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                                                                    EXHIBIT 10.3

                                  May 14, 2001

Ms. Eileen M. Rudden
32 Arlington Street
Cambridge, MA  02140


Dear Eileen:

         This letter agreement (the "Agreement") confirms the agreement that we
have reached regarding your resignation from your employment and all offices you
hold with FairMarket Inc. (the "Company") and its related and affiliated
entities.

         This Agreement details the offer and, if signed, will confirm the
agreement that we have reached regarding your separation from employment with
the Company. The purpose of this Agreement is to establish an amicable
arrangement for ending your employment relationship, to release the Company from
any claims that you may have against it or any related individuals, and to
permit you to receive your separation pay and related benefits.

         If you agree to this Agreement, you acknowledge that you are entering
into the Agreement voluntarily. It is customary in employment separation
agreements that provide for severance pay for the departing employee to release
the employer from any possible claim, even if the employer believes, as is the
case here, that no such claims exist. You understand that you are giving up your
right to bring any and all possible legal claims against the Company. Neither
the Company nor you want your employment relationship to end with a legal
dispute. By entering into this Agreement, you understand that the Company is not
admitting in any way that it violated any legal obligation that it owed to you.
To the contrary, the Company's willingness to enter into this Agreement
demonstrates that it is continuing to deal with you fairly and in good faith.


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Ms. Eileen M. Rudden
May 14, 2001
Page 2


         With those understandings and in exchange for the promises set forth
below, you and the Company agree as follows:

         1.       SEPARATION.

                  You hereby confirm your resignation from your offices of
President, Chief Executive Officer and Director of the Company as of Monday, May
14, 2001 (the "Separation Date"). You also hereby confirm your separation from
the Company as an employee effective as of the Separation Date and your
resignation from any and all other employment and offices that you may hold with
the Company as of the Separation Date. You also agree to withdraw as a candidate
for election as a Class I Director which was to be submitted for a vote of
stockholders at the Company's Annual Meeting of Stockholders on May 23, 2001.
Said resignations and withdrawal are hereby accepted by the Company (your
separation as an employee and your resignation from your offices shall be
referred to hereinafter as the "Separation"). The Company will pay you all base
salary and all accrued but unused vacation time through your Separation Date.
This Agreement will automatically terminate and be of no further force or effect
should you not resign from your offices of the Company on the Separation Date.

                  You acknowledge your ineligibility for rehire. You agree that
you will not knowingly apply for or otherwise seek or accept employment or serve
or seek to serve as a consultant or independent contractor at any time with the
Company or any of the Company's affiliated or related entities. You acknowledge
and agree that your forbearance to seek future employment as just stated is
purely contractual and in no way involuntary, discriminatory or retaliatory.

         2.       SEVERANCE AND BENEFITS. You acknowledge that the Agreement
Concerning Termination of Employment, Severance Pay and Related Matters between
you and the Company, dated February 26, 2001 (the "Employment Agreement") shall
be of no further force and effect, and the vesting and exercise provisions of
the Incentive Stock Option Certificates under the FairMarket, Inc. 2000 Stock
Option and Incentive Plan, dated September 11, 2000 and January 17, 2001 (the
"Stock Option Certificates"), shall be modified as set forth in Paragraph 2(b)
below. The following terms are hereby instituted to provide terms relatively
comparable to those that would be available under the Employment Agreement and
Stock Option Certificates as if you had been terminated without cause under the
Employment Agreement.

                  a.       SEVERANCE PAYMENT. The Company shall pay $200,000 to
you in one lump sum payment as a severance payment.

                  b.       STOCK OPTIONS. The vesting of your existing stock
options to purchase the Company's common stock shall accelerate and become
exercisable upon the Separation Date as


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Ms. Eileen M. Rudden
May 14, 2001
Page 3

follows: (a) 337,500 shares of the 900,000 shares granted on September 11, 2000;
(b) no shares of the 50,000 shares granted on January 17, 2001 and (c) 112,500
shares of the 225,500 shares granted on January 17, 2001. You shall have until
November 14, 2002 to exercise these stock options. You hereby acknowledge and
understand that the exercise of these stock options after August 14, 2001 will
disqualify these stock options for treatment as incentive stock options under
the Internal Revenue Code.

