<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-24871
FATBRAIN.COM, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 77-0389480
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1308 Orleans Drive
Sunnyvale, California 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
Issuer's telephone number, including area code: (408) 541-2020
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
Title of each class Name of Exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock
($0.001)
Indicate by check mark whether the issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Yes [X] No [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB/A or any
amendment to this Form 10-KSB/A. [X]
The Issuer's revenues for its most recent fiscal year are $19.8 million.
<PAGE> 2
The aggregate market value of voting stock held by non-affiliates of the
issuer, as of March 31, 1999 was approximately $113,987,109 (based on the
closing price for shares of the issuer's Common Stock as reported by the Nasdaq
National Market for the last trading day prior to that date). Shares of Common
Stock held by each executive officer, director, and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On March 31, 1999 approximately 11,250,066 shares of the issuer's Common
Stock, $0.001 par value, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
2
<PAGE> 3
Fatbrain.com, Inc.
Form 10KSB/A
INDEX
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................
Item 10. Executive Compensation..............................................
Item 11. Security Ownership of Certain Beneficial Owners and Management......
Item 12. Certain Relationships and Related Transactions......................
Item 13. Exhibits, List and Reports on Form 8-K..............................
SIGNATURES....................................................................
For purposes herein, the fiscal year ended January 31, 1999 is referred
to as fiscal 1999 and the fiscal year ended January 31, 1998 is referred to as
fiscal 1998.
3
<PAGE> 4
AMENDMENT NO. 1
The undersigned Issuer hereby amends Part III, to read in full as
follows:
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their ages as of March 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chris MacAskill........................ 45 Chief Executive Officer, President and Chairman of the Board
Kim Orumchian.......................... 33 Vice President of Engineering, Secretary and Director
Donald P. Alvarez...................... 34 Vice President of Finance and Chief Financial Officer
Dennis F. Capovilla.................... 38 Vice President of Sales and Business Development
Robert M. Cudd......................... 44 Vice President of Marketing
Sean M. Cumbie......................... 38 Vice President of Logistics
Peter G. Bodine(1)..................... 36 Director
Alan S. Fisher(2)...................... 38 Director
Tod H. Francis(1)...................... 39 Director
David C. Schwab........................ 41 Director
Peter C. Wendell(2).................... 48 Director
</TABLE>
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Chris MacAskill has been Chief Executive Officer, President and a
director of Fatbrain.com since co-founding Fatbrain.com in June 1995. From June
1991 to June 1993, Mr. MacAskill served as Director of Developer Relations at
NeXT Inc., a software development company. From June 1993 to June 1995, Mr.
MacAskill served as Director of Developer Relations at General Magic, a software
development company. From September 1983 to May 1991, Mr. MacAskill served as
Vice President of Engineering at Western Atlas International, a geophysics
company. In September 1981, Mr. MacAskill founded PSI, a petroleum engineering
company, which was acquired by Western Atlas International in October 1983. Mr.
MacAskill received his B.S. in Geophysics from the University of Utah and
received his M.S. in Geophysics from Stanford University.
Kim Orumchian has been Vice President of Engineering, Secretary and a
director of Fatbrain.com since co-founding Fatbrain.com in June 1995. From May
1994 to June 1996, Mr. Orumchian served as a third party Product Manager for
General Magic, a software development company. From September 1990 to April
1994, Mr. Orumchian served as Manager of Developer Relations for NeXT Inc., a
software development company. Mr. Orumchian received his B.A. in Physics from
Reed College and received his B.S. in Applied Physics from Columbia University
School of Engineering.
Donald P. Alvarez joined Fatbrain.com as Vice President of Finance and
Chief Financial Officer in September 1997. From January 1994 to August 1997, Mr.
Alvarez served as Controller for West Marine Inc., a retailer of recreational
boating supplies and apparel. From January 1987 to December 1993, Mr. Alvarez
served as an audit manager for Deloitte & Touche LLP, an international public
accounting firm. Mr. Alvarez received his B.S. in Business Administration from
California State University, Hayward.
Dennis F. Capovilla joined Fatbrain.com as Vice President of Sales and
Business Development in June 1997. From August 1995 to July 1997, Mr. Capovilla
served as Director of the Imaging Division and Worldwide Printer Supplies for
Apple Computer, a computer company. From December 1992 to December 1994, Mr.
Capovilla directed Apple Computer's worldwide marketing efforts for the Imaging
Division. From January 1989 to December 1992, Mr. Capovilla served as a channel
marketing manager for Versatec Inc., an affiliate of Xerox Engineering Systems,
a technology company, where he directed North American distributor and VAR
channel activities. Mr. Capovilla received his B.S. in Marketing from Santa
Clara University and did graduate work in business at the Leavey School of
Business at Santa Clara University.
