<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Fatbrain.com, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FATBRAIN.COM, INC.
2550 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
May 17, 2000
TO THE STOCKHOLDERS OF FATBRAIN.COM, INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Fatbrain.com, Inc. (the "Company"), which will be held at the Company's
principal executive offices located at 2550 Walsh Avenue, Santa Clara,
California, on Thursday, June 29, 2000, at 1:00 p.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. Returning the proxy does NOT deprive you of your right to attend the
Annual Meeting. If you decide to attend the Annual Meeting and wish to change
your proxy vote, you may do so automatically by voting in person at the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Chris MacAskill
Chris MacAskill
Chief Executive Officer and Chairman
of the Board
<PAGE> 3
FATBRAIN.COM, INC.
2550 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 29, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of Fatbrain.com,
Inc. (the "Company") will be held at the Company's principal executive offices,
2550 Walsh Avenue, Santa Clara, California, on Thursday, June 29, 2000, at 1:00
p.m. for the following purposes:
1. To elect eight directors of the Board of Directors to serve until
the next Annual Meeting or until their successors have been duly elected
and qualified;
2. To ratify the appointment of Deloitte & Touche, LLP as the
Company's independent public accountants for the fiscal year ending January
31, 2001; and
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Only stockholders of record at the close of business on May 8, 2000 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's principal executive offices located at
2550 Walsh Avenue, Santa Clara, California, during ordinary business hours for
the ten-day period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Chris MacAskill
Chris MacAskill
Chief Executive Officer and Chairman
of the Board
Santa Clara, California
May 17, 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
<PAGE> 4
FATBRAIN.COM, INC.
2550 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 29, 2000
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Fatbrain.com, Inc., a Delaware corporation
(the "Company"), for the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at the Company's principal executive offices, 2550 Walsh Avenue,
Santa Clara, California, on Thursday, June 29, 2000, at 1:00 p.m., and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to stockholders on or about May 22, 2000.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On May 8, 2000, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 12,974,520
shares of Common Stock outstanding. Each stockholder of record on May 8, 2000 is
entitled to one vote for each share of Common Stock held by such stockholder on
May 8, 2000. Shares of Common Stock may not be voted cumulatively. All votes
will be tabulated by the inspector of election appointed for the Annual Meeting,
who will separately tabulate affirmative and negative votes, abstentions and
broker non-votes.
QUORUM REQUIRED
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. The eight nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
PROPOSAL 2. Ratification of the appointment of Deloitte & Touche, LLP as
the Company's independent public accountants for the fiscal year ending January
31, 2001 requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively at
the Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as
<PAGE> 5
you direct on your proxy when properly completed. In the event no directions are
specified, such proxies will be voted FOR the Nominees of the Board of Directors
(as set forth in Proposal No. 1), FOR Proposal No. 2 and in the discretion of
the proxy holders as to other matters that may properly come before the Annual
Meeting. You may also revoke or change your proxy at any time before the Annual
Meeting. To do this, send a written notice of revocation or another signed proxy
with a later date to the Secretary of the Company at the Company's principal
executive offices before the beginning of the Annual Meeting. You may also
automatically revoke your proxy by attending the Annual Meeting and voting in
person. All shares represented by a valid proxy received prior to the Annual
Meeting will be voted.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons who are being nominated for election to the Board of Directors
(the "Nominees"), their ages as of March 31, 2000, their positions and offices
held with the Company and certain biographical information are set forth below.
The proxy holders intend to vote all proxies received by them in the
accompanying form FOR the Nominees listed below unless otherwise instructed. In
the event any Nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any Nominee who
is unable or will decline to serve as a director. The eight Nominees receiving
the highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company to serve until the next
Annual Meeting or until their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
NOMINEES AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
-------- --- -------------------------------------------
<S> <C> <C>
Chris MacAskill........................... 46 Chief Executive Officer and Chairman of the
Board
Kim Orumchian............................. 34 Executive Vice President of Product
Development, Secretary, and Director
Dennis F. Capovilla....................... 40 President and Chief Operating Officer
Keith E. Benjamin......................... 41 Director
Peter G. Bodine........................... 37 Director
Diane H. Daggatt.......................... 39 Director
Alan S. Fisher............................ 39 Director
Peter C. Wendell.......................... 48 Director
</TABLE>
Chris MacAskill has been Chief Executive Officer and a director of the
Company since co-founding the Company in June 1995. From June 1991 to June 1995,
Mr. MacAskill served as Director of Developer Relations at NeXT Computer, a
software company, and General Magic, a software company. From September 1983 to
September 1990, 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
2
<PAGE> 6
received his B.S. in Geophysics from the University of Utah and received his
M.S. in Geophysics from Stanford University.
