges.................................. 232 675 3,341
Advertising expense....................................... 47 8 4,782
Development and engineering, exclusive of $330 reported
below as equity related charges......................... 94 314 1,960
General and administrative, exclusive of $175 reported
below as equity related charges......................... 234 426 2,690
Equity related charges.................................... -- -- 5,322
------ ------- --------
Total operating expenses................................ 607 1,423 19,146
------ ------- --------
Loss from operations........................................ (604) (1,419) (17,025)
Interest income, net........................................ 3 31 516
------ ------- --------
Net loss.................................................... $ (601) $(1,388) $(16,509)
====== ======= ========
Basic and diluted net loss per share........................ $(0.15) $ (0.30) $ (3.30)
====== ======= ========
Shares used in computing basic and diluted net loss per
share..................................................... 4,073 4,571 5,010
Unaudited pro forma basic and diluted net loss per share.... $ (1.07)
========
Shares used in computing pro forma basic and diluted net
loss per share............................................ 15,449
</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 December 31,
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 5,000,000 shares of common stock in this
offering, assuming an initial public offering price of $10.00 per share
and after deducting underwriting discounts and commissions and our
estimated offering expenses of $4.8 million.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
) (UNAUDITED
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $13,079 $18,079 $63,279
Working capital............................................. 12,304 17,304 62,504
Total assets................................................ 20,071 25,071 70,271
Total stockholders' equity.................................. (1,118) 21,382 66,582
</TABLE>
3
<PAGE> 7
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before purchasing our common stock. Although we
have described below all risks we consider material, 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.
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. 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 company seeking to develop a new
Internet-based service. We may not be able to:
- maintain and upgrade our technology to keep pace with the rapidly growing
Internet market we serve;
- expand our sales force and attract and retain engineering and other
qualified personnel;
- attract and retain customers; or
- raise additional capital if and when we need it.
If we cannot achieve these goals we may be unable to develop or sustain our
business.
WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL OPERATING LOSSES.
For the year ended December 31, 1999, we incurred a net loss of
approximately $16.5 million, which represented approximately 779% of our revenue
for the same period. As of December 31, 1999, we had an accumulated deficit of
approximately $18.5 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. Any such investment will depend on the availability of funds.
WE EXPECT TO CONTINUE TO HAVE NEGATIVE OPERATING CASH FLOW WHICH MAY 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 expect that we will increase expenditures
for our sales and marketing efforts and development of technology. We expect
that we will use available cash and the proceeds of this offering to pay for
these expenditures. Depending on future cash flow, 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,
4
<PAGE> 8
preferences or privileges senior to those of our common stock, and our
stockholders may experience additional dilution to their equity ownership.
WE MAY NOT BE ABLE TO CONTINUE ATTRACTING NEW CUSTOMERS.
The success of our business model depends in large part on our continued
ability to increase the number of customers in the FairMarket Network. The
market for our services may grow more slowly than anticipated or become
saturated with competitors. Some potential customers may not want to join the
FairMarket Network because they are concerned about the possibility of their
products being listed together with their competitors' products. 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.
OUR CUSTOMERS MAY NOT SUCCESSFULLY DRIVE USER TRAFFIC FROM THEIR MAIN WEB SITES
TO THEIR AUCTION SITES.
Our success will also depend in part on increasing the amount of traffic
and the number of transactions across the FairMarket Network. For this to occur,
our existing customers must drive sufficient numbers of users to their auction
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 customers will be successful in
accomplishing any of these objectives and their failure to do so could impede
our growth and adversely affect our business.
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, such as our classified
advertisements service and our AutoMarkdown service, which is used for selling
multiple items and in which the price of an item decreases over time and each
bid results in a purchase, 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
online market pricing solutions at levels sufficient to sustain our business.
OUR BUSINESS MAY SUFFER IF AUCTION USERS DO NOT MAKE PAYMENTS OR DELIVER GOODS.
Our future success will depend to some extent upon sellers on customer
auction sites reliably delivering and accurately representing their listed goods
and buyers paying the agreed purchase price. Our customers have received in the
past, and we anticipate that they will receive in the future, communications
from sellers and buyers who did not receive the purchase price or the goods that
were to have been exchanged. Neither we nor our customers have the ability to
require end-users to make payments or deliver goods or otherwise make end-users
whole. Our customers also periodically receive complaints from buyers as to the
quality of the goods purchased. We estimate that approximately 4% of the emails
sent by end-users to our auction site customer support center contain complaints
related to these types of matters. We are unaware of any complaints that have
materially impacted our customers' businesses in a detrimental manner. Neither
we nor our customers have the ability to determine the level of
5
<PAGE> 9
such complaints that are made directly between buyers and sellers. We expect
that our customers will continue to receive requests from end-users requesting
reimbursement or threatening legal action if no reimbursement is made. We expect
that such requests and complaints will continue to be made and that customers or
their end-users may threaten legal action against us if no reimbursement is
made.
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:
- continue to upgrade our business processes and controls;
- expand, train and manage our growing employee base; and
- expand our finance, administrative and operations staff.
There can be no assurance that:
- our current and planned systems, business processes and controls will be
adequate to support our future operations;
- we will be able to hire, train, retain, motivate and manage required
personnel; or
- we will be able to identify, manage and benefit from existing and
potential customer 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 by
leading to increased costs, reduced margins and lower revenue. If we are unable
to undertake new business due to a shortage of staff or technology resources,
our growth will be 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.
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 services is extremely competitive. We expect
competition to intensify as current competitors expand their product offerings
and new competitors enter the market. In addition to competition from
internally-developed solutions by individual organizations, our primary direct
competitors are the following providers of hosted auction services:
auctions.net, bid.com, Bidland, DealDeal.com and OpenSite. We also face
competition for customers from third party providers in the following areas:
- software and application service providers: Auction Broker, Moai
Technologies, OpenSite and TradingDynamics;
6
<PAGE> 10
- destination auction sites: Amazon.com, eBay and Yahoo! Auctions; and
- companies with specific market pricing mechanisms: Mercata and
Respond.com.
The principal competitive factors are the quality and breadth of services
provided, potential for successful transaction activity and price. 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 market pricing formats on a timely basis or at all. If we fail to
introduce new service offerings or to improve our existing service offerings in
response to industry developments, or if our prices are not competitive, we
could lose customers, which could lead to a loss of revenues.
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. Many of our competitors may also have well-established relationships
with our 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 applications 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 ours or that
achieve greater customer acceptance. We cannot assure you that the e-commerce
solutions offered by our competitors now or in the future will not be perceived
as superior to ours by merchants, Internet communities or individual buyers and
sellers.
WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND INTO INTERNATIONAL MARKETS.
A component of our strategy is to expand internationally by attracting
customers outside the United States. During the fourth quarter of 1999, we
entered into contracts with our first customers in Australia and the United
Kingdom. Revenue under these contracts to date has not been material. We believe
that significant opportunities exist in international markets, and it is our
intention to compete in these markets. Primary target markets include the United
Kingdom, Western Europe and Asia Pacific. 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 risks
inherent in doing business internationally, including, among others:
- regulatory requirements;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- different accounting practices;
- fluctuating currency exchange rates;
- problems in collecting accounts receivable;
- legal uncertainty regarding liability, ownership and protection of
intellectual property;
- tariffs and other trade barriers;
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<PAGE> 11
- seasonal reductions in business activity;
- potentially adverse tax consequences; and
- political instability.
Any of the above factors could adversely affect the success of our
international operations. While we believe that the international risks we
currently face are minimal, to the extent we expand our international
operations, we will become more exposed to the above risks. To the extent we
have increasing portions of our international revenues denominated in foreign
currencies, we will 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 ability to expand our
business and increase our revenue.
WE MAY HAVE TO MAKE MINIMUM PAYMENTS TO TWO 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 number of Internet users 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.
Actual revenue is determined as follows:
- All auction transactions are recorded in our auction system.
- We collect, on behalf of our customers, transaction fees that our
customers charge to sellers registered on their auction sites upon a
completed sale.
- On a monthly or quarterly basis, depending on the contract terms, we
remit the fees collected to the customer, net of any amount owed to us.
The customer's share of all such fees is aggregated and measured against
the minimum annual guarantee.
The agreements with Microsoft and Excite currently provide for aggregate
annual minimum guaranteed revenue starting at up to approximately $5.8 million
in 2000 and increasing to up to approximately $28.4 million in 2004. Our
obligations to make the minimum guaranteed annual payments are directly linked
to the minimum annual traffic guarantees provided by Microsoft and Excite. If
Microsoft and/or Excite meet their minimum annual traffic guarantees but the
increase in traffic does not produce sufficient revenue to meet the minimum
guaranteed revenue, we will have a financial obligation to Microsoft and/or
Excite. This obligation will be an amount equal to the difference between the
minimum guaranteed revenue and their portion of the transaction fees actually
collected.
Any payments we have to make to satisfy the minimum guaranteed revenue
levels under these agreements 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 relating to our auction and other market pricing technologies
and the FairMarket Network. While we have attempted to safeguard and maintain
our proprietary rights, we do not know whether we have 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.
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We applied for patents on aspects of our technology and processes in
November 1999 and those applications are pending with the U.S. Patent and
Trademark Office. 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 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.
WE MAY NOT BE ABLE TO MAINTAIN THE CONFIDENTIALITY OF OUR PROPRIETARY KNOWLEDGE.
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 by adversely affecting
our ability to compete.
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
technologies.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO CONTINUE TO LICENSE
SOFTWARE THAT IS NECESSARY FOR OUR SERVICE OFFERING.
Through distributors, we license a variety of commercially-available
Microsoft technologies, including our database software and Internet server
software, which is used in our services and systems to perform key functions. As
a result, we are to a certain extent dependent upon Microsoft continuing to
maintain these technologies. There can be no assurance that we would be able to
replace the functionality provided by the Microsoft technologies on commercially
reasonable terms or at all. The absence of or any significant delay in the
replacement of that functionality could have a material adverse effect on our
business, financial condition and results of operations.
OUR SYSTEMS INFRASTRUCTURE MAY NOT KEEP PACE WITH THE DEMANDS OF OUR CUSTOMERS.
Interruptions of service as a result of a high volume of traffic and/or
transactions could diminish the attractiveness of our services and our ability
to attract and retain customers. 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
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upgrade our systems could have a material adverse effect on our results of
operations and financial condition by reducing or interrupting revenue flow and
by limiting our ability to attract new customers. 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. The FairMarket Network currently utilizes approximately 60
computer servers with an additional 10 in reserve to handle unexpected capacity
increases. We currently estimate our total capacity to be approximately 30
million page views per day. The majority of this capacity is currently not
utilized.
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 systems are not error-free. Errors or performance problems
could result in lost revenues or cancellation of customer agreements and may
expose us to litigation and potential liability. In the past, we have discovered
errors in software used in 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. We have experienced periodic minor system interruptions, which
may continue to occur from time to time. During October 1999, our system was
unavailable to users on account of a significant outage on two occasions, once
for five hours and once for two hours. Both outages resulted from our
installation of enhanced capacity management features. As a result of these
outages, we paid one of our customers $15,000 under our contract with that
customer. As of January 31, 2000, three of our customers have contracts which
specifically allow them to terminate the contract if we are unable to maintain
specified levels of service. The potential loss to us if these contracts were
terminated would depend on the unexpired portion of the contract. Aggregate
revenue for these three customers is approximately $38,750 per month. Also, as
of January 31, 2000, 13 of our customer contracts provide for specified levels
of money damages to the customer based upon auction site downtime. Our potential
payment or credit obligations under these provisions if the service levels
specified in all of those agreements were not met over the applicable
measurement period would total approximately $98,750. Errors or defects in our
technology would also damage our reputation which could reduce market acceptance
of our services and lead to a loss of 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.
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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 existing business and
ability to expand our operations.
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. Our service
automatically screens by key word all listings submitted by end-users for
pornographic material. We also have notice and take-down procedures related to
infringing and illegal goods. These procedures are not foolproof and goods that
may be subject to regulation by local, state or federal authorities could be
sold through our service. These goods include, for example, firearms, alcohol
and tobacco. 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 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 one or more of our service
offerings. Any costs incurred as a result of such liability or asserted
liability would harm our results of operations.
FUTURE GOVERNMENT REGULATION OF AUCTIONS AND AUCTIONEERS MAY ADD TO OUR
OPERATING 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, little precedent exists in this
area, and one or more jurisdictions are attempting or may attempt to impose
these laws and regulations to online auction providers and may attempt to impose
these laws and regulations on our operations or the operations of our customers
in the future. The states of New Hampshire, North Carolina, Pennsylvania and
Tennessee are currently considering whether to apply their auctioneer
regulations to online auctions, but no regulatory or legislative action has been
taken to date. Illinois recently passed legislation which became effective in
January 2000 and which by its terms applies to the conduct of all auctions,
including auctions conducted over the Internet. This newly-passed legislation
has not yet been subject to interpretation and its scope and applicability are
therefore currently unclear. In addition, as the nature of the products listed
by our customers or their end-users changes, we may become subject to new
regulatory restrictions. If we do become subject to these laws and regulations
in the future, it could adversely affect our ability to attract and retain
customers and could adversely affect our results of operations by decreasing
activity on our customers' auction sites.
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 will be useful in the growth
of our business. We do not
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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.
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
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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 services do not become a
viable commercial marketplace, we will have to adapt our business model to the
new environment, which would materially affect our results of operations and
financial condition.
GOVERNMENT REGULATION OF THE INTERNET MAY IMPEDE OUR GROWTH OR 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 addition, it is
uncertain how existing laws governing issues such as taxation, property
ownership, copyrights and other intellectual property issues, libel, obscenity
and personal privacy will be applied to the Internet. The majority of these laws
were adopted prior to the introduction of the Internet and, as a result, do not
address the unique issues of the Internet. Recent laws that contemplate the
Internet, such as the Digital Millennium Copyright Act, have not yet been
interpreted by the courts and their applicability is therefore uncertain. The
Digital Millennium Copyright Act provides certain "safe harbors" that limit the
risk of copyright infringement liability for service providers such as
FairMarket with respect to infringing activities engaged in by users of the
service, such as end-users of our customers' auction sites. We have adopted and
are further refining our policies and practices to qualify for one or more of
these safe harbors, but there can be no assurance that our efforts will be
successful since the Digital Millennium Copyright Act has not been interpreted
by the courts and its interpretation is therefore uncertain.
In the area of user privacy, several states have proposed legislation that
would limit the uses of personal user information gathered online or require
online services to establish privacy policies. The Federal Trade Commission also
has become increasingly involved in this area, and recently settled an action
with one online service regarding the manner in which personal information is
collected from users and provided to third parties. The recently adopted
European Union Directive on the Protection of Personal Data may affect our
ability to expand into Europe if we or our customers do not afford adequate
privacy to end-users of our customers' sites. We do not sell personal user
information from our customers' auction sites. As between FairMarket and our
customers, the auction sites, the personal user information belongs to the
auction sites, not FairMarket, and each auction site is governed by the
respective customer's own privacy policy. We do use aggregated data for analyses
regarding the FairMarket Network, and do use personal user information in the
performance of our auction site end-user support
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services. Since we do not control what our customers do with the personal user
information they collect, there can be no assurance that our customers' sites
will be considered compliant.
As online commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as pricing, content, user
privacy, and quality of products and services. Any future regulation may have a
negative impact on our business by restricting our methods of operation or
imposing additional costs. Although many of these regulations may not apply to
our business directly, we anticipate that laws regulating the solicitation,
collection or processing of personal information could indirectly affect our
business.
Title V of the Telecommunications Act of 1996, known as the Communications
Decency Act of 1996, prohibits the knowing transmission of any comment, request,
suggestion, proposal, image or other communication that is obscene or
pornographic to any recipient under the age of 18. The prohibition's scope and
the liability associated with a violation are currently unsettled. In addition,
although substantial portions of the Communications Decency Act of 1996 have
been held to be unconstitutional, we cannot be certain that similar legislation
will not be enacted and upheld in the future. It is possible that such
legislation could expose companies involved in online commerce to liability,
which could limit the growth of online commerce generally. Legislation like the
Communications Decency Act could dampen the growth in Internet usage and
decrease its acceptance as a communications and commerce medium.
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. As an Internet company, it is unclear
which jurisdictions may find that we are conducting business therein. 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.
NEW TAXES MAY BE IMPOSED ON INTERNET COMMERCE.
We do not collect sales or other similar taxes on goods sold by customers
and users through the FairMarket Network or service taxes on fees paid by
end-users of our customers' auction sites. The Internet Tax Freedom Act of 1998,
which expires on October 21, 2001, prohibits the imposition of taxes on
electronic commerce by United States federal and state taxing authorities.
However, after the expiration of the Internet Tax Freedom Act, 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. In
addition, non-U.S. countries may seek to impose service tax (such as value-added
tax) collection obligations on companies that engage in or facilitate Internet
commerce. 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 or our customers should collect
sales or other taxes on the exchange of merchandise or auction site usage fees
or that we or our customers should collect Internet-based taxes could impair our
revenue and our ability to acquire and retain customers.
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. In April 1999, unauthorized
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persons gained access to the www.fairmarket.com web site and replaced the home
page with a web page of their own. There was no compromise of our auction
operating system. 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, and 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.
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.
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 claims, existing or future laws or unfavorable judicial
decisions could negate these limitation of liability provisions.
In addition, we may not be able to successfully avoid civil or criminal
liability for problems related to the products and services sold on customer
auction sites. 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 service offerings or to take
precautions to ensure that products and services are not available on customer
auction sites.
Moreover, deliveries of products purchased on customer auction sites 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 those sites and therefore our services, which
would lead to decreased revenue.
RISKS RELATED TO THIS OFFERING 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 this offering. If
you purchase common stock in this offering, you will incur immediate dilution of
$7.49 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.
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OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The stock market, and in particular the market for Internet-related stocks,
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 plans;
- the demand for our common stock;
- downward revisions in securities analysts' estimates or changes in
general market conditions;
- technological innovations by competitors or in competing technologies;
and
- investor perception of our industry or our prospects.
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 80% 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 would, if they voted together, 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. 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.
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 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.
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 86%
of the outstanding shares of our common stock, or approximately 84% 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 restrictions on their
shares. When determining whether or not to release shares from the lock-up
agreements,
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Deutsche Bank Securities Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Any shares
released from the lock-up agreements which are then sold into the public market
could increase the perception that a larger number of shares are available for
sale which could cause the market price of our common stock to decline. Deutsche
Bank Securities Inc. currently has no plans to release any portion of the shares
subject to lock-up agreements and we currently have no plans to register for
resale any shares released from such lock-up agreements prior to the expiration
of the 180-day lock-up period. 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 22.1 million 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 of 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. To date, neither our internal systems nor the systems of
any third parties on which we rely to provide our services have experienced any
year 2000 failures. 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.
SPECIAL NOTE REGARDING 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 from 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
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<PAGE> 21
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of our common stock
in this offering will be approximately $45.2 million, at an assumed initial
offering price of $10.00 per share and after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses.
We anticipate that we will use substantially all of the net proceeds for
general corporate purposes, including:
- working capital, in the estimated amount of approximately $5.7 million;
- hiring personnel, in the estimated amount of approximately $9.0 million;
- capital expenditures, in the estimated amount of approximately $7.5
million;
- expansion of sales and marketing activities, in the estimated amount of
approximately $20.0 million; and
- development of technology, in the estimated amount of approximately $3.0
million.
Due to the rapidly changing nature of the market in which we operate, the
amounts we actually spend for general corporate purposes will depend on a number
of factors, including revenue growth, if any, and the amount of cash we generate
from operations. As a result, we will retain broad discretion in the allocation
and use of the net proceeds of this offering. 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.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to: (1) the issuance, as of December
31, 1999, of 16,312,885 shares of common stock in connection with the
conversion of all our outstanding preferred stock into common stock upon
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
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 5,000,000 shares of common stock in this
offering at an assumed initial public offering price of $10.00 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 9,531,249 shares of common stock issuable upon exercise
of warrants and employee stock options outstanding at December 31, 1999 at a
weighted average exercise price of $1.50 per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(UNAUDITED)
<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 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.............. 39,470 -- --
Common Stock, $0.001 par value; 36,000,000 shares
authorized, 5,243,226 shares issued and outstanding,
actual; 21,556,111 and 26,556,111 shares issued and
outstanding on a pro forma and pro forma as adjusted
basis.................................................. 5 22 27
Additional paid-in capital................................ 40,136 110,197 155,392
Deferred compensation and equity related charges.......... (60,026) (60,026) (60,026)
Stock subscription receivable............................. (15,312) (10,312) (10,312)
Accumulated deficit....................................... (18,499) (18,499) (18,499)
-------- -------- --------
Total stockholders' equity............................. (1,118) 21,382 66,582
-------- -------- --------
Total capitalization.............................. $ 16,382 $ 21,382 $ 66,582
======== ======== ========
</TABLE>
19
<PAGE> 23
DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
$21,381,601, or $0.99 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 5,000,000 shares of common stock offered hereby
at an assumed initial public offering price of $10.00 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
December 31, 1999, would have been approximately $66,581,601, or approximately
$2.51 per pro forma share of common stock. This represents an immediate increase
in pro forma net tangible book value of $1.52 per share to our existing
stockholders and an immediate dilution of $7.49 per share to new investors in
this offering. If the initial public offering price is higher or lower than
$10.00 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............. $10.00
Pro forma net tangible book value per share before this
offering............................................... $ .99
Increase per share attributable to new investors.......... $1.52
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 2.51
------
Dilution per share to new investors......................... $ 7.49
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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 $10.00.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 21,556,111 81% $27,166,900 35% $ 1.26
New investors............. 5,000,000 19 50,000,000 65 10.00
---------- --- ----------- ---
Total................... 26,556,111 100% $77,166,900 100%
========== === =========== ===
</TABLE>
The discussion and table exclude:
- shares that may be issued by us upon exercise of the underwriters'
over-allotment option;
- 9,531,249 shares of common stock subject to outstanding warrants and
employee stock options at December 31, 1999 at a weighted average
exercise price of $1.50 per share; and
- an aggregate of 188,487 shares available for future grant under our stock
option plans.
If the underwriters' over-allotment option is exercised in full, the shares
held by existing stockholders will decrease to 79% 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 5,750,000, or 21% of the total number of shares
of common stock outstanding after the offering. To the extent the warrants and
outstanding options are exercised and the underlying shares are issued, there
will be further dilution to new investors. If all of these options and warrants
had been exercised as of December 31, 1999, net tangible book value per share
after this offering would be $2.24 and total dilution per share to new investors
would be $7.76.
20
<PAGE> 24
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 and the years
ended December 31, 1998 and 1999. The statement of operations data for the
period from inception through December 31, 1997 and for the years ended December
31, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
have been derived from our audited financial statements included elsewhere in
this prospectus. Balance sheet data as of December 31, 1997 is derived from our
audited financial statements not included in this prospectus.
The 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>
YEAR ENDED DECEMBER 31,
------------------------------
1997(1) 1998 1999
------- ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 3 $ 4 $ 2,121
Operating expenses
Cost of revenue, exclusive of $83 reported below as equity
related charges......................................... -- -- 1,051
Sales and marketing, exclusive of $4,734 reported below as
equity related charges.................................. 232 675 3,341
Advertising expense....................................... 47 8 4,782
Development and engineering, exclusive of $330 reported
below as equity related charges......................... 94 314 1,960
General and administrative, exclusive of $175 reported
below as equity related charges......................... 234 426 2,690
Equity related charges.................................... -- -- 5,322
------- ------- --------
Total operating expenses................................ 607 1,423 19,146
------- ------- --------
Loss from operations........................................ (604) (1,419) (17,025)
Interest income, net........................................ 3 31 516
------- ------- --------
Net loss.................................................... $ (601) $(1,388) $(16,509)
======= ======= ========
Basic and diluted net loss per share........................ $ (0.15) $ (0.30) $ (3.30)
======= ======= ========
Shares used in computing basic and diluted net loss per
share..................................................... 4,073 4,571 5,010
Unaudited pro forma basic and diluted net loss per share.... $ (1.07)
--------
--------
Shares used in computing unaudited pro forma basic and
diluted net loss per share................................ 15,449
</TABLE>
- -------------------------
(1) Period from February 20, 1997 (date of inception) to December 31, 1997.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, AS ADJUSTED
-------------------------- DECEMBER 31,
1997 1998 1999 1999
------ ------- ------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities... $1,128 $ 540 $13,079 $63,279
Property, plant and equipment, net................. 49 199 4,077 4,077
Working capital.................................... 1,123 458 12,304 62,504
Total assets....................................... 1,260 771 20,071 70,271
Series D Convertible Preferred Stock $0.001 par
value, 2,500,000 shares issued and outstanding
subject to a put option at $7 per share and none
issued and outstanding on a pro forma as adjusted
basis............................................ -- -- 17,500 --
Total stockholders' equity......................... $1,172 $ 658 $(1,118) $66,582
</TABLE>
21
<PAGE> 25
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
December 31, 1999, our employee base has grown from 11 to 139 employees.
FairMarket provides outsourced, networked online auction services for
companies that desire to develop or enhance their Internet marketplaces. Our
primary service offering consists of the development, hosting and maintenance of
private-label online auction sites for business merchants, Internet portal sites
and other companies that have a presence on the web. We host these auction sites
on our central operating system, which gives us the ability to aggregate
listings of goods and services available for sale on each of our customers'
auction sites and make those listings available for display and sale on auction
sites of other FairMarket customers. We refer to this network of customer
auction sites as the FairMarket Network.
From December 31, 1998 to December 31, 1999, the number of auction sites
developed and hosted by FairMarket grew from 0 to more than 90 auction sites.
We derive revenue from service fees, which consist of site implementation,
monthly operating and support fees, professional service fees, and network fees.
For the year ended December 31, 1999, service fees represented approximately
$1,948,286, or 92% of our total revenue, while network fees represented
$172,349, or 8% of our total revenue. We do not expect the proportion of service
to network fees to change significantly during the next year. 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, 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 additional services to our customers for
which we charge a consulting fee, such as redesigning the user interface of a
customer's existing auction site.
Network fees consist of our share of success fees charged to sellers upon a
completed sale, listing fees and merchandising fees, which are fees charged for
the prominent display of a particular seller or listing (such as under a list of
"Featured Merchants" or "Featured Listings"). Merchant customers pay transaction
fees at varying percentages based on the gross
22
<PAGE> 26
proceeds from the sale of their listed products and services, whether sold on
their auction sites or on other FairMarket Network sites. Community customers
pay transaction fees based on the gross proceeds 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 FairMarket Network sites. The fee percentages vary by
customer depending on the anticipated level of auction activity on the
customer's site and the level of the monthly service fees. 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
unaudited quarterly data from our statements of operations. The 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, DEC. 31,
1998 1998 1999 1999 1999 1999
--------- --------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................ $ 1,419 $ 1,336 $ 52,750 $ 160,669 $ 658,003 $ 1,249,213
Operating expenses:
Cost of revenue............ -- -- 46,719 89,205 286,518 628,447
Sales and marketing........ 96,988 137,318 211,604 836,511 2,096,372 4,978,154
Development and
engineering.............. 80,201 117,405 196,071 403,379 665,163 694,938
General and
administrative........... 84,152 153,513 152,418 373,978 531,136 1,633,022
Equity related charges..... -- -- 1,993 48,033 987,227 4,285,247
--------- --------- --------- ----------- ----------- ------------
Total operating
expenses............... 261,341 408,236 608,805 1,751,106 4,566,416 12,219,808
--------- --------- --------- ----------- ----------- ------------
Loss from operations........... (259,922) (406,900) (556,055) (1,590,437) (3,908,413) (10,970,595)
Interest income, net........... 6,834 4,275 47,162 108,386 123,511 237,232
--------- --------- --------- ----------- ----------- ------------
Net loss....................... $(253,088) $(402,625) $(508,893) $(1,482,051) $(3,784,902) $(10,733,363)
========= ========= ========= =========== =========== ============
</TABLE>
REVENUE
Our revenue did not materially change during the last two quarters of the
year ended December 31, 1998 and increased during each quarter 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 for each quarter of 1999
primarily as a result of the addition of over 90 customers during the period.
23
<PAGE> 27
COST OF REVENUE
Cost of revenue consists of costs of providing direct customer 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 in each quarter of 1999 in
absolute dollars but decreased over the first three quarters as a percentage of
revenue. In the fourth quarter of 1999, cost of revenue increased as a
percentage of revenue compared to the third 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 fourth quarter of 1999,
primarily due to increases in compensation associated with additional sales and
marketing personnel and, in the last three quarters of 1999, due to increases in
advertising and promotional expenses. Compensation associated with sales and
marketing increased from $46,575 for the third quarter of 1998 to $87,720 for
the fourth quarter of 1998, and to $126,178, $395,256, $668,654 and $893,397 for
the first, second, third and fourth quarters of 1999, respectively. In the first
quarter of 1999, advertising and promotional expense was not material, and in
the second, third and fourth quarters of 1999 advertising and promotional
expense was $235,686, $1,147,316 and $3,398,566, respectively. The fourth
quarter of 1999 includes $2.5 million of advertising expense related to our
auction services agreement with Excite, Inc. discussed below. 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 auction services 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 of the first eight calendar quarters under the contract, beginning with the
fourth quarter of 1999, 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 from the
third quarter of 1998 through the third quarter of 1999 primarily 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
24
<PAGE> 28
have increased significantly since the third quarter of 1998. The increases have
primarily 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 Microsoft and Lycos,
Inc. and shares of our Series D Convertible Preferred Stock issued to Microsoft,
Excite and TicketMaster Online-CitySearch, Inc. at prices below their fair
value. See "Certain Transactions with Related Parties." At December 31, 1999,
deferred stock compensation relating to employee stock options, which is a
component of stockholders' equity, totaled approximately $8.5 million, net of
amortization of approximately $1.6 million. 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 $2.3 million in 2000, $2.4 million in 2001,
$2.4 million in 2002 and $1.4 million in 2003.
At December 31, 1999, other deferred equity related charges, which is a
component of stockholders' equity, totaled approximately $51.5 million, net of
amortization of approximately $3.7 million. 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 $12.7 million in 2000, $12.7 million in
2001, $11.5 million in 2002, $8.8 million in 2003 and $5.8 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. At December 31, 1999, none of the
performance-based warrant was earned.
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 in each of the second, third and fourth quarters 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.
25
<PAGE> 29
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, NET
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 YEARS ENDED DECEMBER 31, 1998 AND 1999
For the year ended December 31, 1998, our net loss was approximately $1.4
million. For the year ended December 31, 1999, our net loss was approximately
$16.5 million. The increase in net loss of approximately $15.1 million from 1998
to 1999 is primarily due to an increase in total operating expenses of
approximately $17.7 million over such periods, partially offset by an increase
in revenue of approximately $2.1 million and an increase in interest income of
$490,262.
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 $3,784 for the year ended December 31, 1998 and approximately $2.1
million for the year ended December 31, 1999. The increase in revenue is
primarily due to an increase in monthly service revenue generated from new
customers 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 December 31, 1999, there was $572,405 of deferred revenue relating
to set-up fees. We also defer recognition of transaction fee revenue arising
from our contracts with Microsoft and Excite, which totaled $22,684 at December
31, 1999.
COST OF REVENUE
Cost of revenue was not material during 1998. For the year ended December
31, 1999, cost of revenue was approximately $1.1 million. Cost of revenue
consists of costs for both
26
<PAGE> 30
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 $7.4 million, from
$683,144 for the year ended December 31, 1998, including advertising expense of
$8,200, to approximately $8.1 million for the year ended December 31, 1999,
including advertising expense of approximately $4.8 million. This increase
primarily resulted from the building of a sales and marketing organization, and
the commencement during the second half of 1999 of a significant increase in
advertising and promotional activities. Advertising expense for the year ended
December 31, 1999 included $2.5 million for advertising services purchased from
Excite, Inc. under the terms of our auction services agreement with Excite.
DEVELOPMENT AND ENGINEERING
Development and engineering expenses increased by approximately $1.6
million, from $313,654 for the year ended December 31, 1998 to approximately
$2.0 million for the year ended December 31, 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 approximately $2.3
million, from $426,458 for the year ended December 31, 1998 to approximately
$2.7 million for the year ended December 31, 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 December 31, 1999, deferred stock
compensation, which is a component of deferred compensation and equity related
charges in stockholders' equity, totaled approximately $8.5 million, net of
amortization of approximately $1.6 million. 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 $2.3 million in 2000, $2.4 million in 2001,
$2.4 million in 2002 and $1.4 million in 2003.
At December 31, 1999, other deferred equity related charges, which is a
component of stockholders' equity, totaled approximately $51.5 million, net of
amortization of approximately $3.7 million. 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 $12.7 million in 2000, $12.7 million in
2001, $11.5 million in 2002, $8.8 million in 2003 and $5.8 million in 2004.
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INTEREST INCOME, NET
Interest income was $31,256 for the year ended December 31, 1998 and
$521,518 for the year ended December 31, 1999. The increase in interest income
of $490,262 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, the net cash proceeds of
which totaled approximately $10.5 million, and in August and September 1999, we
completed the sale of 1,250,000 and 750,000 shares, respectively, of our Series
D Convertible Preferred Stock, the net cash proceeds of which totaled
approximately $14.0 million.
MICROSOFT AND EXCITE CONTRACTS
Our auction services agreements with Microsoft and Excite provide that, if
these companies drive more than a specified number of Internet users 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 Microsoft and/or Excite meet their minimum
annual traffic guarantees but the increase in traffic does not produce
sufficient revenue to meet the minimum guaranteed revenue, we will have a
financial obligation to Microsoft and/or Excite. This obligation will be an
amount equal to the difference between the minimum guaranteed payment and their
portion of fees actually collected. 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 the first, second, third, fourth and fifth
contract years, 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 the first, second, third, fourth and fifth contract years,
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. At December 31,
1999, we had deferred $22,684 of transaction fee revenue from Microsoft and
Excite.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private sales of capital stock, the net proceeds of which totaled approximately
$27.1 million as of December 31, 1999. At December 31, 1999, cash and cash
equivalents, marketable securities and restricted cash (related to a lease
deposit) totaled approximately $14.9 million.
Cash used in operating activities was approximately $1.2 million for the
year ended December 31, 1998 and approximately $5.9 million for the year ended
December 31, 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 $200,348 for the year ended December
31, 1998 and approximately $8.1 million for the year ended December 31, 1999.
Net cash used for investing activities in each period reflects purchases of
property and equipment, primarily the purchase of computer equipment and, in
1999, the purchase of marketable securities in the amount of approximately $2.0
million and an increase in restricted cash of $1.8 million related to a lease
deposit. During the year ended December 31, 1999, we purchased computers and
servers at a total cost of approximately $3.5 million to support the expansion
of the FairMarket Network and to provide computers and equipment for new
employees hired during that period.
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Cash provided by financing activities was $845,660 for the year ended
December 31, 1998 and approximately $24.5 million for the year ended December
31, 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
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. We believe that without the proceeds from this offering, we would need
to raise additional funds to continue our operations, and that our expansion
plans might have to be slowed down or scaled back. Our future long-term capital
needs will be highly dependent on our rate of expansion and our results of
operations. Thus, any projections of future long-term cash needs and cash flows
are subject to substantial uncertainty. If the net proceeds of this offering
together with our available funds and cash generated from operations are
insufficient to satisfy our long-term liquidity requirements, we may seek to
borrow funds or 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 these debt securities or other debt financing
could impose restrictions on our operations. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. We currently do not have plans for any further equity offerings in
the near term following this offering. We cannot be certain that additional
financing will be available in amounts or on terms acceptable to us, if at all.
If we need and are unable to obtain additional financing, we may be required to
reduce the scope of our planned technology, services or product development and
sales and marketing efforts. This raises substantial doubt about our ability to
continue as a going concern.
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 also invest our cash in marketable securities which are
classified as available for sale. These securities are carried at amortized
cost, which approximates fair value. We place our cash and temporary cash
investments with financial institutions which management believes are of high
credit quality.
We have not invested in any financial 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
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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. To date, neither our internal systems nor the systems of any
third parties on which we rely to provide our services have experienced any year
2000 failures.
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. To date, neither our
internal systems nor the systems of any third parties on which we rely to
provide our services have experienced any year 2000 failures.
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. 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. To date,
neither our internal systems nor the systems of any third parties on which we
rely to provide our services have experienced any year 2000 failures.
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.
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BUSINESS
OVERVIEW
FairMarket provides outsourced, networked online auction services for
companies that desire to develop or enhance their Internet marketplaces. Our
primary service offering consists of the development, hosting and maintenance of
private-label online auction sites for business merchants, Internet portal sites
and other companies that have a presence on the web. We host these auction sites
on our central operating system, which gives us the ability to aggregate
listings of goods and services available for sale on each of our customers'
auction sites and make those listings available for display and sale on auction
sites of other FairMarket customers. We refer to this network of customer
auction sites as the FairMarket Network. For example, a computer listed for
auction by a merchant like CompUSA appears not only on CompUSA's auction site
but also on FairMarket Network community auction sites like those of MSN.com,
Excite.com and Lycos. Similarly, listings posted by a seller on a community
auction site in the FairMarket Network automatically appear on other FairMarket
Network community customer auction sites.