4
<PAGE> 5
Robert M. Cudd joined Fatbrain.com as Vice President of Marketing in
March 1998. From September 1996 to March 1998, Mr. Cudd served as Vice President
of Marketing for West Marine Inc., a retailer of recreational boating supplies
and apparel. From March 1994 to May 1996, Mr. Cudd served as the Director of
Marketing for the Computer City Division of Tandy Corporation, a computer
company. From November 1989 to January 1994 he served as Vice President of
Marketing at Computerland, a retail company. Mr. Cudd received his B.S. in
Business from Ferris State University.
Sean M. Cumbie joined Fatbrain.com as Vice President of Logistics in
September 1998. From October 1996 to September 1998, Mr. Cumbie was the owner of
and a consultant for Cumbie & Associates, Inc., a logistics management
consulting firm. From January 1993 to November 1996, Mr. Cumbie served as Vice
President of Logistics at West Marine Inc., a retailer of recreational boating
supplies and apparel. From February 1991 to January 1993, Mr. Cumbie served as
Director of Planning and Inventory Management at National Vision Associates, a
vision service company. Mr. Cumbie received his M.S. in Management and his B.S.
in Mechanical Engineering from the Georgia Institute of Technology.
Peter G. Bodine has been a director of Fatbrain.com since May 1998.
Since December 1992, Mr. Bodine has served as a partner of APV Technology
Partners ("APV"), a venture capital investment firm, and as an Executive Vice
President of Asia Pacific Ventures, a consulting firm affiliated with APV.
Before joining APV in 1992, Mr. Bodine was co-founder of International Business
Catalysts, a consulting firm focused on international trade and investment
counsel. Mr. Bodine received his B.S. in Finance from Brigham Young University
and his M.B.A. from the University of Utah.
Alan S. Fisher has been a director of Fatbrain.com since July 1998. Mr.
Fisher has been Vice President of Development and Operations, Chief Technical
Officer and a director of ONSALE, Inc. ("ONSALE"), an online retailer, since
co-founding ONSALE in July 1994. He also served as Chief Financial Officer of
ONSALE from July 1994 to July 1996. Mr. Fisher is also President and Chairman of
Software Partners, Inc., a developer and publisher of software products, which
he co-founded in August 1988. From April 1984 to August 1988, Mr. Fisher served
as Technical Marketing Manager and Product Development Manager for Teknowledge,
Inc., a developer of artificial intelligence software products. Mr. Fisher
serves as a director of Infodata Systems, Inc., an internet document publishing
software company. Mr. Fisher received his B.S. in Electrical Engineering from
the University of Missouri and received his M.S. in Electrical Engineering from
Stanford University.
Tod H. Francis has been a director of Fatbrain.com since September 1996.
Mr. Francis has been general partner of Trinity Ventures since March 1996.
Before being named a general partner, Mr. Francis worked at Trinity Ventures as
an associate from March 1993 to March 1995 and as a principal from March 1995 to
March 1996. Before joining Trinity Ventures, Mr. Francis was a partner at RAM
Group, a marketing management firm and worked at Johnson & Johnson, in brand
management. Mr. Francis received his B.A. in Economics and his M.B.A from
Northwestern University.
David C. Schwab has been a director of Fatbrain.com since September
1996. Mr. Schwab has been a general partner of Sierra Ventures since June 1996.
Before joining Sierra Ventures, Mr. Schwab co-founded Scopus Technology, Inc., a
client-server software systems company, and served in various capacities from
August 1991 to June 1996, most recently as Vice President of Sales. Mr. Schwab
also serves as a director of Micromuse, Inc. Mr. Schwab received his B.A. in
Systems Engineering from University of California San Diego, his M.S. and ENG.
in Aerospace Engineering from Stanford University, and his M.B.A from Harvard
Business School.
Peter C. Wendell has been a director of Fatbrain.com since September
1996. Mr. Wendell has been a General Partner of Sierra Ventures since 1982, the
year in which he founded that firm. Before that time he served in various
executive capacities with IBM Corp. Since 1991 he has also held a faculty
appointment at Stanford University's Graduate School of Business where he
teaches "Entrepreneurship and Venture Capital." Mr. Wendell holds an A.B. degree
from Princeton University and an M.B.A. from Harvard Business School.
All directors hold office until the next annual meeting of the
stockholders and until their successors have been duly elected and qualified.