Kim Orumchian has served as the Company's Executive Vice President of
Product Development since November 1999 and as the Company's Secretary and a
director of the Company since co-founding the Company in June 1995. From June
1995 to November 1999, Mr. Orumchian served as the Company's Vice President of
Engineering. From May 1993 to June 1995, Mr. Orumchian served as a third party
Product Manager for General Magic, a software company. From May 1990 to April
1993, Mr. Orumchian served as Manager of Developer Relations for NeXT Computer,
a software company. Mr. Orumchian received his B.A. in Physics from Reed College
and received his B.S. in Applied Physics from Columbia University.
Dennis F. Capovilla has served as the Company's President and Chief
Operating Officer since December 1999 and joined the Company as Vice President
of Sales and Business Development in June 1997. Before joining the Company, 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 and as a regional
sales manager for Xerox. 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.
Keith E. Benjamin has been a director of the Company since November 1999.
Since October 1999, Mr. Benjamin has served as a general partner of Highland
Capital Partners, a venture capital investment firm. Before joining Highland
Capital Partners, Mr. Benjamin served as a managing director for Robertson
Stephens, an investment banking firm, from March 1993 to October 1999. Mr.
Benjamin received his B.S. in Economics and Management and his M.B.A. from New
York University.
Peter G. Bodine has been a director of the Company since May 1998. Since
December 1992, Mr. Bodine has served as a partner of APV Technology Partners, a
venture capital investment firm, and as an Executive Vice President of Asia
Pacific Ventures, a consulting firm affiliated with APV Technology Partners.
Before joining Asia Pacific Ventures in 1992, Mr. Bodine was co-founder of
International Business Catalysts (IBC), a consulting firm focused on
international trade and investment counsel. Mr. Bodine also serves as a director
of certain private companies. Mr. Bodine received his B.S. in Finance from
Brigham Young University and his M.B.A. from the University of Utah.
Diane H. Daggatt has been a director of the Company since November 1999.
Ms. Daggatt has served as an investment analyst at Vulcan Ventures Inc. since
July 1998. From May 1996 to June 1998, Ms. Daggatt served as a Vice President
and Equity Research Analyst at Dain Rauscher Wessels, an investment banking
firm. From September 1994 to May 1996, Ms. Daggatt was employed as a consumer
analyst for Pacific Crest Securities, an investment banking firm. Ms. Daggatt
serves as a director of Go2 Net Inc. Ms. Daggatt received her B.A. in Business
Administration from Washington State University and is a Chartered Financial
Analyst.
Alan S. Fisher has been a director of the Company since July 1998. Mr.
Fisher has been a general partner of Wingspring, Inc., a venture incubator,
since co-founding Wingspring in January 2000. Mr. Fisher served as Vice
President for Development and Operations and Chief Technical Officer of ONSALE,
Inc. ("ONSALE"), an electronic retailer, from July 1994 to December 1999 and as
a director from July 1994 to February 2000. 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.
From June 1981 to April 1984, he served as a member of the technical staff for
AT&T Bell Laboratories, a research and development division for American
Telephone & Telegraph Company. Mr. Fisher is also director of Infodata Systems,
Inc., a document and text management solutions 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.
3
<PAGE> 7
Peter C. Wendell has been a director of the Company since September 1996.
Mr. Wendell has been a General Partner of Sierra Ventures since his founding of
the firm in 1982. Prior to that time he served in various executive capacities
with IBM Corp. Mr. Wendell currently serves as a director of several private
companies. 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.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended January 31, 2000, the Board of Directors held
six (6) meetings and acted by written consent on two (2) 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, 2000, the Audit Committee of the
Board of Directors held two (2) 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, 2000 were Peter G. Bodine and Tod H. Francis.