         c.       BENEFITS CONTINUATION. For twelve (12) months from the
Separation Date, you may continue to participate in the group health and
dental insurance plans of the Company in which, and to the same extent as,
you are currently participating, with the full cost of the regular premium
for such benefit paid by the Company; PROVIDED, that nothing in this
Paragraph shall be construed to affect you or your beneficiaries' rights
thereafter to receive continuation coverage for an additional six-month
period thereafter to the extent authorized by and consistent with 29 U.S.C.
Section 1161, ET SEQ. (commonly known as "COBRA") and applicable group health
and dental plan terms, entirely at your own cost after your right to benefit
continuation ends under this Paragraph. Notwithstanding the foregoing, your
right to such participation shall cease if you become ineligible for
continuation coverage under COBRA. You shall promptly notify the Company if
you become eligible for coverage under other group health or dental insurance
plans during the twelve (12) month period following the Separation Date.

                  d.       OTHER BENEFITS OR COMPENSATION. Except as expressly
provided above, your eligibility to participate in any of the Company's
respective employee benefit plans and programs ceases on or after the Separation
Date in accordance with the terms and conditions of each of those benefit plans
and programs, and your rights to accrued benefits, if any, under any such
employee benefit plans and programs as of the Separation Date are governed by
the terms and conditions of each of those employee benefit plans and programs
which are incorporated herein by reference. You acknowledge that you received
your base salary and all other compensation due to you through the Separation
Date.

         3.       GENERAL RELEASE OF CLAIMS.

                  (a)      GENERAL RELEASE OF CLAIMS BY YOU. In consideration of
the compensation and benefits provided in Paragraph 2 above, you voluntarily and
irrevocably release and discharge the Company, its related or affiliated
entities, and its respective predecessors, successors, and assigns, and the
current and former officers, directors, shareholders, employees, and agents of
each of the foregoing (any and all of which are referred to as "Releasees")
generally from all charges, complaints, claims, promises, agreements, causes of
action, damages, and debts, known or unknown ("Claims") of any name and nature,
including, without limitation, those that relate in any manner to your
employment with or termination of employment from the Company, which you have,
claim to have, ever had, or ever claimed to have had against any of


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Ms. Eileen M. Rudden
May 14, 2001
Page 4

the Releasees through the date on which you execute this Agreement. This general
release of Claims includes, without implication of limitation, a release of all
Claims for or related to: your employment, the compensation provided to you by
the Company; your resignations as described in Paragraph 1; wrongful or
constructive discharge; breach of contract; breach of any implied covenant of
good faith and fair dealing; tortious interference with advantageous relations;
intentional or negligent misrepresentation, fraud or deceit; infliction of
emotional distress, and unlawful discrimination under the common law or any
statute (including, without implication of limitation, the Employee Retirement
Income Security Act, Title VII of the Civil Rights Act of 1964, the Americans
with Disabilities Act, the Age Discrimination in Employment Act or Mass. G.L.
c.151B). You also waive any Claim for reinstatement, severance (except as
expressly provided in this Agreement), incentive or retention pay, attorney's
fees, or costs, relating to the above waived Claims; PROVIDED, however, that
nothing in this general release shall be construed to bar or limit your on-going
rights, if any, to indemnification subject to and in accordance with the terms
of the Amended and Restated By-Laws of the Company or as otherwise might exist
under applicable law, or to enforce your rights under this Agreement.

                  (b)      GENERAL RELEASE OF CLAIMS BY THE COMPANY. The Company
hereby irrevocably and unconditionally releases, acquits and forever discharges
you from any and all Claims of any name and nature that the Company now has,
owns, or holds or claims to have, own, or hold or that the Company at any time
had, owned, or held, or claimed to have had, owned, or held against you. This
general release of Claims includes, without implication of limitation, a release
of all Claims related to your performance of your responsibilities as an
employee of the Company. Notwithstanding the foregoing, the Company does not
release you from any civil Claims based on conduct that would constitute a
criminal offense; PROVIDED, however, that I represent that I have no knowledge
of any basis for the Company to assert any such Claim against you. This general
release of Claims shall not be construed to affect the Company's right to
enforce this Agreement.

         4.       CONFIDENTIAL INFORMATION.

                  You shall at all times keep in confidence and trust all
Confidential Information and shall not reveal any Confidential Information.
"Confidential Information" means information concerning the Company that you are
aware has been treated as confidential by the Company and that is of value to
the Company. Confidential Information includes, without implication of
limitation, trade secrets, confidential personnel information, confidential
revenue sales, or earnings information, confidential business relationships, and
confidential business plans and strategies and development and marketing plans.

