<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ROWECOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5961 04-3370008
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBERS)
ROWECOM INC.
725 CONCORD AVENUE
CAMBRIDGE, MA 02138
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD R. ROWE, PH.D.
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
ROWECOM INC.
725 CONCORD AVENUE
CAMBRIDGE, MA 02138
(617) 497-5800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
with copies to:
BRIAN KEELER, ESQ. WINTHROP B. CONRAD, JR., ESQ.
JOHAN V. BRIGHAM, ESQ. DAVIS POLK & WARDWELL
BINGHAM DANA LLP 450 LEXINGTON AVENUE
150 FEDERAL STREET NEW YORK, NEW YORK 10017
BOSTON, MASSACHUSETTS 02110 (212) 450-4000
(617) 951-8000 FACSIMILE NO. (212) 450-4800
FACSIMILE NO. (617) 951-8736
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... $50,000,000 $13,900
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</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Dated December 11, 1998
PROSPECTUS
,000,000 Shares
[ROWECOM LOGO APPEARS HERE]
ROWECOM INC.
Common Stock
(Par value $.01 per share)
RoweCom Inc. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our common stock. We
estimate that the initial public offering price will be between $ and $
per share.
We have filed an application to qualify the common stock for quotation on the
Nasdaq National Market under the symbol "ROWE."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PROCEEDS
PRICE TO UNDERWRITING TO
PUBLIC DISCOUNTS COMPANY
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<S> <C> <C> <C>
Per Share
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Total
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</TABLE>
RoweCom has granted the underwriters the right to purchase up to an additional
shares of common stock to cover overallotments.
It is expected that delivery of the shares will be made to investors on or
about , 1999.
J.P. MORGAN & CO.
CIBC OPPENHEIMER
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE>
ART
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................................................... 3
The Company........................................................... 3
Risk Factors.......................................................... 7
Use of Proceeds....................................................... 16
Dividend Policy....................................................... 16
Capitalization........................................................ 17
Dilution.............................................................. 18
Selected Financial Data............................................... 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Business.............................................................. 27
Management............................................................ 36
Certain Transactions.................................................. 43
Principal Stockholders................................................ 45
Description of Capital Stock.......................................... 47
Underwriting.......................................................... 50
Shares Eligible for Future Sale....................................... 52
Legal Matters......................................................... 53
Experts............................................................... 53
Available Information................................................. 53
Index to Consolidated Financial Statements............................ F-1
</TABLE>
In deciding whether to buy our common stock, you should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
We are offering to sell, and seeking offers to buy, shares of common stock only
in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale of the common stock. In this prospectus, the "Company," "RoweCom," "we,"
"us" and "our" refer to RoweCom Inc.
Until , all dealers that buy, sell or trade common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
We intend to furnish to our stockholders annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
----------------
This prospectus contains forward-looking statements based on current
expectations, estimates and projections with respect to RoweCom and our
industry. These statements include (1) forecasts of growth in the business-to-
business market for business information, magazines, newspapers, journals,
books and other knowledge resources, growth in business-to-business Internet
commerce, and growth in the number of professional workers relying on knowledge
resources, (2) statements regarding RoweCom's preparedness for the year 2000
date change and trends in RoweCom's sales, expense levels, and liquidity and
capital resources, and (3) other statements, including statements containing
words such as "anticipate," "believe," "plan," "estimate," "expect," "seek,"
"intend" and other similar words that signify forward-looking statements.
These forward-looking statements involve risks and uncertainties, both known
and unknown, and actual results may differ materially from those anticipated or
expressed in such statements. Potential risks and uncertainties include those
described in this prospectus under "Risk Factors," which begin on page 7, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which begin on page 20. The forecasts of growth referred to above
are also based on a number of additional assumptions, including that: (1) the
worldwide economy will resume its expansion, (2) the number of people online
and the total number of additional hours spent online will increase
significantly over the next three years, (3) advances in database technology
will stimulate greater demand for information and (4) spending on
electronically delivered information will increase significantly. If any one or
more of the preceding assumptions turns out to be incorrect, or one or more of
the risks identified in "Risk Factors" occurs, actual growth may be materially
different from that forecasted. Accordingly, there can be no assurance that the
business-to-business market for business information, magazines, newspapers,
journals, books and other knowledge resources, business-to-business Internet
commerce, or the number of professional workers relying on knowledge resources
will grow over the next three years at the rates forecasted or at all. Lack of
growth at the forecasted rates may have a material adverse impact on our future
results of operations and financial condition.
Except as required by law, we undertake no obligation to update any forward-
looking statement, whether as a result of new information, future events or
otherwise.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain of the information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the common stock. To
understand this offering fully, you should read the entire prospectus
carefully, including the financial statements and notes.
THE COMPANY
RoweCom is the leading business-to-business provider of e-commerce solutions
for purchasing and managing the acquisition of magazines, newspapers, journals,
books and other knowledge resources. We offer our clients and their employees
easy and convenient access to the largest catalog of such knowledge resources
on the Internet. We also provide businesses with a highly effective means of
managing and controlling purchases of knowledge resources and reducing costs.
We target clients in knowledge-intense industries, such as financial and
professional services, high technology and healthcare, as well as certain
academic and non-profit institutions.
The effective use of knowledge resources has become an increasingly important
competitive advantage for businesses and other institutions. Timely and
relevant information, easily accessible to all members of an organization, has
become critical to job productivity. The quantity and the degree of
specialization of knowledge resources available to businesses and their
employees and the cost of such resources have also increased dramatically.
According to Veronis Suhler and Associates, US businesses spent approximately
$38 billion in 1997 on knowledge resources, such as market studies, business
magazines and professional publications, and other types of business
information, such as financial news services, credit reports and other general
business information. Veronis Suhler has forecasted that this spending will
grow to $51 billion by 2001. Based on US government census data and
projections, RoweCom believes that over the same period the number of US
professional workers that depend on knowledge resources will increase from 37
million to 41 million. As a result, businesses and other institutions need
efficient and cost effective methods for managing the growing number of
purchases of knowledge resources by employees.
Most businesses currently do not have an efficient and easy-to-use means of
executing and managing purchases of knowledge resources. The process of
purchasing knowledge resources historically has involved significant manual
effort and has focused on the professional librarian or central purchasing
group. This manually intensive, paper-based process requires finding the
appropriate publishers, submitting written or telephone orders, processing
multiple renewal notices, and completing expense reports for reimbursement.
Increasingly, individual employees are purchasing knowledge resources directly
from publishers and other vendors rather than ordering through a corporate
library or central purchasing group. As a result, employees are making numerous
individual purchases from a large number of publishers and services using a
variety of payment methods. This decentralized purchasing makes it difficult
for businesses to manage purchases, control spending and prevent duplicative or
unauthorized orders.
RoweCom's kStore(TM) facilitates decentralized purchasing of knowledge
resources by businesses and their employees while at the same time giving
management the tools required to effectively control knowledge resource
purchases. The kStore provides businesses with a single comprehensive source
for the purchase of knowledge resources, offering more than 43,000 magazines,
journals and newspapers from over 13,000 publishers, and over four million
books through our alliance with barnesandnoble.com. The kStore's automated
service is easily accessible from an employee's desktop computer via the
corporate intranet or the Internet and permits the employee to find, order, and
pay for knowledge resources quickly and conveniently. At the same time, the
kStore provides managers with detailed reports of knowledge resource purchases
by their employees and permits them to institute customized approval
procedures. The kStore also helps management reduce the costs of knowledge
resource acquisition by eliminating many of the inefficiencies of traditional
knowledge resource acquisition methods and by offering discounted prices on
most titles.
Most of our growth to date has resulted from our direct selling efforts, which
we intend to expand. We have also increased the number of distribution channels
available to us and rapidly increased the size of our catalog through strategic
alliances with content providers and knowledge resource marketers. In August
1998, we entered into a five-year agreement with barnesandnoble.com to combine
and jointly market our respective catalogs to business customers. Under the
agreement, barnesandnoble.com will provide all books ordered by either party's
business clients, and
3
<PAGE>
RoweCom will provide all magazine, journal, and newspaper subscriptions ordered
by its clients or by barnesandnoble.com's Business Solutions clients. We have
also entered into strategic alliances with NewSub Services, Intelisys Commerce
and Publications Research Group. These alliances generally allow us to share
content with our strategic partners, market one another's catalogs of knowledge
resource titles and share revenue. We expect to continue to pursue additional
strategic alliances.
We intend to maintain and strengthen our position as the leading business-to-
business provider of e-commerce solutions for purchasing and managing the
acquisition of knowledge resources. Key elements of our strategy include:
. Increasing our client base and the number of individuals accessing the kStore
from desktop computers at existing clients.
. Increasing the content and functionality of the kStore to reinforce our
position as the leading single source provider of knowledge resources on the
Internet.
. Developing additional strategic alliances to increase our channels of
distribution and available content.
. Enhancing the kStore's brand recognition through Web based advertising,
traditional advertising and attendance and presentations at major trade
shows.
. Expanding internationally through alliances with, or acquisitions of, foreign
content providers.
Our principal executive office is located at 725 Concord Avenue, Cambridge,
Massachusetts 02138 and our telephone number is 617-497-5800. Our corporate Web
site address is http://www.rowe.com. Information contained in our Web site is
not part of this prospectus. References to "RoweCom" or the "Company" in this
prospectus refer to RoweCom Inc. and its predecessors.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
COMMON STOCK OFFERED(1)............................ shares
COMMON STOCK OUTSTANDING AFTER THE OFFERING(1)(2).. shares
OVER-ALLOTMENT OPTION.............................. shares
USE OF PROCEEDS.................................... RoweCom will receive net
proceeds from this
offering of approximately
$ million, or $
million if the
underwriters purchase all
of the shares they are
entitled to purchase to
cover over-allotments. See
"Underwriting." We intend
to use these proceeds for
working capital and
general corporate
purposes. See "Use of
Proceeds."
PROPOSED NASDAQ NATIONAL MARKET SYMBOL............. "ROWE"
</TABLE>
- -------
(1)Excludes up to shares that may be issued to the underwriters pursuant
to their rights to purchase shares to cover over-allotments. See
"Underwriting."
(2)Includes shares of common stock issuable upon the consummation of
this offering as a result of the conversion of all outstanding shares of all
series of preferred stock of RoweCom, and the net exercise of all outstanding
stock purchase warrants. See "Certain Transactions" and "Principal
Stockholders". Excludes shares reserved for future issuance under the
Company's stock option and stock purchase plans. We have granted options to
purchase of such shares and of such options will be exercisable upon
consummation of this offering. See "Capitalization" and "Management--Stock
Incentive Plans."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table contains summary consolidated financial data of the Company
which should be read together with the Company's consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
-----------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -------
Dollars in thousands, except per share
data
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 324 $ 3,116 $12,890 $ 941 $ 3,585
Cost of revenues....................... 323 3,083 12,701 919 3,494
----- ------- ------- ------- -------
Gross profit....................... 1 33 189 22 91
Operating expenses:
Sales and marketing................... 259 585 2,035 1,574 3,343
Research and development.............. 149 532 584 399 749
General and administrative............ 171 351 751 668 980
----- ------- ------- ------- -------
Total operating expenses............. 579 1,468 3,370 2,641 5,072
----- ------- ------- ------- -------
Loss from operations............... (578) (1,435) (3,181) (2,619) (4,981)
Interest and other income, net......... 1 1 64 55 104
----- ------- ------- ------- -------
Loss before income taxes........... (577) (1,434) (3,117) (2,564) (4,877)
Provision for income taxes............. 8 16 137 102 87
----- ------- ------- ------- -------
Net loss........................... $(585) $(1,450) $(3,254) $(2,666) $(4,964)
===== ======= ======= ======= =======
Basic and diluted pro forma net loss
per share(1).......................... -- -- $ -- $
Shares used in pro forma net loss per
share calculation(1)..................
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
AS OF SEPTEMBER 30, 1998
-------------------------------
AS OF DECEMBER 31, PRO FORMA
1997 ACTUAL AS ADJUSTED(2)
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<S> <C> <C> <C>
Dollars in thousands
CONSOLIDATED BALANCE SHEET
DATA:
Working capital............. $ 185 $ 2,614
Total assets................ 2,108 6,407
Redeemable preferred stock.. 4,298 12,573
Total stockholders'
(deficit) equity........... (3,768) (9,280)
</TABLE>
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(1)Pro forma per share amounts are calculated by using the sum of (A) the
weighted average number of shares of common stock outstanding during the period
and (B) the shares of common stock to be issued as of the closing of this
offering upon the conversion of all outstanding shares of the Company's
preferred stock and the net exercise of all outstanding stock purchase
warrants. See "Certain Transactions" and "Principal Stockholders."
(2)Reflects (A) the sale by the Company on December 11, 1998 of 4,586,599
shares of its Class C Preferred Stock for an aggregate consideration, net of
expenses, of approximately $15,000,000, (B) the issuance of shares of
common stock as of the closing of this offering upon the conversion of all
shares of the Company's preferred stock outstanding at that date and the net
exercise of all outstanding stock purchase warrants (see "Certain Transactions"
and "Principal Stockholders") and (C) the sale by the Company of shares of
common stock at an assumed initial public offering price of $ per share (the
mid-point of the range set forth on the cover page of this prospectus), after
deducting underwriting discounts and commissions and estimated offering
expenses of $ payable by the Company. Excludes (A) shares of common
stock issuable upon the exercise of options outstanding on the date of this
prospectus at a weighted average exercise price of $ per share and (B)
additional shares of common stock reserved for issuance under the Company's
stock option and stock purchase plans. See "Management--Stock Incentive Plans."
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before deciding to
purchase shares of common stock. The risks and uncertainties described below
are not the only ones facing our company. Additional risks and uncertainties
not presently known to us or that we currently believe are immaterial may also
impair our business operations.
If any of the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you could
lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including the risks described below and elsewhere in this prospectus.
EXTREMELY LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATED LOSSES
We began operations in 1994 and have never achieved profitability. We did not
generate significant revenues until March 1996 and began offering the kStore,
our flagship product, in June 1997. Consequently, we have an extremely limited
operating history and our prospects are subject to the risks and uncertainties
frequently encountered by start-up companies, particularly in the new and
rapidly evolving markets for Internet products and services. These risks
include:
. the failure to maintain our leadership position through enhancement of our
services and catalog of magazines, newspapers, journals, books and other
knowledge resources;
. the failure to significantly and rapidly increase our client base;
. the development by competitors of services similar or superior to the
services we offer;
. the failure to increase penetration of our existing client base;
. the failure of businesses to widely adopt intranets and the Internet as means
for purchasing subscriptions and books; and
. the inability to identify, attract, retain and motivate qualified personnel.
We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our future results of operations and
financial condition.
As of September 30, 1998, we had an accumulated deficit of $10.9 million.
Although we have experienced revenue growth in recent periods, our revenues may
not continue at their current level or increase in the future. We have not
achieved profitability on a quarterly or annual basis to date and anticipate
that we will continue to incur net losses for at least the near to medium term.
We establish our expenditure levels for product development, sales and
marketing and other operating expenses based, in large part, on expected future
revenues. We currently expect to increase our operating expenses significantly
in connection with expansion of our sales and marketing operations and
continued development of our services and catalog. To the extent that these
expenses are not promptly followed by increased revenues, our future results of
operations and financial condition could be materially and adversely affected.
Our extremely limited operating history and the uncertain nature of the markets
in which we compete make the prediction of future results of operations
difficult or impossible. Therefore, our recent revenue growth should not be
taken as indicative of the rate of revenue growth, if any, that can be expected
in the future. We believe that period-to-period comparisons of our results
should not be relied upon as an indication of future performance.
SEASONALITY; POTENTIAL SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS
We have historically experienced seasonal fluctuations in revenues because
substantially all of our revenues have been generated in the fourth quarter of
each year when most subscriptions are purchased or renewed by our clients. This
pattern may be expected to continue, and interim results of financial
operations within any fiscal year cannot be expected to be representative. As a
strategic response to the concentration of orders in the
7
<PAGE>
fourth quarter, we may from time to time make certain pricing, servicing or
marketing decisions that could have a material adverse effect on our future
financial results.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Delays in client orders can cause RoweCom's revenues and
results of operations to significantly fluctuate from period to period.
Quarterly fluctuations may also result from factors such as:
. penetration of our existing clients;
. obtaining new accounts;
. changes in our operating expenses;
. changes in the mix of knowledge resources sold;
. increased competition; and
. general economic factors.
Based upon all of these factors, we believe that quarterly revenues, expenses
and operating results are likely to vary significantly in the future, that
period-to-period comparisons of results of operations are not necessarily
meaningful and that, as a result, such comparisons should not be relied upon as
indications of future performance. As a result, our operating results may fall
below market analysts' expectations in some future quarters, which could have a
material adverse effect on the market price of our stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Selected Quarterly Results of Operations."
RELIANCE ON THE kSTORE; UNPROVEN ACCEPTANCE OF INTERNET-BASED PROCUREMENT
SYSTEMS
RoweCom currently derives substantially all of its revenues from the kStore and
we expect that kStore-related revenues will continue to account for a
significant portion of the Company's revenues for the foreseeable future. A
decline in demand for the kStore or the inability of the kStore to penetrate
new markets as a result of competition, technological change or other factors
would have a material adverse effect on our future results of operations and
financial condition.
Although we have experienced growth in revenues in recent years, the market for
intranet-based procurement systems such as the kStore is still emerging. We are
not certain that the market will continue to grow or that, even if the market
does grow, businesses will continue to adopt the kStore. As is typical of a new
and rapidly evolving industry, demand and market penetration for recently
introduced services is subject to a high level of uncertainty and risk. Because
the market for intranet-based procurement systems such as the kStore is new and
evolving, it is difficult to predict the future growth rate, if any, and size
of this market. If the market fails to grow or grows more slowly than we
currently anticipate, our future results of operations and financial condition
will be materially adversely affected.
Our future success will depend on our ability to continue to enhance our
current services and to continue to develop and introduce new services that
keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving client requirements and otherwise
achieve market acceptance. In particular, we believe that our future success
will be dependent, in large part, upon market acceptance of the most recent
version of the kStore. We cannot be certain that we will be successful in
developing and marketing on a timely and cost-effective basis future services
or service enhancements, or offer new services that respond to technological
advances. Any failure by us to anticipate or respond adequately to changes in
technology and client preferences, or any significant delays in other
development efforts, could have a material adverse effect on our future results
of operations and financial condition.
POSSIBLE SLOW ADOPTION OF INTERNET AND INTRANET SOLUTIONS
In order for us to be successful, intranets must continue to be adopted by
businesses as information and application platforms; i.e., as the means of
making information and electronic services available to employees. In addition,
the Internet must continue to be adopted as an important means of buying and
selling products and services. Because intranet and Internet usage is
continuing to evolve, it is difficult to estimate with any assurance the size
of this market and its growth rate, if any. To date, many businesses have been
deterred from utilizing intranets and the Internet for a number of reasons,
including:
8
<PAGE>
. security concerns;
. limited access to the corporate intranet;
. lack of availability of cost-effective, high-speed service;
. inconsistent quality of service;
. potentially inadequate development of network infrastructure;
. the inability to integrate business applications on these networks; and
. the need to operate with multiple and frequently incompatible products.
Even if the Internet and intranets are widely adopted, the adoption of these
networks for book and subscription procurement, particularly by companies that
have relied on traditional means of procurement, will require broad acceptance
of the new approach. In addition, companies that have already invested
substantial resources in traditional methods of procurement may be reluctant to
adopt a new strategy. See "Business--Industry Overview."
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE AND INTERNET INFRASTRUCTURE
The Internet may not be accepted as a viable commercial marketplace for a
number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling
technologies and performance improvements. To the extent that the Internet
continues to experience significant growth in the number of users, their
frequency of use or their speed and quality-of-service requirements, it is
possible that the infrastructure for the Internet will not be able to support
the demands placed upon it. In addition, the Internet could lose its viability
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and adversely affect usage of the Internet generally and
RoweCom's services in particular. If use of the Internet does not continue to
grow or grows more slowly than expected, if the infrastructure for the Internet
does not effectively support growth that may occur, or if the Internet does not
become a viable commercial marketplace, our future financial results will be
materially adversely affected. Even if the required Internet infrastructure,
standards and protocols are developed, we may be required to incur substantial
expenditures in order to adapt our services to changing or emerging
technologies, which could have a material adverse effect on our future results
of operations and financial condition.
DEPENDENCE ON STRATEGIC ALLIANCES AND POSSIBLE LOSS OF RELATIONSHIPS
In August 1998, we entered into a strategic alliance agreement with
barnesandnoble.com llc. Under the agreement, we are able to sell
barnesandnoble.com's catalog of books and they are able to sell our catalog of
knowledge resources. For a description of the agreement, see "Business--
Strategic Alliances--barnesandnoble.com Relationship." The agreement expires in
five years, or may be terminated earlier under certain circumstances. Because
we have only recently entered into this agreement, we cannot be sure that the
agreement will prove beneficial to us. In particular, we cannot be sure that
the barnesandnoble.com Business Solutions service, which commenced operations
in third quarter of 1998 and currently has a limited client base, will generate
a sufficient number of sales to make the strategic alliance beneficial to
RoweCom as a distribution channel. In addition, we cannot be certain that the
agreement will not be terminated prior to the initial five-year term or renewed
after five years. In the event the agreement is terminated or not renewed, it
is possible that we will not be able to develop a relationship with another
company to obtain access on comparable terms to the catalog of books currently
provided by barnesandnoble.com. If the agreement is terminated or we are unable
to renew the agreement or otherwise obtain access to such content on acceptable
terms, our future financial results could be materially adversely affected.