There are two types of auction sites in the FairMarket Network. The first
are merchant auction sites developed for our business customers who wish to sell
their own goods or those of their business partners. These are the only goods
available for sale on a merchant auction site. The second are auction sites
developed for our Internet portal customers and other businesses that desire to
provide an online auction marketplace on which third parties can sell products
and services. These sites are commonly referred to as community auction sites.
We believe that conducting online auctions can benefit our customers as
follows:
- Merchant customers gain an additional sales format to offer on their
sites. In addition, by joining the FairMarket Network, merchants gain
instant access to potential buyers across the FairMarket Network.
- Community customers gain an opportunity to derive revenue from visitor
traffic and an attractive web site feature that provides an expanded
offering of products and services, potentially enhancing the experience
of their users and promoting increased user traffic and loyalty.
We also provide other market pricing formats, such as AutoMarkdown and
classified advertisements, which are currently included in our auction service
offering.
We provide an array of operating and support services to customers,
including auction site hosting and maintenance, direct customer support and
end-user support. We have designed our central operating system to be reliable
and to handle rapid growth in customers, listings and transaction activity. Our
central technology enables us to rapidly develop a customer's auction site,
typically in under 30 days. Because we host and maintain our customers' auction
sites on our system, our customers do not need to invest in additional hardware
and software or devote significant engineering or support resources to develop
and maintain their auction sites.
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 December 31, 1999, approximately 92%
of our revenue was attributable to service fees.
Today, over 90 businesses, including CompUSA, Outpost.com and
SportsLine.com, Inc., and several top Internet portal sites, including MSN.com,
Excite.com and Lycos, are members of the FairMarket Network. A representative
list of our customers appears on page 38.
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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.
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, we believe that many online businesses will seek to
enter into 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 MARKET PRICING. 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 current information on
quantities, demand and specific prices.
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 market pricing in e-commerce transactions. In a market pricing
format, buyers and sellers determine the prices of goods on a
transaction-by-transaction basis through negotiation or bidding.
Auctions are among the most well known forms of market 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
projects this to grow at 68% per year to $19.0 billion in 2003. According to
Forrester Research, 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. We believe
that the rapid growth in online auctions and e-commerce will bring more
companies into the market for online auctions and that many companies will seek
outsourced services to meet their e-commerce needs, including online auction and
other market pricing mechanisms, rather than developing those services in-house.
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THE CURRENT LANDSCAPE FOR ONLINE MARKET PRICING FORMATS. Aside from our
outsourced, networked service offering, there are a number of other ways
businesses can participate in the online auction market:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
OPTION ADVANTAGES DISADVANTAGES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
List goods on a general - No investment in technology, - Surrender of online branding
third-party destination personnel or resources - Surrender of control of users'
auction web site - Access to existing marketplace auction experience
- Limited access to auction-
generated user, pricing and
marketing data
- Limited range of pricing
formats
- -------------------------------------------------------------------------------------------------------------
License and install third- - Ability to brand and customize - Significant initial and
party auction software auction site ongoing investments in
- Access to auction-generated user, technology, personnel and
pricing and marketing data resources
- Minimal initial traffic and
bidding activity
- Limited range of pricing
formats
- -------------------------------------------------------------------------------------------------------------
Develop auction software - Ability to brand and customize - Significant initial and
in-house auction site ongoing investments in
- Access to auction-generated user, technology, personnel and
pricing and marketing data resources
- Minimal initial traffic and
bidding activity
- -------------------------------------------------------------------------------------------------------------
</TABLE>
THE FAIRMARKET SOLUTION
The following are the principal characteristics of FairMarket's service
offering.
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 listings of products and services in a central database, we are able
to make those listings available for display on 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 on community sites, this means a broader range of products and
services for purchase, making the community sites more attractive to Internet
users and potentially 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. Although not all portal visitors have
visited or will visit the related auction sites, we believe that the high volume
of traffic across the main sites of our portal and other community customers
represents the potential for a much larger number of users of the related
auction sites and, as a result, the potential for an increase in auction
transactions and related auction site activity.
OUTSOURCED SOLUTION. By outsourcing their auction site needs to us, our
customers can remain focused on their businesses while benefiting from our
outsourced e-commerce expertise.
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We develop, host and maintain our customers' auction sites on a central
operating system. As a result, we can rapidly deploy new auction sites, quickly
implement new features and other enhancements and centrally provide direct
customer support, end-user support and maintenance services. Our customers do
not need to develop or acquire software or hardware and do not need to divert
resources to hire, train or utilize in-house engineering and support personnel
to develop and maintain their auction sites.
COMPREHENSIVE ARRAY OF PRICING FORMATS. FairMarket provides a
comprehensive set of market pricing formats that enables e-commerce market
participants to buy and sell goods efficiently. Our pricing options range from
traditional auction formats such as English and Dutch auctions to classified
listings, Quick Win auctions and a falling price by time pricing format. 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, and
buyers have 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 an auction site designed to have the look and feel of the customer's
home web site. All of the features available to visitors to 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 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 can enhance the user's visit to the
customer's web site. We believe that 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 merchandising 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. Our system is comprised of computing and
network hardware and proprietary transactional software. This system is designed
to easily expand to accommodate larger numbers of users and transactions, as
well as future enhancements, without delay and without additional cost to our
customers. The system incorporates standby hardware components and specialized
control software that are designed to allow operations to continue despite
failures in individual components. Also, 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.
STRATEGY
Our goal is to become a leading provider of outsourced, networked
e-commerce services for Internet marketplaces. 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
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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 international sales offices over the
next year. 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 benefits of a networked e-commerce sales strategy.
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 merchandising and promotional programs with our
community customers. These programs may include general advertising advice,
suggestions regarding placement of links to customer auction sites, and analysis
of transaction activity for the purpose of improving customers' marketing
efforts. 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 we intend to develop new e-commerce features to provide a comprehensive
array of online buying and selling services. For example, we recently introduced
our AutoMarkdown feature to complement our auction offering. 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 recently
began operations 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 companies that can provide local sales,
marketing, development and customer support personnel, contacts and cultural
expertise.
FURTHER PENETRATE THE BUSINESS-TO-BUSINESS MARKET. We intend to take
advantage of 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 such as sealed
bidding.
THE FAIRMARKET SERVICE OFFERING
PRICING FORMATS
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.
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- AutoMarkdown (falling price by time) -- 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.
- 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.
MERCHANDISING FEATURES. Our service provides a merchandising 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
merchandising 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 merchandising 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 transmits 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.
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FAIRMARKET PROFESSIONAL SERVICES
We provide our customers with the following professional services as part
of our 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 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 an auction site within four weeks of contract
execution, but we can develop a site in as little as two days if a customer so
requests and if the customer devotes sufficient attention to implementation.
PROMOTIONAL AND MERCHANDISING 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, we help the customer develop
promotional and merchandising programs designed to drive user traffic to its
auction site. These programs include merchandising advice, including placement
of web site buttons and links, and promotional activities such as holiday or
special event auctions.
SUPPORT SERVICES. We provide ongoing support services to both our direct
customers and their auction site end-users. Basic technical support is provided
for our direct customers during regular business hours 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. Sellers on community auction sites are required to provide
a credit card number to post listings; our customers can also require that a
buyer enter a credit card number to bid on listings. We also provide a buyer and
seller rating system for community auction sites, which allows buyers and
sellers to rate their experiences with one another and comment on their buying
and selling experience after a bid is won. If a seller receives negative ratings
above a limit selected by a community site, the seller is unable to post
additional listings to that 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 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.
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NETWORK MEMBERS
PARTICIPATING SITES. Two customer groups form the FairMarket Network:
merchants and Internet portal or online community web site owners. Merchants
bring name-brand products to the FairMarket Network, and communities bring their
registered users, who represent potential representative buyers and sellers. As
of December 31, 1999, the FairMarket Network had grown to over 90 auction sites.
The following is a representative list of our customers based on size of
customer:
<TABLE>
<CAPTION>
PORTAL AND OTHER COMMUNITY
MERCHANT CUSTOMERS CUSTOMERS
<S> <C>
Alloy Online, Inc. The Boston Globe's boston.com
CompUSA, Inc. Excite.com
e-Wood.com, Inc. Lycos.com
Multiple Zones International, Inc. MSN.com
Outpost.com MyWay.com Corporation
SportingAuction, Inc. TicketMaster's cityauction.com
SportsLine.com, Inc. Wantads.com, Inc.
W.W. Grainger, Inc. Xoom.com
ZoneTrader.com, Inc.
</TABLE>
TECHNOLOGY
We have built a system consisting of computing and network hardware and
proprietary transactional software. This system is designed to easily expand to
accommodate larger numbers of users and transactions, as well as added features.
The system is designed so that parts of the overall workload are assigned to
specific classes of machines and it incorporates standby hardware components and
specialized control software designed to allow operations to continue despite
failures in individual components. For example, all interaction with web site
users is handled by web servers and all data storage is handled by a database
server and file server. Each customer auction site is maintained on multiple
servers and can be expanded to accommodate additional users or functional
requirements without redesign. 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 services is highly competitive and
is evolving rapidly. While we believe that no company provides as comprehensive
an array of market pricing mechanisms as we do and that few companies operate in
a fully networked environment, as we do, many companies offer some form of
Internet auction or other single e-commerce pricing application, including
non-networked auction hosting, such as OpenSite, auction and other market
pricing software applications, such as Moai, and general third-party destination
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 market pricing applications.
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
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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. The market for e-commerce services, however, is highly competitive
and we expect this competition to intensify in the future. 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,"
"AutoMarkdown," "Quick Win" and other marks. We also claim rights in other
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 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.
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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 December 31, 1999, we had 139 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 an office park located in Woburn,
Massachusetts, where we lease approximately 79,000 square feet of space. During
the year 2000, we intend to open international sales offices.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their positions and their ages as of
February 8, 2000 and, for the directors, the Class in which such directors are
expected to serve as of the closing of this offering are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott Randall..................... 37 President, Chief Executive Officer and Class III
Director
John Belchers..................... 56 Chief Financial Officer and Treasurer
Matthew Ackley.................... 32 Vice President, Product Management
Louis Gennaro..................... 52 Vice President, Sales
Bryan Semple...................... 35 Vice President, Product Marketing
Louis Shipley..................... 36 Vice President and President, International Operations
Robert Supnik..................... 52 Vice President, Engineering
Bruce Worrall..................... 40 Vice President, Business Development
Jeffrey Drazan.................... 41 Class I Director
Nanda Krish....................... 38 Class III Director
Richard Pallan.................... 56 Class II 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 which was responsible for developing the online
retail shopping area of the Yahoo! site, from June through December 1996 and
President of the Internet Shopping Network, the Internet retail shopping
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, an
Internet home and office technology shopping site. 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 co-founded SocialGoods.com, now
part of 4charity.com, an Internet shopping site, 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.
LOUIS GENNARO has served as Vice President of Sales of FairMarket since
January 2000. From December 1998 through March 1999, Mr. Gennaro provided
business planning assistance to an early stage start-up company. From September
to November 1998, Mr. Gennaro served
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as Executive Vice President, Sales Operations, of Parametric Technology
Corporation, a developer of manufacturing and industrial design software. From
February 1997 until March 1998, Mr. Gennaro was the President and Chief
Executive Officer of net.Genesis Corp., then a privately-held developer of
analytical software for online businesses. From January 1987 through October
1996, Mr. Gennaro held various management positions with Silicon Graphics, Inc.,
a computer and software technology company, including the positions of Vice
President, U.S. Field Operations from October 1995 to October 1996 and Vice
President, Eastern Area, from April 1990 to September 1995. Mr. Gennaro holds a
BA degree from Fordham University and an MBA from Long Island University.
BRYAN SEMPLE joined FairMarket in March 1999. Mr. Semple became Vice
President of Product Marketing of FairMarket in January 2000. From March 1999 to
January 2000, Mr. Semple served as Vice President of Sales of FairMarket. Prior
to joining FairMarket, Mr. Semple co-founded PetStart.com, a development-phase
start-up company formed to develop an Internet shopping site for pet-related
products, 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 sales representative at Sybase, Inc., a
developer of enterprise database management software applications, from January
1994 to January 1996. He is a graduate of the U.S. Naval Academy and Stanford
University, where he received his MBA.
LOUIS SHIPLEY joined FairMarket in February 2000 as Vice President and
President of International Operations. From March 1997 through January 2000, Mr.
Shipley served as Vice President of Worldwide Field Sales, Marketing and
Operations of WebLine Communications Corp., a provider of customer interaction
management software for Internet customer service and other e-commerce. Before
joining WebLine, Mr. Shipley served with Avid Technology, Inc., a provider of
digital tools for film, video, audio and broadcast, from 1989 to February 1997,
including as Vice President of Americas and Pacific Field Operations from
October 1995 through February 1997 and as President of Avid Japan and Vice
President of Asia Pacific from 1993 to October 1995. Mr. Shipley holds a BA from
Trinity College, a degree from the London School of Economics and an MBA from
Harvard Business School.
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 managed the group
charged with the development of the Alpha architecture and systems. From 1996 to
1999, Mr. Supnik held the position of Vice President of Corporation Research at
Digital Equipment Corporation (DEC), and had overall responsibility for the team
that developed 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 DEC. 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 Corporation. 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.
JEFFREY DRAZAN has served as a director of FairMarket since February 1999.
He is a limited partner and a general partner of Sierra Ventures, a venture
capital organization. Prior to joining
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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 Electronic Data
Systems Corporation (EDS), an information technology services company, 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.
RICHARD PALLAN has served as a director of FairMarket since January 2000.
Mr. Pallan has over 20 years of experience in the financial services industry.
From 1981 until his retirement in December 1994, Mr. Pallan served with Putnam
Investments, an investment management firm. Mr. Pallan was a Senior Managing
Director of Putnam, a member of the Management and Executive Committees and was
responsible for business strategy. Mr. Pallan was also responsible for the
development of Putnam's Defined Contribution Plans (or "401(k)") business and
headed the firm's corporate and new product development activities. Mr. Pallan
graduated from Tufts University with a BS in Mechanical Engineering and received
his MBA from Harvard Business School.
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 2001 annual
meeting of stockholders, two Class II directors (one of which directorships is
expected to be vacant as of the closing of this offering), whose terms of office
will continue until the 2002 annual meeting of stockholders, and two Class III
directors, whose term of office will continue until the 2003 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 directors or executive
officers. An Investors' Rights Agreement among Scott Randall and FairMarket's
preferred stockholders provides that the Board of Directors will consist of
Scott Randall, two persons designated by Scott Randall, one person designated by
the holders of our Series B Preferred Stock, and one person designated by the
holders of our Series C Preferred Stock. Pursuant to this agreement, Mr. Krish
was designated as a director by Mr. Randall and Mr. Drazan was designated as a
director by the holders of the Series C Preferred Stock. Mr. Pallan was
appointed by the Board of Directors to fill a vacancy. Upon the closing of this
offering, all rights to designate directors under the Investors' Rights
Agreement will terminate.
BOARD COMMITTEES
Our Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee.
Audit Committee. The members of the Audit Committee, all of whom are
independent directors, are Messrs. Drazan, Krish and Pallan. The Audit Committee
is responsible for recommending to the Board of Directors the engagement of our
outside auditors and reviewing
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<PAGE> 47
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, all of
whom are independent directors, are Messrs. Drazan, Krish and Pallan. The
Compensation Committee is 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.
Nominating Committee. The members of the Nominating Committee, Messrs.
Randall and Krish, are responsible for designating FairMarket's nominees for
election to the Board of Directors.
DIRECTOR COMPENSATION
Directors who are employees receive no additional compensation or
reimbursement of expenses for their services as directors. Non-employee
directors do not currently receive a cash fee or reimbursement of expenses for
their service as directors, although the Board of Directors may in the future
determine to pay fees and/or reimburse expenses. Non-employee directors are
eligible to participate in the 2000 Stock Option and Incentive Plan at the
discretion of the full Board of Directors. In February 2000, pursuant to this
plan, the Board of Directors granted each non-employee director an option to
purchase 75,000 shares of common stock at an exercise price of $8.50 per share.
The options will vest ratably over three years.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued in
the years ended December 31, 1998 and 1999 to our Chief Executive Officer. None
of our other executive officers had aggregate compensation in excess of $100,000
during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION NUMBER
--------------------------------------------- OF SECURITIES
OTHER UNDERLYING RESTRICTED
NAME AND ANNUAL OPTIONS STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED(#) AWARDS($) COMPENSATION($)
- ------------------ ---- --------- -------- --------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott Randall
President and
Chief Executive Officer....... 1998 $133,654 $-- $-- -- $-- $--
1999 $150,000 -- -- -- -- --
</TABLE>
No stock options were granted to our Chief Executive Officer as of December
31, 1999. In February 2000, the Board of Directors granted Mr. Randall an option
to purchase 250,000 shares of common stock at an exercise price of $9.35 per
share.
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 provided 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, in the case of ISOs, have an exercise price not
less than fair value of the stock at the date of grant. In connection with the
adoption of the 2000 Stock Option and Incentive Plan (the "2000 Stock Plan"),
the Board determined not to grant any further options under the 1997 Plan, and
to include the 56,250 shares remaining available for grant under this plan in
the number available for grant under the 2000 Stock Plan.
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1999 STOCK OPTION PLAN
Our 1999 Stock Option Plan 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. In connection with the adoption of the
2000 Stock Plan, the Board determined not to grant any further options under the
1999 Stock Option Plan, and to include the 132,237 shares remaining available
for grant under this plan in the number available for grant under the 2000 Stock
Plan.
2000 STOCK OPTION AND INCENTIVE PLAN
Our 2000 Stock Option and Incentive Plan was adopted by our Board of
Directors and approved by our stockholders in February 2000. The 2000 Stock Plan
permits us to make grants of:
- incentive stock options;
- non-qualified stock options;
- restricted stock awards;
- deferred stock awards;
- unrestricted stock awards;
- performance share awards; and
- dividend equivalent rights.
The 2000 Stock Plan provides for the issuance of up to 4,017,250 shares of
common stock pursuant to awards granted under the plan, subject to adjustment in
the event of a stock split, stock dividend or other change in capitalization.
Any shares forfeited from awards under the 2000 Stock Plan will also be
available for future awards under the 2000 Stock Plan. As of February 8, 2000,
2,808,500 shares were available for grant under the 2000 Stock Plan.
2000 Stock Plan Administration. The 2000 Stock Plan provides for
administration by a committee of not fewer than two non-employee directors, as
appointed by the Board of Directors, or by the full Board of Directors. The
committee has full power to select, from among the individuals eligible for
awards, the participants to whom awards will be granted, to make any combination
of awards to participants, and to determine the specific terms and conditions of
each award, subject to the provisions of the 2000 Stock Plan.
Eligibility and Limitations on Grants. All officers, employees, directors
and key persons, including consultants and prospective employees, are eligible
to participate in the 2000 Stock Plan, subject to the discretion of the
committee. From and after the date awards made under the 2000 Stock Plan become
subject to Section 162(m) of the Internal Revenue Code, no participant may
receive options to purchase more than 1,005,000 shares of common stock, subject
to adjustment for stock splits, stock dividends and other change in
capitalization, during any one calendar year period.
Option Terms. The committee has authority to determine the terms of
options granted under the 2000 Stock Plan. However, ISOs will have an exercise
price that is not less than 100% of the fair market value of the common stock on
the date of the option grant, and NSOs, other than those granted in lieu of a
participant's cash compensation at the participant's election with the consent
of the committee, will have an exercise price that is not less than 85% of the
fair market value of the common stock on the date of the option grant.
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At the discretion of the committee, stock options granted under the 2000
Stock Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option, with an exercise price
equal to the fair market value of the common stock on the date the additional
stock option is granted, to purchase that number of shares of common stock equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to maintain their equity interest without
dilution.
Acceleration Upon a Merger, Sale or Change of Control of Company. Upon (1)
dissolution or liquidation of the company, (2) the sale of all or substantially
all the assets of the company, (3) a merger, reorganization or consolidation of
the company or (4) the sale of all of the stock of the company, if provision is
not made for appropriate substitutions or adjustments of outstanding stock
options, then all outstanding awards will automatically become fully exercisable
or fully vested and nonforfeitable. Alternatively, the Company may provide that
outstanding stock options will terminate and the holder will receive a cash
payment therefor.
Amendments and Termination. The Board of Directors may at any time amend
or discontinue the 2000 Stock Plan and the committee may at any time amend or
cancel any outstanding award for the purpose of satisfying changes in law or for
any other lawful purpose, but no such action may adversely affect the rights
under any outstanding awards without the holder's consent. To the extent
required by the Internal Revenue Code to ensure that options granted under the
2000 Stock Plan qualify as ISOs, plan amendments will be subject to approval by
our stockholders.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by our Board of Directors
and approved by our stockholders in February 2000. Up to 500,000 shares of
common stock may be issued under the Stock Purchase Plan.
The first offering under the Stock Purchase Plan will begin on the
effective date of this offering and end on June 30, 2000. Subsequent offerings
will commence on each July 1 and January 1 thereafter and will have a duration
of six months. Generally, all employees who are customarily employed for more
than 20 hours per week as of the first day of the applicable offering period
will be eligible to participate in the Stock Purchase Plan. An employee who owns
or is deemed to own shares of stock representing in excess of 5% of the combined
voting power of all classes of our stock will not be eligible to participate in
the Stock Purchase Plan.
During each offering, an employee may purchase shares under the Stock
Purchase Plan by authorizing payroll deductions of up to 10% of his or her cash
compensation during the offering period. The maximum number of shares that may
be purchased by any participating employee during any six-month offering period
is limited to the number of whole shares which is less than or equal to $12,500
divided by the closing price per share on the first day of the applicable
offering period. Unless the employee has previously withdrawn from the offering,
his or her accumulated payroll deductions will be used to purchase common stock
on the last business day of the period at a price equal to 85% of the fair
market value of the common stock on the first or last day of the offering
period, whichever is lower. For purposes of the initial offering period, the
fair market value of the common stock on the first day of the offering period
shall be the offering price to the public. Under applicable tax rules, an
employee may purchase no more than $25,000 worth of common stock in any calendar
year. No common stock has been issued to date under the Stock Purchase Plan.
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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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 8, 2000 and 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 February 8, 2000 through the exercise of any warrant, stock option or
other right. As of February 8, 2000, a total of 26,924,863 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 February 8, 2000.
The inclusion in this prospectus of such shares does not, however, constitute an
admission by the named stockholder that the stockholder is a direct or indirect
beneficial owner of such shares. The applicable percentage of "beneficial
ownership" after the offering is based upon 31,924,863 shares of common stock
outstanding.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING(1)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Scott Randall............................. 3,996,000 15% 3,996,000 13%
Jeffrey Drazan............................ 5,319,149(2) 20% 5,319,149(2) 17%
Nanda Krish............................... 50,000 * 50,000 *
Richard Pallan............................ 0 * 0 *
All executive officers and directors, as a
group (11 persons)...................... 9,415,149(3) 35% 9,415,149(3) 29%
OTHER 5% BENEFICIAL OWNERS
Excite, Inc............................... 4,000,000 15% 4,000,000 13%
555 Broadway
Redwood City, CA 94063
Microsoft Corporation..................... 5,750,000(4) 21% 5,750,000(4) 18%
One Microsoft Way
Redmond, WA 98502
Sierra Ventures VII, L.P.................. 4,925,334 18% 4,925,334 15%
3000 Sand Hill Road
Menlo Park, CA 94025
TicketMaster Online-CitySearch, Inc....... 2,250,000 8% 2,250,000 7%
790 E. Colorado Blvd.
Pasadena, CA 91101
</TABLE>
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- ----------
* 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 750,000 shares of common stock.
(2) Includes 4,925,334 shares held by Sierra Ventures VII, L.P. of which Mr.
Drazan is both a limited partner and a general partner and 393,815 shares
held by Sierra Ventures Associates VII, L.L.C., of which Mr. Drazan is an
investor and a managing member. Mr. Drazan disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein.
(3) Includes 25,000 shares issuable upon exercise of employee stock options.
(4) 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 entered into the following
transactions with related parties:
Founder. On February 20, 1997, we issued 4,000,000 shares of common stock
to Scott Randall, the founder of FairMarket, for $0.001 per share or a total
consideration of $4,000.
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 $1.714 per share or 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. Neither Sierra Ventures nor Sierra Ventures
Associates had any affiliation with the Company at the time of the purchase.
Sierra Ventures VII holds approximately 22.8% of our outstanding capital stock,
and Jeffrey Drazan, a limited partner and a general partner of Sierra Ventures
and an investor in and managing member of Sierra Ventures Associates, became a
director of FairMarket 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 the 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.
Microsoft Agreement. On July 26, 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 services to MSN.com and certain other web sites owned or operated by
Microsoft, in return for monthly hosting fees and a share of network fees
charged on the Microsoft sites.
The agreement with Microsoft provides that if Microsoft drives more than a
specified number of Internet users to the FairMarket Network through its
Internet portal site, we will guarantee them a minimum level of transaction fee
revenue regardless of actual transaction fee revenue earned by Microsoft. If
Microsoft meets the minimum annual traffic guarantee but the increase in traffic
does not produce sufficient revenue to meet the minimum guaranteed revenue, we
will have a financial obligation to Microsoft. This obligation will be an amount
equal to the difference between the minimum guaranteed payment and Microsoft's
portion of fees actually collected. Microsoft or FairMarket may terminate the
agreement upon the occurrence of specified events of default.
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In connection with this agreement, Microsoft purchased 1,250,000 shares of
our Series D Convertible Preferred Stock for $7.00 per share, or an aggregate
cash consideration of approximately $8.8 million. These shares represent
approximately 5.8% of our outstanding capital stock. Microsoft also 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.
Excite Agreement. 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 services to Excite.com and certain other web sites owned or
operated by Excite, Inc. in return for a share of network 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 for the first two years of
the agreement, for a total of $20.0 million.
The agreement also provides that if Excite drives more than a specified
level of Internet users to the FairMarket Network through its Internet portal
site, we will guarantee them a minimum level of transaction fee revenue
regardless of actual transaction fee revenue earned by Excite. If Excite meets a
minimum annual traffic guarantee but the increase in traffic does not produce
sufficient revenue to meet the minimum guaranteed revenue, we will have a
financial obligation to Excite. This obligation will be an amount equal to the
difference between the minimum guaranteed payment and Excite's portion of fees
actually collected. Excite or FairMarket may terminate the agreement upon the
occurrence of specified events of default.
In connection with this agreement, Excite purchased 2,500,000 shares of our
Series D Convertible Preferred Stock for $7.00 per share or an aggregate 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 Auction Services Agreement. These 4,000,000 shares
represent approximately 18.6% of our outstanding capital stock. 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 $7.00 per share
prior to this offering and at a price based on the market value of the stock at
the time of repurchase after this offering.
TicketMaster Online-CitySearch, Inc. Agreement. 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 have agreed to
provide auction services to several web sites owned and controlled by TMCS in
return for a share of network fees charged by the TMCS sites.
In connection with this agreement, TMCS purchased 750,000 shares of our
Series D Convertible Preferred Stock for $7.00 per share or an aggregate 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 a license for TMCS's CityAuction technology. These 2,250,000
shares owned by TMCS represent approximately 10.4% of our outstanding capital
stock. 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.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
As of December 31, 1999, there were:
- 41 holders of record of our common stock;
- 5,243,226 shares of common stock issued and outstanding;
- Outstanding stock options to purchase 3,711,249 shares of common stock,
of which 10,000 were then currently exercisable; and
- Outstanding warrants to purchase 5,820,000 shares of common stock, of
which 5,225,000 were then currently exercisable.
Following the offering, our authorized capital stock will consist of 100
million shares of common stock, of which 26,556,111 will be issued and
outstanding, and 10 million 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 the election of directors, by
a plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class, subject to any voting rights granted to holders of
any then outstanding preferred 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. Dividends consisting of shares of common stock
may be paid to holders of shares of common stock.
Other Rights. Upon the 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 other than the 1,500,000 shares
issued to Excite and described in "Certain Transactions with Related Parties,"
or have preemptive rights to purchase additional shares of common stock.
PREFERRED STOCK
Our certificate of incorporation provides 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 including the dividend rights, dividend rates, conversion rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of such 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, including preferred stock or rights
to acquire preferred stock in connection with implementing a shareholder rights
plan. Thus, our Board of Directors has the ability to quickly issue preferred
stock with terms calculated to delay, defer or prevent a change of control of
FairMarket or to make the removal of existing management more difficult. We have
no present plans to issue any additional shares of preferred stock.
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REGISTRATION RIGHTS
Set forth below is a summary of the common stock registration rights of the
holders of our existing preferred stock, which will convert automatically 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.
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 of 1933, 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 this
offering, holders of 2% or more of the shares having registration rights may
request in writing that we effect a registration of these 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 the holders of
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 five years after the date of this offering or the
date on which the stockholder may sell all of its shares in any three-month
period pursuant to Rule 144 under the Securities Act of 1933.
WARRANTS
As of December 31, 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. These warrants consist of:
- warrants issued to Lycos to purchase up to 725,000 shares of common stock
at an exercise price of $0.01 per share and up to 595,000 shares at an
exercise price of $1.71 per share. The first warrant will terminate upon
the closing of this offering. The
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<PAGE> 56
second warrant expires in May 2006 or upon a sale of substantially all of the
assets of FairMarket to a third party, whichever occurs first.
- a warrant issued to Microsoft 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 offering price of the common stock in this offering equals
or exceeds $25 or if the closing price of our common stock on the Nasdaq
Stock Market equals or exceeds $25 for a period of 20 consecutive trading
days.
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 paying
the per share exercise price in cash.
INDEMNIFICATION MATTERS
We have entered into indemnification agreements with each of our directors.
The form of indemnity agreement provides that we will indemnify our directors
for expenses incurred because of their status as a director, to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
by-laws.
Our certificate of incorporation contains 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 by-laws 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. The by-laws also provide for the advancement of expenses to
directors and, in the discretion of our Board of Directors, officers and
non-officer employees. In addition, our by-laws provide that the right of
directors and officers to 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 also have
directors' and officers' insurance against certain liabilities. We believe that
the indemnification agreements, together with the limitation of liability and
indemnification provisions of our certificate of incorporation and by-laws and
directors' and officers' insurance will assist us in attracting and retaining
qualified individuals to serve as directors and officers of FairMarket.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be provided 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.
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PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS THAT MAY HAVE
ANTI-TAKEOVER EFFECTS
The provisions of our certificate of incorporation and by-laws described
below, as well as the ability of our Board of Directors to issue shares of
preferred stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by our Board of Directors, including
takeovers which particular stockholders may deem to be in their best interests.
These provisions also could have the effect of discouraging open market
purchases of our common stock because they may be considered disadvantageous by
a stockholder who desires subsequent to such purchases to participate in a
business combination transaction with us or elect a new director to our Board.
Classified Board of Directors. Our Board of Directors is divided into three
classes serving staggered three-year terms, with one-third of the Board being
elected each year. Our classified Board, together with certain other provisions
of our certificate of incorporation authorizing the Board of Directors to fill
vacant directorships or increase the size of the Board, may prevent a
stockholder from removing, or delay the removal of, incumbent directors and
simultaneously gaining control of the Board of Directors by filling vacancies
created by such removal with its own nominees.
Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our Board of Directors shall be filled only by the affirmative
vote of a majority of the remaining directors. Our certificate of incorporation
provides that directors may be removed from office only with cause and only by
the affirmative vote of holders of at least 75% of the shares then entitled to
vote in an election of directors.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that any action required or permitted to be taken by our stockholders
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders.
Special Meetings of Stockholders. Our certificate of incorporation and
by-laws provide that a special meeting of stockholders may be called only by our
Board of Directors. Our by-laws 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.
Advance Notice of Director Nominations and Stockholder Proposals. Our
by-laws 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. For the first annual
meeting following the completion of this offering, a stockholder's notice of a
director nomination or proposal will be timely if delivered to the secretary of
FairMarket at our principal executive offices not later than the close of
business on the later of the 90th 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 made by FairMarket.
Amendment of the Certificate of Incorporation. As required by Delaware
law, any amendment to our certificate of incorporation must first be approved by
a majority of our Board of Directors and, if required by law, thereafter
approved by a majority of the outstanding shares entitled to vote with respect
to such amendment, except that any amendment to the provisions relating to
stockholder action by written consent, directors, limitation of liability and
the amendment of our certificate of incorporation must be approved by not less
than 75% of the outstanding shares entitled to vote with respect to such
amendment.
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Amendment of By-laws. Our certificate of incorporation and by-laws provide
that our by-laws may be amended or repealed by our Board of Directors or by the
stockholders. Such action by the Board of Directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least 75% of the shares present
in person or represented by proxy at an annual meeting of stockholders or a
special meeting called for such purpose unless our Board of Directors recommends
that the stockholders approve such amendment or repeal at such meeting, in which
case such amendment or repeal only requires the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting.
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 becoming such, 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
- 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 at least two-thirds 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, consolidations, asset sales involving
10% or more of a corporation's assets 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 contain any such exclusion.
TRADING ON THE NASDAQ NATIONAL MARKET
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "FAIM."
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NO PREEMPTIVE RIGHTS
No holder of any class of our stock has any preemptive right to subscribe
for or purchase any kind or class of our securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be BankBoston,
N.A.
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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 26,556,111 shares of
our common stock outstanding. Of these shares, the 5,000,000 shares which are
being sold in this offering generally will be freely transferable without
restriction or further registration under the Securities Act of 1933, except
that any shares held by our "affiliates" as defined in Rule 144 under the
Securities Act may be sold only in compliance with the limitations described
below. The remaining 21,556,111 shares of common stock which will be outstanding
after the offering, plus up to 5,289,815 shares that may be issued upon exercise
of outstanding vested options and warrants, 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 and directors and
persons who will own an aggregate of 25,091,688 shares of common stock after
this offering, assuming exercise of all vested options and warrants to purchase
our common stock, 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. Deutsche Bank Securities Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the shares subject
to such restrictions. The shares of common stock outstanding upon the closing of
this offering or issuable upon exercise of vested options or warrants as of the
closing of this offering will be available for sale in the public market as
follows:
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
- ---------------- -----------
5,000,000 After the date of this prospectus, freely tradeable shares
sold in the offering.
24,800,586 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).
3,139,200 After one year from the date of this prospectus, these
additional shares will be saleable under Rule 144 (subject,
in some cases, to volume limitations).
958,500 After two years from the date of this prospectus, these
additional shares will be saleable under Rule 144 without
limitations as to volume, except that shares held by our
affiliates will continue to be subject to limitations as
described below.
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
318,500 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 public information, volume
limitations and notice filing requirements of Rule 144. To the extent that a
person acquires shares from an affiliate of ours,
57
<PAGE> 61
that 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 our stock
option plans and stock purchase plan.
In general, under Rule 701 under the Securities Act, any of our employees,
directors, officers, consultants or advisors who purchased shares of common
stock 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
those shares beginning 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).
FairMarket intends to file one or more registration statements on Form S-8
under the Securities Act following this offering to register all shares of
common stock which are issuable upon exercise of outstanding stock options and
all shares of common stock issuable under FairMarket's stock option and stock
purchase plans. These registration statements are expected to become effective
upon filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, upon the expiration or release from the
terms of the lock-up agreements, to the extent applicable.
In addition, after the expiration of the 180-day lock-up period, the
holders of our existing preferred stock, which will convert automatically into
common stock immediately prior to the consummation of this offering, will have
the registration rights described in "Description of Capital Stock --
Registration Rights."
58
<PAGE> 62
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., FleetBoston Robertson Stephens Inc. and U.S. Bancorp Piper
Jaffray Inc. are acting as 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. ..............................
FleetBoston Robertson Stephens Inc..........................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total............................................. 5,000,000
=========
</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 underwriting discount will be an amount equal to the public offering
price per share, less the amount paid per share by the underwriters to
FairMarket. The following table shows the underwriting discount to be paid to
the underwriters by FairMarket in this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of our common stock to cover over-allotments.
<TABLE>
<CAPTION>
% OF INITIAL
PUBLIC OFFERING
NO EXERCISE FULL EXERCISE PRICE
----------- ------------- ---------------
<S> <C> <C> <C>
Per Share......................... $ $ 7%
Total............................. $ $ 7%
</TABLE>
FairMarket will pay the offering expenses, estimated to be approximately
$1.3 million, which consist of registration and filing fees, legal and
accounting fees and expenses, printing expenses, blue sky qualification fees and
expenses, transfer agent fees and other miscellaneous expenses.
FairMarket has granted to the underwriters an option expiring on the 30th
day after the date of this prospectus to purchase up to 750,000 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.
59
<PAGE> 63
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.
The underwriters have reserved for sale, at the initial public offering
price, up to 750,000 shares of the common stock for persons designated by
FairMarket. 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
intends, through Deutsche Bank Securities Inc., to seek indications of interest
from designated persons who may include employees, customers and others with
whom FairMarket has or may seek to develop business relationships. No offers or
other solicitations were made prior to the filing of the registration statement
of which this prospectus is a part. FairMarket has not contacted anyone
regarding the purchase of reserved shares and has not determined how many
persons it will contact.
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 will be determined by negotiation
between FairMarket and the representatives. The principal factors considered in
determining the initial public offering price will 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
60
<PAGE> 64
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.
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, 1998 and
1999, the period from February 20, 1997 (date of inception) to December 31,
1997, and for the years ended December 31, 1998 and 1999, 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 of 1933 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
61
<PAGE> 65
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. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov. We intend
to furnish to our stockholders annual reports containing audited financial
statements for each fiscal year.