Officers are elected by and serve at the direction of the Board of Directors.
There are no family relationships among our directors or officers.
BOARD COMMITTEES
The Board has established an Audit Committee to meet with and consider
suggestions from members of management and our internal audit staff, as well as
our independent accountants, concerning our financial operations. The Audit
Committee reviews our audited financial statements and considers and recommends
the employment of, and approves the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. The current members of the Audit Committee are Messrs. Bodine and
Francis. The Board has also established a Compensation Committee to review and
approve the compensation and benefits for our key executive officers,
administers our stock purchase, equity incentive and stock option plans and
makes recommendations to the Board regarding these matters. The current members
of the Compensation Committee are Messrs. Wendell and Fisher.
5
<PAGE> 6
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their transactions in
the Common Stock and their Common Stock holdings during the fiscal year ended
January 31, 1999 and (ii) the written representations received from one or more
of such persons that no annual Form 5 reports were required to be filed by them
for the fiscal year ended January 31, 1999, the Company believes that all
reporting requirements under Section 16(a) for such fiscal year were met in a
timely manner by its executive officers, Board members and greater than
ten-percent stockholders.
6
<PAGE> 7
ITEM 10 EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth information
concerning compensation earned during the fiscal years ended January 31, 1999
and 1998 by the Company's Chief Executive Officer and each of the Company's
other four highest paid executive officers whose total salary and bonus for
services rendered in all capacities to the Company exceeded $100,000 during the
fiscal year ended January 31, 1999 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
----------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
- --------------------------- ---- --------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Chris MacAskill 1999 $110,003 -- -- $ 1,354
Chief Executive Officer and 1998 81,539 -- -- 308
President
Kim Orumchian 1999 110,003 -- -- 1,523
Vice President of Engineering 1998 81,539 -- -- 308
and Secretary
Donald P. Alvarez 1999 129,731 $ 25,000 -- 745
Vice President of Finance and 1998 50,000(2) -- 75,000 --
Chief Financial Officer
Dennis F. Capovilla 1999 141,786 50,000 22,500 --
Vice President of Sales and 1998 76,962(3) -- 52,500 --
Business Development
Robert M. Cudd 1999 113,212(4) 28,750 65,000 --
Vice President of Marketing 1998 -- -- -- --
</TABLE>
(1) Represents matching contributions to each Named Officer's 401(k) plan
account.
(2) Mr. Alvarez commenced employment on September 2, 1997.
(3) Mr. Capovilla commenced employment on July 7, 1997.
(4) Mr. Cudd commenced employment on March 30, 1998.
7
<PAGE> 8
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended January
31, 1999 to the Named Officers. No stock appreciation rights were granted during
such fiscal year to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR SHARE($)(3) DATE 5%($) 10%($)
- ---- ---------- -------------- ----------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Chris MacAskill -- -- -- -- -- --
Kim Orumchian -- -- -- -- -- --
Donald P. Alvarez -- -- -- -- -- --
Dennis F. Capovilla 22,500 5.2% $ 2.20 2/26/08 $ 31,130 $ 78,890
Robert M. Cudd 65,000 15.1% $ 2.60 3/30/08 $106,283 $269,342
</TABLE>
- ----------
(1) The Company granted options to purchase 430,526 shares of Common Stock
during the fiscal year ended January 31, 1999. The plan administrator
has the discretionary authority to reprice the options through the
cancellation of those options and the grant of replacement options with
an exercise price based on the fair market value of the option shares on
the regrant date. The options have a maximum term of 10 years measured
from the option grant date, subject to earlier termination if the
optionee's service with the Company ceases. The plan administrator has
the discretion to accelerate the vesting of options upon a change in
control.
(2) The assumed 5% and 10% rates of stock price appreciation are provided in
accordance with rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future Common
Stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the
vesting period. This table does not take into account any appreciation
in the price of the Common Stock from the date of grant to the current
date. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to
the Named Officers.
(3) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors of the Company on the date of grant. The exercise price may be
paid in cash, check, promissory note, in shares of the Company's Common
Stock valued at fair market value on the exercise date or a
broker-assisted cashless exercise procedure. The options vest with
respect to 25% of the option shares upon the completion of 12 months of
service after the vesting commencement date and with respect to 1/48th
of the option shares upon completion of each month of service thereafter
for the next 36 months.