We have also entered into strategic relationships with several other content
providers and procurement companies. These relationships are described under
"Business--Strategic Alliances." These agreements generally are subject to
fixed terms of two years or earlier termination upon the occurrence of certain
circumstances. We intend to continue to actively seek strategic partners and
are relying on such partnerships to generate a significant portion of RoweCom's
growth in the medium term. RoweCom's current strategic relationships are new
and as yet unproven. If these and any future strategic relationships into which
we are able to enter do not generate significant levels of revenue, or are
terminated or expire, our ability to become profitable could be adversely
affected to a material extent.
9
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If our marketing and content arrangements with our strategic partners were
lessened, curtailed, or otherwise modified, we might not be able to replace or
supplement such marketing efforts or the content provided by such partners
alone or with other companies. If these partners, which do not currently
compete with us, were to reduce their joint marketing activities with us,
further develop and market their own business-to-business subscription and book
procurement management system, or market such services developed by a
competitor, our business, results of operations and financial condition would
be materially and adversely affected.
DEPENDENCE ON CERTAIN PUBLISHERS
RoweCom does not supply or deliver to clients the magazines, newspapers,
journals, books and other knowledge resources it sells; rather we depend upon
publishers to maintain the required inventories and provide timely delivery of
ordered products to our clients. The primary supplier of the magazines and
journals whose subscriptions we sell is Reed Elsevier, which supplied titles
accounting for 23.7% of our sales in 1997. We currently do not have a contract
with Reed Elsevier. If Reed Elsevier ceases to provide us with knowledge
resources on favorable terms, we may not be able to offer clients a competitive
price on their order. If Reed Elsevier were to cease to provide us with
knowledge resources, it would not be possible to obtain replacements for many
of the titles Reed Elsevier publishes at a comparable price, if at all, from an
intermediary. If Reed Elsevier were to cease supplying us with knowledge
resources or ceased providing such resources on favorable terms, it could have
a material adverse effect on our financial condition and results of operations.
Similarly, if any of the publishers with whom we do business decided not to
provide us with knowledge resources or decided to stop providing us with
knowledge resources on favorable terms, it could have a material adverse effect
on our financial condition and results of operations.
POSSIBLE INABILITY TO ACQUIRE ADDITIONAL CONTENT
One of the key elements of our strategy is to continue to expand our catalog of
knowledge resources. We gain content both through entrance into strategic
alliances and through contact with various publishers as we receive particular
requests from clients. There can be no assurance that we will be able to
continue to gain available content through strategic alliances or directly from
publishers. In the event that we are unable to continue to increase our
available content, we may (1) be at a competitive disadvantage with respect to
competitors that may compile greater libraries of available titles; (2) lose
clients that rely upon us as a single-source of knowledge resources; and (3) be
unable to increase the amount of revenue that is otherwise generated from
particular clients. Any of these effects could have a material adverse effect
on our future results of operations and financial condition.
CLIENT AND INDUSTRY CONCENTRATION
A small number of our clients account for a substantial amount of our revenues.
In the nine months ended September 30, 1998, our five largest clients accounted
for 48.8% of our revenues. In the nine months ended September 30, 1997, our
five largest clients accounted for 69.4% of revenues. Our revenues also are
highly concentrated in certain industries. In the first nine months of 1998,
clients in the high technology sector were responsible for 38.0% (15.9% in the
first nine months of 1997) of our revenues. Clients in the health services
sector were responsible for 19% of revenues in the first nine months of 1998
(40% in the first nine months of 1997). We cannot be certain that our top five
clients, or other clients, will continue to purchase knowledge resources
through the kStore or any other RoweCom service. Any failure by one or more of
our top customers to purchase knowledge resources through the kStore could have
a material adverse effect on our results of operations and financial condition.
In addition, our dependency on clients in the high technology and health
services sectors makes us vulnerable to downturns in those sectors. Such a
downturn could lead our clients in those sectors to reduce their level of
knowledge resource purchases, which could have a material adverse effect on our
financial condition and results of operations.
COMPETITION
The market for the sale of magazines, newspapers, journals, books and other
knowledge resources to businesses is intensely and increasingly competitive. We
cannot be certain that we will maintain our competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources. Current
and potential competitors fall into the following categories:
. consumer online services and Internet portals (such as America Online and
Yahoo!) who may decide to focus on businesses as well as consumers, expand
their knowledge resources catalogs and offer management and control features;
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. major consumer-oriented online book resellers, such as Amazon.com, or
Borders.com, who may decide to market to businesses as well as consumers,
expand their service to include control and management features such as those
offered by RoweCom, and expand their knowledge resources offerings;
. large, well-established news and information providers such as Dow Jones,
Knight-Ridder, Lexis/Nexis, Pearson, Reuters and Thomson, who might decide to
significantly expand their product offerings to include books, magazines,
journals and other knowledge resources;
. providers of procurement management systems who may decide to focus
specifically on the knowledge resources markets;
. traditional subscription agents, who may decide to focus on the corporate
market, expand their service to include control and management features, and
significantly expand their knowledge resource offerings; and
. publishers and information providers who may decide to increase their direct
marketing efforts to the business-to-business market or develop a competing
service.
Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical and marketing resources and greater
name recognition than we do. In addition, many of them have an installed client
base that is larger than ours. Furthermore, many of these competitors may be
able to respond more quickly to new or emerging technologies and changes in
client requirements, and to devote greater resources to the development,
promotion and sale of their service than we can. It is possible that our
current or potential competitors will develop products and services comparable
or superior to those we have developed or adapt more quickly than we have to
new technologies, evolving industry trends or changes in client requirements.
Our market is still evolving and we cannot be certain that we will be able to
compete successfully with current or future competitors, or that competitive
pressures faced by us will not have a material adverse effect on our future
results of operations and financial condition. See "Business--Competition."
POSSIBLE INABILITY TO DEVELOP BRAND
We believe that establishing and maintaining brand identity is a critical
aspect of attracting and expanding our client base, as well as of maintaining
and building upon the competitive advantage of being the first company to
provide businesses with an Internet-based subscription and book procurement
system. The importance of brand recognition will increase with competition.
Promotion and enhancement of the kStore brand will depend largely on our
success in continuing to provide high quality services, which cannot be
assured. If users do not perceive the kStore to be comprehensive and of high
quality, or if we introduce new features, or enter into new business ventures
that are not favorably received by users, we will risk diluting our brand. If
we are unable to provide high quality services, or otherwise fail to promote
and maintain our brand, or if we incur excessive expenses in an attempt to
improve our services, or promote and maintain our brand, our future results of
operations and financial condition could be materially and adversely affected.
DIFFICULTY OF MANAGING GROWTH
Our business has grown rapidly in the last three years, with total revenues
increasing from $324,000 in 1995 to $13 million in 1997. Our recent expansion
has resulted in substantial growth in the number of our employees (from 9 at
December 31, 1995 to 87 at September 30, 1998), and the scope of our operating
and financial systems. This recent rapid growth has placed and, if sustained,
will continue to place, a significant strain on our management and operations.
Accordingly, our future operating results will depend on the ability of our
officers and other key employees to continue to implement and improve our
operational, client support and financial control systems, and effectively
expand, train and manage our employee base. We cannot be certain that we will
be able to manage any future expansion successfully, and any inability to do so
would have a material adverse effect on our future results of operations and
financial condition.
DEPENDENCE ON KEY PERSONNEL
Our future operating results depend in significant part upon the continued
services of a relatively small number of key technical and senior management
personnel, particularly Dr. Richard Rowe, our Chairman, President and Chief
Executive Officer. There can be no assurance that we will retain our key
technical, sales and managerial employees or that we will be successful in
attracting, assimilating and retaining other highly qualified technical, sales
and managerial personnel in the future. The loss of any of our key technical,
sales and senior management
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personnel or the inability to attract and retain additional qualified personnel
could have a material adverse effect on our future results of operations and
financial condition. See "Business--Employees."
WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY
An important part of our strategy is to expand into foreign markets. To date,
we have had only very limited experience in developing localized versions of
our services and in marketing and operating our services internationally. In
order to expand overseas we intend to enter into relationships with foreign
business partners. We may experience difficulty in managing international
operations because of distance, as well as language and cultural differences,
and there can be no assurance that we or our future foreign business associates
will be able to successfully market and operate our services in foreign
markets. We also believe that, in light of substantial anticipated competition,
it will be necessary to implement our business strategy quickly in
international markets to obtain a significant share of the market. In addition,
we do not currently have the content necessary to conduct operations in many
foreign markets. We will be unlikely to be able to penetrate such markets
unless we gain such content, either through partnerships with publishers or
other content-providers in such markets, or possibly through acquisitions.
POTENTIAL IMPOSITION OF GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Few laws or regulations currently are directly applicable to access to or
commerce on the Internet and we are not subject to direct government
regulation, other than regulations applicable to businesses generally. However,
a number of legislative and regulatory proposals relating to the Internet
commerce are under consideration by federal, state, local and foreign
governments and, as a result, a number of laws or regulations may be adopted
with respect to Internet user privacy, taxation, pricing, quality of products
and services and intellectual property ownership. There is also uncertainty as
to how existing laws will be applied to the Internet in areas such as property
ownership, copyright, trademark, trade secret, obscenity and defamation. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease
the demand for our services, increase the cost of our doing business or
otherwise have a material adverse effect on our future results of operations
and financial condition.
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS
Legal standards relating to the protection of intellectual property rights in
Internet-related industries are uncertain and still evolving. As a result, the
future viability or value of our intellectual property rights, as well as those
of other companies in the Internet industry, is unknown. We cannot be certain
that the steps we have taken to protect our intellectual property rights will
be adequate or that third parties will not infringe or misappropriate our
proprietary rights. Any such infringement or misappropriation could have a
material adverse effect on our future financial results. In addition, we cannot
be certain that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us.
POSSIBLE ONLINE COMMERCE SECURITY BREACHES
A significant requirement for the expansion and continued viability of online
commerce and communications is the continued availability of secure
transmission of confidential information over public networks. We rely on
encryption and authentication technology to effect secure transmission of
confidential information, such as payment instruction sets. It is possible that
advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will result in a compromise or
breach of the codes used by us to protect client transaction data. If any such
compromise of our security were to occur, it could have a material adverse
effect on our reputation and future results of operations and financial
condition. Concerns over the security of transactions conducted on the Internet
and other online services and the privacy of users may also inhibit the growth
of the Internet and other online services generally, especially as a means of
conducting commercial transactions. To the extent that our activities or those
of third-party contractors involve the storage and transmission of proprietary
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. It is possible that our
security measures will not prevent security breaches.
CONTINUED CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, the principal stockholders listed under
"Principal Stockholders" will beneficially own approximately % of our
outstanding common stock ( % if the Underwriters' over-allotment option is
exercised in full). Consequently, such persons, as a group, will be able to
control the
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<PAGE>
outcome of all matters submitted for stockholder action, including the election
of members to our Board of Directors and the approval of significant change-in-
control transactions. Therefore, they will effectively control our management
and affairs. This may have the effect of delaying or preventing a change in
control. See "Management" and "Principal Stockholders."
POTENTIAL FOR SALES TAX AND OTHER TAX OBLIGATIONS
We do not collect sales or other similar taxes when we sell books and
subscriptions. Additionally, some states and foreign jurisdictions may impose
sales or other taxes on companies who engage in e-commerce. If one or more
states or any foreign country were to require that we collect sales or other
taxes on the sale of books and subscriptions through our system, it could have
a material adverse effect on our future financial results.
A number of proposals have been made at the state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could substantially impair the growth of e-commerce
and could adversely affect our future results of operation and financial
condition.
A law imposing a three-year moratorium on new taxes on Internet-based
transactions has recently been enacted in the US. This moratorium relates to
new taxes on Internet access fees and state taxes on e-commerce that
discriminate against out-of-state Web sites. Sales or use taxes imposed by
those buying or selling products or services over the Internet will not be
affected by this moratorium. We have not yet been able to determine how we will
be affected by this moratorium. To the extent that the moratorium provides a
material benefit, its expiration after three years could have a material
adverse effect on our financial condition and results of operations.
LOSS OF CLIENTS DUE TO POSSIBLE SYSTEMS FAILURES OR SYSTEM CAPACITY CONSTRAINTS
The performance of our intranet and Internet services, computer and
telecommunications equipment is critical to our reputation and achieving market
acceptance of our services. Any system failure, including network, software or
hardware failure, that causes interruption or an increase in response time of
our online services could result in decreased usage of our services. If such
failures occur often, it could reduce the attractiveness of our services to our
users. An increase in the volume of the kStore orders could strain the capacity
of the hardware employed by us, which could lead to slower response time or
system failures. Our operations are also dependent in part upon our ability to
protect our operating systems against physical damage from acts of God, power
loss, telecommunications failures, physical break-ins and similar events. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of our services, which could have a material
adverse effect on our future financial results. Our property and business
interruption insurance may not be adequate to compensate us for all losses that
may occur.
All of our computer and telecommunications equipment is located at our network
facility in London, Ontario. We currently have no backup systems at other
sites. Accordingly, there is a significant risk to our operations from a
natural disaster or system failure at our London facility. We currently
anticipate that we will establish redundant systems in our Cambridge,
Massachusetts headquarters, or elsewhere, upon consummation of the offering.
There can be no assurances, however, that any such back-up systems will be
online soon after consummation of the offering, or at all. In addition, our
operations are dependent upon receipt of timely updated catalog information
from our book and magazine providers, and any failure or delay in the
transmission or receipt of such information, whether on account of system
failure of the information providers, the Internet or otherwise, could disrupt
our operations.
POSSIBLE FAILURE TO MAKE SYSTEMS YEAR 2000 COMPLIANT
As many computer systems and other equipment with imbedded control chips or
microprocessors use only two digits to represent the year, they may be unable
to process accurately certain data before, during or after the year 2000. The
Year 2000 issue relates to the way that these business systems could fail or
make miscalculations due to interpreting a date including "00" to mean 1900,
not 2000. To the extent that a business system does not fail or make
miscalculations as a result of the Year 2000 date change, such a system is
described as being "Year 2000 Compliant." We are currently undergoing efforts
to ensure that all of those business systems, owned or operated by us or by
third parties, the failure of which would directly and adversely affect our
ability to provide our services or otherwise affect revenues, safety or
reliability for such a
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period of time as to lead to unrecoverable consequences, will not fail or make
miscalculations as a result of the Year 2000 date change. Although we believe
that most of our in-house and licensed information technology, including our
production systems and accounting software will not be affected by the Year
2000 date change, we cannot be certain that the production systems of many of
our strategic business partners or the publishers from whom we purchase the
newspapers, magazines, journals and books that we sell to clients will not be
adversely affected by the Year 2000 date change. In addition, there can be no
assurance that we will not have to spend significantly more than we currently
anticipate on remediation efforts on our critical systems, or that any
contingency plans that we develop to deal with problems resulting from the Year
2000 date change will be successful in avoiding or alleviating such problem.
Any such failures could have a material adverse effect on our future results of
operations and financial condition See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of Year 2000 Issue."
WE WILL NOT PAY DIVIDENDS FOR THE FORESEEABLE FUTURE
We anticipate that earnings will be retained for the development of our
business and that no cash dividends will be declared on the common stock for
the foreseeable future. The Company's loan agreement with Imperial Bank also
prohibits the payment of dividends. See "Dividend Policy."
NO PUBLIC MARKET FOR COMMON STOCK TO DATE; COMMON STOCK PRICE MAY BE VOLATILE
IN THE FUTURE
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between the Underwriters and us, and may not be indicative of our future market
prices. As a result, you may not be able to resell any shares you buy from us
at or above the initial public offering price due to a number of factors,
including:
. actual or anticipated fluctuations in our operating results;
. changes in expectations as to our future financial performance or changes in
financial estimates of securities analysts;
. announcement of new products or product enhancements by us or our
competitors;
. technological innovations by us or our competitors; and
. the operating and stock price performance of other comparable companies.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect
the trading price of our common stock, regardless of our actual operating
performance. In particular, the stock prices for many companies in the
technology and emerging growth sectors have experienced wide fluctuations which
have often been unrelated to the operating performance of such companies. Such
fluctuations may adversely affect the market price of the common stock.
You should read the "Underwriting" section for a more complete discussion of
the factors to be considered in determining the initial public offering price.
SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of common stock into the public market
after this offering, or the perception that such sales could occur, could
materially and adversely affect our stock price or could impair our ability to
obtain capital through an offering of equity securities. After this offering,
we will have outstanding shares of common stock ( shares if the
underwriters exercise their option to purchase additional shares of common
stock in the offering) and will have reserved an additional shares of
common stock for issuance pursuant to our stock option and stock purchase
plans. Options to purchase shares of common stock were also outstanding as
of September 30, 1998, of which options to acquire shares will become
exercisable as of the date of this offering. We intend to register for resale
the shares of common stock reserved for issuance under our stock option and
stock purchase plans approximately 180 days after the date of this prospectus.
In addition, certain stockholders and optionholders have agreed that, for a
period of 180 days from the date of this prospectus, they will not sell their
shares. Accordingly, on , 1999, all of the shares of our common stock held
by such shareholders will be available for immediate resale (subject to certain
volume restrictions imposed by the securities laws) see "Management--Stock
Incentive Plans" and "Shares Eligible for Future Sale."
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We and certain of our shareholders who will hold in the aggregate shares of
common stock upon the consummation of this offering have entered into a
registration rights agreement which requires us to include shares of common
stock held by such shareholders in registered offerings of common stock made by
us in the future.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock will be immediately after
the offering. Any common stock you purchase in the offering will have a post-
offering net tangible book value per share of $ less than the price you
paid for the share, assuming an initial public offering price of $ per share
(the mid-point of the range set forth on the cover page of this prospectus).
See "Dilution."
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USE OF PROCEEDS
Based on an assumed initial public offering price of $ per share (the mid-
point of the range set forth on the cover of this prospectus), the Company will
receive approximately $ million from the sale of shares of common stock to
be sold by the Company in this offering (approximately $ million if the
underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company of $ .
The principal purposes of this offering are to finance the expansion of the
Company's business and to increase available working capital, to create a
public market for the common stock, to facilitate future access by the Company
to public equity markets and to increase the visibility of the Company in the
marketplace.
The Company currently intends to use a majority of the net proceeds of this
offering to (1) hire additional direct sales personnel and increase marketing
efforts; (2) develop increased functionality for the kStore, including through
the employment of additional research and development personnel; (3) increase
content available through the kStore by increasing the Company's content
acquisition staff; and (4) enhance the Company's technical infrastructure,
including by developing redundant systems. The Company intends to use the
balance of the net proceeds of the offering for working capital and general
corporate purposes, including making capital expenditures in the ordinary
course of its business. The Company may also apply a portion of the net
proceeds of the offering to acquire businesses, products and technologies that
are complementary to those of the Company. Although the Company has not
identified any specific businesses, products or technologies that it may
acquire and has not entered into any current agreements or negotiations with
respect to any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the net proceeds will be invested in
government securities and other short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital stock
and does not intend to pay any cash dividends on its common stock for the
foreseeable future. Future dividends, if any, will be determined by the Board
of Directors. Under its loan agreement with Imperial Bank, the Company is
prohibited from paying dividends while it has any loans to Imperial Bank or
other obligations under the loan agreement outstanding.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 on an actual basis and on a pro forma, as adjusted basis
after giving effect to (1) the sale by the Company on December 11, 1998 of
4,586,599 shares of its Class C Preferred Stock for an aggregate consideration,
net of expenses, of approximately $15,000,000; (2) the issuance of shares of
common stock upon the conversion of all outstanding preferred stock and the net
exercise of all outstanding stock purchase warrants; and (3) the sale by the
Company of shares of common stock in this offering at an assumed initial
public offering price of $ per share (the mid-point of the range set forth on
the cover page of this prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses of $ payable by the Company. This
information should be read in conjunction with the Company's consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
--------------------------------
AS OF SEPTEMBER 30, 1998
--------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
-------------- ----------------
<S> <C> <C>
Dollars in thousands, except per share data
Redeemable Convertible Preferred Stock:
Class A Preferred Stock, $.01 par value per
share; 1,772,857 shares issued and
outstanding; 0 shares issued and
outstanding, as adjusted (1)................ $ 4,514 --
Class B Preferred Stock, $.01 par value per
share; 6,326,610 shares issued and
outstanding; 0 shares issued and
outstanding, as adjusted (2)................ 8,059 --
-------------- ---------
Total...................................... 12,573
Stockholders' equity:
Common Stock, $.01 par value per share;
24,000,000 shares authorized; 4,372,382
shares issued and outstanding; shares
issued and outstanding, as adjusted......... 44
Additional paid-in capital................... 1,681
Treasury stock, at cost...................... (53)
Accumulated deficit.......................... (10,917)
Cumulative translation adjustment............ (34)
-------------- ---------
Total stockholders' (deficit) equity....... (9,279)
-------------- ---------
Total capitalization....................... $ 3,294
============== =========
</TABLE>
- --------
(1)Includes 161,289 shares of Class A Preferred Stock of RoweCom and 1,611,568
shares of Class A Preferred Stock of RoweCom's subsidiary, Rowe Communications,
Ltd. ("RoweCom Canada"). See note 14 to the consolidated financial statements.