         5.       RETURN OF PROPERTY.


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Ms. Eileen M. Rudden
May 14, 2001
Page 5


                  All documents, records, material and all copies of any of the
foregoing pertaining to Confidential Information, and all software, equipment,
and other supplies, whether or not pertaining to confidential information, that
have come into your possession or been produced by you in connection with your
employment ("Property") have been and remain the sole property of the Company.
You hereby confirm that you have returned all Property to the Company.

         6.       NONDISPARAGEMENT.

                  You agree not to take any action or make any statement,
written or oral, which disparages the Company, its respective officers, or
management and business practices, or which disrupts or impairs the Company's
normal operations. The Company shall instruct its respective directors and
officers who receive a copy of this Agreement not to take any action or make any
statement, written or oral, which disparages or criticizes you or your
management and business practices. The provisions of this Paragraph 6 shall not
apply to any truthful statement required to be made by you or the Company, as
the case may be, in any legal proceeding, required filing under the securities
laws, or pursuant to any governmental or regulatory investigation.

         7.       ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.

                  As a material inducement to the Company to enter into this
Agreement, you represent, warrant and covenant that: (a) you have not assigned
to any third party any claim released by this Agreement; and (b) you have not
heretofore filed with any agency or court any claim released by this Agreement.

         8.       FURTHER ASSURANCES.

                  Upon the terms and subject to the conditions herein provided,
each of the signatories hereto agrees to use its reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.

         9.       EXCLUSIVITY.

                  This Agreement sets forth all the consideration to which you
are entitled by reason of the Separation, and you shall not be entitled to or
eligible for any payments or benefits under any other severance, equity, bonus,
retention or incentive policy, arrangement or plan of the Company.

         10.      TAX MATTERS.

                  The Company shall undertake to make deductions, withholdings
and tax reports with respect to payments and benefits under this Agreement to
the extent that it reasonably and in good faith believes that it is required to
make such deductions, withholdings and tax reports. Payments under this
Agreement shall be in amounts net of any such deductions or withholdings.
Nothing in this Agreement shall be construed to require the Company to make any
payments to


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Ms. Eileen M. Rudden
May 14, 2001
Page 6


compensate you for any adverse tax effect associated with any payments or
benefits or for any deduction or withholding from any payment or benefit.


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Ms. Eileen M. Rudden
May 14, 2001
Page 7


         11.      CONSENT TO JURISDICTION.

                  To the extent that any court action is permitted consistent
with or to enforce this Agreement, the signatories hereby consent to the
jurisdiction of the state and federal courts in Massachusetts. Accordingly, with
respect to any such court action, the parties hereto (a) submit to the personal
jurisdiction of such courts; (b) consent to service of process; and (c) waive
any other requirement (whether imposed by statute, rule of court, or otherwise)
with respect to personal jurisdiction or service of process.

         12.      NOTICES, ACKNOWLEDGMENTS AND OTHER TERMS.

                  a.       This Agreement is a legally binding document.
Provided that you do not revoke this Agreement in accordance with this Paragraph
12, your signature will commit you to the terms of this Agreement. You
acknowledge that you have been advised to discuss all aspects of this Agreement
with your attorney, that you have carefully read and fully understand all of the
provisions of this Agreement and that you are voluntarily entering into this
Agreement.

                  b.       You acknowledge and agree that the Company's promises
in this Agreement constitute consideration in addition to anything of value to
which you are otherwise entitled by reason of your separation from employment.

                  c.       You acknowledge that you have been given the
opportunity, if you so desire, to consider this Agreement for twenty-one (21)
days before executing it. If not signed by you and returned to the Chief
Financial Officer of the Company so that it is received by close of business on
the twenty-second (22nd) day after your receipt of the Agreement, this Agreement
will not be valid. In addition, if you breach any of the conditions of the
Agreement within the twenty-one (21) day period prior to execution of this
Agreement, the offer of this Agreement will be withdrawn and your execution of
the Agreement will not be valid. In the event that you execute and return this
Agreement within twenty-one (21) days or less of the date of its delivery to
you, you acknowledge that such decision was entirely voluntary and that you had
the opportunity to consider this letter agreement for the entire twenty-one (21)
day period. The Company acknowledges that for a period of seven (7) days from
the date of the execution of this Agreement, you shall retain the right to
revoke this Agreement by written notice delivered to the Chief Financial Officer
of the Company before the end of such period, and that this Agreement shall not
become effective or enforceable until the expiration of such revocation period
(the "Effective Date").