8
<PAGE> 9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table provides the specified information concerning
unexercised options held as of January 31, 1999 by the Named Officers. The Named
Officers did not exercise any options during the fiscal year ended January 31,
1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(#)(1) AT FY-END($)(2)
------------------------ -----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Chris MacAskill ....... 50,933 36,382 $780,294 $557,372
Kim Orumchian ......... 19,064 13,618 292,060 208,628
Donald P. Alvarez ..... 25,000 50,000 381,500 763,000
Dennis F. Capovilla ... 19,687 55,313 300,424 799,976
Robert M. Cudd ........ -- 65,000 -- 838,500
</TABLE>
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable under these options are subject to repurchase by the
Company at the original exercise price paid per share upon the
optionee's cessation of service before vesting in such shares. The
repurchase right lapses as to 25% of the option shares upon the
completion of 12 months of service and as to the balance in equal
monthly installments upon the completion of each of the next 36 months
of service. The heading Vested refers to shares that are no longer
subject to the Company's repurchase right; the heading Unvested refers
to shares subject to the Company's repurchase right as of January 31,
1999.
(2) Based on the fair market value of the Company's Common Stock per share
at January 29, 1999 ($15.50) less the exercise price per share payable
for such shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Messrs. MacAskill and Orumchian have each entered into employment
agreements with the Company. The employment agreements set forth the base salary
and general employee benefits offered to Messrs. MacAskill and Orumchian. The
annual base salary for each of Messrs. MacAskill and Orumchian is currently
$110,000. The employment agreements also provide that if Mr. MacAskill or Mr.
Orumchian is terminated without cause or due to disability, the terminated
employee will receive a severance payment equal to six months of salary, payable
in equal monthly installments over a six-month period. Each severance payment is
payable in full for the initial three-month period following the termination and
may be offset by any compensation received by the terminated employee from
another employer during the remaining three-month period. Severance payments
will cease if death occurs. In addition, the employment agreements amended each
of Mr. MacAskill's and Mr. Orumchian's stock purchase agreement with the
Company, dated June 12, 1995, such that if a change in control occurs, an
additional number of shares subject to each stock purchase agreement will become
vested, and such additional shares will be equal to the greater of (i) 50% of
the shares then remaining vested or (ii) the number of shares that would have
become vested during the 12-month period following the change in control.
Mr. Alvarez has entered into an employment agreement with the Company.
The employment agreement sets forth the base salary, bonus potential, stock
option grant and general employee benefits offered to Mr. Alvarez. Mr. Alvarez's
annual base salary will be $125,000. Mr. Alvarez is guaranteed a bonus of
$15,000 in his first year of employment with the Company. Mr. Alvarez was
granted an option to purchase 75,000 shares of the Company's Common Stock.
9
<PAGE> 10
Mr. Cudd has entered into an employment agreement with the Company. The
employment agreement sets forth the base salary, bonus potential, stock option
grant and general employee benefits offered to Mr. Cudd. Mr. Cudd's annual base
salary will be $135,000. Mr. Cudd received a signing bonus of $10,000 and is
guaranteed a bonus of $25,000 in his first year of employment with the Company.
Mr. Cudd was granted an option to purchase 65,000 shares of the Company's Common
Stock.
If a change in control occurs, the vesting of the options granted to
Messrs. Alvarez, Capovilla and Cudd will accelerate and an additional number of
option shares will become vested that is equal to the greater of: (i) 50% of any
unvested option shares; or (ii) a number of shares equal to the number each
officer would become vested in had he provided 12 months of additional service
following the change in control.
The Company's Board of Directors has the authority under the 1998
Omnibus Equity Incentive Plan to accelerate the exercisability of outstanding
options, or to accelerate the vesting of the shares of Common Stock subject to
outstanding options, held by all optionees, including the Chief Executive
Officer and the other Named Officers, if a change in control occurs.
10
<PAGE> 11
COMPENSATION REPORT
PURPOSE. This Compensation Report describes the compensation policies
and rationale applied to the compensation paid to the Company's executive
officers for the fiscal year ended January 31, 1999. For the fiscal year ended
January 31, 1999, the Company's Board of Directors determined the compensation
of the Company's executive officers. The base salary and cash bonuses of each
executive officer were set forth in the employment agreement between each
executive officer and the Company.
The Compensation Committee of the Company's Board of Directors (the
"Committee") administers the Company's 1998 Omnibus Equity Incentive Plan under
which option grants may be made to the CEO and the other executive officers and
the Company's 1998 Employee Stock Purchase Plan under which the employees of the
Company, including the CEO and the other executive officers, may purchase shares
of the Company's Common Stock.
For future fiscal years, it is intended that the Committee will have the
exclusive authority to establish the level of base salary payable to the Chief
Executive Officer ("CEO") and the other executive officers of the Company and
have the responsibility of approving the bonus program to be in effect for the
CEO and the other executive officers each fiscal year.