(2)Includes 5,140,370 shares of Class B Preferred Stock of RoweCom and
1,186,240 shares of Class B Preferred Stock of RoweCom Canada. See note 14 to
the consolidated financial statements.
(3)Reflects (A) the sale by the Company on December 11, 1998 of 4,586,599
shares of its Class C Preferred Stock for an aggregate consideration, net of
expenses, of approximately $15,000,000; (B) the exchange of 1,611,568 shares of
the Class A Preferred Stock of RoweCom Canada into 3,163,306 shares of Class A-
1 Preferred Stock of the Company and of 1,186,240 shares of the Class B
Preferred Stock of RoweCom Canada into 1,186,240 shares of Class B Preferred
Stock of the Company, effective as of the consummation of this offering; (C)
the conversion of an aggregate of 161,289 shares of Class A Preferred Stock,
3,163,306 shares of Class A-1 Preferred Stock, 6,326,610 shares of Class B
Preferred Stock and 4,586,599 shares of Class C Preferred Stock of the Company
into newly-issued shares of common stock effective as of the consummation
of this offering; (D) the net exercise of stock purchase warrants for shares
of common stock at an exercise price of $ per share (assuming an initial
public offering price of $ per share, the mid-point of the range set forth
on the cover of this prospectus); and (E) the sale by the Company of shares
of common stock in the offering at an assumed initial public offering price of
$ per share, after deducting underwriting discounts and commissions and
estimated offering expenses of $ payable by the Company. See "Certain
Transactions" and "Principal Stockholders." Excludes (A) shares of common
stock issuable upon the exercise of options outstanding on the date of this
prospectus, at a weighted average exercise price of $ per share and (B)
additional shares of common stock reserved for issuance under the Company's
stock option and stock purchase plans. See "Management--Stock Incentive Plans."
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DILUTION
The pro forma net tangible book value of the Company as of September 30, 1998
was $ , or $ per share of common stock after giving effect to the sale by
the Company of 4,586,599 shares of its Class C Preferred Stock on December 11,
1998, the conversion of all outstanding shares of preferred stock into common
stock, and the net exercise of all outstanding stock purchase warrants. Pro
forma net tangible book value per share is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) by the total number of shares of common stock outstanding after
giving effect to the transactions described in the previous sentence. After
giving effect to the sale of the shares of common stock offered by the
Company hereby at an assumed initial public offering price of $ per share
(the mid-point of the range set forth on the cover of this prospectus), and
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company (resulting in estimated net proceeds of
$ ), the adjusted pro forma net tangible book value of the Company as of
September 30, 1998, would have been $ , or $ per share. This
represents an immediate increase in the pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $
per share to new investors. The following table illustrates the per share
dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share......................... $
Pro forma net tangible book value per share before this offering........ $
Increase attributable to new investors(1)............................... $
Adjusted pro forma net tangible book value per share after this
offering............................................................... $
Dilution per share to new investors..................................... $
</TABLE>
- --------
(1)Assumes no exercise of the underwriters' over-allotment option and no
exercise of stock options outstanding at September 30, 1998. At that date,
there were options outstanding to purchase shares of common stock at a
weighted average price of $ per share and shares reserved for future
issuance under the Company's stock option and stock purchase plans. To the
extent any of these options are exercised, there will be further dilution to
new investors. If all of the outstanding options were exercised in full, the
dilution per share to new investors in this offering would be increased by
$ per share to a total of $ per share and the average price per share
paid by the Company's existing shareholders would be $ . See
"Capitalization," "Management--Stock Incentive Plans," "Certain Transactions"
and note 14 to the consolidated financial statements.
The following table summarizes on a pro forma basis, as of September 30, 1998,
the difference between the number of shares of common stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholders and by the new investors (at an assumed
initial public offering price of $ per share, the mid-point of the range
set forth on the cover of this prospectus, before deduction of estimated
underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
-----------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION(1)
---------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- ---------------------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockhold-
ers(1).................
New investors (2).......
Total...................
</TABLE>
- --------
(1) Assumes the sale by the Company of 4,586,599 shares of its Class C
Preferred Stock on December 11, 1998, conversion of all outstanding shares of
preferred stock into common stock and the net exercise of all outstanding stock
purchase warrants, as if each had occurred on September 30, 1998.
(2) See note 1 to the preceding table.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
The following historical selected consolidated financial information of the
Company is qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
prospectus. The statement of operations data set forth below for each of the
fiscal years ended December 31, 1995, 1996 and 1997 and the balance sheet data
at December 31, 1996, 1997 are derived from consolidated financial statements
of the Company audited by PricewaterhouseCoopers LLP, independent public
accountants, which are included elsewhere in this prospectus. The selected
consolidated financial data at and for the nine months ended September 30, 1997
and 1998 are derived from the unaudited consolidated financial statements of
the Company, which are included elsewhere in this prospectus. The selected
balance sheet data at December 31, 1995 are derived from audited financial
statements of the Company not included in this prospectus. The selected
consolidated financial data for the period from inception (January 1, 1994)
through December 31, 1994 and at December 31, 1994 are derived from unaudited
consolidated financial statements of the Company not included in this
prospectus. The unaudited consolidated financial statements include all
adjustments (comprised only of normal recurring entries) which the Company
considers necessary for a fair presentation. The results of operations for the
nine months ended September 30, 1998 are not necessarily indicative of results
to be expected for any future period.
<TABLE>
<CAPTION>
--------------------------------------------------------------
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(JANUARY 1, 1994) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, -------------------------- ----------------
1994 1995 1996 1997 1997 1998
----------------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands,
except per share data
STATEMENT OF OPERATIONS
DATA:
Revenues................ -- $ 324 $ 3,116 $ 12,890 $ 941 $ 3,585
Cost of revenues........ -- 323 3,083 12,701 919 3,494
--- ------ -------- -------- ------- -------
Gross profit........ -- 1 33 189 22 91
Operating expenses:
Sales and marketing.... 9 259 585 2,035 1,574 3,343
Research and
development........... 19 149 532 584 399 749
General and
administrative........ 7 171 351 751 668 980
--- ------ -------- -------- ------- -------
Total operating
expenses............. 35 579 1,468 3,370 2,641 5,072
--- ------ -------- -------- ------- -------
Loss from
operations......... (35) (578) (1,435) (3,181) (2,619) (4,981)
Interest and other
income, net............ (3) 1 1 64 55 104
--- ------ -------- -------- ------- -------
Loss before income
taxes.............. (38) (577) (1,434) (3,117) (2,564) (4,877)
Provision for income
taxes.................. -- 8 16 137 102 87
--- ------ -------- -------- ------- -------
Net loss............ (38) $ (585) $ (1,450) $ (3,254) $(2,666) $(4,964)
=== ====== ======== ======== ======= =======
Basic and diluted pro
forma net loss per
share(1)............... -- -- -- $ -- $
Shares used in pro forma
net loss per share
calculation(1).........
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
AT DECEMBER 31, AT SEPTEMBER 30, 1998
------------------------ ----------------------
PRO FORMA
1994 1995 1996 1997 ACTUAL AS ADJUSTED(2)
---- ---- ----- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
CONSOLIDATED BALANCE SHEET
DATA:
Working capital.............. $ 1 $(49) $(481) $ 185 $2,614
Total assets................. 15 204 428 2,108 6,407
Redeemable preferred stock... -- -- -- 4,298 12,573
Total stockholders' equity
(deficit)................... 12 52 (338) (3,768) (9,280)
</TABLE>
- --------
(1)Pro forma per share amounts are calculated by using the sum of (A) the
weighted average number of shares of common stock outstanding during the period
and (B) the shares of common stock to be issued as of the closing of this
offering upon the conversion of all outstanding shares of the Company's
preferred stock and the net exercise of all outstanding stock purchase
warrants. See "Certain Transactions" and "Principal Stockholders."
(2)Reflects (A) the sale by the Company on December 11, 1998 of 4,586,599
shares of its Class C Preferred Stock for an aggregate consideration, net of
expenses, of approximately $15,000,000, (B) the issuance of shares of
common stock as of the closing of this offering upon the conversion of all
shares of the Company's preferred stock outstanding at that date and the net
exercise of all outstanding stock purchase warrants (see "Certain Transactions"
and "Principal Stockholders") and (C) the sale by the Company of shares of
common stock at an assumed initial public offering price of $ per share (the
mid-point of the range set forth on the cover page of this prospectus) after
deducting underwriting discounts and commissions and estimated offering
expenses of $ payable by the Company. Excludes (A) shares of common
stock issuable upon the exercise of options outstanding on the date of this
prospectus, at a weighted average exercise price of $ per share and (B)
additional shares of common stock reserved for issuance under the Company's
stock plans.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
RoweCom provides businesses and their employees with an e-commerce solution for
purchasing and managing the acquisition of magazines, newspapers, journals,
books and other knowledge resources through a corporate intranet or the
Internet. The Company offers its clients access to the largest catalog of
magazines, newspapers, journals, books and other knowledge resources on the
Internet. RoweCom allows employees to purchase knowledge resources easily and
conveniently from their desktop computers and provides businesses with a highly
effective means of managing and controlling purchases of knowledge resources
and reducing costs. The Company's target clients are in knowledge-intense
industries, such as financial and professional services, high technology and
healthcare as well as certain academic and non-profit institutions.
The Company began significant commercial operations in March 1996. The Company
introduced its flagship product, the kStore, in June 1997. Since its inception,
the Company has incurred significant net losses and, as of September 30, 1998,
had an accumulated deficit on a consolidated basis of $10.9 million.
Substantially all of the Company's revenues are generated by the sale of
magazines, newspapers, journals, books and other knowledge resources published
by third parties. The sales price of each knowledge resource reflects the cost
to the company of the knowledge resource plus a transaction fee retained by the
Company. The Company receives a flat fee or, in some cases, a percentage of the
selling price for each item purchased through the kStore. While RoweCom
receives orders and payments directly from its clients, and processes such
orders and payments on behalf of such clients, it does not maintain an
inventory of any of the knowledge resources it sells. Accordingly, the Company
does not incur inventory costs and is not subject to inventory risk.
Approximately 29% of the Company's revenues for the nine months ended September
30, 1998 were generated from the renewal of subscriptions. The Company believes
that it will continue to receive a substantial portion of its revenue in the
future from renewals.
To date, substantially all of the Company's revenues have been generated in the
fourth quarter of each year, primarily because most subscriptions are purchased
or renewed in that quarter, with subscriptions generally beginning on January
1st. The Company's services initially focused on corporate libraries and
centralized purchasing groups which have tended to concentrate their purchases
at the end of each year. Beginning with the launch of the kStore in June 1997,
the Company has focused on desktop purchases by individual employees. The
Company believes that as purchases by individual employees increase as a
percentage of total revenues, the seasonality described above will decrease
because desktop purchases are generally made as required, and thus are more
evenly distributed throughout the year. The Company has also recently added
over four million books to its catalog as a result of its strategic alliance
with barnesandnoble.com. As book sales become a larger portion of total
revenues, the Company believes that its revenues will become less seasonal
because books are typically purchased throughout the year, in contrast to
subscriptions, which generally come up for renewal in the fourth quarter of
each year.
Substantially all of the Company's expenses consist of the cost of the
knowledge resources sold to its clients, which are variable, and sales and
marketing, research and development and general and administrative expenses,
which are relatively fixed. The Company's fixed expense levels have increased
over time as its operations have expanded and are expected to continue to
increase over the near and medium term, particularly in sales and marketing as
the Company increases its direct sales force and support staff, and in research
and development because the Company plans to develop new technology to enhance
its service. Sales and operating results generally depend on the volume and
timing of orders received, which are difficult to forecast. As a result, the
Company may be unable to adjust fixed expense spending in a timely manner to
compensate for any unexpected fluctuation or shortfall in revenue or gross
profit. Any significant shortfall in gross profit in relation
20
<PAGE>
to the Company's fixed expenses would have an immediate adverse effect on the
Company's results of operations.
RoweCom recently entered into strategic alliances with barnesandnoble.com llc
and NewSub Services, Inc., each of which added substantial new content to the
Company's catalog as well as new distribution channels for the Company's
services. barnesandnoble.com will pay RoweCom a fixed percentage of the
purchase price of every book sold either through RoweCom's kStore or
barnesandnoble.com's Business Solutions service, other than sales to existing
clients of the Business Solutions service as of the date of the agreement.
RoweCom will pay barnesandnoble.com a fixed amount or percentage of the
purchase price of every subscription sold by RoweCom's the kStore or
barnesandnoble.com's Business Solutions service, other than sales to existing
RoweCom customers as of the date of the agreement. Under the terms of the
agreement with NewSub Services, each party will earn revenue on titles sold
through the other party's online distribution channel by receiving a percentage
of the gross sales price or a transaction fee for each of its respective titles
sold by the other party. The Company has entered into other strategic
relationships and intends to continue to enter into strategic relationships
that will further increase content and add new distribution channels. The
Company expects that the terms of most strategic alliances will include some
element of revenue sharing between the parties. See "Business--Strategic
Alliances."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 (the "1998 Interim Period") Compared to
the Nine Months Ended September 30, 1997 (the "1997 Interim Period")
Revenues. Revenues consist almost entirely of the sales of knowledge resources.
Revenues increased to $3.6 million in the 1998 Interim Period, as compared to
$941,000 in the 1997 Interim Period, an increase of $2.7 million, or 283%. This
increase resulted primarily from the significant growth in the Company's client
base and increased sales per client. During the 1998 Interim Period, 134
clients placed orders, an increase of 148% over the 54 clients that placed
orders during the 1997 Interim Period. Revenues earned on sales to existing
clients (clients who placed orders during each of the 1998 and 1997 Interim
Periods) increased by $659,000, or 70%, to $1.6 million in the 1998 Interim
Period from $941,000 in the 1997 Interim Period.
Cost of Revenues. Cost of revenues consists almost entirely of the cost of
acquiring the knowledge resources sold to clients. Cost of revenues for the
1998 Interim Period was $3.5 million compared to $919,000 during the 1997
Interim Period, an increase of $2.6 million or 281%. This increase was due to
the increase in sales described above. Cost of revenues as a percentage of
revenues decreased to 97.5% in the 1998 Interim Period as compared to 97.7%
during the 1997 Interim Period. This improvement was principally the result of
an increase in the proportion of titles sold for which RoweCom retains a higher
percentage of the purchase price.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and commissions paid to the Company's direct sales force, service account
managers and client service representatives, travel expenses, advertising
expenses, and expenses relating to marketing materials and fulfillment
activities. Sales and marketing expenses increased to $3.3 million during the
1998 Interim Period from $1.6 million during the 1997 Interim Period, an
increase of $1.7 million, or 106%. This growth principally reflected an
increase in salary and related expenses resulting from an increase in
commissions paid to the Company's direct sales force as a consequence of higher
sales, and an increase in the average headcount of the Company's service
account managers and client service representatives during the 1998 Interim
Period as compared to the 1997 Interim Period.
Research and Development. Research and development expenses consist principally
of compensation and related personnel expenses, including consulting fees, and
other expenses relating to the development and maintenance of the Company's
service and production systems. Research and development expenses increased to
$749,000 in the 1998 Interim Period from $399,000 in the 1997 Interim Period,
an increase of $350,000 or 88%, primarily as a result of increased staffing and
associated costs incurred in efforts to integrate new content into the
Company's catalog, and to enhance the user interface and functionality of the
kStore. This increase was also due in part to increased investments in
transaction processing systems and telecommunications infrastructure.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for the Company's executive,
administrative, finance and human resources departments as well as
21
<PAGE>
professional service fees. General and Administrative expenses increased to
$980,000 in the 1998 Interim Period from $668,000 in the 1997 Interim Period,
an increase of $312,000 or 47%, primarily due to increases in the average
headcount in these departments, offset in part by decreased professional
service fees.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased to $12.9 million in 1997, as compared to $3.1
million in 1996, an increase of $9.8 million, or 316%. This increase resulted
primarily from the significant growth in the Company's client base and
increased sales per client. During 1997, 141 of the Company's clients placed
orders, an increase of 207% over the 46 clients that placed orders during 1996.
Revenues earned on sales to existing clients also increased by $1.7 million, or
55%, to $4.8 million in 1997 from $3.1 million in 1996.
Cost of Revenues. Cost of revenues in 1997 was $12.7 million as compared to
$3.1 million during 1996, an increase of $9.6 million or 310%. This increase
was due to the significant increase in sales discussed above. Cost of revenues
as a percentage of revenues was 98.5% in 1997 as compared to 98.9% in 1996.
This improvement was principally the result of an increase in the proportion of
titles sold for which RoweCom retains a higher percentage of the purchase
price.
Sales and Marketing. Sales and marketing expenses increased to $2.0 million
during 1997 from $585,000 during 1996, an increase of $1.4 million, or 242%.
This growth principally reflected an increase in salary and related expenses
and, to a lesser extent, increased advertising expenses. The increase in salary
and related expenses resulted from an increase in commissions paid to the
Company's direct sales force as a consequence of higher sales and an increase
in the average headcount of the Company's direct sales force, service account
managers and client service representatives in 1997 as compared to 1996.
Research and Development. Research and development expenses increased to
$584,000 in 1997 from $532,000 in 1996, an increase of $52,000 or 10%,
primarily as a result of increased staffing and associated costs relating to
efforts to develop and launch the kStore.
General and Administrative Expenses. General and administrative expenses
increased to $751,000 in 1997 from $351,000 in 1996, an increase of $400,000 or
114%, primarily due to increases in average headcount in the executive,
administrative, finance and human resources areas.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
During the year ended December 31, 1995, the Company generated only $324,000 in
revenues and incurred costs of revenues of $323,000. Sales and marketing and
research and development expenses were also limited. Accordingly, the Company
does not believe that a comparison of its results of operations for 1996 and
1995 would be meaningful.
Selected Quarterly Results of Operations
The following table presents unaudited quarterly consolidated statement of
operations data for each of the four quarters during the year ended December
31, 1997 as well as the three quarters ended September 30, 1998. In the opinion
of management, this information has been prepared substantially on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited quarterly results. The quarterly data should be
read in conjunction with the audited consolidated financial statements of the
Company and the notes thereto appearing elsewhere in this prospectus.
22
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------
1997 1998
---------------------------------- ---------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- --------
Dollars in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 621 $ 80 $ 240 $11,949 $ 1,307 $ 865 $ 1,413
Cost of revenues........ 607 79 233 11,782 1,284 819 1,391
----- ----- ------- ------- ------- ------- -------
Gross profit......... 14 1 7 167 23 46 22
Operating expenses:
Sales and marketing.... 221 647 706 461 607 1,311 1,425
Research and
development........... 80 44 275 185 209 261 279
General and
administrative........ 229 198 241 83 288 310 382
----- ----- ------- ------- ------- ------- -------
Total operating
expenses 530 889 1,222 729 1,104 1,882 2,086
----- ----- ------- ------- ------- ------- -------
Loss from
operations.......... (516) (888) (1,215) (562) (1,081) (1,836) (2,064)
Interest and other
income, net............ 5 17 33 9 28 18 58
----- ----- ------- ------- ------- ------- -------
Loss before income
taxes............... (511) (871) (1,182) (553) (1,053) (1,818) (2,006)
Provision for income
taxes.................. 34 34 34 35 28 28 31
----- ----- ------- ------- ------- ------- -------
Net loss............. $(545) $(905) $(1,216) $(588) $(1,081) $(1,846) $(2,037)
===== ===== ======= ======= ======= ======= =======
</TABLE>
To date, substantially all of the Company's revenues have been generated in the
fourth quarter of each year, primarily because most subscriptions are purchased
or renewed in that quarter, with subscriptions generally beginning on January
1st. The Company's services initially focused on corporate libraries and
centralized purchasing groups which have tended to concentrate their purchases
at the end of each year. Beginning with the launch of the kStore in June 1997,
the Company has focused on desktop purchases by individual employees. The
Company believes that as purchases by individual employees increase as a
percentage of total revenues, the seasonality described above will decrease
because desktop purchases are generally made as required, and thus are more
evenly distributed throughout the year. The Company has also recently added
over four million books to its catalog as a result of its strategic alliance
with barnesandnoble.com. As book sales become a larger portion of total
revenues, the Company believes that its revenues will become less seasonal
because books are typically purchased throughout the year, in contrast to
subscriptions that generally come up for renewal in the fourth quarter of each
year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.6 million in the 1998 Interim
Period as compared to $2.0 million in the 1997 Interim Period, and $2.9 million
for 1997 as compared to $1.2 million for 1996. Cash used in operating
activities for the first nine months of 1998 resulted primarily from a net loss
of $5.0 million, partially offset by an increase in accounts payable of
$368,000. Cash used in operating activities in 1997 was primarily attributable
to a net loss of $3.3 million and an increase in accounts receivable and other
current assets of $387,000, partially offset by an increase in accrued expenses
of $479,000.