The members of the Audit Committee for the fiscal year ending January 31, 2001
will be Mr. Bodine, Mr. Wendell and Mr. Benjamin.
During the fiscal year ended January 31, 2000, the Compensation Committee
of the Board of Directors held three (3) meetings and acted by written consent
on six (6) occasions. 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, 2000 were Peter C. Wendell and Alan S. Fisher. The
members of the Compensation Committee for the fiscal year ending January 31,
2001 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.
4
<PAGE> 8
Pursuant to the Automatic Option Grant Program, each of the non-employee
Board members, Messrs. Benjamin, Bodine, Fisher, and Wendell and Ms. Daggatt, 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 1/48 of the option shares upon the
completion of each of the next 36 months of service. On June 29, 1999, each of
Messrs. Fisher, Bodine, Wendell, David C. Schwab and Tod Francis, who were each
serving as Board members on that date, received an option to purchase 1,500
shares of the Company's Common Stock at an exercise price per share of $15.125
under the Automatic Option Grant Program. Under the Automatic Option Grant
Program, Ms. Daggatt received an option to purchase 7,500 shares of the
Company's Common Stock at an exercise price per share of $36.125 when she
initially joined the Board on November 18, 1999. On October 27, 1999, Mr.
Benjamin received an option to purchase 75,000 shares of the Company's Common
Stock at an exercise price per share of $16.375 under the Company's 1998 Omnibus
Equity Incentive Plan.
Directors who are not employees of the Company are also eligible to receive
options and be issued shares of Common Stock directly under the 1998 Omnibus
Equity Incentive Plan, outside of the Automatic Option Grant Program. 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
NON-DIRECTOR EXECUTIVE OFFICERS
Our non-director executive officers and their ages as of March 31, 2000,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Janet Hall................................ 31 Vice President of Finance and Interim
Chief Financial Officer
Sean M. Cumbie............................ 36 Executive Vice President of Operations
Margaret Epperheimer...................... 48 Vice President of Marketing
</TABLE>
Janet Hall has served as the Company's Vice President of Finance and
Interim Chief Financial Officer since December 1999, as the Senior Director of
Finance from September 1999 to December 1999 and joined the Company as Director
of Planning and Analysis in September 1997. Before joining the Company, from
July 1990 to August 1995, Ms. Hall served as a manager at Deloitte & Touche,
LLP, a national accounting firm. Ms. Hall received her B.S. in Business
Administration from the University of California at Berkeley and received her
M.B.A. from Stanford University.
Sean M. Cumbie has served as the Company's Executive Vice President of
Operations since November 1999 and joined the Company as Vice President of
Logistics in September 1998. Before joining the Company, 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.
Margaret Epperheimer joined the Company as Vice President of Marketing in
April 2000. Before joining the Company, from June 1998 to April 2000, Ms.
Epperheimer served as Vice President of Corporate
5
<PAGE> 9
Marketing at Novell, Inc., a leading provider of networking software. From July
1994 to June 1998, Ms. Epperheimer served as President of Epperheimer
Associates, a consulting firm she founded in 1994. From May 1990 to July 1994,
Ms. Epperheimer served as Vice President of Corporate Communications for the ASK
Group and, from April 1986 to May 1990, as Director of Corporate Communications
for 3Com Corporation. Ms. Epperheimer received her B.S. in Journalism from
Southern Illinois University and received her M.S. in Mass Communications at
Iowa State University.
6
<PAGE> 10
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000, 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>
Vulcan Ventures Incorporated(3)......................... 1,796,785 13.6%
110 110th Avenue, N.E. Suite 550
Bellevue, WA 98004
Sierra Ventures V, L.P.(4).............................. 939,643 7.3%
3000 Sand Hill Road, Building 4, Suite 210
Menlo Park, CA 94025
Entities affiliated with Highland Capital Partners IV 697,904 5.3%
L.P.(5)...............................................