GENERAL COMPENSATION POLICY. The Company's fundamental compensation
policy is to offer the Company's executive officers competitive compensation
opportunities based upon the financial performance of the Company and each
officer's personal performance. It is the Company's objective to have a
significant portion of each officer's compensation contingent upon the Company's
performance, as well as upon his or her own level of performance. Accordingly,
each executive officer's compensation package consists of: (i) base salary, (ii)
cash bonus awards and (iii) long-term stock-based incentive awards.
BASE SALARY. The base salary for each executive officer is set on the
basis of personal performance, taking into account the average salary levels in
effect for comparable positions with companies having total revenues similar to
the Company's. Each individual's base pay is positioned relative to the total
compensation package, including cash bonus incentives and long-term stock-based
incentives.
ANNUAL CASH BONUSES. For the fiscal year ended January 31, 1999, the
Company did not have a bonus program for its executive officers. Each executive
officer received a bonus, if any, based on the terms of such executive officer's
employment agreement with the Company.
LONG-TERM INCENTIVE COMPENSATION. During the fiscal year ended January
31, 1999, the Board of Directors, in its discretion, made an option grant to
Dennis F. Capovilla, the Company's Vice President of Sales and Business
Development, under the Company's 1996 Stock Plan based on his personal
performance and with the objective that his total option holdings be comparable
to the option holdings of the other executive officers of the Company. Robert M.
Cudd, the Company's Vice President of Marketing, and Sean M. Cumbie, the
Company's Vice President of Logistics, were each granted an option when he was
initially hired by the Company in his current position as an executive officer
of the Company. In addition, Mr. Cumbie received option grants for the services
that he rendered to the Company as a consultant prior to his employment as an
executive officer of the Company. Option grants are generally made at varying
times and in varying amounts in the discretion of the Committee. Typically, the
size of each grant is set at a level that the Committee deems appropriate to
create a meaningful opportunity for stock ownership based upon the individual's
position with the Company, the individual's potential for future responsibility
and promotion, the individual's performance in the recent period and the number
of unvested options held by the individual at the time of the new grant. The
relative weight given to each of these factors will vary from individual to
individual at the Committee's discretion.
Each grant allows the officer to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. Each option vests as to 25% of the option shares upon
the completion of 12 months of service and as to 1/48th of the option shares
upon the completion of each of the next 36 months of service. Thus, the vesting
of each option is contingent upon the executive officer's continued employment
with the Company. Accordingly, the option will provide a return to the executive
officer only if he
11
<PAGE> 12
remains in the Company's employ, and then only if the market price of the
Company's Common Stock appreciates over the option term.
CEO COMPENSATION. The annual base salary for Mr. MacAskill, the
Company's President and Chief Executive Officer, was established by the Board
prior to the Company's initial public offering. The Board's decision was made
primarily on the basis of Mr. MacAskill's personal performance of his duties.
Mr. MacAskill did not participate in the discussions and determination of his
own compensation. No bonus program was established for the Company's executive
officers for the fiscal year ended January 31, 1999, and, consequently, no bonus
was paid to Mr. MacAskill for this fiscal year. In future years the Board or the
Committee may establish annual net revenue and net income objectives for the
Company, and each executive officer's bonus, including the Chief Executive
Officer's, will be based on the achievement of such objectives.
TAX LIMITATION. Under the Federal tax laws, a publicly-held company such
as the Company will not be allowed a federal income tax deduction for
compensation paid to certain executive officers to the extent that compensation
exceeds $1 million per officer in any year. To qualify for an exemption from the
$1 million deduction limitation, the stockholders were asked to approve a
limitation under the Company's 1998 Omnibus Equity Incentive Plan on the maximum
number of shares of Common Stock for which any one participant may be granted
stock options per calendar year. Because this limitation was adopted, any
compensation deemed paid to an executive officer when he exercises an
outstanding option under the 1998 Omnibus Equity Incentive Plan with an exercise
price equal to the fair market value of the option shares on the grant date will
qualify as performance-based compensation that will not be subject to the $1
million limitation. Since it is not expected that the cash compensation to be
paid to the Company's executive officers for the fiscal year ended January 31,
1999 will exceed the $1 million limit per officer, the Board of Directors will
defer any decision on whether to limit the dollar amount of all other
compensation payable to the Company's executive officers to the $1 million cap.