Net cash used in investing activities in the 1998 Interim Period was $485,000,
substantially all of which was used to purchase fixed assets, as compared to
$182,000 in the 1997 Interim Period. Net cash used in investing activities was
$229,000 for 1997, as compared to $91,000 for 1996. Net cash used in investing
activities for 1997 primarily related to cash used to purchase fixed assets of
$203,000.
Since its inception, the Company has financed its operations primarily through
sales of its equity securities in private placements. Net cash provided by
financing activities in the 1998 Interim Period was $8.0 million, primarily
resulting from the sale of shares of the Company's Class B Convertible
Preferred Stock and RoweCom Canada's Class B Preferred Stock. Net cash provided
by financing activities in the 1997 Interim Period and in 1997 was $3.8
million, primarily as the result of the sale of shares of RoweCom Canada's
Class A Preferred Stock. Net cash provided by financing activities was $1.3
million in 1996, primarily as the result of capital contributions by the
founder of the Company. On December 11, 1998, the Company sold an aggregate of
4,586,599 shares of its Class C Preferred Stock to Axiom Venture Partners II
Limited Partnership, Zero Stage Capital VI, L.P., Moore Global Investments,
Ltd. and certain other investors, resulting in aggregate net proceeds, after
deducting expenses of such issuance, of approximately $15,000,000. All
outstanding preferred stock of RoweCom Canada will be exchanged for preferred
stock of RoweCom immediately prior to the
23
<PAGE>
completion of this offering, and all of the outstanding preferred stock of the
Company (including the shares issued in exchange for the preferred stock of
RoweCom Canada) will convert to common stock upon completion of this offering.
See "Certain Transactions."
The Company currently believes that the cash proceeds from the sale of the
preferred stock referred to above, together with cash balances, will be
sufficient to meet anticipated cash requirements through the fourth quarter of
1999. The Company also believes that the net cash proceeds from this offering,
together with cash balances and the cash proceeds of the sale of Class C
Preferred Stock, will be sufficient to meet currently planned working capital
and capital expenditure requirements through at least 2000. However, there can
be no assurance that additional capital beyond the amounts currently forecasted
by the Company will not be required nor that any such required additional
capital will be available on reasonable terms, if at all, at such time as
required by the Company.
IMPACT OF YEAR 2000 ISSUE
As many computer systems and other equipment with imbedded control chips or
microprocessors use only two digits to represent the year, they may be unable
to process accurately certain data before, during or after the year 2000. The
Year 2000 issue relates to the way that these business systems could fail or
make miscalculations due to interpreting a date including "00" to mean 1900,
not 2000. To the extent that a business system does not fail or make
miscalculations as a result of the Year 2000 date change, such a system is
described as being "Year 2000 Compliant." While the Company believes that it
has been taking adequate steps to make sure that its business systems are Year
2000 Compliant, and does not believe that it will incur material costs to
prepare for the Year 2000 date change, achieving complete Year 2000 Compliance
is subject to various risks and uncertainties, and there can be no assurance
that the Year 2000 date change will not lead to failures of such systems that
may have a material adverse effect on the Company's future results of
operations and financial condition.
The Company has been aware of the possible impact of Year 2000 issues on its
operations since inception and has focused on making its business systems Year
2000 Compliant since that time. Most of this effort has been focused upon
business systems owned or operated by the Company or third parties, the failure
of which would directly and adversely affect the Company's ability to provide
its services or would otherwise affect revenues or reliability for such a
period of time as to lead to unrecoverable consequences (collectively,
"Critical Systems"). The Company has adopted a Year 2000 compliance program for
these Critical Systems that is designed to (1) assess the readiness of the
Critical Systems to deal with the Year 2000 date change; (2) remediate any
potential failures through the modification or replacement of Critical Systems
that may not be Year 2000 Complaint; (3) test the existing and improved
Critical Systems for Year 2000 Compliance prior to the actual Year 2000 date
change; and (4) develop contingency plans to deal with possible failures by the
Critical Systems to be Year 2000 Compliant.
The Company has focused its Year 2000 Compliance efforts on the following types
of Critical Systems:
IN-HOUSE INFORMATION TECHNOLOGY
The Company has developed a new application that it will use for all client
operations, including order processing and report generation. The Company is
currently testing and has begun implementation of this application and is
expecting the application to be fully implemented no later than the third
quarter of 1999. This application, which was designed and developed entirely by
the Company's in-house development staff, was designed to be Year 2000
Compliant. Accordingly, the Company believes that it will not incur any
material costs as a result of any failures by its in-house information
technology to be Year 2000 Compliant. The Company does not believe that any of
its other in-house information technology systems are Critical Systems.
THIRD PARTY INFORMATION TECHNOLOGY
The Company believes the only information technology licensed from third
parties that constitutes a Critical System is the Navision accounting software
used by the Company's finance and human resources departments and deployed on a
client-server system. The Company deployed a new release of this software in
the first quarter of 1998. In its contract with the Company, Navision
represents that its system is Year 2000 Compliant. The Company has no reason to
believe that this application is not Year 2000 Compliant.
THIRD PARTY OPERATIONS
The Critical Systems maintained by third parties include the Electronic Data
Interchange (EDI) transaction system which carries out the Company's
transactions with publishers, the CyberCash credit card transaction
24
<PAGE>
processing system that the Company uses to clear credit card purchases, the
Automated Clearing House (ACH) transaction system pursuant to which the Company
clears automatic debit purchases, and the catalog and purchasing operations
maintained by barnesandnoble.com. The Company is in the process of assessing
the likelihood that any of these systems will not be Year 2000 Compliant.
Toward that end, the Company is (1) inquiring about the readiness of such
companies' systems for the Year 2000 date change; (2) testing, where possible,
such systems for Year 2000 Compliance; and (3) developing contingency plans for
those third party systems that the Company has reason to believe may not be
Year 2000 Compliant. While the EDI transaction processing, which sends order
information to publishers' software, is Year 2000 Compliant, the publishers'
EDI access software may not receive this data upon the Year 2000 date change or
may send data to RoweCom in a format that is not Year 2000 Compliant. The EDI
transaction system relies on the production systems of a large number of
publishers, many of which may not have systems that are Year 2000 Compliant.
Because this transaction system is based upon an industry standard, there are
no means currently available by which the Company can remediate possible
failures to be Year 2000 Compliant. The Company believes that the credit card
transaction processing system it currently uses is Year 2000 Compliant, based
upon tests that it has conducted using credit card expiration dates with years
subsequent to 1999. The Company also believes, based upon representations from
Banc One, that the ACH transaction processing system will be Year 2000
compliant, although it has not conducted independent testing of its readiness.
In addition, Banc One, as a member of the Federal Reserve System will be
subjected to the stringent Year 2000 readiness requirements mandated by that
system. Accordingly, the Company does not have reason to believe that its ACH
transaction processing system will not be Year 2000 Compliant.
The Company's clients are currently able to purchase the books included in the
Company's catalog of titles solely through its business partner,
barnesandnoble.com. Users currently may access the barnesandnoble.com and
RoweCom catalogs by means of links found in the Business Solutions and the
kStore Web sites. RoweCom and barnesandnoble.com expect that the Business
Solutions and the kStore Web sites will each contain an integrated catalog of
titles by the end of the first quarter of 1999. In the event that this
integrated service is not operational prior to the Year 2000 date change, a
failure by barnesandnoble.com to make all of its systems Year 2000 Compliant
could result in serious difficulties in processing book orders for the
Company's clients. The Company intends to acquire certifications from
barnesandnoble.com with respect to its Year 2000 Compliance.
The Company believes that it has already incurred the majority of the expenses
that it expects to incur to deal with Year 2000 issues. In 1998, the Company
spent approximately $25,000 on licensing the Navision accounting package. The
Company does not believe that it will be required to spend significantly more
on third party information technology. In addition, during 1998 the Company
incurred expenses of approximately $400,000 in the development of its internal
client operations application. The Company anticipates that completing the
development and testing process for the in-house production system will cost an
additional $400,000. Additional costs also may be incurred by the Company in
ensuring that all of its other Critical Systems are Year 2000 Compliant,
particularly with regard to Critical Systems operated and maintained by third
parties. The Company is currently unable to estimate such costs with any
reliability. The Company has funded costs incurred to date from working capital
and prior financings and will fund any additional costs incurred from working
capital and the net proceeds it receives from the sale of the Class C Preferred
Stock of the Company and this offering.
The Company has not yet developed formal contingency plans for the majority of
the Critical Systems. The Company believes that in the event of a failure of
the Navision accounting system, alternative systems that are Year 2000
Compliant will be readily available at minimal cost. Because there is no real
current alternative for the ACH System, the Company is unlikely to be able to
develop a contingency plan to deal with a possible failure of such system to be
Year 2000 Compliant. In the event of a failure of the ACH System to be so
compliant, the Company would be required to rely on other payment methods,
including credit cards. In the event of a failure of any one of the Company's
other Critical Systems, the Company would be forced to complete most
transactions on a manual basis. The Company may also develop additional
contingency plans as the Year 2000 date change approaches in order to deal with
yet unknown Year 2000 issues.
Although the Company currently believes that the Critical Systems that the
Company operates will be Year 2000 Compliant, there can be no assurance that
all of such systems and the other Critical Systems maintained by third parties
on behalf of the Company will be Year 2000 Compliant by the end of 1999. A
reasonably possible worst case scenario might include one or more of the
Critical Systems maintained by one of the
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Company's business partners being non-compliant. Any such failure could result
in a material disruption of the Company's operations. Specifically, the Company
could experience interruptions in its ability to process orders with certain
publishers, collect and process receipts from credit cards or direct
disbursement accounts, accurately maintain accounting records and perform
adequate customer service. A failure by any of the Company's Critical Systems,
or any other systems deployed by the Company prior to the Year 2000 date
change, to be Year 2000 Compliant could have a material adverse effect upon the
Company's future results of operations and financial condition.
The Company is not able to assess the Year 2000 Compliance of its clients. In
the event that a significant number of the Company's clients face difficulties
as a result of the Year 2000 date change, such clients may be
unable to process purchases through the kStore, or may face budgetary
constraints that limit knowledge resource purchasing. Any diminished purchasing
by the Company's clients as a result of Year 2000 difficulties could have a
material adverse effect on the Company's future results of operations and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS No.
131"), which establishes standards for reporting information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 131 is not expected to have an impact on the
Company's results of operations, financial position or cash flows.
In March 1998, The American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
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BUSINESS
RoweCom is the leading business-to-business provider of e-commerce solutions
for purchasing and managing the acquisition of magazines, newspapers, journals,
books and other knowledge resources. RoweCom offers its clients access to the
largest catalog of such knowledge resources on the Internet and allows its
clients' employees to purchase knowledge resources easily and conveniently from
their desktop computers. RoweCom also provides businesses with a highly
effective means of managing and controlling purchases of knowledge resources
and reducing costs. RoweCom targets clients in knowledge-intense industries,
such as financial and professional services, high technology and healthcare, as
well as certain academic and non-profit institutions.
RoweCom's kStore(TM) facilitates decentralized purchasing of knowledge
resources by businesses and their employees while at the same time giving
management the tools required to effectively control knowledge resource
purchases. The kStore provides businesses with a single comprehensive source
for the purchase of knowledge resources, offering more than 43,000 magazines,
journals and newspapers from over 13,000 publishers, and over four million
books through RoweCom's alliance with barnesandnoble.com. The kStore's
automated service is easily accessible from an employee's desktop computer via
the corporate intranet or the Internet and permits the employee to find, order,
and pay for knowledge resources quickly and conveniently. At the same time, the
kStore provides managers with detailed reports of knowledge resource purchases
by their employees and permits them to institute customized approval
procedures. The kStore also helps management reduce the costs of knowledge
resource acquisition by eliminating many of the inefficiencies of traditional
knowledge resource acquisition methods and by offering discounted prices on
most titles.
INDUSTRY OVERVIEW
The effective use of knowledge resources has become an increasingly important
competitive advantage for businesses and other institutions. Timely and
relevant information, easily accessible to all members of an enterprise, has
become critical to job productivity. The quantity and the degree of
specialization of knowledge resources available to businesses and their
employees, and the cost of such resources have increased dramatically.
According to Veronis Suhler and Associates, Inc., US businesses spent
approximately $38 billion in 1997 on knowledge resources, such as market
studies, business magazines and professional publications, and other types of
business information, such as financial news services, credit reports and other
general business information. Veronis Suhler has forecasted that this spending
will grow to $51 billion by 2001. Based on US government census data and
projections, the Company believes that over the same period the number of US
professional workers that depend on knowledge resources will increase from 37
million to 41 million. As a result, businesses and other institutions need
efficient and cost effective methods for managing the growing number of
purchases of knowledge resources by employees.
The growth in demand for knowledge resources is occurring at a time when the
Internet and corporate intranets are becoming increasingly significant for
communications and e-commerce. International Data Corporation estimates that
business-to-business Internet commerce, including spending on knowledge
resources, will grow from an estimated $7.4 billion in 1997 to $179.4 billion
in 2001. The Company believes that spending on knowledge resources via the
Internet and corporate intranets has also accelerated in recent years and will
increase in the future.
Most companies currently do not have an efficient and easy-to-use means of
executing and managing purchases of knowledge resources. The process of
purchasing knowledge resources historically has involved significant manual
effort and has focused on the professional librarian or central purchasing
group, rather than the individual worker whose job performance depends on such
resources. This manually intensive, paper-based process requires finding the
appropriate publishers, submitting written or telephone orders, processing
multiple renewal notices, and completing expense reports for reimbursement.
Increasingly, individual employees are purchasing knowledge resources directly
from publishers and other vendors rather than ordering through a corporate
library or central purchasing group. As a result, employees are making numerous
individual purchases from a large number of publishers and services using a
variety of payment methods. The Company believes that for most businesses the
aggregate cost of purchases of knowledge resources made by individuals is
significantly larger than the knowledge resource budget of the corporate
library or central purchasing group. Decentralized purchases make it difficult
for businesses to manage employee purchases, control spending and prevent
duplicative or unauthorized orders.
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As knowledge resources have become more numerous and specialized, the marketing
of such knowledge resources to appropriate users and cost effective management
and distribution has become difficult for publishers and other content
providers. Conventional retail outlets do not reach the full range of
individuals purchasing knowledge resources and cannot physically stock the
entire range of knowledge resources available. In addition, the cost to the
publisher of maintaining inventories at multiple outlets is too high to allow
the distribution through such outlets of specialized knowledge resources that
will only sell in limited numbers at any one outlet.
THE ROWECOM SOLUTION
RoweCom's business-to-business e-commerce solution provides clients and their
employees with an easy and convenient way to purchase and manage the
acquisition of knowledge resources through corporate intranets or the Internet.
From the desktop computer, a client's employee can access a customized Web site
offering more than 43,000 magazines, newspapers and journals from over 13,000
publishers, and over four million books. RoweCom provides businesses with a
highly effective means of managing and controlling purchases of knowledge
resources and reducing costs. RoweCom also provides publishers and other
content providers with a unique distribution channel which enables RoweCom to
offer its clients additional content at lower prices. Key benefits of the
RoweCom solution include:
Convenience
RoweCom's kStore provides a single comprehensive source for the purchase of
knowledge resources. The Company offers its clients access to the largest
combined database of magazines, newspapers, journals, books and other knowledge
resources on the Internet. RoweCom's highly automated service provides an easy
and quick way to find, order, and pay for knowledge resources by providing
multiple electronic search functions and payment methods. These features
facilitate ordering and eliminate paper purchase orders, invoices, check
requests and manual approvals. The kStore can be made available through the
client's intranet site or the Internet, and may be accessed from an employee's
desktop computer, the corporate library or central purchasing group using a
point and click interface. The kStore also includes automated features, such as
subscription renewal notifications, and 24-hour, 7 days a week client support
via telephone and the Internet.
Control
RoweCom allows businesses to proactively manage their purchases of knowledge
resources through the implementation of customized purchase approval procedures
and the use of enterprise-wide purchasing reports. RoweCom also helps
businesses and their employees "buy smarter" by (1) indicating to employees
which items have already been purchased by other employees; (2) creating
greater awareness of available titles among employees; and (3) allowing
managers to analyze and guide employees' purchasing activities. RoweCom helps
clients reduce duplicate orders, increase shared use of knowledge resources and
enhance the likelihood that employees will purchase knowledge resources that
will maximize their productivity and performance.
Cost Savings
RoweCom offers substantial direct and indirect cost savings to its clients. The
kStore provides the lowest price available on the Internet for popular
magazines and an additional 5% discount on the already discounted price of
books available directly from barnesandnoble.com. Clients also achieve indirect
cost savings through the kStore's automated service, which reduces the manual
processing of orders, approvals, payment, claims and renewals. In addition,
RoweCom enables enterprises to reduce duplicate orders and facilitates resource
sharing among employees.
Benefits to Publishers and other Content Providers
RoweCom provides publishers and other content providers with a number of
benefits. First, it provides them with an efficient and low cost direct
distribution channel to targeted buyers, corporate libraries and centralized
purchasing groups. Because knowledge resources are only shipped when purchased,
vendors are able to reduce the levels of inventory required and therefore
reduce the costs associated with stocking and returns. Second, the Company
believes its online distribution channel may increase sales of many second and
third tier magazines, newspapers, journals, books and other knowledge resources
that are not typically stocked in physical locations and are generally hard to
find. Finally, RoweCom provides publishers and other content providers with a
unique distribution channel which enables RoweCom to offer its clients
additional content at lower prices.
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STRATEGY
RoweCom's objective is to maintain and strengthen its position as the leading
business-to-business provider of e-commerce solutions for purchasing and
managing the acquisition of magazines, newspapers, journals, books and other
knowledge resources. Key elements of the Company's strategy include:
Penetrate the Business-to-Business Market
RoweCom seeks to increase the number of clients and individuals accessing the
kStore from the desktop computer. RoweCom targets companies in knowledge-
intense industries, such as financial and professional services, high
technology and healthcare, as well as certain academic and public institutions.
RoweCom is increasing its sales force to develop new client relationships and
to expand the use of the kStore at its existing clients by increasing the
awareness among, and availability to, the client's employees. The Company
believes that being the first knowledge resource purchasing solution on a
client's intranet promotes brand loyalty and provides it with a significant
competitive advantage. Once the kStore is adopted by the client, RoweCom is
also well positioned to add new services and knowledge resource offerings at
minimal additional cost. The Company also intends to increase its telesales
efforts to focus on small and mid-size businesses, educational institutions and
government agencies.
Increase Content and Functionality
The Company will continue to increase the content available to its clients and
enhance the capabilities of the kStore. This will reinforce its position as the
leading single source provider of knowledge resources to businesses on the
Internet and will increase the overall potential revenue per client. RoweCom
has significantly increased its catalog of knowledge resources through
strategic alliances with publishers and resellers, and has historically added
between 300-500 serial titles each month in response to requests from its
clients. In addition to expanding content, the Company has introduced new
features to the kStore, such as group-ordering which allows a designated
individual to order on behalf of a group of purchasers. The Company intends to
further enhance the kStore's functionality by adding new capabilities, such as
collaborative filtering, which provides users with information about purchases
by other individuals with similar buying profiles, and personalized
recommendations of knowledge resources based on individual profiles and
purchasing patterns. The Company believes that these new features may increase
the volume and dollar size of transactions per client.
Develop Strategic Alliances
The Company intends to continue to enter into strategic alliances to increase
its channels of distribution and available content. The Company recently
entered into strategic alliances with barnesandnoble.com and NewSub Services,
which added new distribution channels, substantial additional content and
improved pricing. The Company intends to enter into strategic distribution
alliances to obtain access to new clients and markets quickly and in a cost-
effective manner. Relationships with other vendors can provide access to
additional content offerings, such as electronic journals, aggregated full text
archival content, and databases that provide the most current information on
any topic.
Enhance Brand Recognition
RoweCom intends to continue promoting the kStore as the leading business-to-
business e-commerce solution for purchasing and managing the acquisition of
knowledge resources. The Company intends to build brand recognition among
businesses through Web-based advertising, traditional advertising and
attendance and presentations at major trade shows. The Company believes that
promoting its reputation as the leading online provider of knowledge resources
to the business-to-business market will build loyalty among its client base,
increase usage of the kStore by clients' employees, attract new clients and
promote the value of the Company's brand name. In addition, the Company
believes that a strong brand name will help it establish additional marketing
and distribution alliances.
Expand Internationally
RoweCom intends to expand its presence in markets outside the United States. By
adding foreign language content and localizing and translating the kStore user
interface, the Company intends to enhance its ability to fully service US-based
clients that have employees in other countries as well as non-US clients. The
Company expects to carry out its international expansion by means of strategic
alliances and, possibly, the acquisition of local content providers.