Two International Place
Boston, MA 02110
Chris MacAskill(6)...................................... 946,274 7.2%
Kim Orumchian(7)........................................ 973,282 7.3%
Dennis F. Capovilla(8).................................. 471,980 3.5%
Sean M. Cumbie(9)....................................... 215,375 1.6%
Keith E. Benjamin(5).................................... 697,904 5.3%
Peter G. Bodine(10)..................................... 345,103 2.7%
Diane H. Daggatt(3)..................................... 1,796,785 13.6%
Alan S. Fisher(11)...................................... 9,000 *
Peter C. Wendell(4)..................................... 939,643 7.3%
All directors and executive officers as a group (10 6,451,703 44.1%
people)(12)...........................................
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Percentage ownership is based on 12,958,130 shares of Common Stock
outstanding on March 31, 2000.
(2) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of March 31, 2000 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 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., 2550
Walsh Avenue, Santa Clara, CA 95051.
(3) Includes 287,494 shares issuable upon exercise of a warrant held by Vulcan
Ventures Incorporated and 7,500 shares of Common Stock issuable upon
immediately exercisable options held directly by Diane H. Daggatt. Ms.
Daggatt, a member of our board of directors, is an investment analyst for
Vulcan Ventures Incorporated. Ms. Daggatt disclaims beneficial ownership of
shares held by Vulcan Ventures Incorporated.
7
<PAGE> 11
(4) Includes 1,500 shares of Common Stock issuable upon immediately exercisable
options held directly by Peter C. Wendell. Mr. 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. Mr. Wendell
disclaims beneficial ownership of the shares held by Sierra Ventures V,
L.P. except to the extent of his pecuniary interest therein.
(5) Includes 137,997 shares issuable upon exercise of a warrant held by
Highland Capital Partners IV Limited Partnership, 5,750 shares issuable
upon exercise of a warrant by Highland Entrepreneurs' Fund IV Limited
Partnership and 75,000 shares of Common Stock issuable upon immediately
exercisable options held directly by Keith E. Benjamin. Mr. Benjamin, a
member of our board of directors, is a managing member of the general
partner of Highland Capital Partners IV Limited Partnership and a managing
member of the general partner of Highland Entrepreneurs' Fund IV Limited
Partners. Mr. Benjamin disclaims beneficial ownership of shares held by or
through Highland Capital Partners IV Limited Partnership and Highland
Entrepreneurs' Fund IV Limited Partnership except to the extent of his
pecuniary interest arising from his interest as a managing member of the
general partner of Highland Capital Partners IV Limited Partnership and of
Highland Entrepreneurs' Fund IV Limited Partnership.
(6) Includes 109,815 shares of Common Stock issuable upon exercise of
immediately exercisable options.
(7) Includes 305,182 shares of Common Stock issuable upon exercise of
immediately exercisable options.
(8) Includes 470,980 shares of Common Stock issuable upon exercise of
immediately exercisable options.
(9) Includes 214,375 shares of Common Stock issuable upon exercise of
immediately exercisable options.
(10) Includes 232,887 shares held by APV Technology Partners, L.P., 58,220
shares held by APV Technology Partners U.S., L.P., 52,496 shares held by
APV Technology Partners II, L.P. (collectively, the "APV Funds"), and 1,500
shares of Common Stock issuable upon exercise of immediately exercisable
options held directly by Peter G. Bodine. Mr. 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 the shares held by the APV Funds
except to the extent of his pecuniary interest therein.
(11) Includes 9,000 shares of Common Stock issuable upon exercise of immediately
exercisable options.
(12) Includes 1,244,852 shares of Common Stock issuable upon immediately
exercisable options and 431,241 shares of Common Stock issuable upon
exercise of outstanding warrants.
8
<PAGE> 12
COMPENSATION COMMITTEE REPORT
Purpose. This Compensation Committee 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, 2000. For the fiscal
year ended January 31, 2000, the Compensation Committee (the "Committee") of 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 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.
The Committee has 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 has 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 Committee'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. Each executive officer received a bonus, if any, based
on the terms of such executive officer's employment agreement with the Company
or the Company's Management Incentive Program effective as of February 2, 1999.