62
<PAGE> 66
FAIRMARKET, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets
As of December 31, 1998 and 1999 and unaudited pro forma
as of December 31, 1999................................... F-3
Statements of Operations
For the period February 20, 1997 (date of inception) to
December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-4
Statements of Stockholders' Equity (Deficit)
For the period February 20, 1997 (date of inception) to
December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-5
Statements of Cash Flows
For the period February 20, 1997 (date of inception) to
December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 67
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, 1998 and
1999, 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 years
ended December 31, 1998 and 1999 in conformity with generally accepted
accounting principles in the United States. 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 auditing standards, generally
accepted in the United States, 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained losses and negative cash flows
from operations since its inception and has a net capital deficiency that raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 23, 2000
F-2
<PAGE> 68
FAIRMARKET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 2)
--------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 539,603 $ 11,060,306 $ 16,060,306
Marketable securities..................................... -- 2,019,008 2,019,008
Restricted cash (Note 4).................................. -- 1,800,000 1,800,000
Accounts receivable, net of allowance of $191,890 at
December 31, 1999....................................... -- 877,816 877,816
Prepaid expenses.......................................... 12,729 186,702 186,702
Other assets.............................................. 20,029 50,440 50,440
----------- ------------ ------------
Total current assets................................ 572,361 15,994,272 20,994,272
Property and equipment, net (Note 5)........................ 199,082 4,077,139 4,077,139
----------- ------------ ------------
Total assets........................................ $ 771,443 $ 20,071,411 $ 25,071,411
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... 67,743 1,431,528 1,431,528
Deferred revenue.......................................... -- 595,089 595,089
Accrued expenses.......................................... 46,140 1,663,193 1,663,193
----------- ------------ ------------
Total liabilities................................... 113,883 3,689,810 3,689,810
Commitments and contingencies (Notes 6 and 7)
Series D Convertible Preferred Stock (Note 7), $0.001 par
value, 10,000,000 shares authorized; 2,500,000 shares
issued and outstanding (entitled in liquidation to
$17,500,000), at December 31, 1999 subject to a put option
at $7 per share........................................... -- 17,500,000 --
Stockholders' equity (Notes 7 and 8):
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 December 31, 1999;
754,603 shares issued and outstanding (entitled in
liquidation to $500,000), net of issuance costs, at
December 31, 1997, 1998 and 1999, respectively, and none
issued and outstanding on a pro forma basis............. 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 December 31,
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, 1998 and 1999,
respectively, and none issued and outstanding on a pro
forma basis............................................. 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 December 31, 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 December 31,
1999 and none issued and outstanding on a pro forma
basis................................................... -- 39,470,000 --
Common Stock, $0.001 par value, 15,000,000 shares
authorized at December 31, 1997 and 1998 and 36,000,000
shares authorized at December 31, 1999; 4,430,682,
4,764,682, 5,243,226 and 21,556,111 shares issued and
outstanding at December 31, 1997, 1998 and 1999 and on a
pro forma basis, respectively........................... 4,765 5,243 21,556
Additional paid-in capital................................ 61,422 40,135,748 110,197,617
Deferred compensation and equity related charges.......... -- (60,025,992) (60,025,992)
Stock subscription receivable............................. -- (15,312,499) (10,312,499)
Accumulated deficit....................................... (1,989,872) (18,499,081) (18,499,081)
----------- ------------ ------------
Total stockholders' equity.......................... 657,560 (1,118,399) 21,381,601
----------- ------------ ------------
Total liabilities and stockholders' equity.......... $ 771,443 $ 20,071,411 $ 25,071,411
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 69
FAIRMARKET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 20, 1997
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31,
TO --------------------------
DECEMBER 31, 1997 1998 1999
------------------- ----------- ------------
<S> <C> <C> <C>
Revenue................................................... $ 2,523 $ 3,784 $ 2,120,635
Operating expenses:
Cost of revenue, exclusive of $82,776 reported below as
equity related charges................................ -- -- 1,050,889
Sales and marketing, exclusive of $4,734,094 reported
below as equity related charges....................... 231,533 674,944 3,341,073
Advertising expense..................................... 47,100 8,200 4,781,568
Development and engineering, exclusive of $330,666
reported below as equity related charges.............. 94,406 313,654 1,959,551
General and administrative, exclusive of $174,964
reported below as equity related charges.............. 234,043 426,458 2,690,554
Equity related charges.................................. -- -- 5,322,500
--------- ----------- ------------
Total operating expenses.......................... 607,082 1,423,256 19,146,135
--------- ----------- ------------
Loss from operations...................................... (604,559) (1,419,472) (17,025,500)
Interest income........................................... 4,415 31,256 521,518
Interest expense.......................................... (1,431) (81) (5,227)
--------- ----------- ------------
Net loss.......................................... $(601,575) $(1,388,297) $(16,509,209)
========= =========== ============
Basic and diluted net loss per share...................... $ (0.15) $ (0.30) $ (3.30)
========= =========== ============
Shares used in computing basic and diluted net loss per
share................................................... 4,072,998 4,571,428 5,009,646
Unaudited pro forma basic and diluted net loss per
share................................................... $ (1.07)
============
Shares used in computing unaudited pro forma basic and
diluted net loss per share.............................. 15,448,767
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 70
FAIRMARKET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM FEBRUARY 20, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<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.......... 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.......... 478,544
Issuance of Series C Convertible
Preferred Stock, net............. 6,168,282
Issuance of Series D Convertible
Preferred Stock, net............. 7,500,000
Deferred compensation related to
employee stock options...........
Issuance of warrants..............
Equity related charges............
Net loss..........................
------- --------- --------- --------- --------- -------- ----------
Balance at December 31, 1999...... 754,603 1,890,000 6,168,282 7,500,000 5,243,226 $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.......... 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.......... 478 225,834
Issuance of Series C Convertible
Preferred Stock, net............. 10,526,937
Issuance of Series D Convertible
Preferred Stock, net............. 39,470,000 (25,500,000) (17,500,000)
Deferred compensation related to
employee stock options........... 10,137,092 (10,137,092)
Issuance of warrants.............. 29,711,400 (29,711,400)
Equity related charges............ 5,322,500 2,187,501
Net loss.......................... (16,509,209)
----------- ----------- ------ ----------- ------------ ------------ ------------
Balance at December 31, 1999...... $10,526,937 $39,470,000 $5,243 $40,135,748 $(60,025,992) $(15,312,499) $(18,499,081)
=========== =========== ====== =========== ============ ============ ============
<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.......... 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.......... 226,312
Issuance of Series C Convertible
Preferred Stock, net............. 10,526,937
Issuance of Series D Convertible
Preferred Stock, net............. (3,530,000)
Deferred compensation related to
employee stock options........... --
Issuance of warrants.............. --
Equity related charges............ 7,510,001
Net loss.......................... (16,509,209)
------------
Balance at December 31, 1999...... $ (1,118,399)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 71
FAIRMARKET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 20, 1997
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------
1997 1998 1999
------------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (601,575) $(1,388,297) $(16,509,209)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... 8,709 49,865 422,505
Reserve for uncollectible accounts.................... -- -- 191,890
Value of stock issued for services.................... 23,068 28,525 204,037
Non-cash advertising expense.......................... -- -- 2,187,501
Amortization of deferred compensation and equity
related charges..................................... -- -- 5,322,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (31,037) 31,037 (1,069,706)
(Increase) decrease in prepaid expenses........... (46,933) 34,204 (173,973)
Increase in other assets.......................... (4,500) (15,529) (30,411)
Increase in accounts payable...................... 24,445 43,298 1,363,785
Increase in deferred revenue...................... -- -- 595,089
Increase (decrease) in accrued expenses........... 63,569 (17,429) 1,617,053
---------- ----------- ------------
Net cash used in operating activities............... (564,254) (1,234,326) (5,878,939)
---------- ----------- ------------
Cash flows from investing activities:
Additions to property and equipment....................... (57,308) (200,348) (4,300,562)
Purchase of marketable securities......................... -- -- (2,019,008)
Increase in restricted cash............................... -- -- (1,800,000)
---------- ----------- ------------
Net cash used in investing activities............... (57,308) (200,348) (8,119,570)
---------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 14,050 544 22,275
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 --
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 --
---------- ----------- ------------
Net cash provided by financing activities........... 1,750,179 845,660 24,519,212
---------- ----------- ------------
Net increase (decrease) in cash............................. 1,128,617 (589,014) 10,520,703
Cash at beginning of period................................. -- 1,128,617 539,603
---------- ----------- ------------
Cash at end of period....................................... $1,128,617 $ 539,603 $ 11,060,306
========== =========== ============
Supplemental data:
Cash paid during the period for interest.................. $ 1,431 $ 81 $ 5,227
Cash paid during the period for taxes..................... -- $ 6,639 $ 10,814
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.............. -- -- $ 43,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 72
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 sustained losses and negative cash flows from operations
since its inception and has a net capital deficiency. The Company's ability to
meet its obligations in the ordinary course of business is dependent upon its
ability to raise additional financing through public or private equity
financings, establish profitable operations, enter into collaborative or other
arrangements with corporate sources, or secure other sources of financing to
fund operations.
Without the proceeds of the contemplated initial public offering, the
Company will be required to raise additional financing to support its operations
and plans for growth for the next 12 months. Management has the intent, and
believes it has the ability, to raise working capital through additional equity
and/or debt financings. If anticipated financing transactions and operating
results are not achieved, however, management has the intent and believes it has
the ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable to
the Company. Nevertheless, these matters raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
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.
F-7
<PAGE> 73
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARKETABLE SECURITIES
The Company has classified its marketable securities as "available for
sale." Marketable securities include commercial paper which matures in less than
a year which can be readily purchased or sold using established markets.
Marketable securities are stated at fair value. Net realized gains and losses on
security transactions are determined on the specific identification basis. The
market value of the Company's marketable securities at December 31, 1999 was not
materially different from cost.
CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with financial institutions. Financial instruments that potentially subject the
Company to concentrations of credit risk primarily consist of cash and cash
equivalents, marketable securities and trade accounts receivable. Management
believes the Company places its cash, cash equivalents and marketable securities
with high credit quality financial institutions.
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 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 fees 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, direct
F-8
<PAGE> 74
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
customer support services, end-user 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
merchandising 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 FairMarket Network sites. Community customers pay transaction fees
based on the gross proceeds 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 FairMarket Network sites. The fee percentages vary by customer depending
on the anticipated level of auction site activity on the customer's site and the
level of the monthly service fees. 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 as revenue at the completion of the auction
period. Listing fees are amounts charged to community customers for the listing
of items for auction on a community site. Listing fees are recognized as revenue
at the completion of an auction. Merchandising fees are amounts charged to
merchant customers who wish to highlight certain listings outside of the main
auction activity area. A seller on a community site can choose from several
merchandising options designed to highlight the seller or a specific listing.
Merchandising fees are recognized at the completion of the period of the
merchandising event.
The Company's agreements with two of its customers provide that if the
customers 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 7). The Company defers its share of related
transaction revenue for these two customers 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.
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. Expenditures for upgrades and significant
enhancements which are at least probable to result in increased functionality of
existing software, are capitalized. 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 were approximately
$468,000. These costs are being amortized over 12 months, which is the expected
useful life.
F-9
<PAGE> 75
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses of
approximately $47,100, $8,200 and $4,781,568 were charged to sales and marketing
expenses for the period from February 20, 1997 (date of inception) to December
31, 1997 and for the years ended December 31, 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
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.
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 $7.00 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 7).
F-10
<PAGE> 76
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The 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 December 31,
1999.
3. NET LOSS PER SHARE AND UNAUDITED 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; and at December 31, 1999, there were options to purchase 3,711,249
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 as of the date of issuance.
The following is a calculation of pro forma net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -------------
<S> <C> <C>
Pro forma net loss......................................... $(1,388,297) $(16,509,209)
=========== ============
Shares used in computing pro forma basic and diluted net
loss per share:
Weighted average number of common shares
outstanding......................................... 4,571,428 5,009,646
Weighted average impact of assumed conversion of
preferred stock..................................... 2,192,876 10,439,121
----------- ------------
Shares used in computing pro forma basic and diluted net
loss per share........................................... 6,764,304 15,448,767
=========== ============
Basic and diluted pro forma net loss per common share...... $ (0.21) $ (1.07)
=========== ============
</TABLE>
4. RESTRICTED CASH
In accordance with an operating lease agreement for its headquarters
facilities, the Company holds in deposit $1,800,000 with its bank to
collateralize a conditional stand-by letter of credit in the name of the
landlord (see Note 6). The letter of credit is redeemable only if the Company
defaults on the lease under specific criteria. These funds are restricted from
the Company's use during the lease period, although the Company is entitled to
all interest earned on the funds.
F-11
<PAGE> 77
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
-------- -------------
<S> <C> <C>
Computer equipment.......................................... $230,866 $3,681,673
Furniture and fixtures...................................... 26,790 145,986
Leasehold improvements...................................... -- 88,399
-------- ----------
257,656 3,916,058
Less accumulated depreciation............................... (58,574) (481,079)
-------- ----------
199,082 3,434,979
Construction in progress.................................... -- 642,160
-------- ----------
Property and equipment, net................................. $199,082 $4,077,139
======== ==========
</TABLE>
Depreciation expense was $8,709, $49,865 and $422,505 for the period from
February 20, 1997 (date of inception) to December 31, 1997 and for the years
ended December 31, 1998 and 1999, respectively.
6. 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.
In November 1999, the Company entered into a five-year lease agreement for
approximately 68,000 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
which is recorded as restricted cash at December 31, 1999 (see Note 4).
Future minimum lease payments under noncancelable operating leases at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $1,041,103
2001........................................................ 1,729,907
2002........................................................ 1,679,358
2003........................................................ 1,679,358
Thereafter.................................................. 1,530,756
----------
Total....................................................... $7,660,482
==========
</TABLE>
Rental expense under operating leases amounted to $9,182, $80,114 and
$201,440 for the period from February 20, 1997 (date of inception) to December
31, 1997 and for the years ended December 31, 1998 and 1999, respectively.
F-12
<PAGE> 78
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company is also a party to certain auction service agreements under
which it has contingent commitments (see Note 7).
7. STOCKHOLDERS' EQUITY:
At December 31, 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
Convertible Preferred Stock ("Series A Preferred"), 1,890,000 shares have been
designated as Series B Convertible Preferred Stock ("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.
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
and the Series D Preferred stockholders in an amount equal to the greater of (1)
$0.137 per share per annum, in the case of the Series C Preferred, and $0.56 per
share per annum, in the case of the Series D Preferred, or (2) the amount 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 are
not 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
F-13
<PAGE> 79
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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
amounts, then amounts paid shall be distributed ratably among the holders of the
Series A Preferred and Series B Preferred in proportion to the preferential
amount 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 in
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.
The Company has reserved 16,312,885 shares of Common Stock for issuance
upon the conversion of the Convertible Preferred Stock outstanding at December
31, 1999.
On December 31, 1997, the Company issued 754,603 shares of Series A
Preferred in exchange for notes in the principal 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 sales 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 bore 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.
AUCTION SERVICES AGREEMENTS WITH LYCOS, MICROSOFT, EXCITE AND TMCS
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
F-14
<PAGE> 80
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
agreement, the Company has agreed to provide auction services 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 year
ended December 31, 1999 was $274,533. 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 July 26, 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 services 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 provides that if Microsoft drives more than a
specified number of Internet users to the FairMarket Network through its
Internet portal site for each year of the contract's initial term, the Company
will guarantee them a minimum level of transaction fee revenue regardless 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 first, second, third, fourth and fifth
contract years, respectively. If Microsoft meets the minimum annual traffic
guarantee but the increase in traffic does not produce sufficient revenue to
meet the minimum guaranteed revenue, the Company will have a financial
obligation to Microsoft. This obligation will be an amount equal to the
difference between the minimum guaranteed payment and Microsoft's portion of
fees actually collected. As of December 31, 1999, the traffic minimum has not
been reached, it was not probable that the traffic minimum would be reached and,
accordingly, no amounts have been accrued related to these contingent
obligations.
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) of the Company, 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 year
ended
F-15
<PAGE> 81
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 was $1,898,400. During the year ended December 31, 1999, the
Company recognized revenue of $300,000 from Microsoft for monthly service fees.
At December 31, 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 services to [email protected] 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 provides that if Excite drives more than a
specified number of Internet users to the FairMarket Network through its
Internet portal site for each year of the contract's initial term, the Company
will guarantee them a minimum level of transaction fee revenue regardless 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 first, second, third, fourth and fifth contract years,
respectively. If Excite meets the minimum annual traffic guarantee but the
increase in traffic does not produce sufficient revenue to meet the minimum
guaranteed revenue, the Company will have a financial obligation to Excite. This
obligation will be an amount equal to the difference between the minimum
guaranteed payment and Excite's portion of fees actually collected. As of
December 31, 1999, the traffic minimum has not been reached, it was not probable
that the traffic minimum would be reached and, accordingly, no amounts have been
accrued related to these contingent obligations.
In addition, the Company committed to purchase from Excite online banner
and other advertising services for $2.5 million per quarter during each of the
first eight calendar quarters under the contract, for a total of $20.0 million.
The Company recorded advertising expense of $2.5 million during the fourth
quarter of 1999 related to this agreement.
In connection with this agreement, Excite 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 stockholders' equity section
of the accompanying balance sheet as of December 31, 1999. 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 December 31, 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 year ended December 31, 1999 was $700,000. 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. At December 31, 1999, the Company remeasured the
fair value and recorded an additional $4,500,000 as a deferred charge to be
amortized over the remaining term of the contract.
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 has
F-16
<PAGE> 82
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
agreed to provide auction services 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. The related expense for the year ended December 31, 1999
was $875,000.
8. 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 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 December 31, 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>
$ 0.10 422,249 8.76 $0.100 10,000 $0.100
0.20 1,290,000 9.36 0.200 -- --
0.50 - 1.50 954,500 9.57 0.812 -- --
3.00 - 4.50 817,000 9.78 3.725 -- --
6.00 - 7.50 227,500 9.91 6.478 -- --
--------- ------
$0.10-$7.50 3,711,249 9.47 $1.507 10,000 $0.100
========= ======
</TABLE>
F-17
<PAGE> 83
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock option activity for the period from February 20, 1997 (date of
inception) to December 31, 1997 and for the years ended December 31, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 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
period.................... 303,000 $0.043 510,000 $0.100
Granted..................... 303,000 $0.043 600,000 0.100 3,861,500 1.481
Exercised................... -- (48,750) 0.011 (222,751) 0.100
Canceled.................... -- (344,250) 0.061 (437,500) 0.356
------- -------- ---------
Outstanding at end of
period.................... 303,000 $0.043 510,000 $0.100 3,711,249 $1.507
======= ======== =========
Options exercisable at
period-end................ -- 18,875 $0.100 10,000 $0.100
Weighted average fair value
of options granted during
the period................ $0.009 $0.017 $3.217
</TABLE>
There were 188,487 shares available for future option grants as of December
31, 1999.
During the year ended December 31, 1999, the Company recorded unearned
compensation of $10,137,092 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. For the year ended December 31,
1999, related expense recognized was $1,574,565.
The Company follows the disclosure provisions of SFAS No. 123 and has
applied APB Opinion No. 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 years
ended December 31, 1998 and 1999 and the period ended December 31, 1997 would
have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Net loss attributable to common stockholders
As reported............................ $(601,575) $(1,388,297) $(16,509,209)
Pro forma.............................. $(601,764) $(1,389,195) $(18,119,492)
Net loss per common share
As reported............................ $ (0.15) $ (0.30) $ (3.30)
Pro forma.............................. $ (0.15) $ (0.30) $ (3.62)
</TABLE>
F-18
<PAGE> 84
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -----------------
<S> <C> <C> <C>
Expected dividend yield....................... 0% 0% 0%
Expected stock price volatility............... 0% 0% 0%-100%
Risk free interest rate....................... 6.25% 5.06% 5.9%- 6.1%
Expected option term.......................... 4 years 4 years 6 years
</TABLE>
9. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax benefit........................................ $(557,000) $(6,000,000)
Valuation allowance......................................... 557,000 6,000,000
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The Company's effective tax rate varies from the statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
U.S. federal income tax rate................................ (34.0)% (34.0)%
State taxes................................................. (6.4) (5.6)
Deferred compensation amortization.......................... -- 3.2
Other....................................................... (0.6) 0.1
----- -----
(41.0) (36.3)
Valuation allowance......................................... 41.0 36.3
----- -----
-- --
===== =====
</TABLE>
F-19
<PAGE> 85
FAIRMARKET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109, "Accounting for Income Taxes," and, accordingly, a valuation
allowance for the entire deferred tax asset amount has been recorded. The
components of the net deferred tax asset (liability) and the related valuation
allowance are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Net operating loss carryforwards............................ $ -- $ 4,884,000
Capitalized start-up costs.................................. 791,000 637,000
Deferred compensation....................................... -- 875,000
Depreciation................................................ 10,000 40,000
Deferred revenue............................................ -- 240,000
Other....................................................... 7,000 131,000
--------- -----------
808,000 6,807,000
Valuation allowance......................................... (808,000) (6,807,000)
--------- -----------
Net deferred tax assets..................................... $ -- $ --
========= ===========
</TABLE>
As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of $12,129,000 which begin to expire in 2020 and 2005,
respectively. These net operating loss carryforwards may be used to offset
future federal and state taxable income tax liabilities.
Ownership changes resulting from the Company's issuance of capital stock
may limit the amount of net operating loss and tax credit carryforwards that can
be utilized annually to offset future taxable income. The amount of the annual
limitation is determined based upon the Company's value immediately prior to the
ownership change. Subsequent significant changes in ownership could further
affect the limitation in future years.
10. 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-20
<PAGE> 86
Inside Back Cover Graphics
Text: How it works: (1) Merchandise is posted on an auction site, (2)
Merchandise is added to the FairMarket Network, (3) Merchandise is listed on
FairMarket Network sites.
[Photograph of a computer screen displaying the CompUSA auction site. Arrow
pointing from the computer screen photograph to the FairMarket logo. Arrows
point from the logo of FairMarket to multiple photographs of computer screens
displaying FairMarket customer auction sites including MSN.com, Excite@Home and
Lycos.com.]
Text: Today, over 90 businesses, including CompUSA, Outpost.com and
SportsLine.com, Inc. and several top Internet portal sites, including MSN.com,
Excite@Home and Lycos, are members of the FairMarket Network.
<PAGE> 87
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
Special Note Regarding Forward-
Looking Statements.................. 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 31
Management............................ 41
Principal Stockholders................ 48
Certain Transactions with Related
Parties............................. 49
Description of Capital Stock.......... 51
Shares Eligible For Future Sale....... 57
Underwriting.......................... 59
Validity of Common Stock.............. 61
Experts............................... 61
Where You Can Find More
Information......................... 61
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.
[FAIRMARKET LOGO]
FAIRMARKET, INC.
5,000,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
PROSPECTUS
, 2000
<PAGE> 88
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........................................ $ 16,698
NASD filing fee............................................. 6,000
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 500,000
Printing expenses........................................... 250,000
Blue sky qualification fees and expenses.................... 7,500
Transfer Agent's fee........................................ 12,000
Miscellaneous............................................... 62,802
----------
Total....................................................... $1,300,000
==========
</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.
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 our
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 our 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 our 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> 89
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 Scott Randall, our founder, for an aggregate consideration of
$4,000. The issuance of securities described in this paragraph
were deemed to be exempt from registration under the Securities
Act of 1933 in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
(2) On December 31, 1997, we issued 754,603 shares of Series A
Convertible Preferred Stock to Herman Becker for an aggregate
consideration of $500,000. The issuance of securities described in
this paragraph was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act
as a transaction by an issuer not involving a public offering.
(3) From December 13, 1997 to August 22, 1998, we issued a total of
1,890,000 shares of Series B Convertible Preferred Stock for an
aggregate consideration of $2,100,000 to the following persons:
John C. Becker and Cheryl L. Becker, Randall Becker, Todd H.
Becker, Byrne Defined Benefit Trust, Joanne M. Eldred, J. Scott
Hefter, F. William Helming III, Jonathan C. McKay, Noreaster
Research Partners, Naren M. Patel and Ila N. Patel, Charles R.
Puliafico, Mark and Kathleen Puliafico, Edward J. Ruggeri, Robert
& Jane Sylvester, Richard Y. Woo and Jania N. Woo, Robert and Lisa
Anders, Arthur Remillard, RKG Associates, Sam S. Pappas, Surykant
and Sarla Patel. The issuances of securities described in this
paragraph 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.
(4) On February 25, 1999, we issued 6,168,282 shares of Series C
Convertible Preferred Stock for an aggregate consideration of
$10,572,435 to the following persons: Sierra Ventures VII, L.P.,
Sierra Ventures Associates VII, L.L.C., Greg Shlopak, East River
Ventures, L.P., Mercator Ventures Fund, Noreaster Research
Partners, Richard Y. and Jania N. Woo, John C. and Cheryl L.
Becker, Naren M. and Ila N. Patel, Mark and Kathleen Puliafico,
Charles R. Puliafico, Edward J. Ruggieri, Robert J. and Lisa H.
Anders, Arthur Remillard, Jr., Surykant and Sarla Patel, RKG
Associates, Sam S. Pappas and William A. Sahlman. The issuances of
securities described in this paragraph 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.
(5) On May 12, 1999, we issued two warrants to Lycos, Inc. 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).
The issuances of securities described in this paragraph 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.
(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
Microsoft Corporation, Excite, Inc. and TicketMaster
Online-CitySearch, Inc. for aggregate cash consideration of
$31,500,000 (of which $17,500,000 is being credited against future
obligations of FairMarket to Excite). The issuances of securities
described in this paragraph were deemed to be exempt from
registration under the Securities Act in reliance
II-2
<PAGE> 90
on Section 4(2) of the Securities Act as transactions by an
issuer not involving a public offering.
(7) On August 23,1999, we issued a warrant to purchase 4,500,000
shares of common stock to Microsoft Corporation at an exercise
price of $1.71. The issuance of securities described in this
paragraph was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act
as a transaction by an issuer not involving a public offering.
(8) Since our incorporation and as of December 31, 1999, we have
issued 971,725 shares of common stock and options to purchase an
aggregate of 4,764,500 shares of common stock with exercise prices
ranging from $0.01 to $7.50 per share. All sales of common stock
were made upon exercise of options or for fair market value at the
time of the sale. Since our incorporation and as of December 31,
1999, options to purchase 781,750 shares have been cancelled
without exercise. The issuances of common stock are detailed
below.
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE PURCHASER OF SHARES CONSIDERATION
---- --------- --------- -------------
<S> <C> <C> <C>
04/26/97 Nanda Krish.................. 50,000 $50
12/01/97 Jonas Sylvester.............. 75,000 Consulting services
valued at $7,500
12/01/97 Leonard Vairo................ 30,000 Consulting services
valued at $3,000
12/01/97 Todd H. Becker............... 125,682 Consulting services
valued at $12,568.20
01/22/98 Gail Alden................... 25,000 $2,500
05/18/98 Christopher Caruso........... 18,750 $1,875
05/27/98 Mercator Ventures, LLC....... 84,500 Consulting services
valued at $8,450
05/27/98 Technology Solutions......... 150,000 Past services and release
of claims valued at
$10,000
06/08/98 Beth Ann Robinson............ 5,000 $500
06/08/98 Jay Atlas.................... 5,000 $500
06/08/98 Eric Kim..................... 5,000 $500
08/22/98 Mercator Ventures, LLC....... 50,000 Consulting services
valued at $5,000
08/22/98 Todd H. Becker............... 70,000 Consulting services
valued at $7,000
08/22/98 Collaborative................ 10,000 Consulting services
Communications, Inc. valued at $1,000
12/31/98 Collaborative................ 7,500 Consulting services
Communications, Inc. valued at $750
12/31/98 Kathy M. Boyce............... 5,000 Consulting services
valued at $500
12/31/98 Kim Sutton................... 5,000 $500
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE PURCHASER OF SHARES CONSIDERATION
---- --------- --------- -------------
<S> <C> <C> <C>
12/31/98 Mercator Ventures, LLC....... 43,250 Consulting services
valued at $4,325
01/01/99 Caryl H. Hull................ 11,000 Consulting services
valued at $1,100
02/25/99 Larry Wexler................. 187,509 Consulting services
valued at $18,750.90
02/25/99 GP Shlopak, Inc.............. 26,254 Consulting services
valued at $2,625.40
02/25/99 Richard Plutzer.............. 15,000 Consulting services
valued at $3,000
05/20/99 Jennifer L. Mozeiko.......... 7,500 $750
06/01/99 William R. Watt.............. 6,250 $625
06/09/99 Jack Littman Quinn........... 5,000 $2,500
07/27/99 James Jin.................... 8,750 $875
08/04/99 William R. Watt.............. 1,562 $156.20
08/28/99 Jennifer L. Mozeiko.......... 1,564 $156.40
08/30/99 James Jin.................... 8,438 $843.80
09/08/99 Kathy M. Boyce............... 2,000 Consulting services
valued at $3,000
09/08/99 Ellen Cantillon.............. 100 $150
09/17/99 Kathleen Pitcher............. 4,375 $437.50
10/08/99 Mark Sutton.................. 34,375 $3,437.50
10/18/99 Jennifer L. Mozeiko.......... 1,875 $187.50
10/18/99 Kurt Steiner................. 8,188 $818.80
11/09/99 William R. Watt.............. 1,563 $156.30
11/10/99 Jennifer L. Mozeiko.......... 937 $93.70
11/11/99 James Jin.................... 3,750 $375
11/12/99 Kathleen Pitcher............. 3,750 $375
11/30/99 William Cornell.............. 6,250 $625
11/30/99 John Courtney................ 20,000 $2,000
12/08/99 Susan Zaney.................. 75,000 $7,500
12/14/99 Joseph Aparo................. 10,000 $1,000
12/14/99 Mark Sutton.................. 13,750 $1,375
12/15/99 Kathleen Pitcher............. 938 $93.80
12/18/99 Kurt Steiner................. 3,937 $393.70
12/28/99 Egon Zehnder................. 8,929 Consulting services
International, Inc. valued at $62,500
</TABLE>
These issuances of securities were deemed to be exempt from registration
under the Securities Act in reliance on Rule 701 under the Securities Act as
transactions pursuant to compensatory benefit plans and contracts relating to
compensation or as private placements under Section 4(2) of the Securities Act.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
II-4
<PAGE> 92
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.
There were no underwriters employed in connection with any of the
transactions set forth in this item 15.
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 Fourth 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 Fifth Amended and Restated Certificate of
Incorporation of the Company (to be filed with the Delaware
Secretary of State 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-CitySearch, 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
+10.2 Amended and Restated 1997 Stock Option Plan
+10.3 1999 Stock Option Plan
10.4 Form of 2000 Stock Option and Incentive Plan
+10.5 Form of Employee Stock Purchase Plan
+10.6 Lease Agreement dated November 9, 1999, between DIV Unicorn,
LLC and the Company
+10.7 Sublease Agreement dated January 22, 1998, between Insignia
Solutions, Inc. and the Company
+10.8 Sublease Agreement dated April 5, 1999, between Indigo
America, Inc. and the Company
+10.9 Warrant to Purchase Common Stock between the Company and
Lycos, Inc. dated as of May 12, 1999
+10.10 Performance Warrant to Purchase Common Stock between the
Company and Lycos, Inc., dated as of May 12, 1999
</TABLE>
II-5
<PAGE> 93
<TABLE>
<S> <C>
+10.11 Warrant to Purchase Common Stock between the Company and Microsoft Corporation, dated as of August
23, 1999
+10.12 Siteharbor Services Agreement between the Company and NaviSite Services Corporation, dated as of
October 30, 1998
10.13 Indemnification Agreement among the Company and Sierra Ventures VII, LP, and Sierra Ventures
Associates VII, LLC, dated February 25, 1999.
#10.14 Composite Auction Services Agreement, dated July 26, 1999, by and between the Company and Microsoft
Corporation, as amended.
#10.15 Auction Services Agreement, dated August 23, 1999, by and between the Company and Excite, Inc.
#10.16 Auction Services Agreement, dated September 15, 1999, by and between the Company and Ticketmaster
Online-CitySearch.
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>
- ------------------------
+ Previously filed.
# Certain portions have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
(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.
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
II-6
<PAGE> 94
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-7
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, on February 10, 2000.
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 Amendment
No. 2 to the 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 February 10, 2000
- ------------------------------------------------ Officer and Director
Scott T. Randall (Principal Executive Officer)
/s/ JOHN BELCHERS Chief Financial Officer February 10, 2000
- ------------------------------------------------ (Principal Financial Officer
John Belchers and Principal Accounting
Officer)
* Director February 10, 2000
- ------------------------------------------------
Jeffrey Drazan
* Director February 10, 2000
- ------------------------------------------------
Nanda Krish
/s/ RICHARD PALLAN Director February 10, 2000
- ------------------------------------------------
Richard Pallan
* By: /s/ JOHN BELCHERS
- -----------------------------------------------
John Belchers
Attorney-in-fact
</TABLE>
II-8
<PAGE> 96
<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 Fourth 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 Fifth Amended and Restated Certificate of
Incorporation of the Company (to be filed with the Delaware
Secretary of State 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-CitySearch, 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
+10.2 Amended and Restated 1997 Stock Option Plan
+10.3 1999 Stock Option Plan
10.4 Form of 2000 Stock Option and Incentive Plan
+10.5 Form of Employee Stock Purchase Plan
+10.6 Lease Agreement dated November 9, 1999, between DIV Unicorn,
LLC and the Company
+10.7 Sublease Agreement dated January 22, 1998, between Insignia
Solutions, Inc. and the Company
+10.8 Sublease Agreement dated April 5, 1999, between Indigo
America, Inc. and the Company
+10.9 Warrant to Purchase Common Stock between the Company and
Lycos, Inc. dated as of May 12, 1999
+10.10 Performance Warrant to Purchase Common Stock between the
Company and Lycos, Inc., dated as of May 12, 1999
+10.11 Warrant to Purchase Common Stock between the Company and
Microsoft Corporation, dated as of August 23, 1999
+10.12 Siteharbor Services Agreement between the Company and
NaviSite Services Corporation, dated as of October 30, 1998
10.13 Indemnification Agreement among the Company and Sierra
Ventures VII, LP, and Sierra Ventures Associates VII, LLC,
dated February 25, 1999.
#10.14 Composite Auction Services Agreement, dated July 26, 1999,
by and between the Company and Microsoft Corporation, as
amended.
#10.15 Auction Services Agreement, dated August 23, 1999, by and
between the Company and Excite, Inc.
</TABLE>
<PAGE> 97
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
#10.16 Auction Services Agreement, dated September 15, 1999, by and between
the Company and Ticketmaster Online-CitySearch.
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
- ------------------------
+ Previously filed.
# Certain portions have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
<PAGE> 1
Exhibit 1.1
5,000,000 Shares
FAIRMARKET, INC.
Common Stock
($.001 Par Value)
EQUITY UNDERWRITING AGREEMENT
[_____________ __], 2000
DEUTSCHE BANK SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFRAY INC.
As Representatives of the Several Underwriters
c/o DEUTSCHE BANK SECURITIES INC.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
FairMarket, Inc., a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 5,000,000 shares of the Company's Common Stock, $.001 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to 750,000 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
<PAGE> 2
The Company and the Underwriters agree that up to 750,000 shares of the
Common Stock to be purchased by the Underwriters (the "Reserved Shares") shall
be reserved for sale by the Underwriters to certain persons designated by the
Company, as part of the distribution of the Shares by the Underwriters, subject
to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. (the
"NASD") and all other applicable laws, rules and regulations. To the extent that
such Reserved Shares are not orally confirmed for purchase by such persons
designated by the Company by the end of the first business day after the date of
this Agreement, such Reserved Shares may be offered to the public as part of the
public offering contemplated hereby.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each of the Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-92677) with
respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed
with the Commission and the registration statement filed by
electronic transmission pursuant to the Commission's
Electronic Data Gathering, Analysis and Retrieval System
("EDGAR") (except as may be permitted by Regulation S-T under
the Act) was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of
the Shares. Copies of such registration statement, including
any amendments thereto, the preliminary prospectuses (meeting
the requirements of the Rules and Regulations) contained
therein and the exhibits, financial statements and schedules,
as finally amended and revised, have heretofore been delivered
by the Company to you. Such registration statement, together
with any registration statement filed by the Company pursuant
to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become
effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means the form of prospectus first
filed with the Commission pursuant to Rule 424(b). Each
preliminary prospectus included in the Registration Statement
prior to the time it becomes effective is herein referred to
as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or
amendments thereto, filed with the Commission after the date
of filing of the Prospectus under Rules 424(b) or 430A, and
prior to the termination of the offering of the Shares by the
Underwriters.
(b) The Company has not distributed and will not distribute, prior
to the later of the Option Closing Date (as defined below) and
the completion of the Underwriters'
2
<PAGE> 3
distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than
the Preliminary Prospectus, the Prospectus or the Registration
Statement.
(c) This Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the
Company, enforceable against the Company in accordance with
its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting the rights and remedies of creditors or by
general equitable principles.
(d) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease
its properties and conduct its business as described in the
Registration Statement and to enter into and perform its
obligations under this Agreement. There are no subsidiaries,
direct or indirect, of the Company and the Company does not
own or control, directly or indirectly, any corporation,
association or other entity. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of
its business requires such qualification, except where the
failure to so qualify would not, individually or in the
aggregate, have a material adverse effect on its business,
financial condition or results of operations.