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PRODUCTS AND SERVICES
The kStore
RoweCom's kStore provides each client with its own customized "company store"
which enables businesses and their employees to order, pay for and manage the
purchase of magazines, journals, newspapers, books and other knowledge
resources. The kStore can be customized for each client, quickly and easily.
The Company charges a nominal fee, averaging approximately $5,000, for the
initial installation of the kStore on a client's intranet or for the set-up of
a customized Internet kStore site. The design of the kStore is open, scalable
and modular, which permits easy installation of additional features.
The following diagram illustrates the key steps involved in making a purchase
and implementing management policies using the kStore.
[Diagram representing purchase of knowledge resources and
implementation of management policies using the kStore]
Employee
(Revise purchasing accesses the kStore
policies and process, |
if necessary) |
/|\ |
| |
(Analyze purchasing [Receive renewal \|/
activity) alerts] [Search RoweCom
/|\ | catalog]
| | |
(pay for / / \|/ \|/
purchases) -------- (approve -------- [Select/Order]
\ purchase) \
--------------------------------------
(Actions by [Actions by
management) employees]
--------------------------------------
. Access. Employees access the kStore easily through the corporate intranet or
the Internet. The secure customized site allows access only to qualified
corporate employees. The service may be customized for each client so that the
user interface and design is consistent with the corporate intranet and
reflects the client's pre-established purchase and payment policies. In
addition, the service may be customized to restrict the content available to
employees.
. Search. The kStore offers a selection of search tools enabling employees to
quickly find knowledge resources by means of a variety of standard easy-to-use
methods, including searching by title, publisher, and standard cataloging
reference number. The kStore also provides additional information about a
title, including links to publisher Web sites and the Library of Congress.
. Select/Order. To select items, employees simply click on an icon to add a
book or subscription to their online shopping cart or remove products from
their shopping carts as they continue searching. The kStore provides employees
with price information and the identity of other employees in the enterprise
who have previously ordered the same item. Prior to executing orders, employees
may review the content of their cart, the number of titles ordered, and the
total purchase price including shipping and handling.
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. Approve. Once an order has been placed, it may be subject to one or more
approval levels that are based upon policies previously established by the
client for both order and payment. These approvals may be either passive, where
the kStore automatically compares the items ordered to a series of approval
rules pre-established by the client, or active, requiring the affirmative
approval of a supervising manager. The approval process occurs without the
participation of the employee.
. Pay. RoweCom offers its clients several secure payment options including
direct debit, procurement card or credit card. Once the order and payment is
approved and processed, the employee receives an e-mail confirming that the
order and payment have been received and providing an estimated date that the
knowledge resource will be delivered.
. Analyze Purchasing Patterns/Revise Policies. Using the kStore, managers can
obtain a variety of reports, including reports on purchases by location,
publication, and business area. These reports allow businesses to proactively
monitor purchasing of knowledge resources throughout the enterprise, to
implement and revise specific enterprise-wide purchasing policies, and to
optimize the use of knowledge resources within the enterprise. These reports
may be accessed online or ordered from RoweCom on a periodic basis.
. Renew. Prior to the expiration date of a subscription, the kStore
automatically sends an e-mail notice to the purchasing employee to prompt the
employee to renew a subscription. This e-mail notice permits the employee to
renew simply by clicking on a single "renew" button on the e-mail notice. As
with initial purchases, clients may set up customized approval policies for
subscription renewals.
Content
The Company offers its clients access to the largest single source of
magazines, newspapers, journals, books and other knowledge resources on the
Internet, with access to more than 43,000 magazines, journals, and newspapers
from over 13,000 publishers, over four million books from its alliance with
barnesandnoble.com, and approximately 2,200 newsletters and trade publications
from its alliance with Publications Resource Group. Of the 43,000 magazines,
journals and newspapers currently available from the kStore, approximately 800
are large circulation and general interest magazines and the balance consists
of business and trade magazines and scientific and medical journals. Annual
subscription rates range from under $50 for popular magazines to more than
$10,000 for certain scientific and medical journals. The Company will continue
to increase the content available to its clients to reinforce its position as
the leading single source provider of knowledge resources to businesses, and to
increase the overall potential revenue per client. Additional offerings are
expected to include electronic journals, aggregate full text archival content
and databases that provide the most current information on any topic. RoweCom
increases its catalog of knowledge resources through strategic relationships
with publishers and resellers as well as in response to requests from its
clients.
Management Tools
The kStore provides businesses with tools to better manage purchases of
knowledge resources by their employees. The kStore permits managers to create
single or multiple levels of approvals that govern purchases by employees. The
approvals that are included in a customized kStore may be either passive or
active. In a passive approval process, the order is compared to a series of
previously defined purchasing protocols. If the order meets the criteria set
forth in the protocol, the purchase is automatically approved. If the order
fails the protocol, it is either rejected or referred to a second approval
process, which may be active or passive. In an active approval process, the
affirmative approval by a supervising manager of an order is required to
consummate the purchase transaction. The active approval process can be
structured in a number of ways, including sending individual approval e-mails
to a manager requesting authorization for each order, and compiling collections
of requested approvals that may be reviewed on a periodic basis and then
approved either individually or collectively.
Payment and Fulfillment
RoweCom has developed proprietary software that fully automates the ordering
and payment process. The system is able to accept multiple payment options
including credit cards and authorized debits to disbursement or procurement
accounts. Once orders are placed and approved, payment instructions are sent to
Banc One securely over the Internet. The Company has an ongoing relationship
with Bank One Corporation, the fifth largest bank holding company in the US and
the parent of Banc One, under which all orders are processed by the Banc One
system using RoweCom's proprietary software. RoweCom pays Banc One a nominal
fee for each item ordered through the kStore.
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Although the Company does not fulfill or deliver any client's order for a
knowledge resource, it provides client support to ensure that the client's
expectations and needs are fulfilled with respect to each order. Client
representatives are available 24 hours per day, 7 days per week via the
telephone and the Internet. Client support provides a vital role in increasing
sales to RoweCom's existing client base by focusing on client satisfaction and
on increasing the total number of orders placed by each client.
STRATEGIC ALLIANCES
barnesandnoble.com Relationship
In August 1998, RoweCom entered into a five-year agreement with
barnesandnoble.com, a company jointly owned by Barnes and Noble, Inc. and
Bertelsman A.G. ("Bertelsman"), to combine and jointly market to business
customers the companies' respective catalogs. As a result of this agreement,
RoweCom's clients can access the largest combined database of magazines,
newspapers, journals, books and other knowledge resources on the Internet.
barnesandnoble.com currently markets to business customers over the Internet
through its Business Solutions service, which commenced operations in the third
quarter of 1998.
Under the agreement, barnesandnoble.com will provide all books ordered by
either party's business clients, and RoweCom will provide all magazine,
journal, and newspaper subscriptions ordered by its clients or by Business
Solutions clients. barnesandnoble.com will pay RoweCom a fixed percentage of
the purchase price of every book sold either through RoweCom's kStore or
barnesandnoble.com's Business Solutions service other than sales to Business
Solutions clients as of the date of this agreement. RoweCom will pay
barnesandnoble.com a fixed amount or percentage of the purchase price of every
subscription sold by the kStore or the Business Solutions service, other than
sales to existing RoweCom customers as of the date of the agreement.
Users currently may access the barnesandnoble.com and RoweCom catalogs by means
of links found in the Business Solutions and the kStore Web sites. RoweCom and
barnesandnoble.com expect that the Business Solutions and the kStore sites will
each contain a complete catalog of RoweCom and barnesandnoble.com titles by the
end of the first quarter of 1999.
The agreement provides a framework for the parties to develop jointly an
integrated Web site to market and sell books, magazines and all other digital
media. This integrated Web site would combine both the kStore and Business
Solutions. However, management cannot be certain when, if ever, such an
integrated Web site would be initiated. barnesandnoble.com has also agreed that
it will not, prior to the launch of such an integrated Web site, enhance its
Business Solutions service to provide certain management control features such
as approval rules.
The Company believes that its relationship with barnesandnoble.com may enhance
the Company's efforts to expand internationally as a result of the recent
acquisition by Bertelsman of a 50% interest in barnesandnoble.com. Bertelsman,
one of the largest global diversified media companies, sources and distributes
a significant amount of international content.
Other Significant Relationships
NewSub Services. In September 1998, the Company entered into content and
distribution agreement with NewSub Services, a consumer-based affinity marketer
for popular magazines, which provides RoweCom with additional content at low
prices. NewSub has agreed to offer its catalog of approximately 800 popular
titles through RoweCom's kStore at the guaranteed lowest price available on the
Internet. RoweCom will, in turn, be the exclusive provider of any RoweCom title
not currently included in NewSub's title catalog through NewSub Services'
online magazine marketing and distribution channels. Under the terms of the
agreement with NewSub Services, each party will earn revenue on titles sold
through the other party's online distribution channel by receiving a percentage
of the gross sales price or a transaction fee for each of its respective titles
sold by the other party. This alliance is expected to be implemented during the
first quarter of 1999.
Intelisys Commerce. In August 1998, the Company entered into an agreement with
Intelisys to sell magazines, newspapers, journals, books and other knowledge
resources to Intelisys clients, providing the Company with a significant new
distribution channel for its products. Intelisys markets and sells software and
services that allow businesses to buy goods and services from vendors via the
Internet. Intelisys' clients
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will be able to access the kStore through the Intelisys software. Under this
agreement, Intelisys will receive a percentage of any RoweCom title sold
through an Intelisys distribution channel. In turn, RoweCom will receive a
percentage of the net revenue of each Intelisys software installation for each
client successfully referred by RoweCom to Intelisys. This alliance is expected
to be implemented in the first quarter of 1999.
Publications Resource Group. In October 1998, the Company entered into an
agreement with Publications Resource Group, whereby RoweCom obtains an
additional distribution channel and additional content. Publications Resource
Group markets and sells market research reports, newsletters, and other
services to businesses and consumers through catalogs and on the Internet.
Publications Resource Group will market RoweCom's kStore services and content
through Publication Resource Group's distribution channels, and RoweCom will
distribute Publication Resource Group's content through RoweCom's kStore.
Publications Resource Group will receive a percentage of the transaction fee
for each RoweCom title sold through a Publications Resource Group distribution
channel and RoweCom will receive a percentage of the gross sales price for each
Publications Resource Group title sold through the kStore. This alliance is
expected to be implemented in the first quarter of 1999.
Trilogy Software. In October 1998, the Company entered into a Memorandum of
Understanding with Trilogy Software, Inc., a management software provider. The
companies agreed to integrate Trilogy's Buying Chain software with RoweCom's
kStore to allow clients to make purchases of magazines, journals, newspapers
and books directly from the kStore using Trilogy's Buying Chain software
solution.
SALES AND MARKETING
The Company's sales and marketing strategy is designed to attract new clients,
increase use of the kStore by existing clients and their employees, maximize
repeat purchases and renewals and develop additional revenue opportunities. The
Company's primary focus is a direct sales campaign to target companies in
knowledge-intense industries, such as financial and professional services, high
technology and healthcare, as well as certain academic and public institutions.
The Company believes this approach is both efficient and effective due to the
size and potential of the target market and the level of service to which the
targeted clients are accustomed. The majority of the direct sales effort is
conducted by the Company's six National Account Managers ("NAMs"), who are
responsible for developing new client relationships, primarily in the United
States. The Company intends to significantly increase the number NAMs over the
next 12 months, all of whom will initially focus on US-based companies in
RoweCom's targeted markets. As the Company hires additional NAMs, some or all
of the NAMs will begin to focus on additional targeted industries. The Company
is also increasing its telesales capacity in order to expand its direct sales
focus to small and mid-size businesses, academic institutions and government
agencies.
Once a client relationship has been established, a client is assigned a Service
Account Manager ("SAM") who helps to assess the client's needs, to customize
the kStore, and to develop a formal deployment plan designed to maximize the
use of the kStore. SAMs serve as the primary client contact after the initial
sale and are responsible for maintaining the on-going relationship with the
client, working with the client to maximize the number of employees using the
kStore to purchase knowledge resources and to increase the number of purchases
per employee. The Company intends to add additional SAMs over the next 12
months to service its expanding client base. RoweCom also offers 24-hour, 7
days a week client support via telephone and the Internet. Client support
provides a vital role in increasing sales to RoweCom's existing client base by
focusing on client satisfaction and on increasing the total number of orders
placed by each client.
The Company's marketing efforts also include print and Web advertising, direct
mailings, participation in trade shows, co-marketing with strategic partners,
and public relations campaigns to build and reinforce RoweCom's brand
recognition.
CLIENTS
RoweCom targets companies in knowledge-intense industries, such as financial
and professional services, high technology and healthcare, as well as certain
academic and public institutions. At September 30, 1998, the Company had
approximately 134 clients, of which approximately 110 were businesses and 24
were academic and non-profit organizations. The Company's largest clients by
revenue are in the high technology and healthcare sectors. The following is a
representative list of clients of the Company, by industry sector.
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High Technology Professional Services Healthcare
BASF Corporation Arthur Andersen LLP Aurora Healthcare
Hewlett Packard Company Ernst & Young LLP Massachusetts General
Lawrence Livermore PricewaterhouseCoopers Hospital
National Laboratory LLP National Institutes of
Health
Financial Services Academic
First Chicago NBD Johns Hopkins University
First Union Corporation Ohio University
Blue Cross/Blue Shield University of California
Association at San Francisco
COMPETITION
The market for the sale of magazines, newspapers, journals, books and other
knowledge resources to businesses is intensely and increasingly competitive.
While the Company believes that there are no other companies that currently
offer services directly comparable to the kStore, the Company expects
competition to intensify in the future. The Company's competitive landscape has
been, and will continue to be, impacted by changes in the prevalence and
acceptance of online commerce and changes in the knowledge resources industry.
The Company believes that the principal competitive factors in its emerging
market will be brand recognition, extent of content offerings, convenience,
management control, customization, price, client service, and a combined
familiarity with the knowledge market and the latest enabling technologies.
The Company currently competes, or may in the future compete, directly or
indirectly with companies that fall within the following categories: (1) large,
well-established news and information providers such as Dow Jones, Knight-
Ridder, Lexis/Nexis, Pearson, Reuters and Thomson, any of which might in the
future decide to expand their product offerings to include magazines,
newspapers, journals, books and other knowledge resources of the type offered
by the Company; (2) traditional subscription agents, who may decide to focus on
the corporate market, expand their service to include control and management
features, and significantly expand their knowledge resource offerings; (3)
major consumer based online book resellers, such as Amazon.com, or Borders.com
who may also decide to focus on the business-to-business market, expand their
service functionality to include control and management features such as those
offered by the Company, or expand their knowledge resources offerings; (4)
consumer online services and portals such as Yahoo! and America Online which
may decide to focus on the business-to-business market and expand their
knowledge resources offering and management and control features; (5)
publishers and information providers which may decide to increase their direct
marketing efforts to the business-to-business market or develop a competing
service similar to the kStore; and (6) enterprise-wide supplier management
system providers which may decide to focus specifically on the knowledge
resources markets.
INTELLECTUAL PROPERTY
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success, and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, clients, partners
and others to protect its proprietary rights. The Company pursues the
registration of its trademarks and service marks in the U.S., and has applied
for the registration of certain of its trademarks and service marks. The
Company has been granted trademark registrations for the mark "RoweCom," and
has pending registration applications for the marks "Knowledge Acquisition
Manager," "Knowledge Acquisition Reporter," "kStore," "knowledgeStore," and
"kWorld." The Company has not sought trademark, service mark or copyright
protection outside of the United States and effective protection may not be
available in every country in which the Company's products and services are
made available online.
TECHNOLOGY
The Company uses both proprietary solutions and commercially available licensed
technologies. RoweCom's services are built using industry standard Microsoft NT
products utilizing the Internet Information Server, Microsoft Transaction
Server, and SQL Server for database transactions. The Company is using products
utilized by other industry leaders. In addition, all of the Company's services
are designed to process
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<PAGE>
information using standard Electronic Data Interchange (EDI) transactions as
defined for the serials and periodicals industry, and the Company is actively
engaged with other leading e-commerce providers to develop XML versions of
these transactions. RoweCom seeks to maintain transaction security through the
use of industry standard SSL transactions, and uses proprietary EDI interfaces
and private networks to ensure the integrity of client order information and
credit card transactions. RoweCom is able to scale the number of transactions
that will be supported using load balancing and performance management tools
developed for its standard platform. RoweCom uses high performance Web and
database servers on enterprise-level systems and has established high-
performance Internet service provider links to ensure the availability of
bandwidth.
RoweCom's systems are supported by an experienced staff of developers and
technicians, who are responsible for both system development and maintenance.
This staff, which was comprised of 20 individuals as of September 30, 1998, is
primarily headquartered in the Company's facilities in London, Ontario. This
group mainly focuses on back office processing and developing interfaces that
permit RoweCom's services to be customized to the particular needs of a client
and to be linked with corporate intranets, Internet service providers, content
providers and other online services. Many of RoweCom's development and support
professionals have specialized experience with particular segments in the
knowledge resource marketplace (e.g. corporate clients, corporate libraries,
educational institutions, public libraries, and consumers).
EMPLOYEES
As of September 30, 1998, the Company had 81 full-time and 6 part-time
employees. The Company also employs a limited number of independent contractors
and temporary employees on a periodic basis. None of the Company's employees
are represented by a labor union and the Company considers its labor relations
to be good.
The Company believes its success depends to a significant extent on its ability
to attract, motivate and retain highly skilled management and employees. To
this end, the Company focuses on incentive programs such as employee stock
options, competitive compensation and benefits for its employees.
FACILITIES
The Company is headquartered in Cambridge, Massachusetts where it leases
approximately 11,304 square feet pursuant to a term lease that expires on
October 31, 1999. These facilities are used for executive office space,
including sales and marketing and finance and administration, and client
support. In addition, the Company maintains a regional office in London,
Ontario where it leases approximately 7,733 square feet of office space
pursuant to a term lease that expires on October 31, 2001. These facilities are
used for research and development, technical support and content acquisition.
The Company believes that its current space will be adequate to meet its needs
for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation, and believes that no
litigation that has been threatened to be brought against the Company to date
will have a material adverse effect on its financial position or results of
operations or cash flows.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth certain information with respect to the directors and
executive officers of Company as of September 30, 1998.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
NAME AGE POSITION(S)
- ---------------------------------------------------------------------------
<C> <C> <S>
Dr. Richard Rowe, Ph.D. 65 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Executive Vice President and Chief Financial
Louis Hernandez, Jr. 32 Officer
Steven Woit 40 Vice President, Content
Walter Crosby 40 Vice President and Chief Technology Officer
Stephen Vozella 52 Vice President, Fulfillment
Ronald Grigg 46 Vice President, Design and Development
Robert Rea 37 Sales and Service Director
Stanley Fung 41 Director
Thomas Lemberg* 52 Director
Jerome Rubin+ 63 Director
Philippe Villers 63 Director
James Whitaker*+ 38 Director
</TABLE>
- --------
* Member of Compensation Committee
+ Member of Audit Committee
RICHARD ROWE PH.D., the founder of the Company, has served as Chairman of the
Board, President and Chief Executive Officer of RoweCom since 1994. Prior to
founding the Company, from 1979 to 1993, Dr. Rowe was the President and CEO of
the Faxon Company, one of the world's largest library subscription agencies.
Prior to joining Faxon, Dr. Rowe was the Associate Dean of the Harvard Graduate
School of Education, Director of Harvard's interfaculty Doctoral Program in
Clinical Psychology and Public Practice, and Director of the Cambridge office
of the American Institutes for Research. Dr. Rowe holds a Ph.D. in clinical
psychology.
LOUIS HERNANDEZ has served as the Company's Executive Vice President since
January 1998 and Chief Financial Officer since February 1997. From February
1997 to December 1997, Mr. Hernandez also served as the Vice President of the
Company. Prior to joining the Company, Mr. Hernandez served as the Chief
Financial Officer and Corporate Secretary for U.S. Medical Instruments, Inc., a
high technology medical device company. From 1990 to 1996, Mr. Hernandez worked
in the business and advisory services group of Price Waterhouse LLP. Mr.
Hernandez is a certified public accountant.
STEVEN WOIT has served as Vice President, Content since January 1998. Prior to
joining the Company, from 1980 to 1998, Mr. Woit had worked with International
Data Group in management positions in independent business units within
International Data Group, including Federal Computer Week, CIO Magazine, and
several other Internet related businesses. From January 1997 until January
1998, Mr. Woit was General Partner with IDG Ventures. From September 1996 to
December 1996 Mr. Woit was Chief Executive Officer of Web Shopper. Mr. Woit
served as Executive Vice President at Computerworld, Inc. from September 1994
to September 1996.
WALTER CROSBY has served as Vice President and Chief Technical Officer since
June 1998. Prior to joining the Company, from October 1997 to June 1998, Mr.
Crosby was an independent consultant. From January 1995 to October 1997, Mr.
Crosby was Chief Information Officer and Vice President for Information Systems
for Computerworld, Inc. Prior to joining Computerworld, Inc., Mr. Crosby was
Corporate Director of Management Information Systems for Ziff Davis Publishing
Company from June 1990 to January 1995.