Under the Management Incentive Program key employees, including executive
officers, are eligible to receive quarterly and annual cash bonuses based on
meeting or exceeding target financial objectives. Each executive, director, and
manager level employee has an established cash bonus target based on the
employee's level of responsibility and actual performance. Actual bonuses paid
reflect an employee's accomplishment of both corporate and individual objectives
and are based on a percentage of the employee's base salary. The corporate goals
set for the fiscal year ended January 31, 2000 are based on the achievement of
quarterly and annual revenue and income targets.
Long-Term Incentive Compensation. During the fiscal year ended January 31,
2000, the Committee, in its discretion, made option grants of 22,500 shares of
the Company's Common Stock to each of Messrs. MacAskill, Capovilla, Orumchian
and Alvarez and an option grant of 10,000 shares of the Company's Common Stock
to Mr. Cumbie under the Company's 1998 Omnibus Equity Incentive Plan based on
each officer's personal performance. Each of Messrs. Capovilla, Orumchian and
Cumbie were also granted significant option grants in connection with each
officer's promotion; please see "Stock Options Granted in Last Fiscal Year" and
"Employment Contracts and Change in Control Arrangements" for details related to
these options. 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.
9
<PAGE> 13
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 1/48 of the option shares upon
the completion of each of the next 36 months of service, except that the option
grant made to Mr. Orumchian for 250,000 shares of the Company's Common Stock
vests as to 33 1/3% of the option shares upon the completion of 12 months of
service and as to 1/36 of the option shares upon the completion of each of the
next 24 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 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
Chief Executive Officer, was established by the Board of Directors prior to the
Company's initial public offering, pursuant to his employment agreement with the
Company. 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, 2000, and the bonus that was paid to Mr. MacAskill for this fiscal
year was based on his performance. 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, 2000 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.
Compensation Committee
Peter C. Wendell
Alan S. Fisher
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, 2000 were Messrs. Peter C. Wendell and Alan S. Fisher.
Neither of these individuals was at any time during the fiscal year ended
January 31, 2000, 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.
10
<PAGE> 14
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between January 31, 1999 and January 31, 2000,
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 January 31, 1999 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
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ANNUAL RETURN
PERCENTAGE
YEAR ENDING
----------------
COMPANY/INDEX JAN 99 JAN 00
------------- ------ ------
<S> <C> <C>
FATBRAIN.COM INC............................................ 55.00 11.29
S&P 500 INDEX............................................... 10.19 10.35
NASDAQ US COMPOSITE......................................... 30.86 17.26
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
INDEXED RETURNS
BASE YEAR ENDING
PERIOD ----------------
COMPANY/INDEX 20 NOV 98 JAN 99 JAN 00
------------- --------- ------ ------
<S> <C> <C> <C>
FATBRAIN.COM INC................................ 100 155.00 172.50
S&P 500 INDEX................................... 100 110.19 121.59
NASDAQ US COMPOSITE............................. 100 130.86 153.39
</TABLE>
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.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth information concerning
compensation earned during the fiscal years ended January 31, 2000, 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 $100,000 during the fiscal
year ended January 31, 2000 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
--------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
--------------------------- ---- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Chris MacAskill...................... 2000 $110,003 $31,260 22,500 $ 532
Chief Executive Officer 1999 110,003 -- -- 1,354
1998 81,539 -- -- 308
Dennis F. Capovilla.................. 2000 173,079 52,936 400,980 --
President and Chief Operating
Officer 1999 141,786 50,000 22,500 --
1998 76,962(2) -- 52,500 --
Kim Orumchian........................ 2000 133,079 40,784 272,500 2,178
Executive Vice President of 1999 110,003 -- -- 1,523
Product Development 1998 81,539 -- -- 308
Donald P. Alvarez.................... 2000 140,789 28,785 22,500 3,106
Vice President of Finance and 1999 129,731 25,000 -- 745
Chief Financial Officer 1998 50,000(3) -- 75,000 --
Sean Cumbie.......................... 2000 146,388 43,179 150,000 --
Executive Vice President of
Operations 1999 39,234(4) 6,250 67,125 --
1998 -- -- -- --
</TABLE>
- ---------------
(1) Represents matching contributions to each Named Officer's 401(k) plan
account.