(e) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the
Company have been duly authorized and when issued and paid for
as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist
with respect to any of the Shares or the issue and sale
thereof. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first
refusal or other rights to subscribe for or purchase
securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable
for, any capital stock of the Company other than those
described in the Prospectus. Neither the filing of the
Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock,
which rights, if any, are described in the Prospectus under
the heading "Shares Eligible for Future Sale" and "Description
of Capital Stock." The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents in all material
respects the information required to be shown with respect to
such plans, arrangements, options and rights.
3
<PAGE> 4
(f) The Shares have been approved for quotation on the Nasdaq
National Market, subject only to official notice of issuance.
(g) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct as of the date set forth
therein. All of the Shares conform to the description thereof
contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of
the jurisdiction of the Company's incorporation.
(h) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed
offering of the Shares nor instituted proceedings for that
purpose. The Registration Statement contains, and the
Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated
therein by, and will conform, to the requirements of the Act
and the Rules and Regulations. The Registration Statement and
any amendment thereto do not contain, and will not contain,
through the applicable prospectus delivery period, any untrue
statement of a material fact and do not omit, and will not
omit, through the applicable prospectus delivery period, to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The
Prospectus and any amendments and supplements thereto do not
contain, and will not contain, through the applicable
prospectus delivery period, any untrue statement of material
fact and do not omit, and will not omit, through the
applicable prospectus delivery period, to state any material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that
the Company makes no representations or warranties as to
information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use
in the preparation thereof.
(i) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the
results of operations and cash flows of the Company at the
indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in
accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except
as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. No
other financial statements or supporting schedules are
required to be included in the Registration Statement. The
summary and selected financial and statistical data and the
financial data set forth under the captions "Capitalization",
"Dilution", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations"
and "-- Quarterly Results of Operations" included in the
Registration Statement presents fairly the information shown
therein and such
4
<PAGE> 5
data has been compiled on a basis consistent with the
financial statements presented therein and the books and
records of the Company. The pro forma financial information
included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements,
have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(j) PricewaterhouseCoopers LLP, who have certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as
required by the Act and the Rules and Regulations.
(k) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company
before any court or administrative agency or otherwise which
if determined adversely to the Company might result in any
material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company or to prevent the
consummation of the transactions contemplated hereby, except
as set forth in the Registration Statement.
(l) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements
hereinabove described (or as described in the Registration
Statement), and such properties and assets are not subject to
any lien, mortgage, pledge, charge or encumbrance of any kind
except those reflected in such financial statements (or as
described in the Registration Statement) or which are not
material, individually or in the aggregate, in amount. The
Company occupies its leased properties under valid and binding
leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(m) The Company has filed all federal, state, local and foreign
tax returns which have been required to be filed and have paid
all taxes indicated by said returns and all assessments
received by it to the extent that such taxes have become due.
All tax liabilities have been adequately provided for in the
financial statements of the Company, and the Company does not
know of any actual or proposed additional material tax
assessments.
(n) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change
or any development involving a prospective material adverse
change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise), or prospects of the
5
<PAGE> 6
Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction
entered into or any material transaction that is probable of
being entered into by the Company, other than transactions in
the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended
or supplemented. The Company has no material contingent
obligations which are not disclosed in the Company's financial
statements included in the Registration Statement.
(o) The Company is not, nor with the giving of notice or lapse of
time or both, will it be, in violation of or in default under
its charter or by-laws or under any agreement, lease,
contract, indenture or other instrument or obligation to which
it is a party or by which it, or any of its properties or
assets, is bound and which default is of material significance
in respect of the condition, financial or otherwise of the
Company or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or
prospects of the Company. The execution and delivery of this
Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not
conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which its properties or
assets are bound, or of the charter or by-laws of the Company
or any order, rule or regulation applicable to the Company of
any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction, except for
such breaches, defaults or violations as would not,
individually or in the aggregate, have a material adverse
effect on its business, financial condition or results of
operations.
(p) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory,
administrative or other governmental body necessary in
connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required
by the Commission, the NASD or such additional steps as may be
necessary to qualify the Shares for public offering by the
Underwriters under state securities or blue sky laws) has been
obtained or made and is in full force and effect.
(q) No material licenses, certificates or permits from
governmental authorities are necessary for the conduct of the
Company's business.
(r) The Company is conducting its business in compliance with all
the local, state, federal and foreign laws, rules and
regulations of the jurisdictions in which the Company is
conducting business.
(s) The Company owns or possesses sufficient trademarks, trade
names, service marks, patents, patent rights, copyrights,
licenses, approvals, inventions, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) and other
6
<PAGE> 7
similar rights and intellectual property necessary to conduct
its business as now conducted and has taken all steps
reasonably necessary to secure assignments of such
intellectual property from its employees and contractors; to
the knowledge of the Company, none of the technology employed
by the Company has been obtained or is being used by the
Company in violation of any contractual or fiduciary
obligation binding on the Company, its directors or executive
officers or, to the Company's knowledge, any of its employees
or consultants; and the Company has taken and will maintain
reasonable measures to prevent the unauthorized dissemination
or publication of its confidential information.
The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights
owned by or licensed to the Company. The Company has good and
marketable title to the patent applications referred to in the
Prospectus.
The Company has not infringed, interfered with or
misappropriated any patents, patent rights, trade names,
trademarks copyrights or other intellectual property rights of
others, which infringement, if the subject of any unfavorable
decision, ruling or finding would, individually or in the
aggregate, be reasonably likely to result in a material
adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company.
To the Company's knowledge, there are no legal or governmental
proceedings pending relating to trademarks, trade names,
patent rights, mask works, copyrights, licenses, trade secrets
or other intellectual property rights of the Company other
than the prosecution by the Company of its patent applications
before the United States Patent Office and appropriate foreign
government agencies, and no proceedings are threatened or
contemplated by governmental authorities or others relating to
trademarks, trade names, patent rights, mask works,
copyrights, licenses or other intellectual property rights of
the Company.
(t) Neither the Company, nor any of its affiliates, has taken or
will take, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares. The Company
acknowledges that the Underwriters may engage in stabilizing
and passive market making transactions in the Shares on The
Nasdaq National Market and other activities in accordance with
Regulation M under the Exchange Act.
(u) The Company is not, and after the issuance and sale of, and
the receipt of payment for, the Shares and the application of
the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and the
rules and regulations of the Commission thereunder.
7
<PAGE> 8
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(w) The Company carries, or is covered by, insurance from
recognized, financially sound and reputable institutions in
such amounts and covering such risks as is adequate for the
conduct of its business and the value of its properties and as
is customary for companies engaged in business in the
Company's industries.
(x) The Company is in compliance in all material respects with all
currently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the
Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension
plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(y) There are no affiliations or associations between any member
of the NASD and any of the Company's officers, directors or 5%
or greater securityholders, except as set forth in the
Registration Statement.
(z) There are no business relationships or related-party
transactions involving the Company or any other person
required to be described in the Prospectus which have not been
described as required by the Act or the Rules and Regulations.
(aa) Neither the Company nor, to the best of the Company's
knowledge, any employee or agent of the Company, has made any
contribution or other payment to any official of, or candidate
for, any federal, state or foreign office in violation of any
law or of a character required to be disclosed in the
Prospectus.
(bb) The Registration Statement, the Prospectus and any Preliminary
Prospectus comply, and any amendments or supplements thereto
will comply, with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or
8
<PAGE> 9
any Preliminary Prospectus, as amended or supplemented, if
applicable, are distributed in connection with the offering,
issuance and sale of Reserved Shares.
(cc) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other
than those obtained, is required in connection with the
offering of the Reserved Shares in any jurisdiction where the
Reserved Shares are being offered.
(dd) The Company has not offered, or caused Deutsche Bank
Securities Inc. or its affiliates to offer, nor will it offer
or cause Deutsche Bank Securities Inc. or its affiliates to
offer, any Reserved Shares to any person with the specific
intent to unlawfully influence (i) a customer or supplier of
the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist
or publication to write or publish favorable information about
the Company or its services.
(ee) The Company is not in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating
to the emission, discharge, release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), nor has the Company received any
written communication, whether from a governmental authority,
citizens group, employee or otherwise, that alleges that the
Company is in violation of any Environmental Law. The Company
has all permits, authorizations and approvals required under
any applicable Environmental Laws and is in compliance with
their requirements. There is no claim, action or cause of
action filed with a court or governmental authority or any
administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings with
respect to which the Company has received written notice, and
no written notice to the Company by any person or entity
alleging potential liability for investigatory costs, cleanup
costs, governmental responses costs, natural resources
damages, property damages, personal injuries, attorneys' fees
or penalties arising out of, based on or resulting from the
presence, or release into the environment, of any Hazardous
Materials at any location owned, leased or operated by the
Company now or in the past (collectively, "Environmental
Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any person or entity whose
liability for any Environmental Claim the Company has retained
or assumed either contractually or by operation of law nor are
there any
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<PAGE> 10
events or circumstances that might reasonably be expected to
form the basis for an Environmental Claim. To the best of the
Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission,
discharge, presence or disposal of any Hazardous Materials,
that reasonably could result in a violation of any
Environmental Law or form the basis of a potential
Environmental Claim against the Company or against any person
or entity whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by
operation of law.
(ff) The Company has reviewed its operations and any third parties
with which the Company has a material relationship to evaluate
the extent to which the business or operations of the Company
will be affected by the Year 2000 Problem. As a result of such
review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will result in a material
adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company or result in any
material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in
the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in
the operation of mechanical or electrical systems of any kind
will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1,
2000.
(gg) Any certificate signed by an officer of the Company delivered
to the Representatives or to counsel for the Underwriters
pursuant to this Agreement or in connection with the Closing
contemplated hereby shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters
covered thereby.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set
forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at
a price of $[_____] per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustment in accordance with Section 9
hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds by federal (same day) funds
against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made through the
facilities of the Depository Trust Company, New York, New York
at 10:00 a.m., New York time, on the third business day after
the date of this Agreement or at such
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<PAGE> 11
other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time
and date being herein referred to as the "Closing Date." As
used herein, "business day" means a day on which the New York
Stock Exchange is open for trading and on which banks in New
York are open for business and are not permitted by law or
executive order to be closed. The certificates for the Firm
Shares, if any, will be delivered in such denominations and in
such registrations as the Representatives request in writing
not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing
Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an
option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at
any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company
setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered
and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option,
nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the
date of exercise of the option is three or more days before
the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares
to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares being
sold hereunder, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to
the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the
Option Closing Date in federal (same day funds) through the
facilities of the Depository Trust Company in New York, New
York drawn to the order of the Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The
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<PAGE> 12
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the
procedure in Rule 430A of the Rules and Regulations is
followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information
previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules
and Regulations, (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been
advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations, and
(C) file on a timely basis all reports and any definitive
proxy or information statements required to be filed by the
Company with the Commission subsequent to the date of the
Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (A) when
the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any
comments from the Commission, (C) of any request of the
Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution
of any proceedings for that purpose. The Company will use its
best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives
may reasonably have designated in writing and will make such
applications, file such documents, and furnish such
information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified
or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and
other documents, as are or may be required to continue such
qualifications in effect for so long a period as the
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<PAGE> 13
Representatives may reasonably request for distribution of the
Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably
request. The Company will deliver to, or upon the order of,
the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request.
The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration
Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement (including such
number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as
the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder, so as to permit the completion of
the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a
prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the
time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so
amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(f) The Company hereby agrees that it will ensure that the
Reserved Shares will be restricted as required by the NASD or
the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date
of this Agreement. The Underwriters will notify the Company as
to which persons will need to be so restricted. At the request
of the Underwriters, the Company will direct the transfer
agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company
release, or seek to release, from such restrictions any of the
Reserved Shares, the Company agrees to reimburse the
Underwriters for any reasonable expenses (including, without
limitation, legal expenses) they incur in connection with such
release.
(g) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any
event not later than 15 months after the effective date of the
Registration Statement, an earning statement (which need
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<PAGE> 14
not be audited) in reasonable detail, covering a period of at
least 12 consecutive months beginning after the effective date
of the Registration Statement, which earning statement shall
satisfy the requirements of Section 11(a) of the Act and Rule
158 of the Rules and Regulations and will advise you in
writing when such statement has been so made available.
(h) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are
available to the Company, a copy of any unaudited interim
financial statements of the Company for any period subsequent
to the period covered by the most recent financial statements
appearing in the Registration Statement and the Prospectus.
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of
Common Stock or derivative of Common Stock (or agreement for
such) will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of
Deutsche Bank Securities Inc. The foregoing sentence shall not
apply to any shares of Common Stock issued by the Company upon
the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof or options to purchase
Common Stock granted pursuant to existing employee benefit
plans of the Company described in the Prospectus.
(j) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on The Nasdaq National Market.
(k) The Company has caused each officer and director and specific
shareholders and optionholders of the Company to furnish to
you, on or prior to the date of this agreement, a letter or
letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree
not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock
of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivatives
of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or
as to which such person has the right to direct the
disposition of) for a period of 180 days after the date of
this Agreement, directly or indirectly, except with the prior
written consent of Deutsche Bank Securities Inc. (the "Lockup
Agreements").
(l) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such
reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be
required in accordance with Rule 463 under the Act.
(m) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a
manner as would require the
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<PAGE> 15
Company to register as an investment company under the 1940
Act.
(n) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(o) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization
or manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, if any, the Underwriters'
Invitation Letter, the Listing Application, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses (including legal fees and disbursements) incident to securing
any required review by the NASD of the terms of the sale of the Shares; the
Listing Fee of The Nasdaq National Market; and the expenses, including the fees
and disbursements of counsel for the Underwriters, incurred in connection with
the qualification of the Shares under state securities or blue sky laws. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Company. The Company agrees to pay all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of the Reserved Shares. The Company
shall not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and state
securities or blue sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 (other than Section 6(c) or
6(d)) hereof are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11(a) hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as
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<PAGE> 16
of the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to the
performance by the Company of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made, and any request of the
Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed
to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time,
shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company,
shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a federal or
state court of competent jurisdiction shall have been issued
as of the Closing Date or the Option Closing Date, as the case
may be, which would prevent the issuance of the Shares. The
NASD shall have confirmed that it will not raise any objection
to the fairness and reasonableness of the underwriting terms
and arrangements.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of
Goodwin, Procter & Hoar LLP, counsel for the Company, dated
the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect
that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power
to own or lease its properties and conduct its
business as described in the Registration Statement;
the Company is duly qualified to transact business in
Massachusetts.
(ii) The Company has authorized capital stock as set forth
under the caption "Capitalization" in the Prospectus
subject to the assumptions set forth therein; the
authorized shares of the Company's Common Stock have
been duly authorized; the outstanding shares of the
Company's Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable;
all of the Shares conform in all material respects to
the description thereof contained in the Prospectus;
the certificates for the Shares, assuming they are in
the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including
the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized
and will be validly issued, fully paid and non-
assessable when issued and paid for as contemplated
by this Agreement; and no statutory or, to its
knowledge, other preemptive rights of stockholders
exist with respect to any of the Shares or the issue
or sale thereof.
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<PAGE> 17
(iii) Except as described in or contemplated by the
Prospectus, based upon such counsel's review of the
Company's records and its knowledge, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase
or subscribe for any shares of capital stock of the
Company and there are no outstanding or authorized
options, warrants or rights of any character
obligating the Company to issue any shares of its
capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except
as described in the Prospectus, to the knowledge of
such counsel, no holder of any securities of the
Company or any other person has the right,
contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company
to sell or otherwise issue to them, or to permit them
to underwrite the sale of, any of the Shares or the
right to have any Common Shares or other securities
of the Company included in the Registration Statement
or the right, as a result of the filing of the
Registration Statement, to require registration under
the Act of any shares of Common Stock or other
securities of the Company.
(iv) Based solely upon the oral advice of the staff of the
Commission, the Registration Statement has become
effective under the Act and, to the knowledge of such
counsel, no stop order proceedings with respect
thereto have been instituted or are pending or
threatened under the Act.
(v) Each of the Registration Statement, the Prospectus
and each amendment or supplement thereto appears on
its face to be appropriately responsive in all
material respects to the requirements of the Act and
the applicable rules and regulations thereunder
(except that such counsel need express no opinion as
to the financial statements and related notes,
schedules and other financial and statistical
information therein).
(vi) The statements (i) in the Prospectus under the
captions "Management -- 2000 Stock Option and
Incentive Plan", " -- 2000 Employee Stock Purchase
Plan", "Certain Transactions with Related Parties",
"Description of Capital Stock" and "Shares Eligible
for Future Sale", and (ii) in Item 14 and Item 15 of
the Registration Statement, in each case insofar as
such statements constitute a summary of documents
referred to therein or matters of law, are accurate
summaries in all material respects.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the
Registration Statement or described in the
Registration Statement or the Prospectus which are no
so filed or described as required, and the summaries
of such contracts and documents in the Registration
Statement or the Prospectus are accurate in all
material respects.
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<PAGE> 18
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened
against the Company of a character required to be
described in the Prospectus that are not so
described.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated
do not and will violate or result in a breach of any
of the terms or provisions of, or constitute a
default under, the charter or by-laws of the Company,
or any agreement or instrument known to such counsel
to which the Company is a party or by which the
Company is bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) To such counsel's knowledge, no approval, consent,
order, authorization, designation, declaration or
filing by or with any regulatory, administrative or
other governmental body is necessary in connection
with the execution and delivery of this Agreement and
the consummation of the transactions herein
contemplated (other than as may be required by the
NASD or as required by state securities and blue sky
laws, as to which such counsel need express no
opinion) except such as have been obtained or made.
(xii) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated
by this Agreement, and application of the net
proceeds therefrom as described in the Prospectus,
required to register as an investment company under
the 1940 Act.
In rendering such opinion Goodwin, Procter & Hoar LLP may rely as to
matters governed by the laws of states other than the Commonwealth of
Massachusetts, the General Corporation Law of the State of Delaware or federal
laws on local counsel in such jurisdictions, provided that in each case Goodwin,
Procter & Hoar LLP shall state that they believe that they and the Underwriters
are justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that,
although such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the opinion in
subsections (ii), (vi) and (vii) of this Section 6(b), such counsel have
participated in the preparation of the Registration Statement and Prospectus and
have participated in discussions with the Representatives, counsel for the
Underwriters, and representatives of the Company and its accountants, and that
on the basis of the information gained in the course of the performance of the
services referred to above, considered in light of such counsel's understanding
of the applicable law and the experience such counsel has gained through their
practice under the Act and the Exchange Act, nothing that came to such counsel's
attention in the course of such review has caused them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing
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<PAGE> 19
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Goodwin, Procter & Hoar LLP may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Ropes & Gray,
counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, with
respect to the incorporation of the Company, the validity of
the Shares delivered on the Closing Date or the Option Closing
Date, as the case may be, the Registration Statements, the
Prospectus and other related matters as the Representatives
may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of
enabling them to pass upon such matters. In rendering such
opinion, Ropes & Gray may rely as to all matters governed
other than by the laws of the Commonwealth of Massachusetts,
the General Corporation Law of the State of Delaware, or
federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters
set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under
the Act) as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary
in order to make the statements, in the light of the
circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial
statements, schedules and statistical information therein).
With respect to such statement, Ropes & Gray may state that
their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Ropes & Gray a memorandum or summary, in
form and substance satisfactory to the Representatives, with
respect to the qualification for offering and sale by the
Underwriters of the Shares under the state securities or blue
sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
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<PAGE> 20
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be,
a letter dated the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance
satisfactory to you, of PricewaterhouseCoopers LLP confirming
that they are independent public accountants within the
meaning of the Act and the applicable Rules and Regulations
thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the
Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and
containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and
certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the
Closing Date or the Option Closing Date, as the case may be,
each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the
effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the
Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as
the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) The Company has complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied at or prior to such closing
date;
(v) He has carefully examined the Registration Statement
and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement, the
statements contained in the Registration Statement
were true and correct, and such Registration
Statement and Prospectus did not omit to state a
material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, and since the effective date of the
Registration Statement, no event has occurred which
should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(vi) Since the respective dates as of which information is
given in the
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<PAGE> 21
Registration Statement and Prospectus, there has not
been any material adverse change or any development
involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of
the Company or the earnings, business, management,
properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company,
whether or not arising in the ordinary course of
business.
(g) On each of the Closing Date and the Option Closing Date, if
any, the Representatives shall have received a certificate or
certificates of the Secretary of the Company in form and
substance reasonably satisfactory to the Representatives.
(h) The Company shall have furnished to the Representatives such
further certificates and documents confirming the
representations and warranties, covenants and conditions
contained herein and related matters as the Representatives
may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been approved
for designation upon notice of issuance on The Nasdaq National
Market.
(j) The Lockup Agreements described in Section 4(k) shall be in
full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Ropes & Gray,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
(other than Section 6(c) and 6(d)) shall not have been fulfilled when and as
required by this Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives by notifying the Company of
such termination in writing at or prior to the Closing Date or the Option
Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
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<PAGE> 22
(i) to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses,
claims, damages or liabilities to which such
Underwriter or any such controlling person may become
subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement
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, (iii) the violation of any applicable
laws or regulations of foreign jurisdictions where
Reserved Shares have been offered to persons
designated by the Company, or (iv) any act or failure
to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by
clause (i) or (ii) above (provided, that the Company
shall not be liable under this clause (iv) to the
extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its
gross negligence or willful misconduct); provided,
however, that the Company will not be liable in any
such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written
information furnished to the Company by or through
the Representatives specifically for use in the
preparation thereof; and provided further, however,
that such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting such loss,
claim, damage or liability purchased the Shares which
are the subject thereof if such person did not
receive a copy of the Prospectus (as supplemented or
amended) at or prior to the confirmation of the sale
of the Shares to such person in any case where such
delivery is required by the Act and the untrue
statement or omission or alleged untrue statement or
omission of material fact contained in the
Preliminary Prospectus was corrected in the
Prospectus.
(ii) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other
out-of-pocket expenses reasonably incurred by such
Underwriter or such controlling person in connection
with investigating or defending any such loss, claim,
damage or liability,
22
<PAGE> 23
action or proceeding or in responding to a subpoena
or governmental inquiry related to the offering of
the Shares, whether or not such Underwriter or
controlling person is a party to any action or
proceeding. In the event that it is finally
judicially determined that the Underwriters were not
entitled to receive payments for legal and other
expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had
been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each
person, if any, who controls the Company within the meaning of
the Act, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, or
controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse
any legal or other expenses reasonably incurred by the Company
or any such director, officer, or controlling person in
connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to
the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission
has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information
furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to this
Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be
available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was
not given was unaware of the proceeding to which such notice
would have related and was materially prejudiced by the
failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties
from any liability which it or they may have to the
indemnified party for contribution or otherwise than on
account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall
23
<PAGE> 24
be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay
as incurred the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its
own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party
and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them, or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel acceptable to
the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that
the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be
liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm
shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) and by the Company in the
case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by
reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent
of the indemnified party, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual
or potential party to such claim, action or proceeding) unless
such settlement, compromise or consent includes an
unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding and
does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or (b) above in respect of any
losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions or proceedings in
respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such
amount paid or payable by such
24
<PAGE> 25
indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total
underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such
court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees
that any other contributing party may join him or it as an
additional defendant in any such proceeding in which such
other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the
indemnifying party to the indemnified party as such losses,
claims, damages, liabilities or expenses are incurred. The
indemnity and contribution
25
<PAGE> 26
agreements contained in this Section 8 and the representations
and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any persons controlling
the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company,
its directors or officers, or any person controlling the
Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this
Section 8.
(g) In connection with the offer and sale of the Reserved Shares,
the Company agrees, promptly upon a request in writing, to
indemnify and hold harmless the Underwriters from and against
any and all losses, liabilities, claims, damages and expenses
incurred by them as a result of the failure of persons
designated by the Company to pay for and accept delivery of
Reserved Shares which, by the end of the first business day
following the date of this Agreement, were subject to a
properly confirmed agreement to purchase.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, you, as the
Representatives of the Underwriters, will have the right, by written notice
given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be
26
<PAGE> 27
effected. The term "Underwriter" includes any person substituted for a
defaulting Underwriter. Any action taken under this Section 9 shall not relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities
Inc., One South Street, Baltimore, Maryland 21202, Attention: Jay S. Eastman;
with a copy to Deutsche Bank Securities Inc., One Bankers Trust Plaza, 130
Liberty Street, New York, New York 10006, Attention: General Counsel; if to the
Company, to FairMarket, Inc., 500 Unicorn Park Drive, Woburn, Massachusetts
01801, Attention: President; with a copy to Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts 02109, Attention: David F. Dietz, P.C.
11. TERMINATION. This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date:
(a) if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise,
of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business, (ii) any outbreak
or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or
crisis or change in economic or political conditions if the
effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii)
suspension of trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market or limitation on prices (other than
limitations on hours or numbers of days of trading) for
securities on either such Exchange or the Nasdaq National
Market, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion
materially and adversely affects or may materially and
adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or
New York State authorities, (vi) any downgrading, or placement
on any watch list for possible downgrading, in the rating of
the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of
Rule 436(g) under the Exchange Act); (vii) the suspension of
trading of the Company's common stock by the Nasdaq National
Market, the Commission, or any other governmental authority,
or (viii) the taking of any action by any governmental body or
agency in respect of its monetary or fiscal affairs which in
your reasonable opinion has a material
27
<PAGE> 28
adverse effect on the securities markets in the United States;
or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters) and the information set forth in
the table after the first paragraph and the sixth (insofar as it relates to
concessions and reallowances), seventh and fourteenth paragraphs under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers, and (c) delivery of and payment for the Shares under
this Agreement.
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.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
28
<PAGE> 29
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
FAIRMARKET, INC.
By:
--------------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DEUTSCHE BANK SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFRAY INC.
As Representatives of the several
Underwriters listed on Schedule I
By: DEUTSCHE BANK SECURITIES INC.
By:
-------------------------------
Authorized Officer
29
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Deutsche Bank Securities Inc.
FleetBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
TOTAL 5,000,000
=========
30
<PAGE> 1
EXHIBIT 3.2
FORM OF
FOURTH 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 Third
Amended and Restated Certificate of Incorporation (the "Third Amended and
Restated Certificate") which was filed with the Secretary of State of the State
of Delaware on August 23, 1999, and was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law (the
"DGCL").
3. The text of the Third Amended and Restated 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 fifty six million (56,000,000) shares, of which (i)
thirty six million (36,000,000) shares shall be a class designated as Common
Stock, par value $0.001 per share (the "Common Stock"), (ii) seven hundred
fifty-four thousand six hundred and three (754,603) shares shall be Series A
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"),
(iii) one million eight hundred and ninety thousand (1,890,000) shares shall be
Series B Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock"), (iv) six million one hundred sixty-eight thousand two hundred and
eighty-two (6,168,282) shares shall be Series C Preferred Stock, par value $.001
per share (the "Series C Preferred Stock"), (v) ten million (10,000,000) shares
shall be Series D Preferred Stock, par value $.001 per share (the "Series D
Preferred Stock") (together, the "Convertible Preferred Stock") and (vi) one
million one hundred eighty-seven thousand one hundred and fifteen (1,187,115)
shares shall be undesignated preferred stock, par value $.001 per share (the
"Undesignated Preferred Stock" and, together with the Convertible Preferred
Stock, the "Preferred Stock").
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 designations of any series of Undesignated Preferred Stock).
The 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 designations 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 of the Corporation (the
"Directors") Directors and on all other matters requiring stockholder action,
each outstanding share entitling the holder thereof to one vote on each matter
properly submitted to the stockholders of the Corporation for their vote;
PROVIDED, HOWEVER, that, except as otherwise required by law, holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this
Certificate (or on any amendment to a certificate of designations of any series
of Undesignated Preferred Stock) that alters or changes the powers, preferences,
rights or other terms of one or more outstanding series of Undesignated
Preferred Stock if the holders of such affected series are entitled to vote,
either separately or together as a class with the holders of one or more other
such series, on such amendment pursuant to this Certificate (or pursuant to a
certificate of designations of any series of Undesignated Preferred Stock) or
pursuant to the DGCL;
(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 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
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(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:
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(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
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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
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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
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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
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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
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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.
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(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
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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.
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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.
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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
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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.
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<PAGE> 17
C. UNDESIGNATED PREFERRED STOCK
The Board of Directors or any authorized committee thereof is expressly
authorized, to the fullest extent permitted by law, 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 of each
such series, and to fix the designations, powers including voting powers, full
or limited, or no voting powers, preferences and the relative, participating,
optional or other special rights of the shares of each series and any
qualifications, limitations and restrictions thereof.
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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 (the "By-laws") shall so
provide.
3. NUMBER OF DIRECTORS; TERM OF OFFICE. The number of Directors
of the Corporation shall be fixed solely and exclusively 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
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classes, as nearly equal in number as reasonably possible. The initial Class I
Director of the Corporation shall be Jeffrey Drazan; the initial Class II
Director of the Corporation shall be Richard Pallan; and the initial Class III
Directors of the Corporation shall be Scott Randall and Narda Krish. The initial
Class I Director shall serve for a term expiring at the annual meeting of
stockholders to be held in 2001, the initial Class II Director shall serve for a
term expiring at the annual meeting of stockholders to be held in 2002, and the
initial Class III Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 2003. 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 designations applicable
thereto.
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 and
exclusively 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, and not by
the stockholders. 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, subject to Article VI.3 hereof, 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.
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
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of Directors. At least forty-five (45) 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, and the alleged grounds thereof, 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.
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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. 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]
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<PAGE> 22
THIS SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed
as of this ____ day of __________, ____.
FairMarket, Inc.
By: ________________________________
Scott T. Randall
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.3
FORM OF
FIFTH 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 Fifth Amended and Restated Certificate of Incorporation
(the "Certificate") amends, restates and integrates the provisions of the Fourth
Amended and Restated Certificate of Incorporation which was filed with the
Secretary of State of the State of Delaware on _________ (the "Fourth Amended
and Restated Certificate"), and was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law (the
"DGCL").
3. The text of the Fourth 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 one hundred million (100,000,000) shares, of which (i)
ninety million (90,000,000) shares shall be a class designated as common stock,
par value $.001 per share (the "Common Stock") and (ii) ten million (10,000,000)
shares shall be a class designated as undesignated preferred stock, par value
$.001 per share (the "Undesignated Preferred Stock").
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 designations of any series of Undesignated Preferred Stock).
The 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.
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<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 designations 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 of the Corporation,
(the "Directors") and on all other matters requiring stockholder action, each
outstanding share entitling the holder thereof to one vote on each matter
properly submitted to the stockholders of the Corporation for their vote;
PROVIDED, HOWEVER, that, except as otherwise required by law, holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this
Certificate (or on any amendment to a certificate of designations of any series
of Undesignated Preferred Stock) that alters or changes the powers, preferences,
rights or other terms of one or more outstanding series of Undesignated
Preferred Stock if the holders of such affected series are entitled to vote,
either separately or together as a class with the holders of one or more other
such series, on such amendment pursuant to this Certificate (or pursuant to a
certificate of designations relating to any series of Undesignated Preferred
Stock) or pursuant to the DGCL;
(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 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 PREFERRED STOCK
The Board of Directors or any authorized committee thereof is expressly
authorized to the fullest extent permitted by law, 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, each
such series, and to fix the designations, powers, including voting powers, full
or limited, or no voting powers, preferences and the relative, participating,
optional or other special rights of the shares of each series and any
qualifications, limitations and restrictions thereof.
3
<PAGE> 4
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
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<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 (the "By-laws") shall so
provide.
3. NUMBER OF DIRECTORS; TERM OF OFFICE. The number of Directors
of the Corporation shall be fixed solely and exclusively 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 reasonably
possible. The initial Class I Director of the Corporation shall be Jeffrey
Drazan; the initial Class II Director of the Corporation shall be Richard
Pallan; and the initial Class III Directors of the Corporation shall be Scott
Randall and Nanda Krish. The initial Class I Director shall serve for a term
expiring at the annual meeting of stockholders to be held in 2001, the initial
Class II Director shall serve for a term expiring at the annual meeting of
stockholders to be held in 2002, and the initial Class III Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 2003. 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
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this Certificate and any certificate of designations applicable thereto.
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
and exclusively 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, but not by
the stockholders. 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, subject to Article VI.3 hereof, 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 forty-five (45) 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, and alleged grounds thereof, 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. 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: ____________________________
Scott T. Randall
President and Chief Executive
Officer
<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 (in person or by proxy) 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 it 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 90th day nor earlier than the
close of business on the 120th 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 120th day prior
to such Annual Meeting and not later than the close of business on the
later of the 90th 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 90th 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.
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(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 not less than 10 days nor more than 60 days before the Annual Meeting, to
each stockholder entitled to vote thereat
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by delivering such notice to such stockholder 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 of Incorporation of the Corporation (as the same
may hereafter be amended and/or restated, 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
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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
stock ledger of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either (i) in person, (ii) by written proxy
or (iii) by a transmission permitted by [Sec]212(c) of the Delaware General
Corporation Law ("DGCL") law. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission permitted by [Sec]212(c) of
the DGCL may be substituted for 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. Proxies shall be filed in accordance with the
procedures established for the meeting of stockholders. Except as otherwise
limited therein or as otherwise provided by law, proxies authorizing a person to
vote at a specific meeting 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
for and against 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. 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.
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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. 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 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 and exclusively 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.
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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 and
publicize by means of reasonable notice given to any director who is not present
at the meeting at which such resolution is adopted.
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.
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
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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 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. For purposes of this section, the total number of
directors includes any unfilled vacancies on the Board of Directors.
SECTION 11. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, the vote of a majority of the directors present
shall constitute action by 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, or a designated compensation committee thereof, 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.
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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 By-laws, 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
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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
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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.
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
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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) "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(a), 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;
(b) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation;
(c) "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;
(d) "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;
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(e) "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;
(f) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors of the
Corporation;
(g) "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; 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 or, in the case of Directors, advancement of Expenses 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
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<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
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<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 5.1
[Letterhead of Goodwin, Procter & Hoar LLP]
February 8, 2000
FairMarket, Inc.
500 Unicorn Park Drive
Woburn, MA 01801
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to FairMarket,
Inc. (the "Company") in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), of a Registration Statement on Form S-1 (File No.
333-92677), as amended (the "Registration Statement"), relating to an aggregate
of 5,750,000 shares of Common Stock, par value $.001 per share (the "Registered
Shares"), including 750,000 shares which the underwriters have an option to
purchase solely for the purpose of covering over-allotments. Of the 5,750,000
Registered Shares, 5,750,000 shares (including the 750,000 shares to cover the
over-allotment option) are to be sold by the Company (the "Company Shares") to
Deutsche Bank Securities Inc., FleetBoston Robertson Stephens Inc. and U.S.
Bancorp Piper Jaffray Inc., as representatives (the "Representatives") of the
several underwriters (the "Underwriters"), pursuant to an Underwriting Agreement
(the "Underwriting Agreement") to be entered into between the Company and the
Representatives of the Underwriters.
As counsel for the Company, we have examined signed copies of the
Registration Statement, the form of the proposed Underwriting Agreement being
filed as an exhibit to the Registration Statement, minutes of meetings of the
stockholders and the Board of Directors of the Company, as provided to us by the
Company, the Company's Amended and Restated Certificate of Incorporation and the
Company's By-laws, each as presently in effect, and such records, certificates
and other documents of the Company as we have deemed necessary or appropriate
for the purposes of this opinion. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as certified, photostatic or
facsimile copies and the authenticity of the originals of such copies.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and the corporate laws of
Delaware.
Based on the foregoing, we are of the opinion that when (i) the
Underwriting Agreement is completed (including the insertion therein of pricing
terms) and executed by the Company and on behalf of the Underwriters, and (ii)
the Company Shares are sold to the Underwriters and paid for pursuant to the
terms of the Underwriting Agreement, the Company Shares will be duly authorized,
legally issued, fully paid and non-assessable by the Company under the corporate
laws of Delaware.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters," and to the inclusion of this opinion as an exhibit to the
<PAGE> 2
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
Exhibit 10.4
FORM OF
FAIRMARKET, INC.
2000 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the FairMarket, Inc. 2000 Stock Option and
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Independent Directors and other key persons (including
consultants) of FairMarket, Inc. (the "Company") and its Subsidiaries upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Covered Employee" means an employee who is a "Covered Employee" within
the meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 7.
"Dividend Equivalent Right" means Awards granted pursuant to Section
11.
<PAGE> 2
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that if the Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), NASDAQ
National System or a national securities exchange, the determination shall be
made by reference to market quotations. If there are no market quotations for
such date, the determination shall be made by reference to the last date
preceding such date for which there are market quotations; provided further,
however, that if the date for which Fair Market Value is determined is the first
day when trading prices for the Stock are reported on NASDAQ or on a national
securities exchange, the Fair Market Value shall be the "Price to the Public"
(or equivalent) set forth on the cover page for the final prospectus relating to
the Company's Initial Public Offering.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Initial Public Offering" means the consummation of the first fully
underwritten, firm commitment public offering pursuant to an effective
registration statement under the Act, other than on Forms S-4 or S-8 or their
then equivalents, covering the offer and sale by the Company of its equity
securities, or such other event as a result of or following which the Stock
shall be publicly held.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a grantee's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
2
<PAGE> 3
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.001 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section
8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO
SELECT GRANTEES AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").