STEPHEN VOZELLA has served as Vice President, Fulfillment since June 1998.
Prior to joining the Company, from September 1993 to October 1996, Mr. Vozella
served as Vice President and Chief Information Officer for Fund Services at
First Data Investor Services Group. From May 1989 to October 1996, Mr. Vozella
held
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various senior management positions at Fidelity Investments including Vice
President, Information Technology, Retail Investor Services, and Vice
President/General Manager, Boston Telephone Operations.
RONALD GRIGG has served as Vice President, Design and Development since
December 1994. Prior to joining the Company, from 1982 to 1994 Mr. Grigg served
as the Director of Corporate Information Services for Faxon Canada Ltd. Prior
to joining Faxon, Mr. Grigg was the Systems Analyst for R.J. Thompson Data
Systems of London Ontario, where he designed customized accounting, inventory
control and general ledger software.
ROBERT REA was appointed Sales and Service Director for RoweCom, Inc. in
November 1998. From April 1998 through October 1998, Mr. Rea was Business
Development Manager for the Company. From 1996 to 1998, Mr. Rea was Vice
President, Sales and Marketing for Ovum, Inc., an international research and
information firm. From 1989 to 1996, Mr. Rea worked at Giga Information Group,
most recently as Eastern Regional Sales Manager where he was responsible for
sales of information technology products.
STANLEY FUNG has served as a director of the Company since December 1998. Mr.
Fung has been a Managing Director of Zero Stage Capital Company since April
1992. Prior to joining Zero Stage in 1992, Mr. Fung was Investment Manager at
Advent International, an international venture capital firm.
THOMAS LEMBERG has served as director of the Company since May 1996. Mr.
Lemberg is Senior Vice President and General Counsel of the Polaroid
Corporation. Prior to joining the Polaroid Corporation, from 1987 to 1995, Mr.
Lemberg was the Vice President and General Counsel of Lotus Development
Corporation.
JEROME RUBIN has served as a director of the Company since May 1995. Mr. Rubin
has been Managing Director of Veronis, Suhler & Associates, Inc., an investment
banking firm specializing in the media and communications industry since 1995.
He is also the Chairman Emeritus of the MIT Media Lab's "News in the Future"
consortium. Mr. Rubin has also been Chairman of E-Ink, a development stage
company since 1997. In 1973, Mr. Rubin founded and was the first president of
LEXIS/NEXIS, the first online legal database service. From 1983 to 1991, Mr.
Rubin was the Group Vice President/Chairman for Professional Information and
Book Publishing at the Times Mirror Company.
PHILIPPE VILLERS has served as a director of the Company since August 1998. Mr.
Villers has been President and Board Member of GrainPro, Inc. since 1996. Since
1981, he has also served as founder, President, and Board Member of Families
USA Foundation. From 1985 to 1988, Mr. Villers previously founded and led
Cognition, Inc. where he served as President for three years. Prior to 1988, he
co-founded Computervision, Inc. and Automatix, Inc.
JAMES WHITAKER has served as a director of the Company since January 1998. Mr.
Whitaker is Vice President of Investments for Working Ventures. Prior to
joining Working Ventures in 1994, Mr. Whitaker was a Principal in the Corporate
Finance group at Ernst & Young where his primary activity was providing
financing and business valuation services.
BOARD OF DIRECTORS
The Company's Third Amended and Restated Certificate of Incorporation (the
"Charter"), and Amended and Restated By-laws (the "By-Laws"), which will become
effective upon the closing of this offering, provide that the size of the Board
of Directors of the Company (the "Board") will be determined by resolution of
the Board or by the stockholders at the annual meeting.
The Charter provides for classification of the Board into three classes, with
the members of the respective classes serving for staggered three-year terms.
The first class will consist of , the second of and the third of ,
with the initial terms of the directors comprising the classes expiring upon
the election and qualification of the directors at the annual meetings of the
stockholders held following the fiscal years of the Company ending December 31,
1999, 2000 and 2001 respectively. At each annual meeting of stockholders,
directors will be re-elected or elected for full three-year terms. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
37
<PAGE>
The Board has established a Compensation Committee and an Audit Committee. The
members of the Compensation Committee are Thomas Lemberg and James Whitaker,
and the members of the Audit Committee are Jerome Rubin and James Whitaker.
Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The current and continuing
directors of the Company were nominated and elected in accordance with the
Second Amended and Restated Stockholders Agreement, dated as of December 11,
1998, which will terminate upon the closing of this offering. The By-Laws
provide that the Board will be divided into three classes, Class I, Class II
and Class III, with each class serving staggered three-year terms. The Class I
directors, initially and , will stand for reelection or election at
the 1999 annual meeting of stockholders. The Class II directors, initially
and , will stand for reelection or election at the 2000 annual meeting of
stockholders. The Class III directors, initially and , will stand for
reelection or election at the 2001 annual meeting of stockholders.
Executive officers of the Company are appointed by the Board and serve until
their successors have been duly elected and qualified. There are no family
relationships among any of the executive officers or directors of the Company.
The Company anticipates that, following this offering, directors who are
employees of the Company will not be paid any fees or additional compensation
for service as members of the Board of Directors or any committee thereof and
the Company will enter into customary arrangements with respect to fees and
other compensation (including expense reimbursement) for directors who are not
employees of the Company or any of its subsidiaries. Except that each non-
employee director will be granted an option to purchase a number of shares of
common stock equal to the quotient of $ divided by the fair market value of
the common stock on the date of the grant. See "Management--Stock Incentive
Plans: 1998 Non-Employee Director Stock Option Plan." The Company maintains
directors' and officers' liability insurance and the Charter provides for
mandatory indemnification of directors and officers to the fullest extent
permitted by Delaware law. In addition, the Charter limits the liability of
directors of the Company to the Company or its stockholders for breaches of the
directors' fiduciary duties to the fullest extent permitted by Delaware law.
See "Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In May 1997, the Board established a Compensation Committee. The Compensation
Committee is responsible for reviewing and approving all compensation
arrangements for officers of the Company and for administering the Company's
stock option and stock purchase plans. During the period from May 1997 to the
end of 1997, the Compensation Committee was composed of Thomas Lemberg, Daniel
Nova, a former director of the Company who is affiliated with Highland Capital
Partners III Limited Partnership (a stockholder of the Company), and James
Whitaker.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
With the exception of Mr. Hernandez, none of the Company's executive officers
has an employment contract with the Company and each of such officers serves at
the discretion of the Board. Mr. Hernandez is party to an Employment Agreement,
dated as of November 4, 1998, with the Company that provides for Mr. Hernandez
to be employed as the Company's Executive Vice President and Chief Financial
Officer for a period ending on December 31, 2000, subject to extension by
mutual consent. Under the terms of the Employment Agreement, Mr. Hernandez is
to be paid a base annual salary of $130,000 with the possibility of annual cash
bonuses equal to up to 50% of the base salary, based upon the achievement of
certain Company performance targets to be agreed upon by Mr. Hernandez and the
Company's Chief Executive Officer from time to time. The Employment Agreement
also contains non-competition and non-solicitation provisions that are intended
to survive the termination of employment for a period of 12 months.
Dr. Rowe and Messrs. Hernandez, Woit, Vozella, Rea and Grigg are each parties
to Non-Competition Agreements with the Company pursuant to which they have
agreed not to compete with the business of the Company or solicit the Company's
customers or employees for a period of 18 months after termination of
employment, in the case of Dr. Rowe, and 12 months after termination of
employment, in the case of each of
38
<PAGE>
the other officers. Under the terms of these Agreements, if the relevant
officer is terminated other than for Cause (as defined in the Non-Competition
Agreement) or resigns for Good Reason (also as defined therein), the Company
shall pay to the officer for the duration of the non-competition period a
monthly non-competition payment equal to two-thirds of his monthly salary at
the time of termination. The Company has the option of ceasing these payments
at any time during the non-competition period, at which time the officer's non-
competition and related obligations under the Agreement would cease.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the compensation
earned by the Company's Chief Executive Officer, the only other current
executive officer of the Company whose total salary and bonus exceeded $100,000
for services rendered to the Company and its subsidiary during 1997, and a
former executive officer of the Company's subsidiary whose total salary and
bonus exceeded $100,000 during 1997 (collectively, the "Named Officers"). For
disclosure regarding terms of the stock options, see "Management--Stock Option
Plans."
<TABLE>
<CAPTION>
-------------------------------------
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION OPTIONS
--------------- ---------------------
(NUMBER OF SECURITIES
UNDERLYING OPTIONS
SALARY GRANTED)
NAME AND POSITION(S) --------------- ---------------------
<S> <C> <C>
Richard Rowe, Ph.D...................... $100,000 --
Chairman of the Board of Directors,
President, Chief Executive Officer
and Treasurer
Mr. Louis Hernandez..................... $106,500
Executive Vice President and Chief
Financial Officer
Mr. Gary Wolfe.......................... $105,700
Former Chief Operating Officer of Rowe
Communications, Ltd.(2)
</TABLE>
- --------
(1)Excludes certain perquisites and other benefits the amount of which did not
exceed 10% of the employee's total salary and bonus.
(2)Mr. Wolfe resigned as Chief Operating Officer of Rowe Communications Ltd. on
April 2, 1998.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to each of the Named Officers during 1997. No stock appreciation rights
were granted to these individuals during such year.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
---------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------
GRANTED(1) IN 1997 PER SHARE DATE 5% 10%
NAME ---------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Richard Rowe, Ph.D. .... -- -- -- -- -- --
Mr. Louis Hernandez..... 42.42% $ 9/11/07 $ $
Mr. Gary Wolfe(3)....... 6.06% $ 9/11/07 $ $
</TABLE>
- --------
(1)Shares underlying options generally vest over a four-year period, except for
shares underlying performance-based options, which vest as of the ninth
anniversary of the grant date unless accelerated in accordance with the Stock
Option Agreements governing such stock option. For information regarding terms
of the stock options, see "Management--Stock Incentive Plans."
(2)Assumes increases in the fair market value of the common stock of 5% and 10%
per year from $ (the mid-point of the range set forth on the cover of this
prospectus) over the ten-year option period as mandated by the rules and
regulations of the Securities and Exchange Commission, and does not represent
the Company's estimate or projection of the future value of the common stock.
The actual value realized may be greater or less than the potential realizable
values set forth in the table.
(3)The options granted to Mr. Wolfe were terminated on April 2, 1998 in
connection with his resignation as Chief Operating Officer of Rowe
Communications Ltd.
39
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning option exercises
during 1997 and option holdings at December 31, 1997 with respect to each of
the Named Officers.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
NAME ----------- -------- ---------------------------- -------------------------
EXERCISABLE(4) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Rowe, Ph.D. .... -- -- -- -- -- --
Mr. Louis Hernandez..... -- --
Mr. Gary Wolfe.......... -- -- -- -- -- --
</TABLE>
- --------
(1)"Exercisable" refers to those options which were both exercisable and
vested, while "Unexercisable" refers to those options which were unvested.
(2)Value is determined by subtracting the exercise price from the proposed
initial offering price of the common stock, multiplied by the number of shares
underlying the options.
STOCK INCENTIVE PLANS
Amended and Restated 1998 Stock Incentive Plan
In 1998, the Company's Board of Directors and stockholders approved the
Company's Amended and Restated 1998 Stock Incentive Plan (the "Amended 1998
Plan"), which provides for the grant of incentive stock options, nonqualified
stock options and restricted stock awards to employees (including officers and
employee directors) and consultants. A maximum of shares of common stock
are currently reserved for issuance pursuant to the Amended 1998 Plan. This
maximum number of shares will increase, effective as of January 1, 2000, and
each January 1 thereafter during the term of the plan, by an additional number
of shares of common stock equal to % of the total number of shares of common
stock issued and outstanding as of the close of business on the preceding
December 31. No more than an aggregate of shares of common stock may be
issued pursuant to the exercise of incentive stock options granted under the
Amended 1998 Plan (this limitation does not apply to nonqualified stock options
or restricted stock awards that may be granted under the Amended 1998 Plan). No
participant in the Amended 1998 Plan may in any year be granted stock options
or awards with respect to more than shares of common stock.
The Amended 1998 Plan is administered by the Compensation Committee of the
Board of Directors, which has the authority to determine which eligible
individuals are to receive options or restricted stock awards, the terms of
such options or awards, the status of such options as incentive or
nonqualified. Stock options under the federal income tax laws, including the
number of shares, exercise or purchase prices and times at which the options
become and remain exercisable or restricted stock vests and the time, manner
and form of payment upon exercise of an option. The exercise price of options
granted under the Amended 1998 Plan may not be less than 85% of the fair market
value of a share of common stock on the date of grant (100%, in the case of
incentive stock options). The options become exercisable at such time or times
as are determined by the Compensation Committee and expire after a specified
period that may not exceed ten years.
Upon the acquisition of 50% or more of the Company's outstanding common stock
pursuant to a hostile tender offer, each option granted to an officer of the
Company, if it has been outstanding for at least six months, will automatically
be canceled in exchange for a cash distribution to the officer based upon the
difference between the tender offer price and the exercise price of the option.
In the event the Company is acquired, vesting of options and restricted stock
awards granted under the Amended 1998 Plan will accelerate to the extent that
the options or the Company's repurchase rights with respect to restricted stock
awards are not assumed by or assigned to the acquiring entity. The Compensation
Committee also has discretion to provide for accelerated vesting of options and
restricted stock awards upon the occurrence of certain changes in control.
Accelerated vesting may be conditioned upon subsequent termination of the
affected optionee's service.
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<PAGE>
With the consent of an option holder, the Compensation Committee can cancel
that holder's options and replace them with new options (for the same or a
different number of shares) having an exercise price based upon the fair market
value of the Common Stock on the new grant date.
As of , 1998, shares had been issued upon exercise of options
granted under the Amended 1998 Plan, options for shares were outstanding
and options to purchase shares were available for future grant under
the Amended 1998 Plan.
The Board may amend or modify the Amended 1998 Plan at any time, subject to the
rights of holders of outstanding options. The Amended 1998 Plan will terminate
on May 4, 2008. The Amended 1998 Plan is administered by the Compensation
Committee, which has the authority to determine which eligible individuals are
to receive options or restricted stock awards, the terms of such options or
awards, the status of such options as incentive or nonqualified stock options
under the federal income tax laws, including the number of shares, exercise or
purchase prices and times at which the options become and remain exercisable or
restricted stock vests and the time, manner and form of payment upon exercise
of an option.
1998 Non-Employee Director Stock Option Plan
In 1998, the Board and the Company's stockholders approved the 1998 Non-
Employee Director Stock Option Plan (the "Director Option Plan"). Under the
Director Option Plan, each director of the Company who is not also an employee
of the Company will receive upon the commencement of this offering, or upon
later initial election to the Board, an option to purchase a number of shares
of common stock equal to the quotient of $ divided by the fair market
value of the common stock on the date of grant (such number of shares to be
reduced in proportion to the number of whole months, if any, by which the
optionee's remaining term of service as a director is less than 36 months).
Additionally, after a director's initial grant, the director will receive, as
of each date on which he is reelected as a director, an option to purchase a
number of shares of common stock equal to the quotient of $ divided by the
fair market value of the common stock on the date of grant (such number of
shares to be reduced in proportion to the number of whole months, if any, by
which the term of service as a director for which he is then being reelected is
less than 36 months). Options are granted under the plan at an exercise price
equal to the fair market value of the common stock on the date of grant, vest
ratably on a monthly basis over the optionee's remaining term of service as a
director and have a term of ten years. An aggregate of shares of common
stock have been reserved for issuance under the Director Option Plan.
1998 Employee Stock Purchase Plan
In 1998, the Company's Board of Directors and stockholders approved the
1998 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which enables
eligible employees to acquire shares of Common Stock through payroll
deductions. The Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The initial offering period will start on the date of this prospectus
and to end on , 1999, unless otherwise determined by the Board. Subsequent
offerings under the Stock Purchase Plan are planned to start on January 1 and
July 1 of each year and end on June 30 and December 31 of each year. During
each offering period, an eligible employee may select a rate of payroll
deduction of from 1% to 10% of compensation, up to an aggregate of $12,500 in
any offering period. The purchase price for the common stock purchased under
the Stock Purchase Plan is 85% of the lesser of the fair market value of the
shares on the first day or the last day of the offering period. An aggregate of
shares of common stock have been reserved for issuance under the Stock
Purchase Plan.
1997 Stock Incentive Plan
In May 1997, the Board and the Company's stockholders approved the Company's
1997 Stock Incentive Plan (the "1997 Plan"), which provides for the grant of
incentive stock options, nonqualified stock options and restricted stock awards
to employees (including officers and employee directors) and consultants. A
maximum of shares of common stock have been reserved for issuance under
the 1997 Plan. No participant in the 1997 Plan may in any year have been
granted stock options or awards with respect to more than shares of common
stock. No more than an aggregate of $100,000 or such other limit as may be
imposed by the Internal Revenue Code with respect to the aggregate fair market
value of the options as of the grant date may
41
<PAGE>
be exercised for the first time by a participant under the 1997 Plan (this
limitation does not apply to nonqualified stock options or restricted stock
awards that may be granted under the 1997 Plan).
The 1997 Plan is administered by the Compensation Committee, which has the
authority to determine which eligible individuals are to receive options or
restricted stock awards, the terms of such options or awards, the status of
such options as incentive or nonqualified stock options under the federal
income tax laws, including the number of shares, exercise or purchase prices
and times at which the options become and remain exercisable or restricted
stock vests and the time, manner and form of payment upon exercise of an
option. The exercise price of options granted under the 1997 Plan has been
determined by the Compensation Committee (100%, in the case of incentive stock
options and 110%, in the case of incentive stock options to a greater than 10%
stockholder (measured on the date of grant)). The options become exercisable at
such time or times as determined by the Compensation Committee and expire after
a specified period that may not exceed ten years (five years, in the case of a
greater than 10% stockholder). All the options that have been granted by
the Company pursuant to the 1997 Plan will vest and become exerciseable upon a
"Liquidity Event" (as defined in the agreements representing the options
granted under the 1997 Plan). The consummation of this offering and a sale of
the Company will constitute a "Liquidity Event" for such purpose. Accordingly,
all of such options will vest and become exerciseable immediately after such
event.
With the consent of an option holder, the Compensation Committee can cancel
that holder's options and replace them with new options (for the same or a
different number of shares) having an exercise price based upon the fair market
value of the common stock on the new grant date.
As of September 30, 1998, shares had been issued upon the exercise of
options granted under the 1997 Plan and options for shares had been
granted under the 1997 Plan.
The Board may amend or modify the 1997 Plan at any time, subject to the rights
of holders of outstanding options. The 1997 Plan will terminate on April 25,
2007.
42
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a Share Purchase Agreement, dated as of April 1, 1997, Working
Ventures Canadian Fund Inc. ("Working Ventures") acquired 1,611,568 shares of
Class A Preferred Stock of Rowe Communications Ltd. ("RoweCom Canada") and an
option to exchange such shares of RoweCom Canada Class A Preferred Stock for
shares of common stock of the Company (the "Class A Exchange Option") for US
$4,000,001. On May 4, 1998, in connection with the sale of the Company's Class
B Preferred Stock, the Class A Exchange Option was amended to permit Working
Ventures to exchange its 1,611,568 shares of RoweCom Canada Class A Preferred
Stock for 3,163,306 shares of the Class A-1 Preferred Stock of the Company.
On November 17, 1996, Philippe Villers loaned the Company the principal amount
of $200,000. On January 1, 1997, Jerome Rubin, a Director of the Company,
loaned the Company the principal amount of $100,000. On April 1, 1997, the
Company issued 80,645 shares of the Company's Class A Preferred Stock to Mr.
Villers in exchange for the cancellation of the indebtedness of the Company to
Mr. Villers, and 40,322 shares of Class A Preferred Stock to Mr. Rubin in
exchange for the cancellation of the indebtedness of the Company to Mr. Rubin.
In connection with this issuance of the shares of Class A Preferred Stock to
Messrs. Villers and Rubin, the Company issued Stock Purchase Warrants (the
"Warrants") to such persons providing for the purchase of up to 80,645 shares
of the Company's capital stock in the case of the Warrant issued to Mr.
Villers, and up to 40,322 shares of the Company's capital stock in the case of
the Warrant issued to Mr. Rubin. Each of the Warrants will be exercisable for
shares of the Company's Class A Preferred Stock, in the event that the Class A
Exchange Option has not been exercised by Working Ventures prior to the
exercise of the Warrant, and common stock, in the event that the Class A
Exchange Option has been exercised by Working Ventures prior to the exercise of
the Warrant. The Warrants are exercisable at a strike price of $ per share,
provided that in the event that either of the Warrants are not exercised prior
to the consummation of this offering, such Warrant will be deemed to be
exercised on a "net" basis whereby a portion of the shares available under the
Warrant having a value (determined with respect to the difference between the
price of the common stock in this offering and the strike price of the Warrant)
will be deemed to have been surrendered in payment of the exercise price for
the remaining shares available under the Warrant. These warrants were issued
for no additional consideration.