(2) Mr. Capovilla commenced employment on July 7, 1997.
(3) Mr. Alvarez commenced employment on September 2, 1997 and ceased employment
on January 3, 2000.
(4) Mr. Cumbie commenced employment on September 28, 1998.
12
<PAGE> 16
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, 2000 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
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------------
NAME GRANTED(#) IN FISCAL YEAR PER SHARE($)(3) DATE 5%($) 10%($)
---- ---------- -------------- --------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Chris MacAskill........ 22,500 0.77% $15.00 03/22/09 $ 212,252 $ 537,888
Dennis F. Capovilla.... 22,500 0.77 15.00 03/22/09 212,252 537,888
378,480 13.0 19.94 10/31/09 4,746,199 12,027,801
Kim Orumchian.......... 22,500 0.77 15.00 03/22/09 212,252 537,888
250,000 8.58 19.94 10/31/09 3,135,040 7,944,806
Donald P. Alvarez...... 22,500 0.77 15.00 03/22/09 212,252 537,888
Sean Cumbie............ 10,000 0.34 15.00 03/22/09 94,334 239,061
140,000 4.81 19.94 10/31/09 1,755,622 4,449,091
</TABLE>
- ---------------
(1) The Company granted options to purchase 2,912,205 shares of Common Stock
during the fiscal year ended January 31, 2000. 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 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 1/48 of the option shares upon
completion of each of the next 36 months of service, except that the option
for 250,000 shares granted to Mr. Orumchian vests with respect to 33 1/3% of
the option shares upon the completion of 12 months of service after the
vesting commencement date and with respect to 1/36 of the option shares upon
completion of each of the next 24 months of service.
13
<PAGE> 17
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, 2000 by the Named Officers. The Named
Officers did not exercise any options during the fiscal year ended January 31,
2000.
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
SHARES AT FY-END(#)(1) AT FY-END($)(2)
ACQUIRED ON VALUE ---------------------- ----------------------
NAME EXERCISE(#) REALIZED($) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Chris MacAskill......... -- -- 72,762 37,053 $1,242,047 $299,045
Dennis F. Capovilla..... 5,000 $ 73,488 38,593 432,387 635,336 561,889
Kim Orumchian........... -- -- 27,234 277,948 464,884 143,622
Donald P. Alvarez....... 43,750 818,719 -- -- -- --
Sean Cumbie............. 2,750 37,864 5,625 208,750 52,031 565,938
</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, 2000.
(2) Based on the fair market value of the Company's Common Stock per share at
January 31, 2000 ($17.25) less the exercise price per share payable for such
shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Mr. MacAskill has entered into an employment agreement with the Company.
The employment agreement set forth the base salary and general employee benefits
offered to Mr. MacAskill. The annual base salary for him is currently $110,000.
The employment agreement also provides that if Mr. MacAskill is terminated
without cause or due to disability, he 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 agreement amended Mr. MacAskill'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. Capovilla has entered into an employment agreement with the Company.
The employment agreement promoted him to the position of President and Chief
Operating Officer and increased his annual base salary to $225,000. If a change
in control of the Company occurs, Mr. Capovilla will receive another 24 months
of vesting in his option to purchase 378,480 shares of the Company's Common
Stock; if Mr. Capovilla is involuntarily terminated within 12 months after a
change in control or if this option is not assumed or substituted with a
comparable option by the successor corporation in a change in control, this
option becomes fully vested. If Mr. Capovilla is terminated without cause, then
he will receive a severance payment equal to 18 months of his then base salary,
payable according to the Company's standard payroll
14
<PAGE> 18
procedure. The Company also extended a loan of $300,000 to Mr. Capovilla.
Subject to the approval of the MightyWords, Inc. board of directors, Mr.
Capovilla will receive a right to purchase 1% of the total number of shares
outstanding of MightyWords as of the close of MightyWords' first round of
financing.
Mr. Orumchian has entered into an employment agreement with the Company.