Board of Directors
Chris MacAskill
Kim Orumchian
Peter G. Bodine
Alan S. Fisher
Tod H. Francis
David C. Schwab
Peter C. Wendell
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed in
July 1998, and the members of the Compensation Committee during the fiscal year
ended January 31, 1999 were Messrs. Peter C. Wendell and Alan S. Fisher. Neither
of these individuals was at any time during the fiscal year ended January 31,
1999, or at any other time, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
12
<PAGE> 13
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder
return on the Company's Common Stock between November 20, 1998 (the date the
Company's Common Stock commenced public trading) and January 31, 1999, with the
cumulative total return of (i) the CRSP Total Return Index for the Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii) the S&P
Major Market Index (the "S&P Market Index"), over the same period. This graph
assumes the investment of $100.00 on November 20, 1998 in the Company's Common
Stock, the Nasdaq Stock Market-U.S. Index and the S&P Market Index, and assumes
the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data.
The Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future performance
of the Company's Common Stock. Information used in the graph was obtained from
Standard & Poor's Compustat Total Return Service, a source believed to be
reliable, but the Company is not responsible for any errors or omissions in such
information.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG FATBRAIN.COM, INC.,
THE NASDAQ STOCK MARKET-U.S. INDEX AND THE S&P MAJOR MARKET INDEX
[PERFORMANCE GRAPH]
ANNUAL RETURN PERCENTAGE
Year Ending
<TABLE>
<CAPTION>
Company / Index Jan 99
- --------------------------------------------
<S> <C>
FATBRAIN.COM INC 55.00
S&P 500 INDEX 10.19
NASDAQ US COMPOSITE 30.86
</TABLE>
INDEXED RETURNS
Year Ending
<TABLE>
<CAPTION>
Base
Period 20
Company / Index Nov 98 Jan 99
- --------------------------------------------
<S> <C> <C>
FATBRAIN.COM INC 100 155.00
S&P 500 INDEX 100 110.19
NASDAQ US COMPOSITE 100 130.86
</TABLE>
13
<PAGE> 14
The Company effected its initial public offering of Common Stock on
November 19, 1998 at a price of $10.00 per share.
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate this Proxy Statement or future filings made by the Company under
those statutes, the Compensation Committee Report and Stock Performance Graph
shall not be deemed filed with the Securities and Exchange Commission and shall
not be deemed incorporated by reference into any of those prior filings or into
any future filings made by the Company under those statutes.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended January 31, 1999, the Board of Directors
held eight meetings and acted by written consent on four occasions. For such
fiscal year, each of the directors during the term of their tenure attended or
participated in at least 75% of the aggregate of the total number of meetings or
actions by written consent of the Board of Directors. The Board of Directors has
two standing committees: the Audit Committee and the Compensation Committee.
During the fiscal year ended January 31, 1999, the Audit Committee of
the Board of Directors held no meetings. The Audit Committee was created on July
13, 1998 and became effective on the effective date of the Company's initial
public offering of its securities, November 19, 1998. The Audit Committee
reviews, acts on and reports to the Board of Directors with respect to various
auditing and accounting matters, including the selection of the Company's
accountants, the scope of the annual audits, fees to be paid to the Company's
accountants, the performance of the Company's accountants and the accounting
practices of the Company. The members of the Audit Committee during the fiscal
year ended January 31, 1999 were Peter G. Bodine and Tod H. Francis. The members
of the Audit Committee for the fiscal year ended January 31, 2000 will be the
same as for the previous fiscal year.
During the fiscal year ended January 31, 1999, the Compensation
Committee of the Board of Directors held no meetings. The Compensation Committee
was created on July 13, 1998 and became effective on the effective date of the
Company's initial public offering of its securities, November 19, 1998. The
Compensation Committee reviews and approves the compensation and benefits for
the Company's key executive officers, administers the Company's stock purchase,
equity incentive and stock option plans, and makes recommendations to the Board
of Directors regarding such matters. The members of the Compensation Committee
during the fiscal year ended January 31, 1999 were Peter C. Wendell and Alan S.
Fisher. The members of the Compensation Committee for the fiscal year ended
January 31, 2000 will be the same as for the previous fiscal year.
DIRECTOR COMPENSATION
Directors receive no cash remuneration for serving on the Board of
Directors. Non-employee Board members are eligible for option grants pursuant to
the provisions of the Automatic Option Grant Program under the Company's 1998
Omnibus Equity Incentive Plan. Under the Automatic Option Grant Program, each
individual who first becomes a non-employee Board member after the date of the
Company's initial public offering will be granted an option to purchase 7,500
shares of the Company's Common Stock on the date such individual joins the Board
("Initial Grant"). In addition, at each Annual Meeting of Stockholders, each
individual who will continue to serve as a member of the Board after such
meeting will receive an additional option to purchase 1,500 shares of Common
Stock ("Annual Grant"). However, a director will not receive an Annual Grant in
the same calendar year that he received an Initial Grant. The exercise price for
each option granted under the Automatic Option Grant Program will be equal to
the fair market value per share of the Common Stock on the automatic grant date.