Pursuant to a Stock Purchase Agreement, dated as of May 4, 1998, Crystal
Internet Venture Fund, L.P., Highland Capital Partners III Limited Partnership,
Highland Entrepreneurs' Fund III Limited Partnership, and three other
unaffiliated third parties purchased an aggregate of 5,140,370 shares of Class
B Preferred Stock of the Company for an aggregate purchase price of
$6,499,997.50 and Working Ventures acquired 1,186,240 shares of Class B
Preferred Stock of RoweCom Canada, and an option to exchange such RoweCom
Canada Class B Preferred Stock for shares of the Class B Preferred Stock of the
Company, for an aggregate purchase price of $1,500,001.48.
Pursuant to a Stock Purchase Agreement, dated as of December 11, 1998, Axiom
Venture Partners II Limited Partnership, Zero Stage Capital VI, L.P., Moore
Global Investments, Ltd. and other unaffiliated parties purchased an aggregate
of 4,586,599 shares of Class C Preferred Stock of the Company for an aggregate
purchase price, net of expenses, of approximately $15,000,000.
On , 1998, the Company and Working Ventures entered into an Exchange Option
Exercise Agreement (the "Option Exchange Agreement") pursuant to which Working
Ventures agreed to exchange all of its RoweCom Canada Class A Preferred Stock
and Class B Preferred Stock for shares of Class A-1 Preferred Stock and Class B
Preferred Stock, respectively, of the Company effective upon the consummation
of this offering. All of these shares, together with the remaining outstanding
shares of Class A Preferred Stock, Class A-1 Preferred Stock Class B Preferred
Stock and Class C Preferred Stock of the Company will convert into common stock
upon the consummation of this offering in accordance with their terms.
Pursuant to the Option Exchange Agreement and Second Amended and Restated
Stockholders' Agreement, dated as of December 11, 1998, among the Company and
its stockholders, Working Ventures has agreed that, in the event that certain
circumstances occur after the exercise of the Series A Exchange Option, it will
transfer, for no additional consideration, an aggregate of 889,187 shares of
the Company's Class A-1 Preferred Stock or shares of common stock to
certain other stockholders of the Company, including Richard Rowe, Ph.D., the
Chairman of the Board of Directors, President, Chief Executive Officer and
Treasurer of the Company, Thomas Lemberg and Jerome Rubin, each Directors of
the Company, Louis Hernandez, the
43
<PAGE>
Executive Vice President and Chief Financial Officer of the Company, Steven
Woit, the Vice President, Sources of the Company, Ronald Grigg, the Vice
President, Design and Development of the Company and PV Securities Corp., a
Massachusetts securities corporation of which Philippe Villers, a director of
the Company, is the sole stockholder. Set forth below is a chart that describes
the number of shares of common stock that may be received by these individuals
as a result of the transfer of these shares of Class A-1 Preferred Stock or
common stock by Working Ventures, after giving effect to the conversion of all
shares of Class A-1 Preferred Stock into common stock upon consummation of this
offering.
<TABLE>
<CAPTION>
--------------
SHARES OF
COMMON STOCK
TO BE RECEIVED
SHAREHOLDER --------------
<S> <C>
Richard Rowe, PhD. ...........................................
Thomas Lemberg................................................
Jerome Rubin..................................................
PV Securities Corp. ..........................................
Louis Hernandez...............................................
Steve Woit....................................................
Ronald Grigg..................................................
</TABLE>
Pursuant to a Promissory Note dated March 5, 1998, Dr. Rowe loaned the Company
$100,000 payable on demand. The Promissory Note accrued interest at the rate of
12% per annum compounded daily, and was repaid in full (including $2,000 of
accrued interest) on May 5, 1998.
Working Ventures, Axiom Venture Partners II Limited Partnership, Zero Stage
Capital VI, L.P., Moore Global Investments, Ltd., Crystal Internet Venture
Fund, L.P., Highland Capital Partners III Limited Partnership and certain other
stockholders of the Company are entitled to certain registration rights with
respect to the common stock they will hold upon the consummation of this
offering. See "Description of Capital Stock--Registration Rights."
The Company believes that all of the transactions set forth above that were
consummated with parties that may be deemed to be affiliated with the Company
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions with parties
that may be deemed to be affiliated with the Company, including loans between
the Company and its officers, directors, principal stockholders and their
affiliates, will be approved by a majority of the Board, including a majority
of the independent and disinterested outside directors on the Board, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock as of September 30, 1998, on a pro forma basis
assuming the (A) the sale of 4,586,599 shares of Class C Preferred Stock of the
Company on December 11, 1998, (B) conversion of all outstanding shares of the
Company's preferred stock into common stock, (C) the net exercise of all
outstanding stock purchase warrants and (D) the transfer of shares of
common stock by Working Ventures to certain other stockholders (see "Certain
Transactions"), and as adjusted to reflect the sale of shares offered hereby
(assuming no exercise of the underwriters' over-allotment option), by (1) each
person who is known by the Company to own beneficially more than five percent
of the outstanding common stock; (2) each of the Company's directors and the
Named Officers, and (3) all current executive officers and directors of the
Company as a group.
<TABLE>
---------------------
<CAPTION>
SHARES PERCENTAGE OF COMMON
BENEFICIALLY STOCK BENEFICIALLY
OWNED OWNED(1)
------------ ------------------------
BEFORE AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
<S> <C> <C> <C>
Richard Rowe, Ph.D. ................. (2)
Working Ventures Canadian Fund Inc... (3)
Highland Capital Partners III Limited
Partnership......................... (4)
Crystal Internet Venture Fund, L.P... (5)
Stanley Fung......................... (6) *
Thomas Lemberg....................... (7) *
Jerome Rubin......................... (8) *
James Whitaker....................... (9) *
Philippe Villers..................... (10) *
Louis Hernandez...................... (11) *
Gary Wolfe........................... 0 *
All executive officers and directors
as a group (11 persons)............. (12)
</TABLE>
- --------
*Less than 1%.
(1)As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
common stock. A person is deemed to be the beneficial owner of common stock
that can be acquired within 60 days of September 30, 1998 through the exercise
of any option, warrant or other right. Shares of common stock subject to
options, warrants or other rights which are currently exercisable or
exercisable within 60 days of September 30, 1998 are deemed outstanding for
purposes of computing the ownership percentage of the person holding such
options, warrants or other rights, but are not deemed outstanding for purposes
of computing the ownership percentage of any other person. The amounts and
percentages are based upon a pro forma number of shares outstanding as of
September 30, 1998, and shares of common stock outstanding as of the
closing of this offering.
(2)Includes shares that may be transferred to Dr. Rowe by Working Ventures
after consummation of this offering. Dr. Rowe's address is c/o RoweCom, Inc.,
725 Concord Avenue, Cambridge, MA 02138.
(3)Consists entirely of shares issuable upon the conversion of 3,163,306 shares
of Class A-1 Preferred Stock, 1,186,240 shares of Class B Preferred Stock and
73,378 shares of Class C Preferred Stock into common stock upon consummation of
this offering. Excludes shares that may be transferred to various other
stockholders upon the consummation of this offering. The address for Working
Ventures is 250 Bloor Street East, Suite 1600, Toronto, Ontario M4W1E6.
(4)Consists entirely of shares issuable upon the conversion of 3,036,773 shares
of Class B Preferred Stock and 70,443 shares of Class C Preferred Stock owned
by Highland Capital Partners III Limited Partnership ("HCP III"), 126,532
shares of Class B Preferred Stock and 2,935 shares of Class C Preferred Stock
owned by Highland Entrepreneurs' Fund III Limited Partnership, an affiliate of
HCP III, into common stock upon consummation of this offering. The address for
HCP III is Two International Place, Boston, MA 02110.
(5)Consists entirely of shares issuable upon the conversion of 1,581,654 shares
of Class B Preferred Stock and 220,135 shares of Class C Preferred Stock into
common stock upon consummation of this offering. The address for Crystal
Internet Venture Fund, L.P. is 1120 Chester Avenue, Cleveland, OH 44114.
(6)Consists entirely of shares beneficially owned by Zero Stage Capital VI,
L.P. Mr. Fung is a Managing Director of Zero Stage Capital VI, L.P. and may be
deemed to control the voting and disposition of the
45
<PAGE>
common stock held by Zero Stage Capital VI, L.P. Mr. Fung disclaims beneficial
ownership of the common stock held by Zero Stage Capital VI L.P. Mr. Fung's
address is c/o Zero Stage Capital VI, L.P. 101 Main Street, Cambridge, MA
02142.
(7)Includes shares issuable upon the exercise of options that will become
exercisable upon consummation of this offering.
(8)Includes shares issuable upon the exercise of options that will become
exercisable upon consummation of this offering, shares issuable upon the
net exercise of a stock purchase warrant held by Mr. Rubin (assuming an initial
public offering price of $ per share, the mid-point of the range set forth on
the cover of this prospectus) and shares that may be transferred to Mr.
Rubin by Working Ventures after consummation of the offering. See "Certain
Transactions."
(9)Consists entirely of shares beneficially owned by Working Ventures Canadian
Fund Inc. Mr. Whitaker is the Vice President of Investments of Working Ventures
Canadian Fund Inc. and may be deemed to control the voting and disposition of
the common stock held by Working Ventures Canadian Fund Inc. Mr. Whitaker
disclaims beneficial ownership of the common stock held by Working Ventures
Canadian Fund Inc. Mr. Whitaker's address is c/o Working Ventures Canadian Fund
Inc., 250 Bloor Street East, Suite 1600, Toronto, Ontario M4W1E6.
(10)Includes shares held by PV Securities Corp., a Massachusetts securities
corporation of which Mr. Villers is the sole shareholder. Also includes
shares issuable upon the net exercise of a stock purchase warrant held by Mr.
Villers (assuming an initial public offering price of $ per share, the mid-
point of the range set forth on the cover of this prospectus) and shares
that may be transferred to Mr. Villers by Working Ventures after the
consummation of this offering. See "Certain Transactions."
(11)Includes shares issuable upon the exercise of options exercisable upon
consummation of the offering and shares that may be transferred to Mr.
Hernandez by Working Ventures after the consummation of this offering. See
"Certain Transactions."
(12)Includes shares issuable upon the exercise of options exercisable
within 60 days of , 1998 or upon the consummation of this offering. Also
includes shares that may be transferred to certain of such officers and
directors by Working Ventures after the consummation of this offering. See
"Certain Transactions."
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective as of the closing of this offering, the authorized capital stock of
the Company will consist of shares of common stock and shares of
undesignated preferred stock, each having a par value of $0.01 per share. There
will be no preferred stock outstanding immediately after the closing of this
offering.
COMMON STOCK
As of September 30, 1998, there were shares of common stock outstanding
and held of record by stockholders, after giving effect to the conversion
of all outstanding shares of Class A Preferred Stock, Class A-1 Preferred
Stock, Class B Preferred Stock and Class C Preferred Stock (as issued on
December 11, 1998) into common stock, and the net exercise of all outstanding
stock purchase warrants, upon the closing of this offering. Based upon the
number of shares of common stock outstanding as of that date and giving effect
to the issuance of the shares of common stock offered hereby (assuming no
exercise of the underwriters' over-allotment), there will be shares of
common stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
preferred stock. Upon the liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities, subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by the company in the offering will be, when issued and paid for, fully
paid and non-assessable. The rights, preferences and privileges of the holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock that the Company may
designate and issue in the future. There will be no shares of preferred stock
outstanding immediately after the closing of this offering.
PREFERRED STOCK
Under the Charter, the Board of Directors is authorized, subject to certain
limitations prescribed by law, without further stockholder approval, from time
to time to issue up to an aggregate of shares of preferred stock in one or
more series and to fix or alter the designations, preferences and rights, and
any qualifications, limitations or restrictions thereof, of the shares of each
such series, including the number of shares constituting any such series and
the dividend rights, dividend rates, conversion rights, voting rights, terms of
reduction (including sinking fund provisions, if any), redemption price or
prices and liquidation preferences thereof. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change of control of the
Company. The Company has no present plans to issue any shares of preferred
stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
The Company's Charter and By-Laws provide for the division of the Board of
Directors into three classes, as nearly equal in size as possible, with
staggered three-year terms. See "Management--Executive Officers and Directors."
Any director may be removed only for cause by the vote of a majority of the
shares entitled to vote for the election of directors.
47
<PAGE>
The By-Laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a notice of nominations
or other business to be brought before an annual meeting must be delivered not
less than 120 days nor more than 150 days prior to the first anniversary of the
date of the proxy statement delivered to stockholders in connection with the
preceding year's annual meeting or, if the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary, or if no proxy
statement was delivered to stockholders in connection with the preceding year's
annual meeting, such notice must be delivered not earlier than 90 days prior to
such annual meeting and not later than the later of (1) 60 days prior to the
annual meeting or (2) 10 days following the date on which public announcement
of the date of such annual meeting is first made by the Company. With respect
to special meetings, notice must generally be delivered not more than 90 days
prior to such meeting and not later than the later of 60 days prior to such
meeting or 10 days following the day on which public announcement of such
meeting is first made by the Company. The notice must contain, among other
things, certain information about the stockholder delivering the notice and, as
applicable, background information about each nominee or a description of the
proposed business to be brought before the meeting.
The Charter empowers the Board, when considering a tender offer or merger or
acquisition proposal, to take into account factors in addition to potential
economic benefits to stockholders. Such factors may include (1) comparison of
the proposed consideration to be received by stockholders in relation to the
then current market price of the Company's capital stock, the estimated current
value of the Company in a freely negotiated transaction and the estimated
future value of the Company as an independent entity and (2) the impact of such
a transaction on the employees, suppliers and clients of the Company and its
effect on the communities in which the Company operates.
The foregoing provisions could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
The Charter provides that any action required or permitted to be taken by the
stockholders of the Company may be taken only at duly called annual or special
meeting of the stockholders, and that special meetings may be called only by
the Chairman of the Board, a majority of the Board or the President of the
Company. These provisions could have the effect of delaying until the next
annual stockholders meeting stockholder actions that are favored by the holders
of a majority of the outstanding voting securities of the Company. These
provisions may also discourage another person or entity from making a tender
offer for the common stock, because such person or entity, even if it acquired
a majority of the outstanding voting securities of the Company, would be able
to take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written consent.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
The Charter requires the affirmative vote of the holders of at least 67% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions, or to reduce the number of authorized shares of common
stock and preferred stock. Such 67% vote is also required to amend or repeal
any of the foregoing By-Law provisions. The By-Laws may also be amended or
repealed by a majority vote of the Board. Such 67% stockholder vote would be in
addition to any separate class vote that might in the future be required
pursuant to the terms of any preferred stock that might be outstanding at the
time any such amendments are submitted to stockholders.
REGISTRATION RIGHTS
The Company is party to a Second Amended and Restated Registration Rights
Agreement, dated as of December 11, 1998 (the "Registration Rights Agreement"),
with certain of its stockholders, including Working Ventures Canadian Fund
Inc., Axiom Venture Partners II Limited Partnership, Zero Stage Capital VI,
L.P., Moore Global Investments, Ltd., Highland Capital Partners III Limited
Partnership and Crystal Internet Venture Fund, L.P., who will hold in the
aggregate shares of common stock upon consummation of this offering,
pursuant to which the Company has granted such stockholders (1) the right to
demand registration under the Securities Act of 1933, as amended (the
"Securities Act"), of their shares of capital stock of the Company up to four
times after the earlier of January 31, 2003 or the date six months after the
Company's initial public offering and (2) the right to have their shares of
capital stock of the Company included in any registration of common stock by
the Company under the Securities Act, other than those effected on Forms S-4
48
<PAGE>
or S-8. In addition, the Company has agreed to file registration statements on
Form S-3 registering common stock for resale by such stockholders, subject to
certain limitations, upon the request of the holders of certain percentages of
common stock. The Company is required to bear the expenses of the first twelve
registrations conducted by the Company pursuant to the Registration Rights
Agreement. Certain stockholders of the Company who will hold in the aggregate
shares of common stock upon consummation of this offering have agreed
not to exercise any registration rights during the 180 day period beginning on
the date of this prospectus.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Boston EquiServe, L.P.
49
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom J.P. Morgan Securities Inc., CIBC Oppenheimer Corp. and Volpe Brown Whelan
& Company, LLC, are acting as representatives, have severally agreed to
purchase, and the Company has agreed to sell to them, the respective number of
shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc. ...............................
CIBC Oppenheimer Corp. ....................................
Volpe Brown Whelan & Company, LLC..........................
---
Total....................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. Under the
terms and conditions of the underwriting agreement, all of the underwriters are
obligated to take and pay for all such shares of common stock, if any are
taken.
The underwriters propose initially to offer the shares of common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the common stock, the offering price and other
selling terms may be changed from time to time by the Underwriters.
Pursuant to the underwriting agreement, the Company has granted to the
underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to additional shares of common stock, on the same terms and
conditions as set forth on the cover page hereof. If such option is exercised
in full, the total price to the public, underwriting discounts and commissions,
and proceeds to the Company will be $ , $ and $ ,
respectively. The underwriters may exercise such option solely to cover over-
allotments, if any, made in connection with the sale of shares of common stock
offered hereby. To the extent such option is exercised, each of the
underwriters will have a commitment, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of common stock to be purchased by it as shown in the table above bears
to the total number of shares of common stock initially offered hereby.
The Company and certain of its stockholders, officers and directors of the
Company have agreed that during the period beginning on the date of this
prospectus and continuing to and including the date 180 days after the date of
this prospectus they will not (1) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any
50
<PAGE>
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities of the
Company which are substantially similar to the common stock, including but not
limited to any securities that are convertible into or exercisable or
exchangeable for, or that represent the right to receive common stock or any
such substantially similar securities or (2) enter into any swap, option,
future, forward or other agreement that transfers, in whole or in part, any of
the economic consequences of ownership of common stock or any securities
substantially similar to the common stock (other than, in the case of the
Company, (x) pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of this prospectus and (y) the issuance of common stock in
connection with the transactions described in this prospectus), without the
prior written consent of J.P. Morgan Securities Inc.
The Company has agreed to indemnify the underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to make
in respect thereof.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with this offering,
creating a syndicate short position. In addition, the underwriters may bid for,
and purchase, shares of common stock in the open market to cover syndicate
short positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the common stock in this offering, if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price for the shares of common stock offered hereby
has been determined by agreement between the Company and the underwriters.
Among the factors considered in making such determination were the history of
and the prospects for the industry in which the Company competes, an assessment
of the Company's management, the present operations of the Company, the
historical results of the Company and the trend of its revenues and earnings,
the prospects for future earnings of the Company, the general condition of the
securities markets at the time of this offering and the prices of similar
securities of generally comparable companies. There can be no assurance that an
active trading market will develop for the common stock or that the common
stock will trade in the public market at or above the initial public offering
price.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options under the 1997 Plan or the
Amended 1998 Plan). Of such shares, the shares sold in this offering
will be freely transferable without restriction or further registration under
the Securities Act, except for any shares held by an existing "affiliate" of
the Company, as that term is defined by the Securities Act (an "Affiliate"),
which shares will be subject to the resale limitations of Rule 144 adopted
under the Securities Act. As of the date of this prospectus, and assuming the
sale by the Company of 4,586,599 shares of Class C Preferred Stock on December
11, 1998, the conversion to common stock of all preferred stock outstanding at
the closing of this offering and the net exercise of all outstanding stock
purchase warrants at such time, "restricted shares" as defined in Rule 144
are outstanding. Of such shares, and without consideration of the contractual
restrictions described below, shares would be available for immediate sale
in the public market without restriction pursuant to Rule 144(k). Beginning 90
days after the date of this prospectus, and without consideration of the
contractual restrictions described below, shares will become eligible for
sale in reliance upon Rule 144 and shares will become eligible for sale in
reliance upon Rule 701 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after this
offering, a person (or persons whose shares are aggregated) who owns shares
that were purchased from the Company (or any Affiliate) at least one year
previously, including a person who may be deemed an Affiliate of the Company,
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the then outstanding shares of the common
stock (approximately shares immediately after the completion of this
offering) or (ii) the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from the Company (or any Affiliate) at least two years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from the Company by its employees, directors,
officers, consultants or advisers prior to the date the issuer becomes subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), pursuant to written compensatory benefit plans or
written contracts relating to compensation of such persons. In addition, the
Commission has indicated that Rule 701 will apply to the typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of such options
(including exercises after the date of this prospectus). Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold (1) by persons other than Affiliates, subject only to
the manner of sale provisions of Rule 144, and (2) by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
All optionholders and warrantholders of the Company, as well as certain
stockholders of the Company who will hold shares of common stock upon
consummation of this offering, and all officers and directors of the Company
have agreed not to sell any shares of common stock for 180 days after the date
of this prospectus without the prior written consent of J.P. Morgan Securities
Inc. As a result of these contractual restrictions and subject to the
provisions of Rules 144 and 701, as applicable, shares subject to
restriction will be eligible for sale upon expiration of these agreements 180
days after the date of this prospectus. See "Underwriting."