The employment agreement promoted him to the position of Executive Vice
President of Product Development and increased his annual base salary to
$185,000. If a change in control of the Company occurs, Mr. Orumchian will
receive another 18 months of vesting in his option to purchase 250,000 shares of
the Company's Common Stock; if Mr. Orumchian is involuntarily terminated within
12 months after a change in control or if this option is not assumed or
substituted with a comparable option by the successor corporation in a change in
control, this option becomes fully vested. If Mr. Orumchian is terminated
without cause, then he will receive a severance payment equal to 12 months of
his then base salary, payable according to the Company's standard payroll
procedure. The Company also extended a loan of $150,000 to Mr. Orumchian.
Subject to the approval of the MightyWords, Inc. board of directors, Mr.
Orumchian will receive a right to purchase 1% of the total number of shares
outstanding of MightyWords as of the close of MightyWords' first round of
financing.
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 pursuant to this
employment agreement.
Mr. Cumbie has entered into an employment agreement with the Company. The
employment agreement promoted him to the position of Executive Vice President of
Operations and increased his annual base salary to $175,000. If a change in
control of the Company occurs, Mr. Cumbie will receive another 24 months of
vesting in his option to purchase 140,000 shares of the Company's Common Stock;
if Mr. Cumbie is involuntarily terminated within 12 months after a change in
control or if this option is not assumed or substituted with a comparable option
by the successor corporation in a change in control, this option becomes fully
vested. If Mr. Cumbie is terminated without cause, then he will receive a
severance payment equal to 12 months of his then base salary, payable according
to the Company's standard payroll procedure.
If a change in control occurs, the vesting of the options granted to Mr.
Capovilla (other than the option referred to in Mr. Capovilla's employment
agreement) 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 he 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 and vesting 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.
15
<PAGE> 19
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of
Deloitte & Touche, LLP as the Company's independent public accountants for the
fiscal year ending January 31, 2001. The affirmative vote of the holders of a
majority of shares present or represented by proxy and voting at the Annual
Meeting will be required to ratify the appointment of Deloitte & Touche, LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the appointment is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Deloitte & Touche, LLP has audited the Company's financial statements since
fiscal year 1997. Its representatives are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE, LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING JANUARY 31, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since February 1, 1999, 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 transaction described below.
The Company has issued, in a private placement transaction (the "Private
Placement Transaction"), shares of its Common Stock as follows: an aggregate of
1,437,470 shares of Common Stock at $20.87 per share and warrants to purchase an
aggregate of 431,241 shares of Common Stock at $26.09 per share in November
1999.
The following table summarizes the shares of Common Stock purchased by
directors and 5% stockholders of the Company and persons and entities associated
with them in the Private Placement Transaction.
<TABLE>
<CAPTION>
COMMON
INVESTOR(1) STOCK
----------- ---------
<S> <C>
Vulcan Ventures Incorporated (Diane H. Daggatt)(2).......... 1,245,807
Entities affiliated with Highland Capital Partners IV L.P.
(Keith E. Benjamin)(3)...................................... 622,904
</TABLE>
- ---------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Includes 287,494 shares issuable upon exercisable of a warrant held by
Vulcan Ventures Incorporated.
(3) Includes 137,997 shares issuable upon exercise of a warrant held by Highland
Capital Partners IV Limited Partnership and 5,750 shares issuable upon
exercise of a warrant by Highland Entrepreneurs' Fund IV Limited
Partnership.
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
16
<PAGE> 20
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.
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, 2000 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, 2000, 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, except that a Form 5 was filed for Mr. Donald Alvarez
to report the late filing of three option exercises and two sales and a Form 5
was filed for Mr. Robert Cudd to report the late filing of one option exercise
and one sale and a late Form 3 was filed for Mr. Keith Benjamin and Ms. Janet
Hall.
FORM 10-KSB
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S FORM 10-KSB REPORT FOR THE FISCAL YEAR ENDED JANUARY 31, 2000,
INCLUDING THE FINANCIAL STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS
SHOULD BE SENT TO FATBRAIN.COM, INC., 2550 WALSH AVENUE, SANTA CLARA, CALIFORNIA
95051, ATTN: INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 2001 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than January 20, 2001, in order to be included. Such stockholder proposals
should be addressed to Fatbrain.com, Inc., 2550 Walsh Avenue, Santa Clara,
California, Attn: Investor Relations.