Each Initial Grant will become vested with respect to 25% of the option shares
upon the completion of 12 months of service from the date of grant and with
respect to an additional 1/48th of the option shares upon the completion of each
of the next 36 months of service. Each Annual Grant will become fully vested on
the first anniversary of the date of grant.
14
<PAGE> 15
Pursuant to the Automatic Option Grant Program, each of the non-employee
Board members, Messrs. Bodine, Fisher, Francis, Schwab and Wendell, if
re-elected, will receive an option to purchase 1,500 shares of the Company's
Common Stock on the date of the Annual Meeting at an exercise price per share
equal to the fair market value of the Company's Common Stock per share on the
date of the Annual Meeting. Mr. Fisher received an option to purchase 7,500
shares of the Company's Common Stock on July 13, 1998 at an exercise price per
share of $8.00. This option becomes vested with respect to 25% of the option
shares upon the completion of 12 months of service from the vesting commencement
date and with respect to an additional 1/48th of the option shares upon the
completion of each of the next 36 months of service.
Directors who are also employees of the Company are eligible to receive
options and be issued shares of Common Stock directly under the 1998 Omnibus
Equity Incentive Plan and are also eligible to participate in the Company's 1998
Employee Stock Purchase Plan.
15
<PAGE> 16
ITEM 11 STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, certain
information with respect to shares beneficially owned by (i) each person who is
known by the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table and
(iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option or warrant) within sixty
(60) days of the date as of which the information is provided; in computing the
percentage ownership of any person, the amount of shares is deemed to include
the amount of shares beneficially owned by such person (and only such person) by
reason of such acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED(1) CLASS(2)
- ------------------------------------- -------- --------
<S> <C> <C>
Sierra Ventures V, L.P. (3) 2,688,145 23.9%
3000 Sand Hill Road, Building 4, Suite 210
Menlo Park, CA 94025
Entities affiliated with Trinity Ventures V, 1,118,219 9.9%
L.P.(4)
3000 Sand Hill Road, Building 1, Suite 240
Menlo Park, CA 94025
Entities affiliated with Needham Capital 605,591 5.4%
Partners II, L.P. (5)
445 Park Avenue, 3rd Floor
New York, NY 10022
Chris MacAskill (6) 946,276 8.3%
Kim Orumchian (7) 730,182 6.5%
Donald P. Alvarez (8) 97,500 *
Dennis F. Capovilla (9) 97,500 *
Robert M. Cudd (10) 90,000 *
Peter G. Bodine (11) 343,607 3.1%
Alan S. Fisher (12) 17,500 *
Tod H. Francis (4) 1,118,219 9.9%
David C. Schwab (3) 2,688,145 23.9%
Peter C. Wendell (3) 2,688,145 23.9%
All directors and executive officers as a
group (11 people) 6,206,054 52.7%
</TABLE>
- ----------
* Represents beneficial ownership of less than 1% of the outstanding
shares of Common Stock.
(1) Percentage ownership is based on 11,250,066 shares of Common Stock
outstanding on March 31, 1999.
(3) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of March 31, 1999 are deemed outstanding for
purposes of computing the percentage ownership of the person holding
such options but are not deemed outstanding for computing the percentage
ownership of any other person. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, each
stockholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock
16
<PAGE> 17
shown as beneficially owned by such stockholder. Unless otherwise
indicated, the address of each of the individuals listed in the table is
c/o Fatbrain.com, Inc., 1308 Orleans Drive, Sunnyvale, CA 94089.
(2) David C. Schwab, a director of the Company, is a venture partner of SV
Associates V, L.P., Peter C. Wendell, a director of the Company, is a
general partner of SV Associates V, L.P., SV Associates V, L.P. is the
general partner of Sierra Ventures V, L.P. Each of Messrs. Schwab and
Wendell disclaim beneficial ownership of the shares held by Sierra
Ventures V, L.P. except to the extent of his pecuniary interest therein.
(3) Includes 1,056,480 shares held by Trinity Ventures V, LP and 61,739
shares held by Trinity Side-By-Side Fund V, LP. Tod H. Francis, a
director of the Company, is a general partner of Trinity Ventures. Mr.