(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to
time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights, or any
combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and grantees, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend
at any time the period in which Stock Options may be exercised;
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<PAGE> 4
(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the grantee and whether and to what
extent the Company shall pay or credit amounts constituting interest
(at rates determined by the Administrator) or dividends or deemed
dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Chief Executive Officer
shall be deemed a one-person committee of the Board. Any such delegation by the
Administrator shall include a limitation as to the amount of Awards that may be
granted during the period of the delegation and shall contain guidelines as to
the determination of the exercise price of any Stock Option or Stock
Appreciation Right, the conversion ratio or price of other Awards and the
vesting criteria. The Administrator may revoke or amend the terms of a
delegation at any time but such action shall not invalidate any prior actions of
the Administrator's delegate or delegates that were consistent with the terms of
the Plan.
(d) Indemnification. Neither the Board nor the Committee, nor any
member of either or any delegatee thereof, shall be liable for any act,
omission, interpretation, construction or determination made in good faith in
connection with the Plan, and the members of the Board and the Committee (and
any delegatee thereof) shall be entitled in all cases to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or expense
(including, without limitation, reasonable attorneys' fees) arising or resulting
therefrom to the fullest extent permitted by law and/or under any directors' and
officers' liability insurance coverage which may be in effect from time to time.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 4,017,250 shares, subject to
adjustment as provided in
4
<PAGE> 5
Section 3(b). For purposes of this limitation, the shares of Stock underlying
any Awards under this Plan, the Company's Amended and Restated 1997 Stock Option
Plan and the Company's 1999 Stock Option Plan which are forfeited, canceled,
reacquired by the Company, satisfied without the issuance of Stock or otherwise
terminated (other than by exercise) shall be added back to the shares of Stock
available for issuance under the Plan. Subject to such overall limitation,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Award; provided, however, that Stock Options with respect to no more
than 1,005,000 shares of Stock may be granted to any one individual grantee
during any one calendar year period. The shares available for issuance under the
Plan may be authorized but unissued shares of Stock or shares of Stock
reacquired by the Company and held in its treasury.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result
of any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such shares
of Stock or other securities, or, if, as a result of any merger or
consolidation, sale of all or substantially all of the assets of the Company,
the outstanding shares of Stock are converted into or exchanged for a different
number or kind of securities of the Company or any successor entity (or a parent
or subsidiary thereof), the Administrator shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options or that can be granted
to any one individual grantee and the maximum number of shares that may be
granted under a Performance-based Award, (iii) the number and kind of shares or
other securities subject to any then outstanding Awards under the Plan, (iv) the
repurchase price per share subject to each outstanding Restricted Stock Award,
and (v) the price for each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options) as to which such Stock
Options remain exercisable. The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the grantee, if it would constitute a modification, extension or
renewal of the Option within the meaning of Section 424(h) of the Code.
5
<PAGE> 6
(c) Mergers and Other Transactions. In the case of and subject to the
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the outstanding shares of Stock are converted into or
exchanged for a different kind of securities of the successor entity and the
holders of the Company's outstanding voting power immediately prior to such
transaction do not own a majority of the outstanding voting power of the
successor entity immediately upon completion of such transaction, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Sale Event"), upon the effective time of the Sale Event, the Plan
and all outstanding Awards granted hereunder shall terminate, unless provision
is made in connection with such Sale Event in the sole discretion of the parties
thereto for the assumption or continuation of Awards theretofore granted, or the
substitution for such Awards with new Awards 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.
In the event the parties shall agree to assume or continue the Awards,
then the vesting of Awards shall accelerate (x) by one year if the grantee
continues to be employed by the successor to the Company (or its successor) on
the anniversary date of the closing of the Sale Event or (y) by two years less
the amount of time the grantee has been employed by the successor to the Company
(or its successor if the grantee's employment with the Company and its
subsidiaries or successor entity is terminated by the Company or its
Subsidiaries or successor entity without Cause (as defined below) or by the
grantee for Good Reason (as defined below), subject, however, to the following
sentence. Notwithstanding the foregoing, in the event that the Company receives
written advice from its independent public accountants in connection with any
Sale Event to the effect that vesting of any Award under the circumstances
contemplated by the preceding sentence would preclude or otherwise adversely
affect the ability of the Company or any other party to such Sale Event to
account for the same as a "pooling of interests" within the meaning of APB No.
16 (or any successor provision), which Sale Event would otherwise qualify for
such accounting treatment, then vesting of such Awards shall not accelerate on a
subsequent termination of the grantee's employment following such Sale Event as
contemplated by the preceding sentence. For purposes of this Section 3(c), the
term "Cause" means a vote of the Board of Directors of the Company or the
successor entity, as the case may be, resolving that the grantee should be
dismissed as a result of (I) any material breach by the grantee of any agreement
to which the grantee and the Company are parties, (II) any act (other than
retirement) or omission to act by the grantee which would reasonably be likely
to have a material adverse effect on the business of the Company or its
Subsidiaries or successor entity, as the case may be, or on the grantee's
ability to perform services for the Company or its Subsidiaries or successor
entity, as the case may be, including, without limitation, the conviction of any
crime (other than ordinary traffic violations), or (III) any material misconduct
or willful and deliberate non-performance of duties by the grantee in connection
with the business or affairs of the Company or its Subsidiaries or successor
entity, as the case may be; and the term "Good Reason" means the occurrence of
any of the following events: (x) a substantial adverse change in the nature or
scope of the grantee's responsibilities,
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<PAGE> 7
authorities, title, powers, functions, or duties; (y) a reduction in the
grantee's annual base salary except for an across-the-board salary reduction
similarly affecting all or substantially all management employees; or (z) the
relocation of the offices at which the grantee is principally employed to a
location more than 50 miles from such offices.
In the event that no such provision is made for the assumption or
continuation of the Awards, then all outstanding Awards granted hereunder shall
become fully vested and exercisable immediately prior to the closing of the Sale
Event and shall terminate upon the closing of the Sale Event. In the event of
such termination, each grantee shall be permitted, within a specified period of
time prior to the consummation of the Sale Event as determined by the
Administrator, to exercise all outstanding Options held by such grantee,
including those that will become exercisable upon the consummation of the Sale
Event; provided, however, that the exercise of Options not exercisable prior to
the Sale Event shall be subject to the consummation of the Sale Event.
Notwithstanding anything to the contrary in this Section 3(c), in the
event of a Sale Event pursuant to which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the Sale Event, the Company shall have the right, but not the obligation, to
make or provide for a cash payment to the grantees holding Options, in exchange
for the cancellation thereof, in an amount equal to the difference between (A)
the value as determined by the Administrator of the consideration payable per
share of Stock pursuant to the Sale Event (the "Sale Price") times the number of
shares of Stock subject to outstanding Options (to the extent then exercisable
at prices not in excess of the Sale Price) and (B) the aggregate exercise price
of all such outstanding Options.
(d) Substitute Awards. The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees,
directors or other key persons of another corporation in connection with the
merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances. Any substitute Awards granted under
the Plan shall not count against the first share limitation set forth in Section
3(a).
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons (including consultants
and prospective employees) of the Company and its Subsidiaries as are selected
from time to time by the Administrator in its sole discretion.
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SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or NonQualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after
February 8, 2010.
(a) Stock Options Granted to Employees and Key Persons. The
Administrator in its discretion may grant Stock Options to eligible employees
and key persons of the Company or any Subsidiary. Stock Options granted pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Administrator shall deem desirable. If the
Administrator so determines, Stock Options may be granted in lieu of cash
compensation at the optionee's election, subject to such terms and conditions as
the Administrator may establish.
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not
be less than 100 percent of the Fair Market Value on the date of grant
in the case of Incentive Stock Options, or 85 percent of the Fair
Market Value on the date of grant, in the case of Non-Qualified Stock
Options (other than options granted in lieu of cash compensation). If
an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10 percent of the
combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value on
the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more
than 10 years after the date the Stock Option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10 percent of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the term of such Stock Option shall be no more than five
years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date. The Administrator may at any time
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accelerate the exercisability of all or any portion of any Stock
Option. An optionee shall have the rights of a stockholder only as to
shares acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods to
the extent provided in the Option Award agreement:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the
ownership) of shares of Stock that have been purchased by the
optionee on the open market or that have been beneficially
owned by the optionee for at least six months and are not then
subject to restrictions under any Company plan. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date;
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company for the
purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a
promissory note if the Board has expressly authorized the loan
of funds to the optionee for the purpose of enabling or
assisting the optionee to effect the exercise of his Stock
Option; provided that at least so much of the exercise price
as represents the par value of the Stock shall be paid other
than with a promissory note if otherwise required by state
law.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be contingent
upon receipt from the optionee (or a purchaser acting in his stead in
accordance with the provisions of the Stock Option) by the Company of
the full purchase price for such shares and the fulfillment of any
other requirements contained in the Option Award agreement or
applicable provisions of laws. In the event an optionee chooses to pay
the purchase price by previously-owned shares of Stock through the
attestation method, the number of shares of Stock transferred to the
optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
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(v) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000.
To the extent that any Stock Option exceeds this limit, it shall
constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) Stock Options Granted to Independent Directors.
(i) Grant of Options to Independent Directors. The
Administrator, in its discretion, may grant Non-Qualified Stock Options
to Independent Directors. Any such grant may vary among individual
Independent Directors. The exercise price per share for the Stock
covered by a Stock Option granted under this Section 5(c) shall be
equal to the Fair Market Value of the Stock on the date the Stock
Option is granted.
(ii) Exercise; Termination.
(A) An Option granted under Section 5(c) shall be
exercisable as determined by the Administrator. An Option
issued under this Section 5(c) shall not be exercisable after
the expiration of ten years from the date of grant.
(B) Options granted under this Section 5(c) may be
exercised only by written notice to the Company specifying the
number of shares to be purchased. Payment of the full purchase
price of the shares to be purchased may be made by one or more
of the methods specified in Section 5(a)(iv). An optionee
shall have the rights of a stockholder only as to shares
acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(d) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the
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foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may transfer his
Non-Qualified Stock Options to members of his immediate family, to trusts for
the benefit of such family members, or to partnerships in which such family
members are the only partners, provided that the transferee agrees in writing
with the Company to be bound by all of the terms and conditions of this Plan and
the applicable Option.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at such purchase price as determined
by the Administrator, shares of Stock subject to such restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Restricted Stock Award is contingent on the grantee
executing the Restricted Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a grantee shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below, and the grantee shall be required,
as a condition of the grant, to deliver to the Company a stock power endorsed in
blank.
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
grantee's employment (or other service relationship) with the Company and its
Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the grantee or the grantee's legal
representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 14 below, in writing after the Award agreement is issued, a grantee's
rights in any shares of Restricted Stock that have not vested
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shall automatically terminate upon the grantee's termination of employment (or
other service relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted
Stock Award agreement may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Restricted Stock.
SECTION 7. DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award
of phantom stock units to a grantee, subject to restrictions and conditions as
the Administrator may determine at the time of grant. Conditions may be based on
continuing employment (or other service relationship) and/or achievement of
pre-established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the grantee executing the Deferred Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and grantees. At the end of the deferral period, the Deferred Stock Award, to
the extent vested, shall be paid to the grantee in the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation.
The Administrator may, in its sole discretion, permit a grantee to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such grantee in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a grantee
shall have no rights as a stockholder; provided, however, that the grantee may
be credited with Dividend Equivalent Rights with respect to the phantom stock
units underlying his Deferred Stock Award, subject to such terms and conditions
as the Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 14 below, in
writing after the Award agreement is issued, a grantee's right in all Deferred
Stock Awards that have not vested shall automatically terminate upon the
grantee's termination of employment (or cessation of service relationship) with
the Company and its Subsidiaries for any reason.
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SECTION 8. UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any grantee pursuant to
which such grantee may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
in respect of past services or other valid consideration, or in lieu of cash
compensation due to such grantee.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
(b) Rights as a Stockholder. A grantee receiving a Performance Share
Award shall have the rights of a stockholder only as to shares actually received
by the grantee under the Plan and not with respect to shares subject to the
Award but not actually received by the grantee. A grantee shall be entitled to
receive a stock certificate evidencing the acquisition of shares of Stock under
a Performance Share Award only upon satisfaction of all conditions specified in
the Performance Share Award agreement (or in a performance plan adopted by the
Administrator).
(c) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 14 below, in
writing after the Award agreement is issued, a grantee's rights in all
Performance Share Awards shall automatically terminate upon the grantee's
termination of employment (or cessation of service relationship) with the
Company and its Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the grantee's
termination of employment (or other service relationship) by the Company and its
Subsidiaries, the Administrator may in its sole discretion accelerate, waive or,
subject to Section 14, amend any or all of the goals, restrictions or conditions
applicable to a Performance Share Award.
SECTION 10. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code
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and the regulations promulgated thereunder (a "Performance-based Award"), such
Award shall comply with the provisions set forth below:
(a) Performance Criteria. The performance criteria used in performance
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity, assets,
capital or investment, (ii) pre-tax or after-tax profit levels of the Company or
any Subsidiary, a division, an operating unit or a business segment of the
Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
(b) Grant of Performance-based Awards. With respect to each
Performance-based Award granted to a Covered Employee, the Committee shall
select, within the first 90 days of a Performance Cycle (or, if shorter, within
the maximum period allowed under Section 162(m) of the Code) the performance
criteria for such grant, and the achievement targets with respect to each
performance criterion (including a threshold level of performance below which no
amount will become payable with respect to such Award). Each Performance-based
Award will specify the amount payable, or the formula for determining the amount
payable, upon achievement of the various applicable performance targets. The
performance criteria established by the Committee may be (but need not be)
different for each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of a
Performance Cycle, the Committee shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Committee shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award payable
to any one Covered Employee under the Plan for a Performance Cycle is 402,000
Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 11. DIVIDEND EQUIVALENT RIGHTS
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award
entitling the grantee to receive credits based on cash dividends that would have
been paid on the shares of Stock specified in the Dividend Equivalent Right (or
other award to which it relates) if such shares had been issued to and held by
the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee
as a component of another Award or as a freestanding award. The terms and
conditions of Dividend Equivalent Rights shall be specified in the Award
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agreement. Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any. Dividend Equivalent Rights may be settled in cash or shares
of Stock or a combination thereof, in a single installment or installments. A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 14 below, in
writing after the Award agreement is issued, a grantee's rights in all Dividend
Equivalent Rights or interest equivalents shall automatically terminate upon the
grantee's termination of employment (or cessation of service relationship) with
the Company and its Subsidiaries for any reason.
SECTION 12. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as
of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the grantee for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator 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 and its Subsidiaries 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 grantee. The Company's obligation to deliver stock certificates to
any grantee is subject to and conditioned on tax obligations being satisfied by
the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, a
grantee may elect to have the minimum required tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold from
shares of Stock to be issued pursuant to any Award a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the grantee with an aggregate Fair Market Value (as of
the date the withholding is effected) that would satisfy the withholding amount
due.
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SECTION 13. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 14. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code, if and to the extent intended
to so qualify, Plan amendments shall be subject to approval by the Company
stockholders entitled to vote at a meeting of stockholders. Nothing in this
Section 15 shall limit the Administrator's authority to take any action
permitted pursuant to Section 3(c).
SECTION 15. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
grantee, a grantee shall have no rights greater than those of a general creditor
of the Company unless the Administrator shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Administrator
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 16. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
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No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the grantee, at the grantee's last known
address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards
under the Plan shall be subject to such Company's insider trading policy, as in
effect from time to time.
(e) Loans to Grantees. The Company shall have the authority to make
loans to grantees of Awards hereunder (including to facilitate the purchase of
shares) and shall further have the authority to issue shares for promissory
notes hereunder.
(f) Designation of Beneficiary. Each grantee to whom an Award has been
made under the Plan may designate a beneficiary or beneficiaries to exercise any
Award or receive any payment under any Award payable on or after the grantee's
death. Any such designation shall be on a form provided for that purpose by the
Administrator and shall not be effective until received by the Administrator. If
no beneficiary has been designated by a deceased grantee, or if the designated
beneficiaries have predeceased the grantee, the beneficiary shall be the
grantee's estate.
SECTION 17. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present or by written consent of stockholders. Subject to such approval by the
stockholders and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options and other Awards may be granted hereunder on and
after adoption of this Plan by the Board.
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SECTION 18. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: February 8, 2000
DATE APPROVED BY STOCKHOLDERS: February , 2000
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Exhibit 10.13
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this AGREEMENT) is entered into as of
the 25th day of February, 1999, by and among FairMarket, Inc. a Delaware
corporation (the COMPANY) and each indemnitee (INDEMNITEE) executing this
Agreement.
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
stockholders (as defined in Section 10(g)), controlling persons, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, stockholders (as defined in Section 10(g)),
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, stockholders (as defined in Section 10(g)), controlling
persons, agents and fiduciaries of the Company may not be willing to serve in
such capacities without additional protection.
D. The Company (i) desires to attract and retain the involvement of
highly qualified groups, such as Indemnitee, to serve the Company and, in part,
in order to induce each Indemnitee to be involved with the Company and (ii)
wishes to provide for the indemnification and advancing of expenses to each
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that each Indemnitee be indemnified by the Company as set forth herein.
NOW THEREFORE, the Company and each Indemnitee hereby agrees as
follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
and hold harmless each Indemnitee (including its respective directors, officers,
general partners, limited partners, members, managing members, employees, agents
and spouses) and each person who controls any of them or who may be liable
within the meaning of Section 15 of the Securities Act of 1933, as amended (the
SECURITIES ACT), or Section 20 of the Securities Exchange Act of 1934, as
amended (the EXCHANGE ACT), to the fullest extent permitted by law if such
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that such
Indemnitee believes might lead to the institution of any such action,
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suit, proceeding or alternative dispute resolution mechanism, whether civil,
criminal, administrative, investigative or other (hereinafter a CLAIM) by reason
of (or arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was or may be deemed a director, officer, stockholder (as
defined in Section 10(g)), employee, controlling person, agent or fiduciary of
the Company, or any subsidiary of the Company, or is or was or may be deemed to
be serving at the request of the Company as a director, officer, stockholder (as
defined in Section 10(g)), employee, controlling person, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of such Indemnitee while serving
in such capacity including, without limitation, any and all losses, claims,
damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit, proceeding or any claim
asserted) under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto or as a
result of any claim (a) made by any stockholder (as defined in Section 10(g)) of
the Company against an Indemnitee and arising out of or related to any round of
financing of the Company (including, but not limited to, claims regarding
non-participation, or non-prorata participation, in such round by such
stockholder (as defined in Section 10(g)), (b) made by a third party against an
Indemnitee based on any misstatement or omission of a material fact by the
Company in violation of any duty of disclosure imposed on the Company by Federal
or state securities or common laws, (c) made by a third party against an
Indemnitee based (in whole or in part) on, or arising in any way out of, or
relating to conduct attributed to the Company or anyone alleged to be acting on
the Company's behalf, or (d) made by a third party against an Indemnitee based
(in whole or in part) on, or arising in any way out of, or relating to (i) the
Indemnitee being an investor in the Company, (ii) the Indemnitee's alleged
participation in the management or direction of the Company, (iii) the
Indemnitee's alleged participation in providing any assistance or advice to the
Company, or (iv) Indemnitee being a person described in Section 15 of Securities
Act or Section 20 of the Exchange Act (hereinafter an individually an
INDEMNIFICATION EVENT and collectively the INDEMNIFICATION EVENTS) against any
and all expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including an appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if, and only if, such
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld) of such Claim and any federal, state, local or foreign
taxes imposed on Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement (collectively, hereinafter EXPENSES), including
all interest, assessments and other charges paid or payable in connection with
or in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than ten (10) days
after written demand by the Indemnitee therefor is presented to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that it shall not have been finally determined that Indemnitee would not be
permitted to be indemnified under applicable law (initial determination shall be
made by the Reviewing Party as described in Section 10(e)
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hereof in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 1(e) hereof is involved), and (ii) and each Indemnitee
acknowledges and agrees that the obligation of the Company to make an advance
payment of Expenses to Indemnitee pursuant to Section 2(a) (an EXPENSE ADVANCE)
shall be subject to the condition that, if, when and to the extent that it is so
determined that Indemnitee would not be permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
initial determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control (as defined in Section 10(c) hereof), the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a Change
in Control (other than a Change in Control which has been approved by a majority
of the Company's Board of Directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal Counsel
referred to in Section 1(e) hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
(c) CONTRIBUTION. If the indemnification provided for in
Section 1(a) above for any reason is held by a court of competent jurisdiction
to be unavailable to an Indemnitee in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then the Company, in lieu of
indemnifying such Indemnitee thereunder, shall contribute to the amount paid or
payable by such Indemnitee as a result of such losses, claims, damages, expenses
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission
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or alleged omission to state a material fact relates to information supplied by
the Company or the Indemnitee and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Indemnitee agree that it would not be just and equitable if
contribution pursuant to this Section 1(c) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In connection with the registration of the Company's securities, in
no event shall Indemnitee be required to contribute any amount under this
Section 1(c) in excess of the lesser of (i) that proportion of the total of such
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Indemnitee or (ii) the proceeds received by such
Indemnitee from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(d) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification
and contribution provided for in this Section 1 will remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnitee or
any officer, director, general partner, limited partner, member, managing
member, employee, agent or controlling person of the Indemnitee.
(e) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Restated
Certificate of Incorporation (the RESTATED CERTIFICATE) or Bylaws as now or
hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company agrees to abide by such opinion and to pay the reasonable fees
of the Independent Legal Counsel referred to above and to fully indemnify such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(f) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 1(a) hereof or in the defense of
any claim, issue or matter therein, each Indemnitee shall be indemnified against
all Expenses incurred by such Indemnitee in connection herewith.
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2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than fifteen (15) days after written demand by such Indemnitee therefor to the
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall give
the Company notice as soon as practicable of any Claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to Indemnitee).
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt written notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in each of the policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel reasonably approved
by the applicable Indemnitee, upon the delivery to such Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to such Indemnitee under this Agreement for any fees
of counsel subsequently incurred by such Indemnitee with respect to the same
Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee's counsel in
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any such Claim at the Indemnitee's expense; (ii) the Indemnitee shall have the
right to employ his own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (iii) if (A) the employment of counsel by
the Indemnitee has been previously authorized by the Company, (B) such
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and such Indemnitee in the conduct of any such defense, or
(C) the Company shall not continue to retain such counsel to defend such Claim,
then the fees and expenses of the Indemnitee's counsel shall be at the expense
of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitee
to the fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement or any other
agreement, the Company's Restated Certificate, the Company's Bylaws or by
statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
stockholder (as defined in Section 10(g)), employee, controlling person, agent
or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy
by this Agreement the greater benefits afforded by such change. In the event of
any change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, stockholder (as defined in Section 10(g)), employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Restated Certificate, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the laws of the State of California or
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to each Indemnitee for any action such Indemnitee
took or did not take while serving in an indemnified capacity even though the
Indemnitee may have ceased to serve in such capacity and such indemnification
shall inure to the benefit of each Indemnitee from and after Indemnitee's first
day of service as a director with the Company or affiliation with a director
from and after the date such director commences services as a director with the
Company.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Restated Certificate, Bylaws or otherwise) of the
amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If any Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in
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connection with any Claim, but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such Expenses to which such Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. The Company and each Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, stockholders (as defined
in Section 10(g)), employees, controlling persons, agents or fiduciaries under
this Agreement or otherwise.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, stockholders (as defined in Section
10(g)), employees, control persons, agents or fiduciaries, each Indemnitee shall
be covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if such Indemnitee is a director, or of the Company's
officers, if such Indemnitee is not a director of the Company but is an officer,
or of the Company's key employees, controlling persons, agents or fiduciaries,
if such Indemnitee is not an officer or director but is a key employee, agent,
control person, or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to any Indemnitee with respect to Claims initiated or brought
voluntarily by such Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Restated Certificate or Bylaws now or hereafter in effect
relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board
of Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Delaware statute or law, regardless of whether such
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be; or
(b) CLAIM UNDER SECTION 16(b). To indemnify any Indemnitee for
expenses and the payment of profits arising from the purchase and sale by such
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar successor statute; or
(c) UNLAWFUL INDEMNIFICATION. To indemnify an Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five (5) years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such five (5) year period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall
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govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the COMPANY
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, stockholders
(as defined in Section 10(g)), employees, agents or fiduciaries, so that if
Indemnitee is or was or may be deemed a director, officer, stockholder (as
defined in Section 10(g)), employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the
request of such constituent corporation as a director, officer, stockholder (as
defined in Section 10(g)), employee, control person, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, each Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as each Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to OTHER
ENTERPRISES shall include employee benefit plans; references to FINES shall
include any excise taxes assessed on any Indemnitee with respect to an employee
benefit plan; and references to SERVING AT THE REQUEST OF THE COMPANY shall
include any service as a director, officer, stockholder (as defined in Section
10(g)), employee, agent or fiduciary of the Company which imposes duties on, or
involves services by, such director, officer, stockholder (as defined in Section
10(g)), employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if any Indemnitee acted in good faith
and in a manner such Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, such Indemnitee
shall be deemed to have acted in a manner NOT OPPOSED TO THE BEST INTERESTS OF
THE COMPANY as referred to in this Agreement.
(c) For purposes of this Agreement a CHANGE IN CONTROL shall
be deemed to have occurred if (i) any PERSON (as such term is used in Section
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders (as defined in
Section 10(g)) of the Company in substantially the same proportions as their
ownership of stock of the Company, (A) who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
Voting Securities, increases his beneficial ownership of such securities by five
percent (5%) or more over the percentage so owned by such person, or (B) becomes
the BENEFICIAL OWNER (as defined in Rule 13d-3 under said Exchange Act),
directly or indirectly, of securities of the Company representing more than
thirty percent (30%) of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or combination for election by the Company's stockholders (as defined
in Section 10(g)) was approved by a vote of at least two-
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thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders (as defined in Section 10(g)) of the Company approve a
merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least two-thirds (2/3) of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
(as defined in Section 10(g)) of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of (in one transaction or a series of transactions) all or substantially
all of the Company's assets.
(d) For purposes of this Agreement, INDEPENDENT LEGAL COUNSEL
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(e) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three (3) years
(other than with respect to matters concerning the right of any Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a REVIEWING PARTY shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification or Independent Legal Counsel.
(f) For purposes of this Agreement, VOTING SECURITIES shall
mean any securities of the Company that vote generally in the election of
directors.
(g) For purposes of this Agreement, STOCKHOLDER shall include
any holder of any capital stock of the Company and an affiliate thereof. For
purposes of this Agreement, AFFILIATE shall constitute any limited partner,
general partner, or any member or managing member of such general partner.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, partnership,
spouses, heirs, and personal and legal representatives. The Company shall
require and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to each Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and
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to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect with respect
to Claims relating to Indemnifiable Events regardless of whether any Indemnitee
continues to serve as a director, officer, employee, agent, controlling person,
or fiduciary of the Company or of any other enterprise, including subsidiaries
of the Company, at the Company's request.
13. ATTORNEYS FEES. In the event that any action is instituted by an
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, such Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee counterclaims
and cross-claims made in such action), and shall be entitled to the advancement
of Expenses with respect to such action.
14. NOTICE. 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 copy by
first class mail, postage prepaid, and shall be addressed, if to Indemnitee, at
each Indemnitee's address as set forth beneath the Indemnitee'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.
15. CONSENT TO JURISDICTION. The Company and each Indemnitee each
hereby irrevocably consent to the jurisdiction and venue of the courts of the
State of California for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the courts of the State of California.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the extent manifested by the provision held invalid,
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illegal or unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
California, as applied to contracts between California residents, entered into
and to be performed entirely within the State of California, without regard to
the conflict of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by the parties to be bound thereby. Notice of same shall be provided to
all parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
20. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving any Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
21. CORPORATE AUTHORITY. The Board of Directors of the Company and its
stockholders in accordance with Delaware law have approved the terms of this
Agreement.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
FairMarket, Inc.
a Delaware corporation
/s/ Scott Randall
--------------------------------
By: Scott Randall
Address: 400 Unicorn Park Drive
Woburn, MA 01801
INDEMNITEE:
SIERRA VENTURES VII, L.P.
By: Sierra Ventures Associates VII, L.L.C.
Its: General Partner
By: /s/ Jeffrey Drazan
--------------------------------------
Managing Member
Address: 3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
SIERRA VENTURES ASSOCIATES VII, L.L.C.
By: /s/ Jeffrey Drazan
--------------------------------------
Managing Member
Address: 3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
-12-
<PAGE> 1
EXHIBIT 10.14
CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE
SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS HAVE BEEN INDICATED WITH
ASTERISKS.
MICROSOFT AND FAIRMARKET CONFIDENTIAL
MICROSOFT CORPORATION
COMPOSITE AUCTION SERVICES AGREEMENT
This Auction Services Agreement (the "Agreement") is made and entered
into as of this 26th day of July, 1999 (the "Effective Date"), by and between
Microsoft Corporation, a Washington corporation, with a principal place of
business located at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and
FairMarket, Inc., a Delaware corporation, with a principal place of business
located at 400 Unicorn Park Drive, Woburn, MA 01801 ("FairMarket").
RECITALS
Microsoft operates a number of web sites and wishes to offer users of
such sites access to a Microsoft-branded auction service.
FairMarket is in the business of designing, developing and hosting web
sites for third parties and wishes to create, host and support private label
auction services for Microsoft, based upon Microsoft specifications and branding
requirements.
Microsoft wishes to enter into an agreement to have FairMarket develop,
host and support key elements of a private labeled Microsoft auction service
that is accessible on various Microsoft web sites, which sites shall be
determined in Microsoft's sole discretion.
Now therefore, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
Microsoft and FairMarket agree as follows.
AGREEMENT
1. DEFINITIONS
1.1 "ADMINISTRATIVE MODULE" means that online software tool, as more
fully described in Exhibit A attached hereto and incorporated herein by
this reference, provided to Microsoft by FairMarket that allows Microsoft
to access and modify certain portions of the Private Label Auction Sites as
described in Section 2.8.
1.2 "ADVERTISING FEES" means any fees charged by Microsoft from the
sale of banner advertising and tile ad advertising.
1.3 "AFFILIATES" means those companies for whom FairMarket provides
private label auction services similar to the Private Label Auction Sites
as defined herein.
1.4 "AUCTION CONTENT AREA" means the area on a Private Label Auction
Site where the main auction and classified advertising listings and
auctions/classifieds-related merchandising occurs.
1.5 "AUCTION SERVICES" means commerce services where Buyers set the
ultimate sales price of the goods or services offered for sale on the
Private Label Auction Sites, including without limitation, auctions of all
types (e.g., traditional, Dutch, English, reverse, quick-win) and declining
price sales formats.
1.6 "BUYER" means a person purchasing items.
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1.7 "CLASSIFIED ADVERTISING SERVICES" means line listing type
advertising in the auctions/classifieds area of the Private Label Auction
Sites where Sellers set a fixed sales price for the goods or services
available for purchase online or offline.
1.8 "COMMERCIAL RELEASE DATE" means the date on which the first
Private Label Auction Site becomes commercially available to the general
public.
1.9 "END USERS" means all end users of the Private Label Auction
Sites, including without limitation, Buyers and Sellers.
1.10 "FAIRMARKET NETWORK" means the network of sites of FairMarket's
Affiliate customers for whom FairMarket hosts private label auction
services similar to the Private Label Auction Sites as defined herein.
1.11 "LISTING FEES" means any fee charged to a Seller for entering its
listings of products or services on the Private Label Auction Sites.
Listing fees include basic listing fees for participation as well as fees
for participation in Merchandising Locations.
1.12 "MERCHANDISING LOCATIONS" means areas on the Private Label
Auction Sites where Sellers can merchandise themselves as a featured
merchant or their product listings. Merchandising Locations will include
enhanced listings (e.g., bold), Featured Merchants List, Featured Merchant
Listings, Hot Listings, and navigational area Category Sponsorships.
Examples of such locations are set forth in the attached Exhibit D.
1.13 "MICROSOFT MARKS" means those Microsoft trademarks, trade names,
service marks, and/or logos, including without limitation the MSN Logo,
which Microsoft elects to use on and in connection with the Private Label
Auction Sites.
1.14 "MICROSOFT SITES" means the web sites owned and/or operated by
Microsoft (including any versions, upgrades, successors and replacements
thereof), including without limitation, those identified in Section 2.4
below.
1.15 "MSN" means Microsoft's general information portal web site
located at www.msn.com (including any versions, upgrades, successors and
replacements thereof).
1.16 "MSN LOGO" means the MSN logo provided to FairMarket for use in
the Private Label Auction Sites or such additional or replacement logos as
Microsoft may provide from time to time under this Agreement.
1.17 "PRIVATE LABEL AUCTION SITES" means those web sites created by
FairMarket on behalf of Microsoft pursuant to this Agreement where, among
other things, End Users can buy and sell items through Auction Services and
Classified Advertising Services.
1.18 "SELLERS" means persons purchasing listings seeking to sell
items.
1.19 "SPECIFICATIONS" means those functional specifications described
in FairMarket's Community Auction Place Features, version 4.0, as such
specifications may be improved and updated from time to time. The current
version of the Specifications is attached hereto as Exhibit A and
incorporated herein by this reference.
1.20 "TERM" means the period set forth in Section 12.
1.21 "TERRITORY" means the geographic area comprising the United
States, including its possessions and territories, and Canada.
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1.22 "TRANSACTION FEES" means any fee charged by Microsoft to Sellers
or Buyers which become payable to Microsoft upon the consummation of a sale
of product or service through the Auction Services or the Classified
Advertising Services.
1.23 "USER INTERFACE" means the area where the overall site
navigation, banner advertising and look and feel associated with each
Private Label Auction Site is displayed.
1.24 All other initially capitalized terms shall have the meanings
hereinafter assigned to them.
2. FAIRMARKET RIGHTS AND OBLIGATIONS
2.1 DEVELOPMENT AND HOSTING OBLIGATIONS OF FAIRMARKET. FairMarket will
provide Microsoft with an Administrative Module for each of the Private
Label Auction Sites through which Microsoft can control the Auction
Services parameters on each such Private Label Auction Site, including user
interface, auction categories, listings and email text, as well as have
access to real-time auction reporting. Each such Administrative Module
shall be based on and in conformance with the Specifications. At
Microsoft's election and written request, during the Term FairMarket shall
provide Microsoft with the Administrative Modules to create and develop an
unlimited number of versions of the Private Label Auction Sites for
simultaneous use by Microsoft in connection with the provision of Auction
Services and Classified Advertising Services to End Users of the Microsoft
Sites in the Territory. Such versions shall be at no charge to Microsoft
except as otherwise provided herein. FairMarket shall be responsible for
all system operation software costs, hardware costs and operation costs
incurred in connection with the development and operation of the Private
Label Auction Sites. FairMarket agrees to make reasonable product
modifications, including without limitation, adding new graphics,
adding/deleting or modifying links to third-party web sites, and screen
redesigns, within 14 days of receiving any revised written request from
Microsoft during the Term.
2.2 HOSTING AND URLS. FairMarket shall host the Private Label Auction
Sites on servers owned or controlled by FairMarket, under Universal
Resource Locator(s) ("URL(s)") to be provided by Microsoft.
2.3 MODIFICATIONS. Notwithstanding anything contained in Section 2.1,
FairMarket shall ensure that Microsoft has the ability to independently
modify and tailor each Private Label Auction Site as described in Sections
2.5 and 2.8 of this Agreement.
2.4 PARTICIPATING MICROSOFT SITES. FairMarket acknowledges and agrees
that the Microsoft Sites named in List #1 below are the most likely
Microsoft Sites to incorporate Private Label Auction Services developed by
FairMarket. The parties acknowledge and agree that some of the Microsoft
Sites named in List #2 will also incorporate Private Label Auction Services
developed by FairMarket and in some cases the Microsoft Sites named in List
#1 may not.
LIST #1
-------
MSN.com.
Business Channel
Computing Central
MSN Plaza/Shopping
Womens Channel
MSN Gaming Zone
Sidewalk/Comparenet
MSN Entertainment
Web Communities
MSN Search
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LIST #2
-------
MSN Sports
HotMail
WebTV
LinkExchange
Encarta
Expedia
Carpoint
Microsoft Instant Messenger
MSNBC
HomeAdvisor
MoneyCentral
2.5 USER INTERFACE; CO-BRANDING. Microsoft will determine the look and
feel of the User Interfaces for each of the Private Label Auction Sites,
subject to the condition that each page of the Private Label Auction Sites
will contain "Member of the FairMarket Network" or similar mutually agreed
upon FairMarket ingredient branding. Microsoft will utilize the
Administrative Module to program all HTML code to create the User
Interface. FairMarket will use best efforts to assist Microsoft in
developing the User Interfaces for each of the Private Label Auction Sites.
To the extent that FairMarket's Administrative Module cannot be used to
create Microsoft's desired look and feel, FairMarket will use commercially
reasonable efforts to approximate the Microsoft Sites' look and feel as
closely as possible.