Pursuant to new amendments to Rule 14a-4(c) of the Securities and Exchange
Act of 1934, as amended, if a stockholder who intends to present a proposal at
the 2001 Annual Meeting of Stockholders does not notify the Company of such
proposal on or prior to April 5, 2001, then management proxies would be allowed
to use their discretionary voting authority to vote on the proposal when the
proposal is raised at the annual meeting, even though there is no discussion of
the proposal in the 2001 Proxy Statement. The Company currently believes that
the 2001 annual meeting of stockholders will be held during the last week of
June, 2001.
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OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
OF FATBRAIN.COM, INC.
Santa Clara, California
May 17, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
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PROXY FATBRAIN.COM, INC. PROXY
2550 WALSH AVENUE, SANTA CLARA, CA 95051
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FATBRAIN.COM,
INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 29, 2000
The undersigned holder of Common Stock, par value $0.001, of Fatbrain.com,
Inc. (the "Company") hereby appoints Chris MacAskill and Janet Hall, or either
of them, proxies for the undersigned, each with full power of substitution, to
represent and to vote as specified in this Proxy all Common Stock of the Company
that the undersigned stockholder would be entitled to vote if personally present
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Tuesday, June 29, 2000 at 1:00 p.m. local time, at the Company's principal
executive offices, 2550 Walsh Avenue, Santa Clara, California, and at any
adjournments or postponements of the Annual Meeting. The undersigned stockholder
hereby revokes any proxy or proxies heretofore executed for such matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR PROPOSAL 2, AND IN ACCORDANCE
WITH THE DETERMINATION OF THE BOARD OF DIRECTORS AS TO ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING. THE UNDERSIGNED STOCKHOLDER MAY REVOKE
THIS PROXY AT ANY TIME BEFORE IT IS VOTED BY DELIVERING TO THE CORPORATE
SECRETARY OF THE COMPANY EITHER A WRITTEN REVOCATION OF THE PROXY OR A DULY
EXECUTED PROXY BEARING A LATER DATE, OR BY APPEARING AT THE ANNUAL MEETING AND
VOTING IN PERSON.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE DIRECTORS
AND "FOR" PROPOSAL 2. TO VOTE AT THE ANNUAL MEETING IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF FATBRAIN.COM, INC., YOU MAY SIGN
AND DATE THE REVERSE SIDE OF THIS CARD WITHOUT CHECKING ANY BOX.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
RETURN ENVELOPE. If you receive more than one proxy card, please sign and return
ALL cards in the enclosed envelope.
(Continued and to be signed on reverse side)
<PAGE> 23
(Reverse)
FATBRAIN.COM, INC.
1. To elect the following directors to serve for a term ending upon the 2001
Annual Meeting of Stockholders or until their successors are elected and
qualified:
NOMINEES: Chris MacAskill, Kim Orumchian, Dennis F. Capovilla, Keith E.
Benjamin, Peter G. Bodine, Diane H. Daggatt, Alan S. Fisher and Peter C. Wendell
FOR [ ] WITHHELD [ ] FOR ALL NOMINEES, EXCEPT FOR NOMINEES WRITTEN BELOW. [ ]
- --------------------------------------------------------------------------------
Nominee exception(s).
2. To ratify the appointment of Deloitte & Touche, LLP as the Company's
independent accountants for the fiscal year ending January 31, 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting.
The undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting of Stockholders and Proxy Statement.
Date:, 2000
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Signature
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Signature (if held
jointly)
Please date and sign
exactly as your name(s)
is (are) shown on the
share certificate(s) to
which the Proxy applies.
When shares are held as
joint-tenants, both
should sign. When
signing as an executor,
administrator, trustee,
guardian, attorney-in
fact or other fiduciary,
please give full title
as such. When signing as
a corporation, please
sign in full corporate
name by President or
other authorized
officer. When signing as
a partnership, please
sign in partnership name
by an authorized person.