Francis disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(4) Includes 359,536 shares held by Needham Capital Partners II, L.P.,
166,667 shares held by Needham Capital SBIC, L.P. and 79,388 shares held
by Needham Capital Partners II (Bermuda), L.P.
(5) Includes 109,815 shares of Common Stock issuable upon exercise of
immediately exercisable options, 51,605 shares of which are subject to
the Company's right of repurchase.
(6) Includes 55,182 shares of Common Stock issuable upon exercise of
immediately exercisable options, 33,394 shares of which are subject to
the Company's right of repurchase.
(7) Represents 97,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 66,250 shares of which are subject to
the Company's right of repurchase.
(8) Represents 97,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 66,407 shares of which are subject to
the Company's right of repurchase.
(9) Represents 90,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, 71,042 shares of which are subject to
the Company's right of repurchase.
(10) Includes 232,888 shares held by APV Technology Partners, L.P., 58,222
shares held by APV Technology Partners U.S., L.P. and 52,497 shares held
by APV Technology Partners II, L.P. (collectively, the "APV Funds").
Peter G. Bodine is a managing member of APV Management Co., L.L.C., the
general partner of the APV Funds. Mr. Bodine disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(11) Represents 7,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, all of which are subject to the
Company's right of repurchase.
17
<PAGE> 18
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since February 1, 1998, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company
or any of its subsidiaries was or is to be a party in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer,
holder of more than 5% of the Common Stock of the Company or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than (i) compensation agreements and other
arrangements, which are described where required in Employment Contracts and
Change in Control Arrangements and (ii) the transactions described below.
The Company has issued, in private placement transactions (collectively,
the "Private Placement Transactions"), shares of Preferred Stock as follows: an
aggregate of 1,726,194 shares of Series D Preferred Stock at $4.20 per share in
January 1998 and an aggregate of 857,624 shares of Series E Preferred Stock at
$6.44 per share in May 1998. Each share of Preferred Stock converted into one
share of Common Stock upon the closing of the Company's Initial Public Offering.
The following table summarizes the shares of Preferred Stock purchased
by Named Executive Officers, directors and 5% stockholders of the Company and
persons and entities associated with them in the Private Placement Transactions.
<TABLE>
<CAPTION>
SERIES D SERIES E
PREFERRED PREFERRED
INVESTOR (1) STOCK STOCK
- ------------ ----- -----
<S> <C> <C>
APV Technology Partners, L.P. (Peter 59,524 69,877
Bodine) (2)
Needham Capital Partners II, L.P. (3) 535,715 69,876
Sierra Ventures V, L.P. (Peter Wendell and 476,191 69,876
David Schwab)
Trinity Ventures V, LP (Tod Francis) (4) 238,096 23,292
Chris MacAskill -- 219
</TABLE>
- ----------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Includes shares held by APV Technology Partners, L.P., APV Technology
Partners II, L.P. and APV Technology Partners U.S., L.P.
(3) Includes shares held by Needham Capital Partners II, L.P., Needham
Capital SBIC, L.P. and Needham Capital Partners II (Bermuda), L.P.
(4) Includes shares held by Trinity Ventures, V, LP and Trinity Side-By-Side
Fund V, LP.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions, including loans
between the Company and its officers, directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board of Directors, or the Compensation Committee and will continue to be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
18
<PAGE> 19
ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
23.1** - Independent Auditors' consent
27.01** - Financial Data Schedule
</TABLE>
- -------------
** Previously filed with the Registrant's Form 10-KSB on April 16, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal year 1999.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on June 25, 1999.
FATBRAIN.COM, INC.
By: /s/ CHRIS MACASKILL
---------------------------------
Chris MacAskill
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ CHRIS MACASKILL Chief Executive Officer 6/25/99
- -------------------------------- Chairman of the Board
Chris MacAskill
/s/ PETER G. BODINE* Director 6/25/99
- --------------------------------
Peter G. Bodine
/s/ ALAN S. FISHER* Director 6/25/99
- --------------------------------
Alan S. Fisher
/s/ TOD H. FRANCIS* Director 6/25/99
- --------------------------------
Tod H. Francis
/s/ DAVID C. SCHWAB* Director 6/25/99
- --------------------------------
David C. Schwab
/s/ PETER C. WENDELL* Director 6/25/99
- --------------------------------
Peter C. Wendell
/s/ DONALD P. ALVAREZ* Vice President of Finance 6/25/99
- -------------------------------- and Chief Financial Officer
Donald P. Alvarez
*By: /s/ CHRIS MACASKILL
- --------------------------------
Chris MacAskill
</TABLE>
20