2.6 CONTENT; REMOVAL.
(a) FairMarket agrees to make available at no cost to Microsoft,
and except as otherwise provided in this Agreement, Microsoft agrees
to display listings and other Merchandising Listings from the
FairMarket Network in the Auction Content Area.
(b) FairMarket shall be primarily responsible for removing
auctions, classified advertising categories or items or listings if
they do not comply with generally acceptable advertising industry
standards. Examples of such types of items include, without
limitation, pornography, drugs, alcohol and racially or politically
offensive products or ads. In addition, FairMarket will work with
Microsoft to identify and establish a mutually agreed set of
additional categories or items that FairMarket will be primarily
responsible for removing.
(c) In addition, in Microsoft's sole discretion, Microsoft may
elect that the Private Label Auction Sites will not contain certain
types of classified advertising, including without limitation, real
estate classified ads, automobile classified ads, travel classifieds
ads, employment classified ads or certain auction categories or
related auction listings such as computer software, whether such
listings originated on the Private Label Auction Sites or Affiliate
sites. In addition to FairMarket's obligation identified in Section
2.6(b) above, Microsoft shall have the right, but not the obligation,
to remove auctions or classified advertising categories or items if
they do not comply with Microsoft standard advertising guidelines, or
if they are competitive to the Microsoft Sites, e.g., auto auctions
from Auto-by-Tel. FairMarket shall ensure that the Administrative
Module provides Microsoft with the ability and all necessary
functionality to remove objectionable listings from the Private Label
Auction Sites. Microsoft has the right not to include listings if it
has reason to believe any such listing might be illegal/fraudulent, or
if a Seller is a known counterfeiter, and the like.
2.7 MERCHANDISING LOCATIONS. The Private Label Auction Sites will
contain merchandising areas within the Auction Content Area where
Sellers can merchandise their listings. Certain locations have
currently been defined and are listed below; FairMarket and/or
Microsoft may develop others during the course of this Agreement. For
each Merchandising Location, the following will apply.
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(A) PRE-IDENTIFIED MERCHANDISING LOCATIONS. The following are
Merchandising Locations that currently exist and will be included
as part of the Private Label Auction Sites. (i) Featured Merchant
Listings: Appear in the main body of each category page, above
the Current Listings section; (ii) Featured Merchants: Appear in
the left or right hand menu bar; (iii) Hot Listings: Appear in
the left or right hand menu bar; (iv) Category Sponsorship:
Appear above the main body of each category and sub-category
page, contains a text link or graphic link to a category
sponsor's detailed listings on the Private Label Auction Site.
Notwithstanding the forgoing, the location of these
pre-identified Merchandising Locations on the Private Label
Auction Sites will be determined solely by Microsoft. Additional
Merchandising Locations will be added in Microsoft's sole
discretion.
(B) DISPLAY OF FAIRMARKET ITEMS IN MERCHANDISING LOCATIONS ON THE
PRIVATE LABEL AUCTION SITES:
- FairMarket shall receive 25% of the listings inventory
in the Featured Merchants List areas.
- FairMarket shall receive 25% of the listings inventory
in Featured Merchant Listings areas.
- FairMarket shall receive 25% of the listings inventory
in Hot Listings areas.
- FairMarket shall receive 25% of the listings inventory
in Category Sponsorship areas.
Microsoft has the sole right to determine the number of listings
in the Merchandising Locations. FairMarket's portion of listings
that FairMarket has the right to display will be calculated based
on the percentage allocation above, but in no event will be less
than two listings per Merchandising Location. The order in which
the items found in Merchandising Locations are displayed will be
rotated sequentially, so that all featured Merchant Listings or
Featured Merchants will appear at the top of the list an equal
number of times. In the case of Featured Merchants and Category
Sponsorship areas, FairMarket agrees to not display merchants
that are competitive to Microsoft (e.g, Travelocity, Auto-by-Tel,
etc.). Microsoft will provide FairMarket with a list of companies
that will not be displayed in the Merchandising Locations. The
list of companies will be updated periodically by Microsoft. Only
Microsoft and FairMarket, and no other FairMarket Affiliate, will
obtain inventory or have its listings appear in the Private Label
Auction Site Merchandising Locations.
(C) BILLING AND COLLECTING. For Microsoft-generated Merchandising
Listings, FairMarket will be responsible for billing and
collection of Merchandising Fees, using the same procedures as
for Listing Fees and Transaction Fees as set forth in Section
5.1(b). For purposes of this Agreement, fees charged by Microsoft
for Microsoft-generated Merchandising Listings will be considered
Listing Fees for purposes of revenue calculations and billing and
collections. For the purposes of this Agreement,
Microsoft-generated Category Sponsorships will be treated as
"Advertising Fees" and shall be treated in accordance with the
terms of Section 5.2.
2.8 ADMINISTRATIVE MODULE. FairMarket will provide Microsoft with an
Administrative Module for each of the Private Label Auction Sites
through which Microsoft can control the Auction Services parameters,
including user interface, auction categories, listings and email text,
as well as have access to real-time auction reporting. The
Administrative Module will provide Microsoft with the ability in the
Administrative Module to remove listings from the Private Label Auction
Sites that are objectionable to Microsoft, e.g., Microsoft competitive
listings. Microsoft will utilize FairMarket's Administrative Module to
program all HTML code to manage the Private Label Auction Sites.
FairMarket will provide best efforts to train and assist Microsoft
regarding the use of FairMarket's Administrative Module functionality.
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2.9 CLASSIFIEDS LISTINGS. FairMarket shall provide Microsoft with all
necessary tools and assistance to allow Microsoft to input existing
Microsoft classified ad listings into the Private Label Auctions Sites
at no cost to Microsoft. Subject to the provisions of Section 4.1, such
listings will be distributed across the FairMarket Network.
2.10 IMPLEMENTATION TIMETABLE. Within thirty (30) calendar days
immediately following the Effective Date, FairMarket will provide
Microsoft with the tools, training and hosting services that enable
Microsoft to launch up to ten (10) Private Label Auction Sites.
Additional Private Label Auction Sites will be developed per a schedule
mutually agreed upon by Microsoft and FairMarket, but in no event will
an implementation take longer than thirty (30) days from the date of
written notification by Microsoft to FairMarket of Microsoft's desire
to launch a site.
2.11 PERFORMANCE STANDARDS. FairMarket agrees to meet or exceed MSN
performance standards, attached as Exhibit C, including system
availability/down time and average response time. FairMarket agrees to
provide Microsoft with direct access to network operations support
personnel on a 24x7 basis.
2.12 DEDICATED RESOURCES. FairMarket's support of Microsoft shall
include a minimum assignment of four full-time FairMarket personnel to
work solely on the design, development, integration and support of
Auction Services into Microsoft Sites. FairMarket will designate one or
more dedicated project manager(s), account manager(s), engineer(s), as
well as identify specific operations and customer personnel to support
Microsoft.
2.13 INTEGRATION. FairMarket will make best efforts to enable its
Auction Services to be tightly integrated into the Microsoft Sites, and
once developed, Microsoft will use commercially reasonable efforts to
utilize and promote online such functionality. Such integration will
include, but not be limited to:
(A) INTEGRATION OF REGISTERED MICROSOFT PASSPORT USERS.
Microsoft can enable existing registered users to
participate in the Private Label Auction Sites without
having to reenter their username, password or other relevant
information.
(B) INTEGRATION INTO CONTEXTUAL LOCATIONS AND SEARCH
RESULTS. FairMarket will provide data files of product
listing data for integration into Microsoft's search and
directory results and other contextual locations throughout
the Microsoft Sites.
(C) INTEGRATION INTO MICROSOFT'S PERSONALIZATION FEATURES.
FairMarket will use best efforts to provide its data in a
format for integration into Microsoft's personalization
initiatives across the Microsoft Sites.
(D) INTEGRATION INTO MICROSOFT MERCHANT TOOLS. FairMarket
will use best efforts to work with Microsoft to develop
auction and classified advertising related merchant tools
that seamlessly integrate with Microsoft merchant tools and
support Microsoft advertising sales packages, as well as
Microsoft billing, operations and Private Label Auction Site
functionality. FairMarket agrees to make functionality
available to Microsoft that will enable Microsoft to create
and offer to Sellers merchant packages including discounted
listing fees and bundled merchandising.
(E) INTEGRATION INTO MICROSOFT COMMUNITY BUILDING TOOLS/WEB
COMMUNITIES. FairMarket will use best efforts to incorporate
Microsoft Community Building Tools (i.e., chat, BBS,
calendaring, etc.) on the Private Label Auction Sites.
(F) INTEGRATION INTO MICROSOFT INSTANT MESSENGER. FairMarket
will use best efforts to incorporate Microsoft Instant
Messenger functionality on the Private Label Auction Sites.
(G) INTEGRATION INTO MICROSOFT BIZTALK PRODUCT/SERVICES
CLASSIFICATION TAXONOMY. FairMarket will use best efforts to
adopt Microsoft schema for structure products. For example,
if
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for "printers" FairMarket has a number of attributes for
searching auctions, and for "printers" Microsoft has a
number of attributes for a buyer guide, these attributes
should be substantially the same.
(H) INTEGRATION INTO MICROSOFT COMMERCE SERVER AND OTHER
MICROSOFT COMMERCE SOFTWARE PRODUCTS. FairMarket will use
best efforts to work with Microsoft to develop links from
the Microsoft Commerce Server to the Private Label Auction
Sites for merchants utilizing Microsoft Commerce Server.
(I) INTEGRATION INTO THE MSN SEARCH ENGINE. FairMarket will
use best efforts to work with Microsoft to program in fifty
(50) or one hundred (100) search term result sets. Longer
term, more advanced integration may include FairMarket
working with Microsoft to automatically query the auction
database for search strings and pull back relevant results.
(J) INTEGRATION INTO MICROSOFT'S INTERNET EXPLORER.
FairMarket will use best efforts to work with Microsoft to
find ways to integrate auctions notifications (i.e.,
products meeting a user's profile becoming available for
sale, latest bid, etc.), auctions functionality and/or
auctions content with Microsoft Internet Explorer.
(K) INTEGRATION INTO MICROSOFT'S BUSINESS-TO-BUSINESS
PORTAL. FairMarket will use best efforts to work with
Microsoft to integrate auction service functionality into
the Microsoft Business to Business Portal.
(L) INTEGRATION INTO MICROSOFT'S MSN MOBILE SERVICE.
FairMarket will use best efforts to work with Microsoft to
integrate auction service functionality into MSN Mobile
service -- e.g., the FairMarket server would send the
Microsoft server an HTTP post when a user is out-bid or has
won an auction. The post would include the user ID, the
auction item name and the new bid price or final price.
Microsoft will prioritize these integration efforts. No later than ten
days immediately following the Effective Date, Microsoft and FairMarket
will mutually agree on a product development schedule to address the
timing for the efforts identified in this Section 2.13.
2.14 SITE SCREENING. FairMarket shall be primarily responsible for
screening and promptly removing problematic listings on the Private
Label Auction Sites as provided in this Agreement, including without
limitation, Section 2.6 above.
2.15 CUSTOMER SERVICE; TECHNICAL SUPPORT. At no charge to Microsoft,
FairMarket shall be solely responsible for performing email-based
customer support to End Users of all Private Label Auction Sites on a
24-hour per day, 7-day per week basis, with a maximum 24-hour response
time. All customer service will be "Microsoft branded" and will conform
to the requirements and performance standards attached hereto as
Exhibit C or as otherwise mutually agreed between the parties.
FairMarket shall provide all technical support for the Private Label
Auction Sites and customer and technical support for users of the
Private Label Auction Sites, according to the technical support and
maintenance requirements attached hereto as Exhibit B or as otherwise
mutually agreed in writing between the parties.
2.16 REPORTING.
(a) FairMarket will furnish Microsoft with monthly usage
statements showing for each month the number of auction and
classified listings by category, the number of auctions
closed, traffic to Private Label Auction Sites, the number of
page views, dollars per auction/category, and other key usage
information as reasonably requested by Microsoft in connection
with this Agreement.
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(b) FairMarket will also provide Microsoft with the number,
frequency, nature of and FairMarket response to any End User
support calls and any other support-related information and
documentation as is reasonably requested by Microsoft in
connection with this Agreement.
(c) FairMarket shall provide Microsoft with access to "real
time" online reporting functionality that will allow
Microsoft to ascertain user activity occurring at the
Private Label Auction Sites including user traffic, listing
related activity and transaction-related activity.
(d) FairMarket will track and report to Microsoft on
revenues in an identified format for each Private Label
Auction Site separately, as well as provide an aggregate
Microsoft revenue report for the same.
(e) Within 180 days immediately following the Effective
Date, FairMarket will track and report to Microsoft
aggregate cross network usage of the Microsoft provided
classified ads.
2.17 LIMITED PROMOTION OF FAIRMARKET BRANDED AUCTION SITE. Unless
otherwise mutually agreed, FairMarket shall not promote its own branded
auction site to the public. FairMarket agrees to promote instead the
FairMarket Network of sites.
2.18 FAIRMARKET PROMOTION. Subject to the provisions of Section 3.9
below, FairMarket shall promote Microsoft's participation as a
participant in the FairMarket Network in ongoing press materials and in
marketing materials related to such program; provided that all uses of
Microsoft Marks in marketing and promotional materials shall require
the prior review and approval of Microsoft as provided in Section 9.2
below.
2.19 PARTICIPATION IN MSN PROMOTIONS. At the request of Microsoft,
FairMarket shall use commercially reasonable efforts to participate in
MSN network promotions (in general, one per month) and to create
banner/tile ads that it will provide to Microsoft to be placed
throughout the Microsoft Sites to create awareness of the Auction
Services. For purposes of this Section 2.19, "participating" means
working with Microsoft to determine campaign themes and responding to
Microsoft requests on a timely basis.
2.20 MICROSOFT TECHNOLOGY ADOPTION. As a Microsoft strategic partner,
FairMarket agrees, at its sole discretion, to use commercially
reasonable efforts to adopt key Microsoft platform architectures and
technology (in addition to the Microsoft technologies outlined in
Section 2.13 above) which are being adopted by other Microsoft
strategic partners, so long as the benefits to FairMarket are
substantial or the costs to FairMarket not disproportionate to those it
would incur in connection with similar technology adoption. Microsoft
agrees to provide commercially reasonable technical assistance as
mutually agreed to FairMarket to assist in adoption and implementation
of such services.
2.21 SOFTWARE PIRACY SUPPORT MEASURES. FairMarket agrees to work with
Microsoft to develop comprehensive programs to reduce the sale of
pirated Microsoft software and other illegal, pirated, counterfeit or
unauthorized sales of other merchandise on the Private Label Auction
Sites, and will develop no less comprehensive a program on all of its
other FairMarket Network sites. Such programs may include requiring
users to post verifiable information and/or a Microsoft review cycle.
2.22 ADDITIONAL SERVICES. FairMarket agrees to develop the following
features, functions or services per the timeline below.
(A) INSURANCE/FRAUD PROTECTION SERVICE that insures Buyers and
Sellers against Auction Services-related acts of fraud (within
60 days of the Effective Date).
(B) ESCROW AND CREDIT CARD PROCESSING SERVICE that allows
auction sellers to accept credit card payments when selling
products or services (within 90 days of the Effective Date).
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(C) BASIC INTERNATIONAL FUNCTIONALITY that provides
international time zone support, international currency
support and country specific date/time formats (within 120
days of the Effective Date).
(D) ENHANCED INTERNATIONAL FUNCTIONALITY that provides
non-English language support (within 270 days of the Effective
Date).
(E) EFFECTIVE NOTICE AND TAKEDOWN PROCEDURES across entire
network (within 15 days of the Effective Date).
3. MICROSOFT RIGHTS AND OBLIGATIONS
3.1 DEVELOPMENT COOPERATION. Microsoft shall provide to FairMarket
timely and reasonable assistance and cooperation in connection with the
development and testing of the Private Label Auction Sites.
3.2 URLS. Microsoft shall, at its sole cost and expense, obtain and
maintain all rights to the URL(s), or any successor URL(s), at which
the Private Label Auction Sites are to be located.
3.3 PROMOTION OF FAIRMARKET'S SERVICE TO MICROSOFT SITES. Microsoft
shall exercise commercially reasonable efforts to make each Microsoft
Site aware of FairMarket's Auction Services, promote FairMarket as an
"incumbent" for purposes of Auction Services, and encourage each
Microsoft Site to utilize Auction Services from FairMarket. FairMarket
acknowledges that Microsoft makes no representation that any particular
number of Microsoft Sites will participate under this Agreement.
3.4 MICROSOFT AUCTION SERVICE INTEGRATION AND PROMOTION. Microsoft will
integrate links to the Auction Services area throughout the Microsoft
Sites. Such integration may include, but not be limited to, links from
home pages, links from shopping pages, inclusion in emails, links from
search results pages, links from category pages, and links from other
contextually relevant pages within the Microsoft Sites to relevant
areas within the Private Label Auction Sites. Microsoft shall have sole
control over the promotion of the Private Label Auction Sites, and the
display and placement of links to the Private Label Auction Sites on
any and all Microsoft Sites.
3.5 MICROSOFT EDITORIAL STAFF. Microsoft will use commercially
reasonable efforts to author editorial and promotional content aimed at
increasing traffic to the Private Label Auction Sites.
3.6 MICROSOFT TECHNOLOGY. Microsoft shall make available, as Microsoft
deems appropriate, Microsoft technology and technical assistance to
FairMarket at rates proportionate to those made available to other
similarly situated Microsoft strategic partners.
3.7 MICROSOFT OFFICE SPACE. Microsoft agrees to make available office
space for FairMarket dedicated personnel. Such space shall include up
to three offices on the Microsoft campus, subject to FairMarket's
compliance with Microsoft's standard terms and conditions for on-site
vendors.
3.8 MICROSOFT PROMOTION. Microsoft shall promote Microsoft's
participation as a member of the FairMarket Network in ongoing press
materials and in marketing collateral related to such program. In the
event that FairMarket wishes to promote Microsoft's participation, it
shall obtain the prior written approval of Microsoft prior to releasing
any press materials or marketing collateral related to such program.
3.9 USER TRAFFIC GUARANTEE.
(A) MINIMUM ANNUAL VISITS. Microsoft agrees to drive the
minimum number of user visits to the Private Label Auction
Sites as specified below ("Minimum Annual Visits"). For
purposes
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of this Section 3.9, a "Visit" to the Auction Content Area is
defined as a session in a Private Label Auction Site. Visits
include those instances where the user clicks on a
Microsoft-placed link, on a Microsoft Site or other site where
Microsoft has a relationship, and enters the Auction Area hosted
by FairMarket, and also includes those visits from users who have
registered for Microsoft auctions who enter the Private Label
Auction Sites directly by typing in a URL or any other means
utilized by Microsoft to access the Private Label Auction Sites.
Microsoft will not deliberately and artificially route traffic to
the Private Label Auction Sites in an effort to artificially
increase Visits.
<TABLE>
<CAPTION>
YEAR MINIMUM ANNUAL VISITS
---- ---------------------
<S> <C>
Year 1 72 Million Visits
Year 2 160 Million Visits
Year 3 184 Million Visits
Year 4 203 Million Visits
Year 5 212 Million Visits
</TABLE>
(B) PAYMENT CALCULATION.
(i) During each year of the Term (a "Year" being defined as
the one year period beginning on the Commercial Release Date
or anniversary of the Commercial Release Date and running
for one year therefrom), if the actual number of Visits for
that Year is equal to or greater than the Minimum Annual
Visits for such Year, then FairMarket shall pay Microsoft
the shortfall, if any, between the Guaranteed Minimum
Revenue and Microsoft's share (as specified in Section 5
below) of actual revenue attributable to the Private Labeled
Auction Sites ("Actual Microsoft Revenue") during such Year.
(ii) If the actual number of Visits for a given Year is
between 80% and 99.9% of the Minimum Annual Visits for such
Year, then FairMarket shall pay Microsoft the greater of its
share of Actual Microsoft Revenue during such Year or the
pro-rata portion of the Guaranteed Minimum Revenue for such
Year. By way of example, if Microsoft delivered 85% of its
traffic commitment, FairMarket would be responsible for
paying Microsoft 85% of the Guaranteed Minimum Revenue for
the applicable Year, if greater than the Actual Microsoft
Revenue for that Year.
(iii) If the actual number of Visits for a given Year is
less than 80% of the Minimum Annual Visits for such Year,
then FairMarket shall pay Microsoft its share of Actual
Microsoft Revenue during such Year.
(C) GUARANTEES NOT CUMULATIVE. For purposes of this Section 3.9,
Minimum Annual Visit guarantees are viewed on a contract Year
basis and not on a cumulative basis. By way of example, if
Microsoft did not reach 80% of the Minimum Annual Visit total in
Year 2 but then exceeded the Minimum Annual Visit total in Year
3, FairMarket would pay the Guaranteed Minimum Revenue in Year 3
and would only pay the Actual Microsoft Revenue in Year 2.
3.10 PRE-EMINENT AUCTION SERVICES PARTNER. Microsoft agrees that
FairMarket will be the pre-eminent provider of Auction Services for the
Microsoft Sites. Such Auction Services may include business to
business, business to consumer, and consumer to consumer services.
Microsoft Sites that elect to utilize FairMarket's Auction Services
shall not enter into a relationship with any company to provide
comparable auction services, private labeled or otherwise, to that of
FairMarket and will not host content or promote links or advertising to
any such company, subject to the following exceptions:
(A) SPECIALIZED AUCTION-RELATED FUNCTIONALITY. Microsoft retains
the right to work with companies that provide specialized
auction-related functionality that is not comparable to
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functionality provided by FairMarket, including but are not
limited to, high-end B2B auctions functionality (FreeLoader),
Group Buying (Mercata), Online Haggling (Nextag.com),
Non-bidding, Buyer priced purchased (PriceLine), Credit Card
Transaction Processing Services (BillPoint), Escrow Services
(iEscrow), Sothebys (authenticated product auctions).
(B) NON-AUCTION-RELATED ADVERTISING. Microsoft retains the right
to accept non-auction related advertising from companies that
offer a portfolio of services including auctions, e.g.,
Amazon.com. FairMarket acknowledges and agrees that Microsoft may
sell advertising that may rotate throughout the Microsoft Sites
(including auctions areas), and the restrictions set forth in
this Section 3.10 shall not apply to such "Microsoft-wide run of
site" sales. FairMarket acknowledges and agrees that certain
Microsoft Sites may have existing auction-related agreements in
place and that these pre-existing agreements cannot be supplanted
and shall remain in place until the existing contract expires or
is terminated.
(C) QUARTERLY MEETINGS. Microsoft and FairMarket personnel will
meet on a quarterly or more frequent basis, as mutually agreed,
to discuss auction-related product development plans for the
Private Label Auction Sites. In cases where Microsoft wishes to
provide specialized auction-related functionality that is not
comparable to that offered by FairMarket, Microsoft will discuss
its functionality needs with FairMarket to determine if
comparable functionality will be available from FairMarket within
the time frame required by Microsoft. If FairMarket subsequently
develops comparable functionality, Microsoft will evaluate the
relevant FairMarket product offering and determine which
provider's functionality best meets Microsoft's needs. In such
situations Microsoft agrees to consider the fact that FairMarket
is Microsoft's pre-eminent Auctions Service partner and agrees
that FairMarket's status will be considered when determining
which provider's functionality best meets Microsoft needs.
4. LISTING RIGHTS AND USER INFORMATION
4.1 LISTINGS. Microsoft has ownership rights to listings placed on the
Microsoft Sites. Microsoft shall grant FairMarket the necessary rights
to aggregate and distribute such listings across the FairMarket Network
in the Territory. Microsoft and FairMarket agree that from time to time
there may be certain circumstances where Microsoft requires the right
to retain listings exclusively on MSN. The parties anticipate that over
80% of Microsoft listings will be available to FairMarket for
distribution across the FairMarket Network. FairMarket will provide
Microsoft with the administration tools required to manage listing
distribution from the Private Label Auction Sites to the FairMarket
Network.
4.2 END USER DATA. Microsoft has the exclusive right to collect, store
and use all personal registration data provided by End Users ("End User
Data") who register on Microsoft Sites and Private Label Auction Sites.
FairMarket acknowledges that all End User individual and aggregate
information acquired through the Private Label Auction Sites shall be
solely owned by Microsoft. End User Data shall include (when available
from the Private Label Auction Sites), without limitation: an End
User's name, email address, and any other information collected which
personally identifies the End User and aggregated End User information
such as category related viewership, listings and purchase patterns and
any other demographic information associated with the Private Label
Auction Sites. Microsoft agrees that FairMarket shall be able to
utilize aggregate information for purposes of improving the Private
Label Auctions Sites, and FairMarket may utilize at its sole discretion
aggregate data from the Private Label Auction Sites when aggregated
with data from FairMarket's other customers. FairMarket agrees to
conform to all applicable Microsoft data privacy standards covering End
User Data as such may be provided by Microsoft to FairMarket from time
to time. FairMarket agrees not to share Microsoft-only aggregate data
with third parties without first obtaining written authorization from
Microsoft.
4.3 CONSENT. In addition to the foregoing, any collection, disclosure
or use of End User Data by FairMarket shall be subject to the End
Users' consent, and the business practices and End User privacy
policies of the Microsoft Site from which it is collected. The business
practices and policies of each such
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Microsoft Site presently permits, as their default, FairMarket to
grant Microsoft the rights required by this Section 4.3, unless the
End User specifically requests otherwise, and in all cases each party
shall comply with any applicable laws governing the collection,
dissemination and use thereof. "Consent" as used in this Agreement
shall mean the approval of an adult, and in the case of minor
children, the approval of the child's parent or legal guardian.
FairMarket and Microsoft shall mutually agree on the Private Label
Auction Site user interface for the collection of End User Data.
Microsoft shall have sole discretion to determine the privacy policy
for the Microsoft Sites and Private Label Auction Sites.
5. FEES; BILLING; PAYMENTS
5.1 LISTING AND TRANSACTION FEES.
(A) AUCTION SERVICES PARTICIPATION FEES. Microsoft shall have
sole discretion to determine the amount, if any, of Transaction
Fees, Listing Fees, and Microsoft Advertising Fees to be charged.
Microsoft will take into consideration input from FairMarket,
current industry pricing, the competitive environment and
FairMarket's guaranteed minimum revenue obligations when setting
pricing. Notwithstanding the foregoing, in no event shall the
Transaction Fees charged by Microsoft be less than *** percent
(***%) of the gross revenues of all transactions facilitated on
the Private Label Auction Sites.
(B) REVENUE SHARES. FairMarket will pay Microsoft, on a quarterly
basis, ***% of Gross Revenue generated during the Term by End
Users of the Private Label Auction Sites ("Achieved Revenue").
For purposes of this Agreement, "Gross Revenue" shall mean all
FairMarket collected Auction Service and Classified Advertising
Service related revenue, less returns or similar credits and
credit card and other processing costs (which returns and costs
are not to exceed 2.5% of Gross Revenue). Gross Revenue shall be
determined as follows: ***% of the Listing Fees charged to
Sellers for listings placed at the Private Label Auction Sites,
plus ***% of the Transaction Fees charged to Sellers for listings
placed at the Private Label Auction Sites, plus ***% of the
Transaction Fees (utilizing the Private Label Auction Sites'
Transaction Fee Schedule) for winning bids that occur on the
Private Label Auction Sites (including those winning bids placed
on listings that originated at the Private Label Auction Sites
and those originated elsewhere on the FairMarket Network).
(C) LISTING AND TRANSACTION FEE-RELATED BILLING AND COLLECTIONS.
Subject to Section 5.1(b), at no charge to Microsoft, FairMarket
will be solely responsible for the billing and collection of
Transaction Fees and Listing Fees. FairMarket will use its best
efforts to collect all Transaction Fees and Listing Fees,
provided that FairMarket shall have no obligation to bill any
Seller or Buyer for Transaction Fees or Listing Fees until the
aggregate amount of unpaid fees accrued by any such Seller or
Buyer equals or exceeds ten dollars (US$10.00).
(D) MONTHLY STATEMENTS. To the extent FairMarket is responsible
for any billing and collections under this Agreement, FairMarket
will furnish Microsoft with quarterly statements showing for each
month in each calendar quarter during the Term the Listing Fees,
Transaction Fees, Advertising Fees and/or Other Revenue (as
defined in Section 5.4) a share of which Microsoft is entitled,
and accompanied by payment to Microsoft of the amount (if any)
due and owing Microsoft in accordance with such statement and
this Agreement. Statements and payments will be sent within forty
five (45) days after the end of each respective calendar quarter,
provided that statements will be sent regardless of whether any
amounts are payable. All such statements shall be treated by
Microsoft as Confidential Information under the NDA.
5.2 ADVERTISING FEES. Microsoft shall have the exclusive right to sell,
serve and collect advertising revenue on the Private Label Auction
Sites. Microsoft will receive ***% of the auction-related advertising
revenue. Microsoft shall have sole discretion to set its own
advertising rate card.
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission, pursuant to a request for
confidential treatment.
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5.3 HOSTING FEES. Microsoft agrees to pay FairMarket the total sum of
*** (US$***) per month in return for hosting services provided by
FairMarket associated with all Private Label Auction Sites hosted by
FairMarket under this Agreement. Such payment shall be due, starting on
the Effective Date and shall be paid by Microsoft pursuant to Section
5.7 below for so long as FairMarket continues to provide hosting
services under this Agreement.
5.4 OTHER REVENUE. All other auction-related service fees collected by
either party related to participation in the Private Label Auction
Sites and directly attributable to FairMarket services and
functionality, including but not limited to End User or merchant
subscription fees, End User or merchant service fees,
transaction-enabled classifieds and credit card processing service fees
(collectively, without limitation, "Other Revenue") will be split ***%
to Microsoft and ***% to FairMarket unless an alternative revenue share
is mutually agreed upon in writing. As an example of non-directly
attributable revenue, if Microsoft decides to work with a third-party
escrow service other than FairMarket, and FairMarket is not required to
perform any steps associated with integrating said service other than
providing reasonable cooperation as necessary and requested by
Microsoft, Microsoft would not be required to share revenues generated
by such escrow service with FairMarket.
5.5 MINIMUM GUARANTEED REVENUE. FairMarket guarantees minimum revenue
(the "Minimum Guaranteed Revenue) to Microsoft, which Minimum
Guaranteed Revenue (which shall be calculated by including Microsoft's
share of the Listing Fees, Transaction Fees, and Advertising Fees as
set out in Section 5.1(b) and 5.2) is projected to be a minimum of
Sixty Million Dollars (US$60,000,000) during the Term, as follows:
YEAR MINIMUM GUARANTEED REVENUE
---- --------------------------
Year 1 $ 5 Million
Year 2 $10 Million
Year 3 $10 Million
Year 4 $15 Million
Year 5 $20 Million
Total: $60 Million
5.6 SHORTFALL PAYMENT. In the event that the Actual Microsoft Revenue
accrued to Microsoft in a given Year (as such term is defined in
Section 3.9) is less than the Minimum Guaranteed Revenue above,
FairMarket agrees to remit to Microsoft the difference no later than 45
days following the end of each Year. Minimum guarantees are viewed on
an annual basis and not on a cumulative basis; for example, any
shortfall that FairMarket paid to Microsoft for a given Year would not
be paid back by Microsoft in future Years, even if FairMarket exceeded
the Minimum Guaranteed Revenue in future Years. The Minimum Guaranteed
Revenue shall apply only in the event that Microsoft meets or exceeds
the Minimum Annual Visit guarantees as described in Section 3.9, but in
any event, FairMarket shall pay no less than the allocable portion of
Actual Microsoft Revenue for any given Year.
5.7 PAYMENT TERMS.
(a) All payments due from FairMarket to Microsoft under this
Agreement shall be made by wire transfer to such account as
Microsoft may notify FairMarket from time to time (the "Microsoft
Account").
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission, pursuant to a request for
confidential treatment.
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FairMarket shall pay Microsoft any such fees due within
forty-five (45) days following the (i) last day of each calendar
quarter during the Term, (ii) the last day of each Year during
the Term, or (iii) the date on which any such payment becomes
due, as applicable.
(b) All payments due from Microsoft to FairMarket under this
Agreement shall be made by wire transfer to such account or to
such account as FairMarket may notify Microsoft from time to time
(the "FairMarket Account").
Microsoft shall pay FairMarket such fees due, if any, within
forty-five (45) days following the (i) last day of each calendar
quarter during the Term, (ii) the last day of each Year during
the Term, or (iii) the date on which any such payment becomes
due, as applicable.
5.8 AUDITS
(A) BY FAIRMARKET. During the Term of this Agreement, Microsoft
agrees to keep all usual and proper records and books of account
and all usual and proper entries and other documentation relating
to all payments to be made by Microsoft to FairMarket hereunder.
During the Term and for a period of six (6) months following the
expiration or termination of this Agreement, FairMarket shall
have the right to cause an audit and/or inspection to be made of
such records of Microsoft in order to verify statements issued by
Microsoft and Microsoft's compliance with the terms of this
Agreement. Any such audit shall be conducted by an independent
certified public accountant selected by FairMarket (other than on
a contingent fee basis) and reasonably acceptable to Microsoft.
Any audit and/or inspection shall be conducted during regular
business hours at Microsoft's facilities upon at least thirty
(30) days prior written notice. Such audits shall be made no more
often than once every twelve (12) months.
(B) BY MICROSOFT. During the Term of this Agreement, FairMarket
agrees to keep all usual and proper records and books of account
and all usual and proper entries and other documentation relating
to the Gross Revenues, Actual Microsoft Revenues, Minimum
Guaranteed Revenue, Visits, all other payments to be made by
FairMarket hereunder, and all user and other reports submitted or
to be submitted by FairMarket hereunder. During the Term and for
a period of six (6) months following the expiration or
termination of this Agreement, Microsoft shall have the right to
cause an audit and/or inspection to be made of such records of
FairMarket in order to verify statements issued by FairMarket and
FairMarket's compliance with the terms of this Agreement. Any
such audit shall be conducted by an independent certified public
accountant selected by Microsoft (other than on a contingent fee
basis) and reasonably acceptable to FairMarket. Any audit and/or
inspection shall be conducted during regular business hours at
FairMarket's facilities upon at least thirty (30) days prior
written notice. Such audits shall be made no more often than once
every twelve (12) months.
5.9 COSTS. Except as expressly provided herein, all costs incurred by
any party in fulfilling any of its obligations under this Agreement
shall be borne by that party, without reimbursement from the other
party.
6. REPRESENTATIONS AND WARRANTIES; LIMITATIONS
6.1 BOTH PARTIES. Each party hereby represents and warrants as follows:
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<PAGE> 15
(a) Such party is duly organized and validly existing under the
laws of the state of its incorporation and has full corporate
power and authority to enter into this Agreement and to carry out
the provisions hereof.
(b) Such party is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) This Agreement is a legal and valid obligation binding upon
it and enforceable against it in accordance with its terms.
6.2 MICROSOFT. Microsoft further represents and warrants that all
materials provided by Microsoft for use on and in connection with the
Private Label Auction Sites do not and will not infringe the
intellectual property right of any third party, or otherwise violate
any third party's personal or proprietary rights.
6.3 FAIRMARKET. FairMarket further represents and warrants that:
(a) FairMarket shall use commercially reasonable efforts to
ensure that the Private Label Auction Sites and all listings,
content and/or material contained therein provided by FairMarket
are and at all times will be of a high quality and nature, and
that the Private Label Auction Sites and all content and/or
material contained therein provided by FairMarket will be
accurate and reliable.
(b) FairMarket will keep the Private Label Auction Sites
operational in accordance with the Private Label Auction Sites
Performance Standards set forth in Exhibit C.
(c) FairMarket shall use commercially reasonable efforts to
ensure that the Private Label Auction Sites and all listings,
content and/or material contained therein provided by FairMarket
are and will be non-defamatory. The Private Label Auction Sites
and all information and content contained therein provided by
FairMarket do not and will not infringe the intellectual property
rights of any third party, or otherwise violate any third party's
proprietary rights.
(d) FairMarket owns or controls all rights to the Private Label
Auction Sites and use of the Private Label Auction Sites by
Microsoft shall not infringe the intellectual property right of
any person.
(e) FairMarket will not use the Microsoft Marks except as
provided in this Agreement.
(f) No other person has or will have any right, title or interest
in or to all or any portion of the Private Label Auction Sites
and all information and content contained therein which would in
any way curtail, impair, diminish or derogate from any of the
rights granted to Microsoft herein, and FairMarket has not
heretofore done or permitted to be done and will not hereafter do
or authorize or permit to be done any act or thing which is
inconsistent with or curtails, impairs, diminishes, or derogates
from any right herein granted to Microsoft.
(g) The Private Label Auction Sites and all listings, content
and/or material contained therein provided by FairMarket are not
and shall not be during the Term in violation of any statutes or
regulations including without limitation any statutes or
regulations relating to auction services.
(h) All customer technical and/or support services to be provided
hereunder shall be provided in a professional manner and in
accordance with all applicable industry standards for such
services.
(i) The Private Label Auction Sites will accurately manipulate,
process, compare, display and calculate date or time data from,
into and between the twentieth and twenty-first centuries,
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including leap years, and shall not be interrupted or adversely
affected by the manipulation, processing, comparison, display or
calculation of dates from, into and between the twentieth and
twenty-first centuries, including leap years.