                  d.       By signing this Agreement, you acknowledge that you
are doing so voluntarily and knowingly, fully intending to be bound by this
Agreement. You also acknowledge that you are not relying on any representations
by the Company or any other representative of the Company concerning the meaning
of any aspect of this Agreement. You understand that this Agreement shall not in
any way be construed as an admission by the Company of any liability or any act
of wrongdoing whatsoever by the

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Ms. Eileen M. Rudden
May 14, 2001
Page 8


Company against you and that the Company specifically disclaims any liability
or wrongdoing whatsoever against you on the part of itself and its respective
officers, directors, shareholders, employees and agents. You understand that
if you do not enter into this Agreement and bring any claims against the
Company, the Company will dispute the merits of those claims and contend that
it acted lawfully and for good business reasons with respect to you.

                  e.       In the event of any dispute, this Agreement will be
construed as a whole, will be interpreted in accordance with its fair meaning,
and will not be construed strictly for or against either you or the Company.

                  f.       The laws of the Commonwealth of Massachusetts will
govern any dispute about this Agreement, including any interpretation or
enforcement of this Agreement, without regard to its conflicts of laws
principles.

                  g.       In the event that any provision or portion of a
provision of this Agreement shall be determined to be illegal, invalid or
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible and the illegal, invalid or unenforceable provision or portion
of a provision will be amended by a court of competent jurisdiction to reflect
the signatories' intent if possible. If such amendment is not possible, the
illegal, invalid or unenforceable provision or portion of a provision will be
severed from the remainder of this Agreement and the remainder of this Agreement
shall be enforced to the fullest extent possible as if such illegal, invalid or
unenforceable provision or portion of a provision was not included.

                  h.       This Agreement may be modified only by a written
agreement signed by an authorized representative of the Company and all of the
other parties hereto.

                  i.       This Agreement constitutes the entire agreement
between the signatories hereof and supersedes all prior agreements between the
parties. Notwithstanding the foregoing, the parties intend that all provisions
of the Agreement Regarding Inventions, Confidentiality and Non-Competition,
dated September 11, 2000, remain in full force and effect and that the parties
shall retain their rights and obligations under the FairMarket, Inc. 2000 Stock
Option and Incentive Plan and the Stock Option Certificates as modified in
Paragraph 2 of this Agreement.

                  j.       This Agreement shall be binding upon each of the
signatories and upon their respective heirs, administrators, representatives,
executors, successors and assigns, and shall inure to the benefit of each party
and to their heirs, administrators, representatives, executors, successors, and
assigns.

                  k.       You will not disclose the fact or terms of this
Agreement to anyone except to your counsel, your financial advisors, and members
of your immediate family until the Company makes public disclosure of the fact
and terms of this Agreement.

                  l.       From and after the Separation Date, the Company
acknowledges that you will no longer be subject to the Company's insider trading
policy. However, you will continue to


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Ms. Eileen M. Rudden
May 14, 2001
Page 9


be subject to insider trading liability if you trade in the Company's stock
while you are in the possession of material nonpublic information concerning the
Company, regardless of when the trade occurs. Therefore, you should not trade in
the Company's stock at any time that you are in possession of material nonpublic
information regarding the Company.

                  m.       As a former director and officer of the Company, you
are subject to short-swing profit liability under Section 16(b) of the
Securities Exchange Act of 1934, and you are required to file Forms 4 and 5
under Section 16(a) of that Act, for a period of six months beginning on the
date of the last "opposite way" transaction in the Company's stock that was not
exempt from Section 16(b) and that was effected while you were a director or
officer of the Company.

                  n.       This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.



                            [SIGNATURE PAGES FOLLOW]


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         If you agree to these terms, please sign and date below and return this
Agreement to the Chief Financial Officer of the Company. You are advised to
consult with an attorney before signing this Agreement.

                                        Sincerely,

                                        FAIRMARKET, INC.


                                        By: /s/ Janet Smith
                                            ------------------------------------
                                            Name: Janet Smith
                                            Title: CFO

Accepted and agreed to:



/s/ Eileen M. Rudden                    May 14, 2001
-------------------------------         -----------------------------------
Eileen M. Rudden                                 Date