6.4 INSURANCE COVERAGE. Effective no later than the Effective Date and
throughout the Term, FairMarket shall procure and maintain the
following insurance coverage. Such insurance shall be in a form and
with insurers reasonably acceptable to Microsoft, and shall comply with
the following minimum requirements:
(A) COMMERCIAL GENERAL LIABILITY Insurance of the Occurrence Form
with policy limits of not less than Five Million Dollars
(US$5,000,000) combined single limit each occurrence for Bodily
Injury and Property Damage combined, and Five Million Dollars
(US$5,000,000) Personal and Advertising Injury Limit; and
(B) ERRORS & OMISSIONS LIABILITY / PROFESSIONAL LIABILITY
Insurance with policy limits of not less than Five Million
Dollars (US$5,000,000) each claim with a deductible of not more
than Twenty-Five Thousand Dollars (US$25,000.00). Such insurance
shall include coverage for infringement of proprietary rights of
any third party, including without limitation copyright and
trademark infringement as related to FairMarket's performance
under this Agreement. Throughout the term of the Agreement, the
Errors & Omissions Liability / Professional Liability Insurance
retroactive coverage date will be no later than the Effective
Date of this Agreement. Upon expiration or termination of this
Agreement, FairMarket will maintain an extended reporting period
providing that the claims first made and reported to the
insurance company within one year after the end of this Agreement
will be deemed to have been made during the policy period.
(C) EVIDENCE; CANCELLATION. Promptly upon execution of this
Agreement, FairMarket shall provide to Microsoft proof evidencing
full compliance with the insurance requirements set forth in this
Section 6.4. FairMarket shall notify Microsoft in writing at
least thirty (30) days in advance if FairMarket's insurance
coverage is to be canceled or materially altered so as to not
comply with the requirements of this Section.
6.5 FairMarket shall be solely responsible for the relationships with
third parties who purchase listings, advertising or other services from
FairMarket, and all other third parties who purchase advertising or
listing-related promotions from FairMarket, including, without
limitation, listing production, ad and promotion production, placement,
management, billing, collections and accounting.
6.6 LIMITATION. EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 6, ALL
PRODUCTS OR SERVICES DELIVERED UNDER THE TERMS OF THIS AGREEMENT SHALL
BE SUBJECT TO THE TERMS OF THE LIMITED WARRANTY STATEMENT, IF ANY,
SPECIFIED BY THE DELIVERING PARTY FOR THE SPECIFIC PRODUCT OR SERVICE.
CERTAIN SOFTWARE PRODUCTS MAY BE PROVIDED TO THE OTHER PARTY "AS IS"
WITHOUT WARRANTY OR CONDITION OF ANY KIND, IF SO DESIGNATED BY THE
LICENSOR. FOR SUCH PRODUCTS, THE ENTIRE RISK AS TO THE RESULTS AND
PERFORMANCE OF SUCH SOFTWARE IS ASSUMED BY THE RECEIVING PARTY AND ITS
CUSTOMERS AND SUBLICENSEES, IF ANY. THE WARRANTIES SET FORTH IN
SECTIONS 6.1, 6.2, 6.3 AND THIS SECTION 6.6 ARE THE ONLY WARRANTIES
MADE BY THE PARTIES. EACH PARTY DISCLAIMS ANY AND ALL OTHER WARRANTIES
OR REPRESENTATION EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE, AND FITNESS FOR A
PARTICULAR PURPOSE. NO PARTY WARRANTS THAT ACCESS TO OR USE OF THE
MICROSOFT SITES OR PRIVATE LABEL AUCTION SITES WILL BE UNINTERRUPTED OR
ERROR-FREE, OR THAT ANY SOFTWARE OR SERVICES WILL MEET ANY PARTICULAR
CRITERIA OF PERFORMANCE OR QUALITY. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, FAIRMARKET EXPRESSLY ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS EXPRESSLY PROVIDED HEREIN, MICROSOFT HAS NOT MADE ANY EXPRESS
OR IMPLIED
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REPRESENTATIONS, ASSURANCES AND/OR WARRANTIES REGARDING THE NUMBER OF
VISITS THAT MAY BE GENERATED UNDER THIS AGREEMENT AND THAT FAIRMARKET
HAS NOT RELIED ON ANY STATEMENTS BY MICROSOFT OR ANY THIRD PARTIES IN
RELATION THERETO IN ENTERING INTO THIS AGREEMENT.
7. MICROSOFT MARKS
The parties agree that the branding of the Private Label Auction Sites shall be
done according to the Specifications as set forth in Exhibit A. Microsoft hereby
grants to FairMarket a worldwide, nonexclusive, non-assignable, nontransferable,
royalty-free, right to use the MSN Logo (and, at Microsoft's discretion, other
Microsoft Marks) solely in conjunction with the Private Label Auction Sites in
the manner described herein or as otherwise specified by Microsoft to FairMarket
from time to time in connection with FairMarket's sales, marketing and
promotional activities of the Private Label Auction Sites. Notwithstanding the
provisions of this Section 7, FairMarket agrees that it shall not pursuant to
this Agreement or otherwise acquire any ownership of Microsoft Marks or of any
Microsoft content provided to FairMarket for inclusion in the Private Label
Auction Sites, and that all use of the Microsoft marks will inure to the benefit
of Microsoft. All rights not expressly granted herein are reserved by Microsoft.
8. CONFIDENTIALITY
Microsoft and FairMarket agree that the terms of the Microsoft Standard
Reciprocal Non-Disclosure Agreement ("NDA") dated July 26, 1999 shall be deemed
incorporated herein, and further, that all terms and conditions of this
Agreement shall be deemed Confidential Information as defined in such NDA.
9. NON-EXCLUSIVITY; PRESS RELEASES
9.1 Except as specifically stated herein, nothing in this Agreement
will be construed as restricting any party's ability to acquire,
license, develop, manufacture or distribute for itself, or have others
acquire, license, develop, manufacture or distribute for itself,
content, software, news, sites, search services, search results or the
like, which is the same or similar to that contemplated by this
Agreement, or to market, promote and distribute same in addition to
that contemplated by this Agreement.
9.2 No party will issue any press release or make any public
announcement(s) relating in any way whatsoever to this Agreement or the
relationship established by this Agreement without the express prior
written consent of the other party, which consent shall not be
unreasonably withheld. However, the parties acknowledge that this
Agreement, or portions thereof, may be required under applicable law to
be disclosed, as part of or an exhibit to a party's required public
disclosure documents. If any party is advised by its legal counsel that
such disclosure is required, it will notify the other in writing and
the parties will jointly seek confidential treatment of this Agreement
to the maximum extent reasonably possible, in documents approved by
both parties and filed with the applicable governmental or regulatory
authorities. Notwithstanding the foregoing, the parties will cooperate
to prepare a mutually agreed press release announcing the relationship,
but not the financial details, to be released prior to the Commercial
Release Date.
10. INDEMNIFICATION
10.1 OBLIGATION TO INDEMNIFY.
(A) BY EITHER PARTY. A party (the "Indemnifying Party") shall,
at its expense and the request of any other party (the
"Indemnified Party"), defend and pay any damages arising out
of or in connection with any third-party claim or action
brought against the Indemnified Party, and its successors,
affiliates, directors, officers, employees, licensees, agents
and independent contractors, to the extent it is based upon a
claim that, if true, would constitute a breach of a warranty,
representation or covenant of the Indemnifying Party set forth
in this Agreement.
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(B) BY FAIRMARKET. Provided that notice has been given as set
forth in Section 14, FairMarket shall, at its expense and the
request of Microsoft, defend and pay any damages arising out
of or in connection with any third party claim or action
brought against Microsoft, and its successors, affiliates,
directors, officers, employees, licensees, agents and
independent contractors, relating to the Private Label Auction
Sites and other services to be provided by FairMarket under
this Agreement, including without limitation, any claim
brought by an End User, Seller or Buyer (except in each case
for claims covered by Section 10.1(c)).
(C) BY MICROSOFT. Provided that notice has been given as set
forth in Section 14, Microsoft shall, at its expense and the
request of FairMarket, defend and pay any damages arising out
of or in connection with any third party claim or action
brought against FairMarket, and its successors, affiliates,
directors, officers, employees, licensees, agents and
independent contractors, relating to the use of End User
information by Microsoft.
10.2 INDEMNIFICATION PROCESS. If any action shall be brought against
either party (the "Claimant") in respect to which indemnity may be
sought from the other party (the "Indemnifying Party") pursuant to the
provisions of this Section 10, the Claimant shall promptly notify the
Indemnifying Party in writing, specifying the nature of the action and
the total monetary amount sought or other such relief as is sought
therein. The Claimant shall cooperate with the Indemnifying Party at
the Indemnifying Party's expense in all reasonable respects in
connection with the defense of any such action. The Indemnifying Party
may upon written notice to Claimant undertake to conduct all
proceedings or negotiations in connection therewith, assume the defense
thereof, and if it so undertakes, it shall also undertake all other
required steps or proceedings to settle or defend any such action,
including the employment of counsel, and payment of all expenses.
Claimant shall have the right to employ separate counsel and
participate in the defense at its own expense; provided that the
Indemnifying Party shall control the defense. In the event that the
parties materially disagree on any aspect of the defense, then the
Claimant may elect to pursue its own defense and the Indemnifying
Party's indemnification obligation shall cease. The Indemnifying Party
shall reimburse Claimant upon demand for any payments made or loss
suffered by it in connection with an indemnifiable matter at any time
after the date of written notice of such claim, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide
compromise or settlement, approved in writing by the Indemnifying Party
(which approval shall not be unreasonably withheld, delayed or
conditioned), of claims, demands, or actions, in respect of any damages
to which the foregoing relates.
10.3 ADDITIONAL ACTIONS. In addition to the indemnification obligations
set forth in this Section 10, following notice of a claim that the
Private Label Auction Sites or any listing, content and/or material
provided by FairMarket contained therein infringe the intellectual
property or other right of any third party, FairMarket shall at its
expense procure the right to continue to use the Private Label Auction
Sites and all content and/or material contained therein provided by
FairMarket, or replace or modify the Private Label Auction Sites and/or
any content and/or material contained therein provided by FairMarket,
as applicable, to make them non-infringing. If FairMarket elects to
replace or modify the Private Label Auction Sites and/or any content
and/or material contained therein, such replacement(s) shall meet
substantially the quality and content of the materials being replaced.
If neither of the foregoing options are reasonably available to
FairMarket and the Private Label Auction Sites cannot reasonably be
maintained to Microsoft's satisfaction without such content and/or
material, then Microsoft shall have the right to terminate this
Agreement; provided, however, that FairMarket's failure to take
corrective action in accordance with this Section shall nevertheless be
considered a material breach and Microsoft shall have all rights and
remedies provided by law or this Agreement.
11. LIMITATION OF LIABILITIES
NO PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, ARISING OUT OF OR RELATED TO THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS
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INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION SHALL NOT
APPLY TO ANY PARTY'S (A) ABILITY TO OBTAIN INJUNCTIVE OR OTHER EQUITABLE RELIEF;
(B) OBLIGATIONS UNDER SECTION 8 OR THE NDA; AND (C) INDEMNIFICATION OBLIGATIONS
AS TO THIRD PARTY CLAIMS ASSESSED AGAINST THE INDEMNIFIED PARTY IN CONNECTION
WITH INDEMNIFIED CLAIMS UNDER SECTION 10.
12. TERM AND TERMINATION
12.1 TERM. This Agreement will take effect on the Effective Date and
will continue until the fifth anniversary of the Commercial Release
Date (the "Fifth Anniversary"). Microsoft shall have the right to
extend this Agreement after the Fifth Anniversary for an additional
five-year period (the "Renewal Term"), by providing FairMarket with
notice in writing of its intent to renew no later than 120 days prior
to the Fifth Anniversary. In the Renewal Term, if any, Microsoft hereby
waives FairMarket's minimum revenue guarantees, and FairMarket hereby
waives Microsoft's user traffic guarantees. Both parties agree to
evaluate the financial implications of this Agreement prior to the
beginning of the Renewal Term and adjust the financial terms of the
renewed agreement if necessary and mutually agreed upon. If the parties
are unable to mutually agree on any adjustments to the financial terms,
they shall renew as set forth in this Agreement, except that any
renewal of this Agreement shall include Most Favored Nation pricing
from FairMarket to Microsoft and FairMarket agrees that the Microsoft
revenue share for any Renewal Term shall not be less than fifty percent
(50%) of FairMarket's Listing, Transaction and other directly
attributable FairMarket-related Revenue unless otherwise mutually
agreed in writing by both parties. For purposes of this Section 12.1,
"Most Favored Nation" pricing means revenue sharing on terms no less
favorable to Microsoft than those granted by FairMarket to other
FairMarket Network members for a comparable service.
12.2 TERMINATION FOR CAUSE. This Agreement may be terminated by either
party prior to its natural expiration if any of the following events
occurs:
(a) the other party fails to perform or comply with its
material obligations under this Agreement or any provision
hereof, including failure to pay any amount(s) due hereunder;
(b) the other party becomes insolvent or admits in writing its
inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; or
(c) a petition under any bankruptcy act, receivership statute,
or the like, as they now exist, or as they may be amended, is
filed by the other party; or if such a petition is filed by
any third party, or an application for a receiver of the other
party is made by anyone and such petition or application is
not resolved favorably to such party within sixty (60) days;
or
(d) upon the circumstances described in Section 10.3 above (in
which case Microsoft shall be the non-defaulting party for
purposes of this Section 12); or
(e) either party is in material breach of Section 8.
12.3 EFFECT OF TERMINATION. Termination under Section 12.2(a) above
shall be effective thirty (30) days after written notice of termination
given by the non-defaulting party to the defaulting party, unless the
defaulting party's defaults have been cured within such thirty (30) day
period, in which case termination shall not occur. Termination under
Sections 12.2(b), 12.2(c), 12.2(d) and 12.2(e) above shall be effective
upon written notice, provided, however, that the defaulting party has
not cured any default within the thirty (30) day cure period. The
rights and remedies provided in this Section shall not be exclusive and
are in addition to any other rights and remedies provided at law, in
equity or under this Agreement. In the event that a non-defaulting
party in its discretion elects not to terminate this Agreement, such
election shall not constitute a waiver of any and all claims of that
party for such default(s). Further, the non-defaulting party
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may elect to leave this Agreement in full force and effect and to
institute legal action against the defaulting party for specific
performance and/or damages suffered by such party as a result of the
default(s).
12.4 TERMINATION WITHOUT CAUSE BY MICROSOFT. Microsoft shall have the
right to terminate this Agreement without cause at any time during the
forty-five (45) day period immediately following the Effective Date.
Such termination shall be effective immediately upon notice by
Microsoft to FairMarket. In no event shall either party be liable for
any damages or compensation of any kind related to or arising out of
Microsoft's exercise of its termination right under this Section 12.4.
12.5 RIGHTS AND OBLIGATIONS UPON TERMINATION OR EXPIRATION. Promptly
upon termination or expiration of this Agreement:
(a) Each party shall, at the other party's direction, return or
certify destruction of Confidential Information of such other
party.
(b) FairMarket shall stop making available to End Users or any
other party the Private Label Auction Sites; provided that, if
not otherwise prohibited under this Agreement or by law or order
of a competent authority, the Private Label Auction Sites shall
remain available as long as is necessary, as reasonably
determined by Microsoft, to comply with any third party
obligations.
(c) FairMarket shall immediately cease and desist from all use of
the Microsoft Marks.
(d) Both parties shall cease advertising, marketing and promoting
the Private Label Auction Sites.
(e) Both parties shall cease selling and soliciting any
advertising and listings for the Private Label Auction Sites.
(f) Within thirty (30) days immediately following termination
FairMarket shall provide Microsoft a complete report of all End
User Data in its possession.
(g) Each party shall provide reasonable assistance to the other
for such reasonable time and upon such terms and conditions as
shall be mutually agreed upon in order to assure an orderly
transition and wind down in such a manner as shall minimize
disruption to the users. The goal of the parties is to ensure a
smooth and seamless transition for the user to maintain a high
level of customer satisfaction.
12.6 SURVIVAL. Sections 4.2 (with respect to Microsoft's ownership
rights), 5.1 through 5.7 (with respect to any payments due and owing
as of the date of termination or expiration), 5.8, 6, 8, 10, 11, 12,
14 and 15 shall survive termination or expiration of this Agreement.
12.7 No party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance with
its terms.
13. INTERNATIONAL WORKSCOPE. Microsoft and FairMarket each agree to explore
expanding the Territory to include international sites (the "International
Sites"). If mutually agreed by both parties, International Sites may be added as
additional sites included in Section 2.4 of this Agreement and such
International Sites shall be covered under the terms of this Agreement, amended
as necessary and mutually agreed in writing.
14. NOTICES. All notices, authorizations, and requests required or desired to be
given or made in connection with this Agreement will be in writing, given by
certified or registered mail (return receipt requested), express air courier
(charges prepaid) or facsimile, and addressed as follows (or to such other
address as the party to receive the notice or request so designates by notice to
the other):
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<PAGE> 21
Notices to Microsoft: Notices to FairMarket:
Microsoft Corporation FairMarket, Inc.
One Microsoft Way 400 Unicorn Park Drive
Redmond, WA 98052-6399 Woburn, MA 01801
Attn.: Matt Kursch, General Manager, MSN Attn.: Scott Randall
Fax: (425) 936-7329 Fax: (781) 935-7976
Copy to: Law & Corporate Affairs Copy to: Goodwin Procter & Hoar
Fax: (425) 936-7329 Attn: David F. Dietz, P.C.
Fax: (617) 523-1231
If a notice is given by either party by certified or registered mail, it will be
deemed received by the other party on the third business day following the date
on which it is deposited for mailing. If a notice is given by either party by
air express courier, it will be deemed received by the other party on the next
business day following the date on which it is provided to the air express
courier. If a notice is given by facsimile, it will be deemed received by the
other party upon confirmation of receipt.
15. GENERAL
15.1 GOVERNING LAW/JURISDICTION. This Agreement shall be construed in
accordance with the laws of the State of Washington, USA, without regard for its
conflict of laws rules.
15.2 ATTORNEYS' FEES. In any action or suit to enforce any right or
remedy arising out of or relating to this Agreement or to interpret any
provision of this Agreement, the prevailing party shall be entitled to recover
its reasonable attorneys' fees, costs and other expenses.
15.3 ENTIRE AGREEMENT/WAIVER. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements or communications. This
Agreement shall not be effective until signed by both parties. This Agreement
shall not be modified except by a written agreement dated subsequent to the date
of this Agreement and signed on behalf of FairMarket and Microsoft by their
respective duly authorized representatives. No waiver of any breach of any
provision of this Agreement shall constitute a waiver of any prior, concurrent
or subsequent breach of the same or any other provisions hereof, and no waiver
shall be effective unless made in writing and signed by an authorized
representative of the waiving party.
15.4 ASSIGNMENT. Neither party may assign this Agreement, or any
portion thereof (whether by merger, operation of law, sale of assets,
reorganization or otherwise), without the written consent of the other. Any
attempted assignment, sublicense, transfer, encumbrance or other disposal
without such consent shall be void and shall constitute a material default and
breach of this Agreement. Except as otherwise provided, this Agreement shall be
binding upon and inure to the benefit of the parties' successors and lawful
assigns.
15.5 SEVERABILITY. In the event that any provision of this Agreement
conflicts with governing law or if any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (i) such
provision shall be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law, and (ii)
the remaining terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect. This Agreement has been negotiated by the
parties and their respective counsel and will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party.
15.6 NO JOINT VENTURE. Neither this Agreement, nor any terms and
conditions contained herein, shall be construed as creating a partnership, joint
venture, employer-employee relationship, agency relationship or as granting a
franchise.
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15.7 SECTION HEADINGS. The section headings used in this Agreement are
intended for convenience only and shall not be deemed to affect in any manner
the meaning or intent of this Agreement or any provision hereof.
15.8 FORCE MAJEURE. The parties agree that neither of them shall have
any liability hereunder with respect to any failure of performance due
principally to the elements, acts of God, armed hostilities, failure of
communications, transportation or other critical systems, or other causes beyond
the reasonable control of such party.
In Witness Whereof, the parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION FAIRMARKET, INC.
("MICROSOFT") ("FAIRMARKET")
By /s/ Brad Chase By /s/ Scott Randall
________________________________ _____________________________
Name Brad Chase Name Scott Randall
_____________________________ __________________________
Title Title CEO
_____________________________ __________________________
Date 7/29/99 Date 7/29/99
_____________________________ __________________________
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<PAGE> 1
EXHIBIT 10.15
CONFIDENTIAL
CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE
SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS HAVE BEEN INDICATED WITH
ASTERISKS.
AUCTION SERVICES AGREEMENT
This agreement ("Agreement") is entered into as of August 23, 1999 ("Effective
Date"), by and between Excite, Inc., a wholly owned subsidiary of At Home
Corporation, a Delaware corporation located at 555 Broadway, Redwood City, CA
94063 ("Excite") and FairMarket, Inc., a Delaware corporation located at 400
Unicorn Park Drive, Woburn, Massachusetts 01801, CA 94063 ("FairMarket" or
"Auction Services Provider").
RECITALS
A. Excite maintains sites on the Internet at http://www.excite.com (the
"Excite Site"), at http://www.classifieds2000.com (the "Classifieds2000
Site") and at http://www.webcrawler.com (the "Webcrawler Site"), and owns
and/or manages related Web sites worldwide which, among other things,
allow its users to search for and access content and other sites on the
Internet. "Excite Network" shall mean the following narrowband web sites
owned and/or operated by Excite (including any narrowband versions or
upgrades thereof): Excite Site, Webcrawler Site and Classifieds2000 Site,
but shall not include Excite's business portal located at www.work.com
(including any versions, upgrades, successors or replacements thereof) or
any broadband site.
B. Auction Services Provider owns and operates a back-end auction service
("FairMarket Auction Service(s)"), which it provides to third party
internet sites. FairMarket also owns or manages a related site on the
internet at http://www.fairmarket.com ("FairMarket Site" or "Auction
Services Provider Site"). "FairMarket Network" shall mean the network of
sites of FairMarket customers for whom FairMarket hosts private label
auction services similar to the private label auction services as defined
herein.
C. Excite and Auction Services Provider wish to develop a co-branded version
of the FairMarket Auction Services, which will be developed and
maintained by Auction Services Provider on an integrated basis with the
Excite Network ("Co-Branded Site").
1. CO-BRANDED SERVICE
a) FairMarket will develop, host, and maintain, at its expense, the
Co-Branded Site in accordance with the specifications defined in
Exhibit A.
b) FairMarket will be responsible for all system operation software
costs, hardware costs and operation costs incurred in connection
with the development and operation of the Co-Branded Site. The
Co-Branded Site shall utilize the functional specifications
described in FairMarket's "Community AuctionPlace Features,
version 4.0 ", which is attached hereto as Exhibit E, and as may
be changed from time to time. The Co-Branded Site shall be
developed and maintained at no additional charge to Excite.
c) FairMarket and Excite will work together to develop and launch the
Co-Branded Site in accordance with the development schedule
detailed in Exhibit B.
d) Excite will display links to the Co-Branded Site in a variety of
locations across the Excite Network. At a minimum, Excite will
provide links from the Excite.com homepage and the toolbar of the
Excite Classifieds service. If for any reason Excite determines
that such links are no longer in its best interests, Excite may
remove the links so long as Excite provides links to the
Co-Branded Site, from the Excite Network or from other site(s)
controlled by Excite, which afford the Co-Branded Service a level
of promotion similar to or greater than that provided by the
original links. In addition, Excite may display links from home
pages, links from shopping pages, inclusion in emails, links from
search results pages, links from category pages, and links from
other contextually relevant pages within the Excite Network to
relevant areas within the Co-Branded Site. Excite will have sole
discretion and control over the placement and positioning of such
links.
Excite - FairMarket Agreement
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CONFIDENTIAL
e) Excite will have sole control over the "look and feel" of the
Excite Network. Excite will have sole responsibility for providing
and maintaining, at its expense, the Excite Network and any
hardware or labor or software (including updates thereto)
reasonably necessary to maintain the Excite Network as described
herein.
2. ADVERTISING ON THE CO-BRANDED SITE
a) Excite will sell and serve (when available) all advertising on the
Co-Branded Site, including, but not limited to banner advertising
and Excite sponsorship module advertising. Excite will have the
right to sell and serve such advertising on all pages within the
Co-Branded Site. FairMarket will work with Excite, and accommodate
Excite's technical requirements, to serve dynamic targeted banners
and sponsorship placements, and create and target additional
advertising positions within the Co-Branded Site.
b) Excite will pay FairMarket, on a quarterly basis, *** per cent
(***%) of "Net Advertising Revenue" (gross advertising revenue
less sales costs not to exceed *** per cent (***%)) collected from
such advertising.
c) Excite will not sell advertising on the Co-Branded Site to
FairMarket Named Competitors. "FairMarket Named Competitors" shall
include eBay and Amazon Auctions. FairMarket may add to or replace
company names on the list of FairMarket Named Competitors under
the following conditions: (i) Excite must approve any such change,
such approval not to be unreasonably withheld, (ii) the total
number of FairMarket Named Competitors does not exceed five
companies, (iii) the list may not be changed more than once per
calendar quarter and (iv) no company may be added to the list with
which Excite has a material existing advertising relationship at
the time of such intended addition.
d) As soon as reasonably possible, FairMarket will work with Excite
to enable the promotion of Excite's preferred financial services
provider on the Co-Branded Site. To the extent that the Co-Branded
Site offers buyer registration forms and/or credit card processing
service(s), such services will present Excite's preferred
financial services provider as the default credit card provider,
and in any event more prominently than it presents the names or
logos of any competing companies including, but not limited to,
credit card companies.
3. TRANSACTION REVENUE
a) "Seller(s)" shall mean a user who lists product(s) or service(s)
for sale on the FairMarket Network.
b) "Buyer(s)" shall mean a user who successfully bids for product(s)
or service(s) on the FairMarket Network.
c) "Transaction Fees" shall mean ***.
d) "Listing Fees" shall mean any fee charged to a Seller for placing
any listing of products or services on the Co-Branded Site.
e) "Gross Transaction Revenue" shall mean *** per cent (***%) of
Listing Fees charged to Sellers on the Co-Branded Site, plus ***
per cent (***%) of all Transaction Fees (using the Co-Branded
Site's then-current transaction fee schedule) resulting from
transactions in which the Buyer used the Co-Branded Site
(regardless of whether the Seller uses the Co-Branded Site or
another site within the FairMarket Network), plus *** per cent
(***%) of all Transaction Fees resulting from transactions in
which a Seller used the Co-Branded Site (regardless of whether
the Buyer uses the Co-Branded Site or another site within the
FairMarket Network).
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
Excite - FairMarket Agreement
Page 2
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CONFIDENTIAL
f) "Net Transaction Revenue" shall mean actual Gross Transaction
Revenue less returns or similar credits and credit card and other
processing costs (collectively not to exceed 2.5% of Gross
Transaction Revenue).
g) "Shared Transaction Revenue" shall mean *** per cent (***%) of Net
Transaction Revenue.
h) FairMarket shall determine the amount, if any, of Transaction Fees
and Listing Fees for the Co-Branded Site. FairMarket will take
into consideration current industry pricing and the competitive
environment when setting pricing, and will establish pricing
comparable to that charged by leading independent auction sites
and other leading portals. Unless expressly requested or
authorized by Excite, under no circumstances will the Transaction
Fees or Listing Fees on the Co-Branded Site be higher in aggregate
than those on any of FairMarket's other similar co-branded auction
services. Unless expressly requested and authorized by Excite,
under no circumstances after the initial launch period (not to
exceed three (3) months following the Effective Date) will the
Transaction Fees or Listing Fees on the Co-Branded Site be zero.
i) Subject to the minimum revenue guarantee described in Section 3.j.
below, FairMarket will pay Excite, on a quarterly basis, the
Shared Transaction Revenue within thirty (30) days following the
end of each quarter.
j) For contract years in which total Excite-initiated "User Visits"
(the number of sessions in the Co-Branded Site that were initiated
via links or banners on the Excite Network, as well as visits
initiated directly via a URL) exceeds the "Minimum Guaranteed
Visit" numbers below, FairMarket will pay Excite the greater of:
(i) Shared Transaction Revenue or (ii) the Minimum Revenue
Guarantee (defined below).
<TABLE>
<CAPTION>
Contract Year Minimum Revenue Guarantee Minimum Guaranteed Visits
<S> <C> <C>
Year 1 $0.8 Million *** Visits
Year 2 $2.1 Million *** Visits
Year 3 $4.6 Million *** Visits
Year 4 $7.0 Million *** Visits
Year 5 $8.4 Million *** Visits
</TABLE>
k) FairMarket agrees to remit to Excite any balance due on the
Minimum Revenue Guarantee no later than 90 days following the end
of each contract year. Minimum Guarantees are viewed on a contract
year annual basis and not on a cumulative basis; for example, any
Minimum Revenue Guarantee that FairMarket paid to Excite in a
given year would never be paid back by Excite in future years,
even if FairMarket exceeded minimum payments in future years.
4. ADVERTISING ON THE EXCITE NETWORK
a) For a two-year period beginning on the Effective Date, Excite will
provide FairMarket with advertising services as defined in Exhibit
D and subject to the standard Terms and Conditions as described
therein.
b) In exchange for advertising services described in 4.a), FairMarket
will pay Excite $2.5 million per quarter, for a total of $20
million over eight quarters. Excite will invoice FairMarket for
actual advertising services delivered at the end of each calendar
quarter. The parties expect that the delivery of such advertising
and resulting Excite recognition of accrual of advertising revenue
will begin at approximately the same time as the launch of the
Co-Branded Site,
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
Excite - FairMarket Agreement
Page 3
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CONFIDENTIAL
which is expected to be early in Q4 1999. All such fees will be
due within thirty days of invoice.
c) The parties expect that changes to the agreed-upon advertising
placements may be desirable at various points during the two-year
term of this advertising commitment. In the event that one or more
of the defined placements or services does not perform to
FairMarket's satisfaction or is no longer available on the Excite
Network, the parties will work together in good faith to replace
the insertion order describing such placement or service with an
insertion order describing a new placement or service of similar
value. FairMarket will be not be charged any penalty fees for such
changes. The parties will not make such changes more than once per
calendar quarter.
d) All banner, sponsorship and/or other promotional advertising will
refer to "Excite Auctions" and will be directed to click through
to the Co-Branded Site.
e) FairMarket will develop at its expense the creative to be used in
banner and sponsorship placement advertising. All such creative
will be utilized subject to Excite's approval, such approval not
to be unreasonably withheld.
5. PREFERRED PARTNER PROMOTION
a) During the Term (as defined in Section 6(a)), subject to the
exclusions listed in Section 5.b), 5.c) and 5.d) below, Excite
will not form a relationship with any third party company, other
than FairMarket, to provide private label or co-branded services
of the following types for the Excite Network sites: (i)
person-to-person Auction Services, (ii) merchant-to-person Auction
Services, or (iii) Classified Advertising Services for the
Auction-related Classified Categories.
b) Excite retains the option to enter into one or more relationships
with third parties to provide the following services, which may be
co-branded or private label auction services: (i) reverse
auctions, (ii) Auction Services involving rare and authenticated
goods and (iii) merchant-to-person and person-to-person auction
services for its broadband service(s). In such cases, Excite will
discuss its functionality needs with FairMarket to determine if
comparable functionality will be available from FairMarket within
the time frame required by Excite. If FairMarket develops
comparable functionality within such time frame, Excite will
consider the FairMarket offering, but is free to select either
FairMarket or a third party, although Excite agrees to view
FairMarket as the "incumbent" in such circumstances.
c) In the event that Excite wishes to offer its users co-branded
person-to-person or co-branded merchant-to-person auction services
or functionality, which are not provided by the Co-Branded Site,
Excite will notify FairMarket of its intention to provide such
services. If FairMarket is unable to provide such services within
ninety (90) days, Excite may, in its sole discretion, form one or
more relationships with any third parties for the provision of
such services.
d) The parties acknowledge that Excite has and will form
relationships with third parties for the provision of private
label or co-branded services not primarily focused on
person-to-person or merchant-to-consumer auctions. In some cases,
such private label or co-branded service(s) may include a
person-to-person or merchant-to-consumer auction component related
to the specific service or category offered. Such relationships
are not focused on person-to-person or merchant-to-person auctions
and therefore will be excluded from the restriction described in
Section 5.a.
e) FairMarket shall promote Excite's participation as a partner in
its private label program in ongoing press materials, and in
marketing collateral related to such program; provided that all
uses of Excite Marks in marketing and promotional materials shall
require the prior review and approval of Excite.
Excite - FairMarket Agreement
Page 4
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CONFIDENTIAL
f) FairMarket will not develop or promote a proprietary Auction
Services or Classified Advertising Services destination site,
including any site under the FairMarket, or any other name, at any
time during the Term. All links on the FairMarket site referencing
a live auction or classifieds service shall link to the Co-Branded
Site or other FairMarket third-party partner site. Following the
first anniversary of the Effective Date, FairMarket shall have the
option to develop and promote a proprietary Auction Services or
Classified Advertising Services destination site if the total
visits to the Co-Branded Site falls below 3 million visits in any
3-month period.
g) Excite will promote the Co-Branded Site to the merchant customers
of its retail shopping service. FairMarket will use its best
efforts to relate its auction and classifieds category hierarchy,
per Excite's direction, to the category hierarchy presented in
Excite's retail shopping service, to enable Excite's merchant
customers to distribute product listings through both services via
a single or parallel data feed.
h) FairMarket, at its sole discretion, may refer its merchant
customers seeking a retail shopping distribution partnership to
the Excite Shopping Service ("ESS"). FairMarket will not promote
ESS to its merchant customers any less that it promotes any
similar third party online retail shopping service with comparable
revenue-sharing arrangements.
i) Excite shall promote Excite's participation as a partner in the
FairMarket Network in ongoing press materials for the Excite
Auctions service, and in printed marketing collateral for the
Excite Auctions service; provided that all uses of FairMarket
Marks in marketing and promotional materials shall require the
prior review and approval of FairMarket.
6. TERM
a) The Term of the Agreement shall begin on the Effective Date and
will continue for five (5) years.
b) Following the initial term, the Agreement will automatically renew
for twelve (12) month terms until cancelled in writing by either
party at least thirty (30) days prior to the end of the
then-current term. In renewal terms, neither the traffic
guarantees by Excite or revenue guarantees from FairMarket shall
apply. All other financial arrangements will carry forward unless
the parties agree otherwise prior to any renewal.
7. TERMINATION
a) Either party may terminate this Agreement if the other party
breaches any material obligation hereunder and such breach remains
uncured for thirty (30) days following the receipt of written
notice to the breaching party of the breach and the notifying
party's intention to terminate.
b) Notwithstanding the provisions set forth in 7.a) above, Excite
shall have the following termination rights:
i. In the event of three or more unplanned outages (each for a
period of fifteen (15) minutes or longer and each in a
separate 24-hour period) of the Co-Branded Site in any
thirty (30) day period, or in the event of one or more
major unplanned outage (for a period of five (5) hours or
longer) of the Co-Branded Site in any thirty (30) day
period, Excite may immediately terminate the Agreement
without notice and without a cure period.
ii. If the quality of the Co-Branded Site and FairMarket
Auction Services are not at least comparable to any other
auction service on the Internet, based on ranking by a
cross-section of third party reviewers (to be recommended
by Excite and approved by
Excite - FairMarket Agreement
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CONFIDENTIAL
FairMarket, such approval not to be unreasonably withheld)
in terms of features and functionality including user
interface, product services, accessibility and reliability
(the "Default Standard"), Excite shall notify FairMarket in
writing, and FairMarket shall use its best efforts to bring
the Co-Branded Site and FairMarket Auction Services to the
Default Standard. If Excite determines that FairMarket has
not met the Default Standard within sixty (60) days
following such notification, Excite will no longer be bound
to the placement requirements outlined in Section 1.d. or
the relationship restrictions defined in Section 5.a.
iii. In the event that any undisputed Auction Services Provider
payment to Excite remains unpaid after it is due, Excite
shall notify Auction Services Provider of such delinquency
and Excite's intention to terminate, and Auction Services
Provider shall have five (5) business days to cure, after
which, if any portion remains unpaid, Excite may
immediately terminate this Agreement without further notice
and without a cure period.
iv. During the term of the Agreement, in the event that an
Excite Named Competitor acquires FairMarket, or merges with
FairMarket or acquires control of all or substantially all
of FairMarket's assets, Excite may terminate the Agreement
by providing ninety (90) days written notice within ninety
(90) days of Excite's notification of such merger or
acquisition. Should Excite choose not to terminate the
Agreement during this period, FairMarket will continue to
provide Excite with a level of service, which is, at a
minimum, consistent with that level of service provided to
Excite up to the point of such merger or acquisition.
c) Upon termination of this Agreement, Excite and the Excite Network
shall immediately discontinue all use of the Co-Branded Site and
return to Auction Services Provider, or destroy, all intellectual
property belonging to Auction Services Provider.
d) All payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within thirty
(30) days of such termination or expiration.
e) The provisions of Section 11 (Confidentiality), Section 12
(Warranty and Indemnity), Section 13 (Limitation of Liability) and
Section 14 (Dispute Resolution) shall survive any termination or
expiration of the Agreement.
8. USAGE REPORTS AND USER DATA
a) In addition to the usage reports made available to Excite via the
Administrative Module (as defined in Exhibit A), FairMarket will
provide weekly and monthly usage reports as detailed in Exhibit C
("Usage Reports").
b) For the purpose of this Agreement, "User Data" shall mean all
information submitted by a user of the Co-Branded Site ("User") to
either party to this Agreement. "Individually Identifiable User
Data" shall mean data which can be reasonably used to identify a
specific individual such as their name, address, phone number,
etc.
c) Both parties acknowledge that any individual user of the Internet
could be a customer of Excite, Inc. and/or Auction Services
Provider through activities unrelated to this Agreement. Both
parties further acknowledge that any User Data gathered
independent of this Agreement, even for Users that utilize both
party's services, shall not be covered by this Agreement.
d) Excite shall retain all rights to any User Data obtained through
this Agreement. Excite will have full access to all User Data via
the Administrative Module (as defined in Exhibit A). Upon
expiration or termination of the Agreement, FairMarket will
provide to Excite any User Data not available to Excite at the
time of such termination or expiration; such User Data will be
provided in an electronic format to be agreed upon by the parties
and will be provided to Excite within thirty (30) days following
such termination or expiration.
Excite - FairMarket Agreement
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CONFIDENTIAL
e) During the Term, Excite hereby grants FairMarket a limited license
to aggregate and use the User Data only as follows. In the case of
User submitted listings, Excite grants FairMarket the right to
aggregate and distribute such listings across the FairMarket
Network. Excite agrees that FairMarket shall be able to utilize
aggregate information for the purposes of improving the Co-Branded
Site. FairMarket may utilize, at its sole discretion, aggregated
data from the Co-Branded Site when aggregated with data from
FairMarket's other customers.
f) Both parties agree that they will not sell, disclose, transfer, or
rent the Individually Identifiable User Data to any third party,
nor will either party use said Individually Identifiable User Data
on behalf of any third party, without the express permission of
the User. In such cases where User permission for dissemination of
Individually Identifiable User Data has been obtained, Auction
Services Provider shall use all reasonable efforts to include and
enforce within such dissemination contracts or agreements a
requirement for the inclusion of an unsubscribe feature in all
email communications generated by, or on behalf of, third party
users of said Individually Identifiable User Data.
9. SERVICE OWNERSHIP AND LICENSE
Auction Services Provider will retain all right, title and interest in
and to its service worldwide (including, but not limited to, ownership
of all copyrights and other intellectual property rights therein).
During the term of this Agreement, and subject to the terms and
conditions of this Agreement, Auction Services Provider hereby grants
to Excite a royalty-free, non-exclusive, worldwide license to use,
distribute, transmit and publicly display the Co-Branded Site in
accordance with this Agreement and to sub-license the Co-Branded Site
to Excite's wholly-owned subsidiaries or joint ventures in which Excite
participates for the sole purpose of using, distributing, transmitting
and publicly displaying the Co-Branded Site in accordance with this
Agreement.
10. TRADEMARK OWNERSHIP AND LICENSE
a) Auction Services Provider will retain all right, title and
interest in and to its trademarks, service marks and trade
names worldwide, subject to the limited license granted to
Excite hereunder.
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject
to the limited license granted to Auction Services Provider
hereunder.
c) Each party ("Licensor") hereby grants to the other a
non-exclusive, limited license to use Licensor's trademarks,
service marks or trade names only as specifically described in
this Agreement. All such use shall be in accordance with
Licensor's reasonable policies regarding advertising and
trademark usage, as shall be established or changed from time
to time, in each party's sole discretion.
d) Upon the expiration or termination of this Agreement, each
party will cease using the trademarks, service marks and/or
trade names of the other except:
i. As the parties may agree in writing; or
ii. To the extent permitted by applicable law.
11. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its
suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial,
technical and other information of a party marked
Excite - FairMarket Agreement
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CONFIDENTIAL
or designated by such party as "confidential" or
"proprietary"; or information which, by the nature of the
circumstances surrounding the disclosure, ought in good faith
to be treated as confidential.
b) Confidential Information will not include information that (i)
is in or enters the public domain without breach of this
Agreement, (ii) the receiving party lawfully receives from a
third party without restriction on disclosure and without
breach of a nondisclosure obligation or (iii) the receiving
party knew prior to receiving such information from the
disclosing party or develops independently.
c) Each party agrees (i) that it will not disclose to any third
party or use any Confidential Information disclosed to it by
the other except as expressly permitted in this Agreement and
(ii) that it will take all reasonable measures to maintain the
confidentiality of all Confidential Information of the other
party in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality
of its own information of similar importance.
d) Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court
of competent jurisdiction or other governmental authority or
otherwise as required by law or (ii) on a "need-to-know" basis
under an obligation of confidentiality to its legal counsel,
accountants, banks and other financing sources and their
advisors.
e) The terms and conditions of this Agreement will be deemed to
be the Confidential Information of each party and will not be
disclosed without the written consent of the other party.
12. WARRANTY AND INDEMNITY
a) Each of FairMarket and Excite warrants that it owns, or has
obtained all necessary rights to distribute and make available
as specified in this Agreement, any and all information,
service or content provided to the other party or made
available to third parties in connection with this Agreement,
including without limitation in the case of FairMarket, the
FairMarket Auction Service(s).
b) Auction Services Provider warrants that the Co-Branded Site
will comply with the description and technical specifications
as contemplated by this Agreement and all Exhibits. FairMarket
represents and warrants that the Co-Branded Site, the
FairMarket Auction Services and or any other software or
content supplied by FairMarket hereunder is designed to be
used prior to, during and after the calendar year 2000 A.D.,
and that the software will operate during each such time
period without error relating to date data.
c) Each of FairMarket and Excite will indemnify, defend and hold
harmless the other party, its affiliates, officers, directors,
employees, consultants and agents from any and all third party
claims, liability, damages and/or costs (including, but not
limited to, reasonable attorneys fees) arising from:
i) The breach of any warranty, representation or
covenant by FairMarket or Excite, as applicable, in
this Agreement; or
ii) Any claim that the Co-Branded Site or any all
information, service or content provided to Excite or
FairMarket, as applicable or made available to third
parties by FairMarket or Excite, as applicable, in
connection with this Agreement infringes or violates
any third party's copyright, patent, trade secret,
trademark, right of publicity or right of privacy or
contains any defamatory content.
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CONFIDENTIAL
A party seeking indemnification hereunder will promptly notify
the other party of any and all such claims and will reasonably
cooperate with such other party in the defense and/or
settlement thereof; provided that, if any settlement requires
an affirmative obligation of, results in any ongoing liability
to or prejudices or detrimentally impacts the indemnified
party in any way and such obligation, liability, prejudice or
impact can reasonably be expected to be material, then such
settlement shall require the indemnified party's written
consent (not to be unreasonably withheld or delayed) and the
indemnified party may, at its sole cost and expense, have its
own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, INCLUDING ALL EXHIBITS,
NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE
SUBJECT MATTER OF THIS AGREEMENT AND HEREBY SPECIFICALLY
DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.
13. LIMITATION OF LIABILITY
EXCEPT UNDER SECTION 11.c), IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER
FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF
CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF A PARTY FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY OTHER
LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS ACTUALLY PAID BY
THE OTHER PARTY TO SUCH PARTY HEREUNDER.
14. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names
and/or confidentiality would result in irreparable injury for
which there is no adequate remedy at law. Therefore, in the
event of any breach or threatened breach of a party's
obligations regarding trademarks, service marks or trade names
or confidentiality, the aggrieved party will be entitled to
seek equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction. For the
purposes of this section only, the parties consent to venue in
either the state courts of the county in which Excite has its
principal place of business or the United States District
Court for the Northern District of California.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, the
parties will first attempt to resolve the dispute(s) through
good faith negotiation. In the event that the dispute(s)
cannot be resolved through good faith negotiation, the parties
will refer the dispute(s) to a mutually acceptable mediator
for hearing in the county in which Excite has its principal
place of business.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, cannot be
resolved through good faith negotiation and mediation, the
parties will refer the dispute(s) to the American Arbitration
Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes. The
arbitration will be held in the county in which Excite has its
principal place of business.
15. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole
or in part, without the other party's written consent (which
will not be unreasonably withheld), except that no such
consent
Excite - FairMarket Agreement
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CONFIDENTIAL
will be required in connection with a merger, reorganization
or sale of all, or substantially all, of such party's capital
stock or assets. Any attempt to assign this Agreement other
than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of
California, notwithstanding the actual state or country of
residence or incorporation of FairMarket.
c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail,
return receipt requested, and will be deemed given upon
personal delivery, one (1) day after deposit with express
courier, upon confirmation of receipt of facsimile or email or
five (5) days after deposit in the mail. Notices will be sent
to a party at its address set forth below or such other
address as that party may specify in writing pursuant to this
Section.
d) No Agency. The parties are independent contractors and will
have no power or authority to assume or create any obligation
or responsibility on behalf of each other. This Agreement will
not be construed to create or imply any partnership, agency or
joint venture.
e) Force Majeure. Any delay in or failure of performance by
either party under this Agreement caused by any occurrence
beyond the reasonable control of such party including, but not
limited to, acts of God, power outages and governmental
restrictions will not be considered a breach of this Agreement
and such performance will be excused for the number of days
such occurrence reasonably prevents performance, but in no
case will such excuse extend beyond six (6) months.
f) Severability. In the event that any of the provisions of this
Agreement are held by to be unenforceable by a court or
arbitrator, the remaining portions of the Agreement will
remain in full force and effect.
g) Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject
matter hereof, superseding any prior agreements and
communications (both written and oral) regarding such subject
matter. This Agreement may only be modified, or any rights
under it waived, by a written document executed by both
parties.
Excite, Inc. FairMarket, Inc.
By: /s/ David Pine By: /s/ Scott Randall
Name: David Pine Name: Scott Randall
Title: General Counsel and Title: CEO
Secretary
Date: 8/23/99 Date: 8/23/99
Excite - FairMarket Agreement
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<PAGE> 1
EXHIBIT 10.16
CONFIDENTIAL
CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE
SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS HAVE BEEN INDICATED WITH
ASTERISKS.
AUCTION SERVICES AGREEMENT
This Auction Services Agreement (this "Agreement") is entered into as of
September 15, 1999 ("Effective Date"), by and between Ticketmaster
Online-CitySearch, Inc., a Delaware corporation located at 790 E. Colorado
Blvd., Suite 200, Pasadena, CA 91101 ("TMCS"), and FairMarket, Inc., a Delaware
corporation located at 400 Unicorn Park Drive, Woburn, Massachusetts 01801
("FairMarket").
RECITALS
A. FairMarket and TMCS have entered into the Stock Purchase Agreement
dated as of September 15, 1999 (the "Purchase Agreement") pursuant to which, on
the Closing Date thereunder, TMCS is purchasing from FairMarket a specified
amount of shares of FairMarket's Series D Preferred Stock.
B. TMCS owns and controls a number of websites on the Internet
(collectively, the "TMCS Sites").
C. FairMarket is in the business of designing, developing, and hosting
web sites for third parties in connection with which FairMarket provides private
label auction services ("FairMarket Auction Services").
D. TMCS and FairMarket wish to develop a number of co-branded versions
of the FairMarket Auction Services that will be developed and maintained by
FairMarket on an integrated basis with the TMCS Sites (the websites utilizing
the FairMarket Auction Services, when developed and launched, being collectively
referred to as the "Private Label Auction Sites") on the terms and conditions
set forth below.
E. The execution and delivery of this Agreement by TMCS and FairMarket
is a condition precedent to consummation of the transactions contemplated by the
Purchase Agreement to be consummated at the Closing thereunder.
NOW, THEREFORE, in consideration of the foregoing recitals, the
following covenants and promises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. CO-BRANDED PRIVATE LABEL AUCTION SERVICES
a) FairMarket will develop, host, and maintain, at its expense and
at no additional charge to TMCS, the Private Label Auction Sites
in accordance with the technical and content specifications set
forth in Exhibit A hereto and as otherwise agreed by FairMarket
and TMCS.
b) FairMarket will be responsible for all system operation software
costs, hardware costs and operation costs incurred in connection
with the development, operation and maintenance of the Private
Label Auction Sites. The Private Label Auction
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CONFIDENTIAL
Sites shall utilize the functional specifications described in
FairMarket's "Community AuctionPlace Features, version 4.0",
which is attached hereto as Exhibit C, and as may be changed from
time to time. FairMarket shall use commercially reasonable
efforts to make the Private Label Auction Sites available to
applicable users 24 hours per day, seven days per week. However,
FairMarket makes no representation that access to such sites will
be uninterrupted nor error free. TMCS shall have the right to
terminate this Agreement upon ten business days prior written
notice in the event that the server is not available at least 98%
(excluding scheduled downtime) of any calendar month, provided
that TMCS has been given prompt notice of any service outages
during such calendar month, and a reasonable opportunity to cure.
c) FairMarket and TMCS will work together to develop and launch the
Private Label Auction Sites in accordance with the schedule
detailed in Exhibit B.
d) TMCS will display prominent links to the Private Label Auction
Sites in a variety of locations across the TMCS Sites. At a
minimum, TMCS will provide links from appropriate TMCS Site
homepages, TMCS Site toolbars, and other contextually relevant
areas within the appropriate TMCS Sites.
2. ADVERTISING ON PRIVATE LABEL AUCTION SITES
a) TMCS will sell and serve all advertising on the Private Label
Auction Sites (collectively "Auction Site Advertising"). TMCS
will have the right to sell and serve all Auction Site
Advertising on all pages within the Private Label Auction Sites.
b) TMCS will pay FairMarket, on a quarterly basis within thirty (30)
days after the end of each calendar quarter, *** per cent (***%)
of Gross Advertising Revenue collected by TMCS during such
quarter. For the purposes hereof, "Gross Advertising Revenue"
means the aggregate amount of payments actually collected by TCMS
during a specified period in respect Auction Site Advertising
sold by TMCS. In the case of websites that are owned or
controlled, directly or indirectly, by TMCS or USA Networks, Inc.
("USA"), TMCS will not run advertising for such sites without
cash compensation except to the extent that TMCS has available
inventory not purchased by third party advertisers.
c) Each quarterly payment made pursuant to Section 2(a) shall be
accompanied by an Advertising Services Revenue Statement in
respect of the prior calendar quarter. For purposes hereof,
"Advertising Services Revenue Statement" means the statement in
mutually agreed format setting for the Gross Advertising Revenue
realized during the prior calendar quarter.
d) TMCS will keep accurate records and books of account relating to
the calculation and reporting of the Gross Advertising Revenue
throughout the term of this Agreement and for at least two years
thereafter. During such period, FairMarket
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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CONFIDENTIAL
shall have the right to cause an audit and/or inspection to be
made of TMCS's applicable records by an independent certified
public accountant in order to verify the Advertising Services
Revenue Statements. Except as specified herein, FairMarket shall
be responsible for all costs related to such audits. Such audits
shall be made no more often than once every twelve (12) months.
In the event that any underpayment is discovered as a result of
any such audit, TMCS shall promptly make an adjusting payment to
rectify the underpayment. If an audit reveals that TMCS has
underpaid FairMarket by ten percent (10%) or more of the amounts
due for any audited period of time, TMCS agrees, in addition to
making prompt payment to the auditing party of all amounts due to
pay the auditing party in respect of any underpayment, to pay all
reasonable costs and expenses incurred by the auditing party in
conducting such audit.
e) TMCS will not sell advertising on the Private Label Auction Sites
to "FairMarket Named Competitors". FairMarket may notify TMCS of
FairMarket Named Competitors or add to or replace company names
on the list of FairMarket Named Competitors under the following
conditions: (i) TMCS must approve any such names or changes, such
approval not to be unreasonably withheld, (ii) the total number
of FairMarket Named Competitors shall in no event exceed five
companies, and (iii) the list may not be changed more than once
per calendar quarter. The parties agree that websites featuring
online auction functionalities now or in the future owned or
controlled, directly or indirectly, by USA will be allowed to
advertise on the Private Label Auction Sites.
3. TRANSACTION REVENUE
a) "FairMarket Network" shall mean the network of all websites of
FairMarket customers for whom FairMarket hosts Private Label
Auction Services.
b) "Seller(s)" shall mean a user who lists product(s) or service(s)
for sale on the FairMarket Network.
c) "Buyer(s)" shall mean a user who successfully bids for product(s)
or service(s) on the FairMarket Network.
d) "Transaction Fees" shall mean ***
e) "Listing Fees" shall mean any fee charged to a Seller for placing
any listing of products or services on a Private Label Auction
Site.
f) "Gross Transaction Revenue" shall mean *** per cent (***%) of
Listing Fees charged to Sellers on each Private Label Auction
Site, plus *** per cent (***%) of all Transaction Fees (using
such Private Label Auction Site's then-current transaction fee
schedule) resulting from transactions in which a Seller
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission, pursuant to a confidential
treatment request.
3
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CONFIDENTIAL
used such Private Label Auction Site (regardless of whether the
Buyer uses such Private Label Auction Site or another site within
the FairMarket Network), plus *** per cent (***%) of all
Transaction Fees (using such Private Label Auction Site's
then-current transaction fee schedule) resulting from
transactions in which the Buyer used such Private Label Auction
Site (regardless of whether the Seller uses such Private Label
Auction Site or another site within the FairMarket Network).
g) "Net Transaction Revenue" shall mean actual Gross Transaction
Revenue less actual returns or similar credits and credit card
and other processing costs (collectively not to exceed 5.0% of
Gross Transaction Revenue regardless of actual processing costs).
h) "Shared Transaction Revenue" shall mean *** per cent (***%) of
Net Transaction Revenue recognized by FairMarket during a
specified period.
i) FairMarket and TMCS will jointly determine the amount, if any, of
Transaction Fees and Listing Fees for each Private Label Auction
Site. The parties will take into consideration current industry
pricing and the competitive environment when setting pricing, and
will establish pricing comparable to that charged by leading
independent auction sites and other leading portals.
j) FairMarket will pay TMCS, on a quarterly basis, the Shared
Transaction Revenue within thirty (30) days following the end of
each quarter.
k) Each quarterly payment made pursuant to Section 3(j) shall be
accompanied by an Transaction Revenue Statement in respect of the
prior calendar quarter. For purposes hereof, "Transaction Revenue
Statement" means the statement in mutually agreed format setting
for the Net Transaction Revenue recognized during the prior
calendar quarter.
l) FairMarket will keep accurate records and books of account
relating to the calculation and reporting of the Net Transaction
Revenue throughout the term of this Agreement and for at least
two years thereafter. During such period, TMCS shall have the
right to cause an audit and/or inspection to be made of
FairMarket's applicable records by an independent certified
public accountant in order to verify the Transaction Revenue
Statements. Except as specified herein, TMCS shall be responsible
for all costs related to such audits. Such audits shall be made
no more often than once every twelve (12) months. In the event
that any underpayment is discovered as a result of any such
audit, FairMarket shall promptly make an adjusting payment to
rectify the underpayment. If an audit reveals that FairMarket has
underpaid TMCS by ten percent (10%) or more of the amounts due
for any audited period of time, FairMarket agrees, in addition to
making prompt payment to the auditing party of all amounts due to
pay the auditing party in respect of any underpayment, to pay all
reasonable costs and expenses incurred by the auditing party in
conducting such audit.
*** This information is confidential and has been omitted and filed separately
with the Securities and Exchange Commission, pursuant to a confidential
treatment request.
4
<PAGE> 5
CONFIDENTIAL
4. ADVERTISING ON THE TMCS SITES AND USA NETWORK
a) In the one-year period beginning on the Effective Date, TMCS will
provide FairMarket, at no cost to FairMarket, $2 million of
advertising services on the TMCS Sites, valued at a "Most Favored
Nations" discount (the "TMCS Advertising Services"). The parties
will work together to select mutually agreeable locations for the
TMCS Advertising Services. Placement and timing of the TMCS
Advertising Services will be on an "as available" basis and may
be preempted for paid advertising or promotion, provided however
that TMCS will act in good faith and use commercially reasonable
efforts to accommodate the reasonable requests of FairMarket. The
TMCS Advertising Services will be made available only during the
one-year period beginning on the Effective Date, and following
the expiration of such one-year period TMCS shall have no further
obligation to provide any TMCS Advertising Services.
b) All advertising featured on the TMCS Websites and provided in
accordance with Section 4(a) above will refer to "CityAuction
Auctions" or such other similar wording as TMCS may use in its
discretion following consultation with FairMarket (it being
understood that, notwithstanding such consultation, the use of
such wording shall be subject to the final determination of
TMCS), and will be directed to click through to the Private Label
Auction Sites.
c) FairMarket will develop at FairMarket's expense the creative
materials to be used in the TMCS Advertising Services. All such
creative materials will be utilized subject to TMCS's approval,
such approval not to be unreasonably withheld.
d) In the one-year period beginning on the Effective Date, TMCS will
cause USA to provide to FairMarket, at no cost to FairMarket, $3
million of television and cable advertising services, valued at
"standard" discounts to USA's rate card, across the USA family of
properties. The parties will work together to select mutually
agreeable locations for the USA Advertising Services ("USA
Advertising Services"). Placement and timing of USA Advertising
Services will be on an "as available" basis and may be preempted
for paid advertising or promotion, provided however that USA will
act in good faith and use commercially reasonable efforts to
accommodate the reasonable requests of FairMarket. The USA
Advertising Services must be used during the one-year period
beginning on the Effective Date, and following the expiration of
such one-year period TMCS shall have no further obligation to
provide any TMCS Advertising Services. FairMarket will develop at
its sole expense the creative materials to be used in the USA
Advertising Services.
5. EXCLUSIVE AUCTION SERVICES PROVIDER
5
<PAGE> 6
CONFIDENTIAL
a) TMCS will not form a relationship with any affiliate or third
party company, other than FairMarket, to provide private label,
co-branded, or other person-to-person or merchant-to-person
online auction services for the TMCS Sites, except that the
parties agree that 1) ticket sales where TMCS is an agent and 2)
relationships with auction sites that are owned by USA or its
affiliates will be excluded from this exclusivity provision.
b) If TMCS decides to offer tickets at auction, the parties agree 1)
to use their respective best efforts to reach an agreement for
FairMarket to provide auctions services for such auctions and 2)
that FairMarket will have a right of first offer and a right to
match any offer to provide ticket auctions to TMCS.
c) TMCS will use commercially reasonable efforts to cause USA to
negotiate in good faith with FairMarket to provide FairMarket
with an opportunity to be the primary provider of auction
services for all USA Internet properties, including but not
limited to HSN.com, FirstAuction, FirstJewelry, and FirstOutlet.
d) FairMarket shall promote TMCS's participation as a partner in its
private label program in ongoing press materials, and in
marketing collateral related to such program; provided that all
uses of TMCS Marks in marketing and promotional materials shall
require the prior review and approval of TMCS. In addition, in
its sole discretion and to the extent reasonably practicable,
FairMarket shall feature TMCS on the FairMarket home page in a
manner similar to that in which other FairMarket customers are
featured.
e) TMCS shall promote TMCS's participation as a partner in the
FairMarket Network in ongoing press materials for the Private
Label Auction Sites that are launched pursuant hereto, and in
printed marketing collateral for such Private Label Auction
Sites; provided that all uses of FairMarket Marks in marketing
and promotional materials shall require the prior review and
approval of FairMarket.
6. TERM
a) The term of the Agreement shall begin on the Effective Date and
will continue for three (3) years (the "Initial Term").
b) Following the expiration of the Initial Term, and unless earlier
terminated pursuant to Section 7 hereof, this Agreement will
automatically renew at the end of the Initial Term and each
renewal term for an additional twelve (12) month term unless
cancelled in writing by either party at least thirty (30) days
prior to the end of the then-current term.
7. TERMINATION
a) Either party may terminate this Agreement if the other party
breaches any material obligation hereunder and such breach
remains uncured for thirty (30) days
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CONFIDENTIAL
following the receipt of written notice to the breaching party of
the breach and the notifying party's intention to terminate.
b) TMCS may terminate this Agreement effective upon written notice
to FairMarket following the occurrence of a Change of Control
Involving a Competitor. For purposes hereof, (x) a "Change of
Control Involving a Competitor" means (i) the sale, lease,
conveyance or other disposition of all or substantially all of
FairMarket's assets to a TMCS Competitor; or (ii) any transaction
or series of related transactions that results in any TMCS
Competitor becoming the beneficial owner, directly or indirectly,
of more than 50% of the aggregate voting power of all classes of
common equity of FairMarket; and (y) a "TMCS Competitor" means
any direct competitor of TMCS that TMCS may identify in writing
from time to time (it being understood that it is the
responsibility of FairMarket to confirm with TMCS in writing
whether a particular entity that may acquire such shares or
assets is then deemed to be a TMCS Competitor for purposes
hereof).
c) Except as set forth in the License Agreement of even date
herewith, upon termination of this Agreement, (i) TMCS and the
TMCS Sites shall immediately discontinue all use of each Private
Label Auction Site and return to FairMarket, or destroy, all
tangible materials embodying intellectual property belonging to
FairMarket, and (ii) FairMarket and the Private Label Auction
Sites will discontinue all use of the User Data and return to
TMCS, or destroy, all tangible materials embodying intellectual
property belonging to TMCS.
d) All payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within
thirty (30) days of such termination or expiration.
e) The provisions of Section 11 (Confidentiality), Section 12
(Warranty and Indemnity), Section 13 (Limitation of Liability),
Section 14 (Dispute Resolution) and Section 6(b) of Exhibit A
shall survive any termination or expiration of the Agreement.
8. USAGE REPORTS AND USER DATA
a) FairMarket will make usage reports made available to TMCS via the
Administrative Module (as defined in Exhibit A).
b) For the purpose of this Agreement, "User Data" shall mean all
information submitted by a user of any Private Label Auction Site
("User") to such Private Label Auction Site. "Individually
Identifiable User Data" shall mean User Data which can be
reasonably used to identify a specific individual such as their
name, address, phone number, etc.
c) Both parties acknowledge that any individual user of the Internet
could become a customer of TMCS and/or FairMarket through the use
of a TMCS Website or
7
<PAGE> 8
CONFIDENTIAL
website owned or controlled by FairMarket that is unrelated to
this Agreement. Both parties further acknowledge that any data
gathered about such Internet users unrelated to this Agreement
shall not be considered User Data.
d) TMCS shall retain all rights to any User Data. TMCS will have
full and continuous access to all User Data via the
Administrative Module (as defined in Exhibit A).
e) TMCS hereby grants FairMarket a limited license to aggregate and
use the User Data as follows: In the case of User submitted
listings, TMCS grants FairMarket the right to aggregate and
distribute such listings across the FairMarket Network. TMCS
agrees that FairMarket shall be able to utilize, at its sole
discretion, aggregated data from each Private Label Auction Site
when aggregated with data from FairMarket's other customers.
9. SERVICE OWNERSHIP AND LICENSE
a) FairMarket will retain all right, title and interest in and to
the FairMarket Auction Services worldwide (including, but not
limited to, ownership of all copyrights and other intellectual
property rights therein); provided that TMCS will retain all
right, title and interest in and to the design and look and feel
of each Private Label Auction Site (other than the Auction
Content Area) and the User Interface thereof (including, but not
limited to, ownership of all copyrights and other intellectual
property rights in such User Interface).
b) During the term of this Agreement, and subject to the terms and
conditions of this Agreement, FairMarket hereby grants to TMCS,
its affiliates and assigns a non-exclusive, non-transferable,
irrevocable, royalty-free, worldwide right and license to use,
distribute, transmit, publicly display, advertise and promote the
FairMarket Auction Services and the listing data therein in
connection with the Private Label Auction Sites and to the extent
necessary for TMCS to fulfill its obligations under this
Agreement. In addition, FairMarket grants to TMCS the right to
sub-license the FairMarket Auction Services included in each
Private Label Auction Site to TMCS's wholly-owned subsidiaries or
joint ventures in which TMCS participates for the sole purpose of
using, distributing, transmitting and publicly displaying such
Private Label Auction Site in accordance with this Agreement.
c) During the term of this Agreement, and subject to the terms and
conditions of this Agreement, TMCS hereby grants to FairMarket a
non-exclusive, non-transferable, irrevocable, royalty-free,
worldwide right and license to use, distribute, transmit and
publicly display the look and feel of each Private Label Auction
Site and the User Interface thereof in accordance with this
Agreement.
8
<PAGE> 9
10. TRADEMARK OWNERSHIP AND LICENSE
CONFIDENTIAL
a) FairMarket will retain all right, title and interest in and to
its trademarks, service marks and trade names worldwide, subject
to the limited license granted to TMCS hereunder.
b) TMCS will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to
the limited license granted to FairMarket hereunder.
c) Each party (each a "Licensor" as to the trademarks, service marks
and trade names licensed by it hereunder) hereby grants to the
other a non-exclusive, limited license to use Licensor's
trademarks, service marks or trade names only as specifically
described in this Agreement. All such use shall be in accordance
with Licensor's reasonable policies regarding advertising and
trademark usage, as shall be established or changed from time to
time, in each party's sole discretion.
d) Upon the expiration or termination of this Agreement, each party
will cease using the trademarks, service marks and/or trade names
of the other except:
i. As the parties may agree in writing; or
ii. To the extent permitted by applicable law.
11. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its
suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial,
technical and other information of a party marked or designated
by such party as "confidential" or "proprietary"; or information
which, by the nature of the circumstances surrounding the
disclosure, ought in good faith to be treated as confidential.
b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation or (iii) the receiving party knew prior
to receiving such information from the disclosing party or
develops independently.
c) Each party agrees (i) that it will not disclose to any third
party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement and (ii)
that it will take all reasonable measures to maintain the
confidentiality of all Confidential Information of the other
party in its possession or control, which will in no event be
less than the measures it uses to maintain the confidentiality of
its own information of similar importance.
9
<PAGE> 10
CONFIDENTIAL
d) Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of
competent jurisdiction or other governmental authority or
otherwise as required by law or (ii) on a "need-to-know" basis
under an obligation of confidentiality to its legal counsel,
accountants, banks and other financing sources and their
advisors.
e) The terms and conditions of this Agreement will be deemed to be
the Confidential Information of each party and will not be
disclosed without the written consent of the other party, except
as may be required by law.
f) The parties' obligations under this Section 11 shall survive any
termination or expiration of the Agreement.
12. WARRANTY AND INDEMNITY
a) Each of FairMarket and TMCS warrants that it owns, or has
obtained all necessary rights to distribute and make available as
specified in this Agreement, any and all information, service or
content that will be provided to the other party or made
available to third parties in connection with this Agreement,
including without limitation in the case of FairMarket, the
FairMarket Auction Services.
b) FairMarket warrants to TMCS that: (i) each Private Label Auction
Site will comply with the description and technical
specifications as contemplated by this Agreement and all
Exhibits; (ii) FairMarket will use its best efforts to ensure
that the Private Label Web Sites will be accessible on a
continuous, unlimited basis and will take measures consistent
with industry standards to ensure such access in the event of a
server crash, power outage, maintenance, service or other
interruption to the FairMarket Auction Service; and (iii) the
Private Label Auction Sites will continue to comply with all
terms, specifications and conditions hereunder, notwithstanding
the processing of dates including the years 2000 through 2100
("Year 2000 Data"), as follows: neither the Private Label Auction
Sites nor their hosting servers will freeze, cease to function,
generate incorrect data or produce incorrect results as a result
of inputting, processing, calculating, comparing, converting, or
presenting Year 2000 Data in calendar or system date; and the
Private Label Auction Sites will recognize and present dates
without ambiguity as to century in connection with sending Year
2000 Data to other automated or computerized systems.
c) Each of FairMarket and TMCS will indemnify, defend and hold
harmless the other party, and the other party's affiliates,
officers, directors, employees, consultants and agents from any
and all third party claims, liability, damages and/or costs
(including, but not limited to, reasonable attorneys' fees)
arising from:
10
<PAGE> 11
CONFIDENTIAL
i. The breach of any warranty, representation or covenant by
such party, in this Agreement;
ii. Any claim that any Private Label Auction Site or any or all
information, service or content provided by such party to
the other party or made available to third parties by such
party, in connection with this Agreement infringes or
violates any third party's copyright, patent, trade secret,
trademark, right of publicity or right of privacy or
contains any defamatory content; or
iii. Any claim based on property damage or personal injury
resulting from the gross negligence or willful or reckless
misconduct of such party.
A party seeking indemnification hereunder will promptly notify
the other party of any and all such claims and will reasonably
cooperate with such other party in the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices
or detrimentally impacts the indemnified party in any way and
such obligation, liability, prejudice or impact can reasonably be
expected to be material, then such settlement shall require the
indemnified party's written consent (not to be unreasonably
withheld or delayed) and the indemnified party may, at its sole
cost and expense, have its own counsel in attendance at all
proceedings and substantive negotiations relating to such claim.
d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, INCLUDING ALL EXHIBITS,
NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT
MATTER OF THIS AGREEMENT AND HEREBY SPECIFICALLY DISCLAIMS ANY
AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING
SUCH SUBJECT MATTER.
13. LIMITATION OF LIABILITY
EXCEPT FOR THE CONFIDENTIALITY OR INDEMNIFICATION OBLIGATIONS OF EACH PARTY
UNDER THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR
ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF
CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT FOR THE
CONFIDENTIALITY OR INDEMNIFICATION OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT, THE LIABILITY OF A PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER,
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT
EXCEED, THE AMOUNT ACTUALLY PAID, IN CASH OR IN KIND, BY THE OTHER PARTY TO SUCH
PARTY HEREUNDER.
11
<PAGE> 12
CONFIDENTIAL
14. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names
and/or confidentiality would result in irreparable injury for
which there is no adequate remedy at law. Therefore, in the event
of any breach or threatened breach of a party's obligations
regarding trademarks, service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction. For the purposes
of this section only, the parties consent to venue in either the
federal or state courts of the Commonwealth of Massachusetts.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, the parties
will first attempt to resolve the dispute(s) through good faith
negotiation. In the event that the dispute(s) cannot be resolved
through good faith negotiation, the parties will refer the
dispute(s) to a mutually acceptable mediator for hearing in
Boston, Massachusetts.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names and/or confidentiality, cannot be
resolved through good faith negotiation and mediation, the
parties will refer the dispute(s) to the American Arbitration
Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes. The
arbitration will be held in Boston, Massachusetts.
15. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or
in part, without the other party's written consent (which will
not be unreasonably withheld), except that no such consent will
be required in connection with a merger, reorganization or sale
of all, or substantially all, of such party's capital stock or
assets or the sale of all or substantially all of that portion of
a party's business to which this Agreement pertains; in the case
of FairMarket, so long as in each case the entity purchasing such
stock or assets is not a TMCS Competitor. Any attempt to assign
this Agreement other than as permitted above will be null and
void.
b) Governing Law. This Agreement will be governed by and construed
in accordance with the internal, substantive laws of the State of
Delaware, notwithstanding the actual state of residence or
incorporation of FairMarket.
12
<PAGE> 13
CONFIDENTIAL
c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail,
return receipt requested, and will be deemed given upon personal
delivery, one (1) day after deposit with express courier, upon
confirmation of receipt of facsimile or email or five (5) days
after deposit in the mail. Notices will be sent to a party at its
address set forth below or such other address as that party may
specify in writing pursuant to this Section.
d) No Agency. The parties are independent contractors and will have
no power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not
be construed to create or imply any partnership, agency or joint
venture.
e) Force Majeure. Any delay in or failure of performance by either
party under this Agreement caused by any occurrence beyond the
reasonable control of such party including, but not limited to,
acts of God, power outages and governmental restrictions will not
be considered a breach of this Agreement and such performance
will be excused for the number of days such occurrence reasonably
prevents performance, but in no case will such excuse extend
beyond six (6) months.
f) Severability. In the event that any of the provisions of this
Agreement are held by to be unenforceable by a court or
arbitrator, the remaining portions of the Agreement will remain
in full force and effect.
g) Entire Agreement. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement
may only be modified, or any rights under it waived, by a written
document executed by both parties.
13
<PAGE> 14
CONFIDENTIAL
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the Effective Date.
Ticketmaster Online-CitySearch, Inc. FairMarket, Inc.
By: /s/ Bradley K. Serwin By: /s/ Scott Randall
-------------------------------- ------------------------------
Name: Bradley K. Serwin Name: Scott Randall
------------------------------ ----------------------------
Title: V.P. Title: CEO
----------------------------- ---------------------------
Date: 9/15/99 Date: 9/15/99
------------------------------ ----------------------------
CONFIDENTIAL
14
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 333-92677) of our report dated January 23, 2000
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
February 8, 2000
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,880,306
<SECURITIES> 2,019,008
<RECEIVABLES> 1,069,706
<ALLOWANCES> (191,890)
<INVENTORY> 0
<CURRENT-ASSETS> 15,994,272
<PP&E> 4,558,218
<DEPRECIATION> (481,079)
<TOTAL-ASSETS> 20,071,411
<CURRENT-LIABILITIES> 3,689,810
<BONDS> 0
17,5000,000
52,578,182
<COMMON> 5,243
<OTHER-SE> (53,719,324)
<TOTAL-LIABILITY-AND-EQUITY> 20,071,411
<SALES> 0
<TOTAL-REVENUES> 2,120,635
<CGS> 0
<TOTAL-COSTS> 18,871,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 274,144
<INTEREST-EXPENSE> (5,227)
<INCOME-PRETAX> (16,509,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,509,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,509,209)
<EPS-BASIC> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