The Company has agreed not to offer, sell or otherwise dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock or any rights to acquire common stock for a period of 180 days
after the date of this prospectus, without the prior written consent of the
Representatives of the Underwriters, subject to certain limited exceptions. See
"Underwriting."
52
<PAGE>
After the completion of this offering, the holders of shares of common
stock or their respective transferees, would be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by Affiliates) immediately upon the effectiveness of such
registration.
The Company intends to file one or more registration statements under the
Securities Act covering approximately shares of common stock reserved for
issuance under the 1997 Plan, shares reserved for issuance under the
Amended 1998 Plan and shares reserved for issuance under the Director
Option Plan. See "Management--Stock Incentive Plans." Such registration
statements are expected to be filed within 90 days after the date of this
prospectus and will automatically become effective upon filing. Following such
filing, shares registered under such registration statements will, subject to
the 180-day lock-up agreements described above, Rule 144 volume limitations
applicable to Affiliates and the lapsing of the Company's repurchase rights, be
available for sale in the open market upon the exercise of vested options 90
days after the effective date of this prospectus. At September 30, 1998,
options to purchase an aggregate of shares were issued and outstanding
under the 1997 Plan and the 1998 Amended Plan and no options were issued and
outstanding outside of such plans.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for the
Company by Bingham Dana LLP, Boston, Massachusetts. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Davis
Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996, and the
consolidated statements of operations, stockholders' (deficit) equity and cash
flows for each of the three years in the period ended December 31, 1997,
included in this prospectus and the Registration Statement of which this
prospectus is a part have been included herein and therein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Commission a registration statement on Form S-1 with
respect to the common stock being offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration
statement. For further information about us and the common stock, reference is
made to the registration statement, and its exhibits. Descriptions in this
prospectus of any contract or other document are not necessarily complete and,
where the contract or document is an exhibit to the registration statement, any
such description is qualified in all respects by the exhibit. Copies of the
registration statement, including exhibits, may be examined without charge in
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W. Room 1024, Washington, DC 20549, and the Securities and
Exchange Commission's Regional Offices located at 500 West Madison Street,
Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13th Floor, New York,
NY 10048 or on the Internet at http://www.sec.gov. Information about the
operation of the Public Reference Room may be obtained by calling the
Securities and Exchange Commission at 1-800-SEC-0300. Copies of all or a
portion of the registration statement can be obtained from the Public Reference
Section of the Securities and Exchange Commission upon payment of prescribed
fees.
As a result of this offering, RoweCom will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for quotation on the Nasdaq National Market, such reports, proxy
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, DC 20006.
53
<PAGE>
ROWECOM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and September
30, 1998 (unaudited)..................................................... F-3
Statements of Consolidated Operations for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997 (unau-
dited) and 1998 (unaudited).............................................. F-4
Statements of Consolidated Stockholders' (Deficit) Equity for the years
ended December 31, 1995, 1996 and 1997 and the nine months ended Septem-
ber 30, 1998 (unaudited)................................................. F-5
Statements of Consolidated Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997 (unau-
dited) and 1998 (unaudited).............................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of RoweCom, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows present fairly, in all material respects, the financial position of
RoweCom, Inc. and its subsidiary at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 21, 1998
(Except for the information presented in Note 14 for which
the date is May 4, 1998)
F-2
<PAGE>
ROWECOM INC.
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
<TABLE>
<CAPTION>
PRO FORMA
AT DECEMBER 31, AT SEPTEMBER 30, AT SEPTEMBER 30,
------------------------------------------- ----------------
1996 1997 1998 1998
------------------------------------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents........... $ 13,793 $ 691,358 $ 3,578,232
Accounts receivable.... 26,155 254,256 180,647
Restricted cash........ 194,904 588,499 1,870,739
Other current assets... 50,184 229,254 97,689
------------ ----------- ------------ ---
Total current
assets.............. 285,036 1,763,367 5,727,307
Equipment and
furnishings, net........ 88,490 235,386 580,063
Deferred tax asset....... -- 81,730 82,000
Other assets, net........ 54,259 27,558 18,029
------------ ----------- ------------ ---
Total assets......... $ 427,785 $ 2,108,041 $ 6,407,399
============ =========== ============ ===
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable....... 142,640 166,013 531,320
Accrued expenses....... 218,482 697,226 483,176
Customer advances...... 194,904 588,499 1,870,739
Income taxes payable... -- 126,321 10,944
Note payable........... 10,000 -- --
Loan payable........... 200,000 -- 213,090
Deferred revenues...... -- -- 4,191
------------ ----------- ------------ ---
Total current
liabilities......... 766,026 1,578,059 3,113,460
Commitments (Note 11)
Class A Redeemable
Convertible Preferred
stock, $.01 par value,
1,772,857 shares issued
and outstanding and 0
shares issued and
oustanding on a pro
forma basis; at
liquidation value....... -- 4,298,210 4,514,440
Class B Redeemable
Convertible Preferred
stock, $.01 par value,
6,326,610 shares issued
and outstanding and 0
shares issued and
oustanding on a pro
forma basis; at
liquidation value....... -- -- 8,059,053
Stockholders' (deficit)
equity:
Common stock, $.01 par
value per share,
24,000,000 shares
authorized; 4,445,836
shares issued and
outstanding at
December 31, 1996;
4,423,836 shares
issued and outstanding
at December 31, 1997;
4,372,382 shares
issued and outstanding
at September 30, 1998
and shares issued
and outstanding on a
pro forma basis....... 44,458 44,238 43,724
Additional paid-in
capital............... 1,680,232 1,680,452 1,680,932
Treasury stock, at
cost.................. (52,920)
Accumulated deficit.... (2,072,515) (5,509,613) (10,917,211)
Cumulative translation
adjustment............ 9,584 16,695 (34,079)
------------ ----------- ------------ ---
Total stockholders'
(deficit) equity.... (338,241) (3,768,228) (9,279,554)
------------ ----------- ------------ ---
Total liabilities and
stockholders'
(deficit) equity.... $ 427,785 $ 2,108,041 $ 6,407,399
============ =========== ============ ===
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 324,360 $ 3,116,454 $12,889,988 $ 940,684 $ 3,585,426
Cost of revenues........ 323,323 3,082,763 12,701,290 918,780 3,493,912
--------- ----------- ----------- ----------- -----------
Gross profit......... 1,037 33,691 188,698 21,904 91,514
Operating expenses:
Sales and marketing.... 258,834 584,602 2,034,331 1,574,147 3,342,510
Research and
development........... 149,171 532,488 584,081 399,009 749,598
General and
administrative........ 171,282 351,246 751,107 667,555 979,764
--------- ----------- ----------- ----------- -----------
Total operating
expenses............. 579,287 1,468,336 3,369,519 2,640,711 5,071,872
--------- ----------- ----------- ----------- -----------
Loss from
operations.......... (578,250) (1,434,645) (3,180,821) (2,618,807) (4,980,358)
Interest and other
income, net........... 1,420 617 63,652 54,507 103,915
--------- ----------- ----------- ----------- -----------
Loss before income
taxes............... (576,830) (1,434,028) (3,117,169) (2,564,300) (4,876,443)
Provision for income
taxes................. 7,832 15,695 136,352 102,000 87,266
--------- ----------- ----------- ----------- -----------
Net loss............. (584,662) (1,449,723) (3,253,521) (2,666,300) (4,963,709)
========= =========== =========== =========== ===========
Accretion of dividends
on redeemable
preferred stock....... -- -- (183,584) (113,774) (443,889)
--------- ----------- ----------- ----------- -----------
Net loss to common
stockholders........ $(584,662) $(1,449,723) $(3,437,105) $(2,780,074) $(5,407,598)
========= =========== =========== =========== ===========
Pro forma (unaudited):
Basic and diluted pro
forma net loss per
share (Notes 1 and 2)
......................
Weighted average shares
used in computing pro
forma basic and
diluted net loss per
share (Notes 1 and
2)....................
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
COMMON ADDITIONAL TREASURY CUMULATIVE
STOCK COMMON PAID-IN STOCK AT ACCUMULATED TRANSLATION
SHARES STOCK CAPITAL COST DEFICIT ADJUSTMENT TOTAL
------ ------- ---------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... 22,000 $ 220 $ 50,338 -- $ (38,130) -- $ 12,428
Capital contributions
to Rowe
Communications, Inc... -- -- 624,219 -- -- -- 624,219
Net loss............... -- -- -- -- (584,662) -- (584,662)
--------- ------- ---------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1995................... 22,000 220 674,557 -- (622,792) -- 51,985
Capital contributions
to Rowe
Communications, Inc... -- -- 839,913 -- -- -- 839,913
Issuance of common
stock in connection
with the foundation of
RoweCom LLC, July 1,
1996.................. 4,423,836 44,238 165,762 -- -- -- 210,000
Net loss............... -- -- -- -- (1,449,723) -- (1,449,723)
Cumulative translation
adjustment............ -- -- -- -- -- $ 9,584 9,584
--------- ------- ---------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1996................... 4,445,836 44,458 1,680,232 -- (2,072,515) 9,584 (338,241)
Accretion of dividends
on preferred stock to
redemption value...... -- -- -- -- (183,577) -- (183,577)
Net loss............... -- -- -- -- (3,253,521) -- (3,253,521)
Cumulative translation
adjustment............ -- -- -- -- -- 7,111 7,111
Shares cancelled upon
dissolution of Rowe
Communications, Inc.
...................... (22,000) (220) 220 -- -- -- --
--------- ------- ---------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1997................... 4,423,836 44,238 1,680,452 -- (5,509,613) 16,695 (3,768,228)
Accretion of dividends
preferred stock to
redemption value...... -- -- -- -- (443,889) -- (443,889)
Exercise of stock
options............... 2,000 20 480 -- -- -- 500
Purchase of treasury
stock shares.......... (53,454) (534) -- $(52,920) -- -- (53,454)
Net loss............... -- -- -- -- (4,963,709) -- (4,963,709)
Cumulative translation
adjustment............ -- -- -- -- -- (50,774) (50,774)
--------- ------- ---------- -------- ------------ -------- -----------
BALANCE, SEPTEMBER 30,
1998 (UNAUDITED)....... 4,372,382 $43,724 $1,680,932 $(52,920) $(10,917,211) $(34,079) $(9,279,554)
========= ======= ========== ======== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(584,662) $(1,449,723) $(3,253,521) $(2,666,300) $(4,963,709)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 26,679 49,660 79,476 54,416 141,134
Loss on disposal of
intangibles......... -- -- 29,033 29,033 --
Changes in operating
assets and liabilities:
Accounts receivable.. -- (26,155) (228,101) (105,088) 73,717
Other current
assets.............. (8,242) (41,945) (158,631) (36,209) 128,665
Accounts payable..... 59,864 80,339 23,373 61,765 367,701
Income taxes
payable............. -- -- 126,321 102,000 (105,900)
Accrued expenses..... 21,317 197,165 478,744 561,445 (199,845)
Deferred revenues.... -- -- -- -- 4,191
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities.......... (485,044) (1,190,659) (2,903,306) (1,998,938) (4,554,046)
Cash flows from
investing activities:
Purchase of equipment
and furnishings...... (83,513) (56,329) (203,173) (158,379) (483,960)
Purchase of intangible
assets............... (43,010) (34,840) (25,531) (23,531) (1,000)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities........... (126,523) (91,169) (228,704) (181,910) (484,960)
Cash flows from
financing activities:
Proceeds from
preferred stock
issuance............. -- -- 3,712,464 3,712,464 7,831,394
Proceeds from issuance
of common stock...... -- 210,000 -- -- 500
Loan proceeds......... 10,000 210,000 127,638 127,638 1,063,090
Loan repayments....... -- -- (37,638) (37,638) (850,000)
Capital contribution.. 624,219 839,913 -- -- --
Purchase of treasury
stock................ -- -- -- -- (53,454)
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities.......... 634,219 1,259,913 3,802,464 3,802,464 7,991,530
Effect of exchange
rates on cash........ (52) 9,584 7,111 3,058 (65,650)
Net increase
(decrease) in cash
and cash
equivalents.......... 22,600 (12,331) 677,565 1,624,674 2,886,874
Cash and cash
equivalents, beginning
of period.............. 3,524 26,124 13,793 13,793 691,358
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................. $ 26,124 $ 13,793 $ 691,358 $ 1,638,467 $ 3,578,232
========= =========== =========== =========== ===========
Supplementary
information:
Conversion of loan
payable into
preferred stock...... -- -- $ 300,000 $ 300,000 --
Accretion of preferred
stock................ -- -- 183,577 113,774 $ 443,889
Income taxes paid..... $ 7,928 $ 15,286 -- -- 85,118
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RoweCom Inc. ("RoweCom" or the "Company"), was formed as Rosewood Knowledge
Management, Inc. on January 12, 1994, and was renamed as Rowe Communications,
Inc. on February 16, 1995, to provide Internet-based knowledge acquisition and
management services. The Company's principal product is the knowledgeStore (the
"kStore"). The kStore allows knowledge workers, librarians, and purchasing
agents to order, pay for, and manage the purchase of knowledge resources. The
Company provides each client's organization with its own highly customized
"company store" which facilitates the ordering, payment and management of
subscriptions to magazines, newspapers and journals as well as other knowledge
resources electronically through the Company's online catalog. The kStore
allows ordering from a decentralized or centralized environment, include built-
in approval levels, and automated enterprise-wide reporting.
On July 1, 1996, Rowe Communications, Inc. transferred substantially all of its
assets and liabilities to RoweCom LLC in exchange for a 97% interest in RoweCom
LLC, which is a limited liability company formed under the laws of the State of
Delaware. On April 25, 1997, RoweCom LLC merged with the Company. The merger
had no significant impact on the Company's financial statement presentation.
Rowe Communications Ltd., a Canadian company ("RoweCom Canada"), is a
subsidiary of RoweCom, Inc. All significant intercompany accounts and
transactions between RoweCom and its sole subsidiary, RoweCom Canada, included
in the accompanying consolidated financial statements have been eliminated.
Interim Financial Statements
The consolidated balance sheet as of September 30, 1998, the consolidated
statements of operations and cash flows for the nine months ended September 30,
1998 and 1997 and the consolidated statement of stockholders' deficit for the
nine months ended September 30, 1998 and the related footnote disclosures are
unaudited, have been prepared on a basis substantially consistent with the
audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting of normal, recurring adjustments) necessary
for a fair presentation of results for these interim periods. The results for
the nine months ended September 30, 1998 are not necessarily indicative of
results to be expected for the entire year, although the Company expects to
incur a significant loss for the year ending December 31, 1998.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase and whose carrying
amounts approximate fair value due to the short maturity of the investments.
Revenues
Revenues are principally generated from subscription orders for third-party
publications, which include the cost of the subscription and the associated
transaction fee earned by the Company. The Company recognizes revenues from a
subscription order when the transmission of the order and the electronic fund
transfer to the publisher or vendor is completed.
Revenues for the setup of the kStore on customers' intranets are recognized
upon installation. Revenues related to transaction fees paid by third parties
for transactions sourced from the Company's kStore site are recognized when
reported by the third-party.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the
years ended 1995, 1996 and 1997 was $34,541, $40,325 and $227,183,
respectively. Advertising for the nine months ended September 30, 1997 and 1998
was $203,900 and $156,195, respectively.
F-7
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Equipment and Furnishings
Equipment and furnishings are stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
lives of the related assets. Upon retirement or sale, the cost of the assets
disposed of and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the determination of net
income or loss.
Other Assets
Other assets are recorded at cost and consist of trademark costs and a license
agreement. Trademark costs are being amortized over five years using the
straight-line method. The license agreement with Banc One Corporation for
processing services is being amortized over a thirty-one month period using the
straight-line method.
Foreign Currency Translation
The accounts of Rowe Communications Ltd. are translated into U.S. dollars using
exchange rates in effect at period-end for assets and liabilities and at
average exchange rates during the period for results of operations. The local
currency for Rowe Communications, Ltd., the Canadian dollar, is the functional
currency. The related translation adjustments are reported as a separate
component of stockholders' equity. Gains and losses resulting from foreign
currency transactions have been immaterial for all periods presented and are
included in interest and other income, net.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to provide estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expense during the reporting period. Actual results
could differ from those estimates.
The Company has a limited operating history, has never achieved profitability
and is subject to the risks and uncertainties encountered by start-up companies
such as the uncertain nature of the markets in which the Company competes and
the risk that the Company may be unable to manage any future growth
successfully.
In addition, the Company is subject to the risks encountered by companies
relying on the continued growth of online commerce and Internet infrastructure.
The risk includes the use of the Internet as a viable commercial marketplace
and the potentially inadequate development of the necessary network
infrastructure.
Finally, the Company has historically experienced season fluctuations in
revenues. This pattern may be expected to continue and results of financial
operations within any fiscal year cannot be expected to be representative.
Income Taxes
The Company accounts for income taxes under the liability method. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
Prior to its merger into RoweCom Inc. on April 25, 1997, RoweCom LLC was a
limited liability company for which all losses flowed through to its members
and are, therefore, not available to offset future taxable income of RoweCom
Inc.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Class A, A-1 and B redeemable convertible preferred stock
will automatically convert into shares of RoweCom common stock. In
addition, all outstanding stock purchase warrants will be exercised on a net
exercise basis for shares of common stock. The unaudited pro forma
presentation of the balance sheet has been prepared assuming the conversion of
the preferred stock and the preferred stock warrants, into common stock as of
September 30, 1998.
F-8
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Net Loss Per Common Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the
treasury stock method) outstanding after certain adjustments described below.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be anti-dilutive. In the computation of pro
forma net loss per share, accretion of preferred stock to the mandatory
redemption amount is not included as an increase to net loss. Also, the pro
forma net loss per common share gives effect to the exchange of all outstanding
preferred stock of RoweCom Canada into preferred stock of the Company, the
mandatory conversion of all outstanding shares of preferred stock into shares
of common stock and the exercise of all outstanding stock purchase warrants on
a "net" exercise basis for shares of common stock upon the closing of the
Company's initial public offering.
2. NET LOSS PER COMMON SHARE
The following is a calculation of net loss per share
<TABLE>
<CAPTION>
-------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Historical
Basic and diluted:
Net loss to common
stockholders......... $(584,662) $(1,449,723) $(3,437,105) $(2,780,074) $(5,407,598)
Weighted average
number of common
shares............... 22,000 2,223,418 4,445,836 4,445,836 4,366,360
Net loss per common
share-basic and
diluted.............. $ (26.58) $ (.65) $ (.77) $ (.63) $ (1.24)
Pro forma
Basic and diluted:
Net loss..............
Weighted average
number of common
shares...............
Assumed number of
shares upon
conversion of
preferred stock......
Total weighted average
number of shares used
in computing pro
forma net loss per
share................
Basic and diluted pro
forma net loss per
common share.........
</TABLE>
Options to purchase shares of the Company's common stock totaling 290,000 and
445,000 at December 31, 1996 and 1997, and 445,000 and 1,490,730 at September
30, 1997 and 1998, and stock purchase warrants totaling 120,968 at December 31,
1997, September 30, 1997 and 1998 were outstanding but were not included in the
computations of diluted earnings per share as the inclusion of these shares
would have been anti-dilutive. No options were granted prior to 1996.
3. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in general purpose financial statements. The table
below sets forth "comprehensive income" as defined by SFAS 130.
<TABLE>
<CAPTION>
--------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss.................. $(1,449,723) $(3,253,521) $(2,666,300) $(4,963,709)
Other comprehensive income
(expense), net of tax:
Cumulative translation
adjustments.............. 9,584 7,111 3,058 (50,774)
----------- ----------- ----------- -----------
Total comprehensive
loss................... $(1,440,139) $(3,246,410) $(2,663,242) $(5,014,483)
=========== =========== =========== ===========
</TABLE>
F-9
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. RESTRICTED CASH
Restricted cash consists of funds advanced by customers for the future purchase
of publications. The amount has also been recorded as customer advances.
5. EQUIPMENT AND FURNISHINGS
The components of equipment and furnishings were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
AT DECEMBER 31,
USEFUL LIFE ------------------- AT SEPTEMBER 30,
(YEARS) 1996 1997 1998
----------- -------- --------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and
software................... 2-3 $116,558 $ 275,049 $ 650,287
Furniture and office
equipment.................. 5 16,304 60,986 113,254
Leasehold improvements...... 5 3,475 -- 58,035
-------- --------- ---------
136,337 336,035 821,576
Less: accumulated
depreciation............... (47,847) (100,649) (241,513)
-------- --------- ---------
$ 88,490 $ 235,386 $ 580,063
======== ========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996, and 1997 was
$22,658, $41,913 and $56,528, respectively, and for the nine month periods
ended September 30, 1997 and 1998 was $33,272 and $130,704, respectively.
6. OTHER ASSETS
The components of other assets were as follows:
<TABLE>
<CAPTION>
------------------------------------
AT DECEMBER 31,
------------------ AT SEPTEMBER 30,
1996 1997 1998
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Trademarks................................. $ 3,010 $ 28,541 $ 29,541
License agreements......................... 40,000 40,000 40,000
Other...................................... 34,840 -- --
-------- -------- --------
77,850 68,541 69,541
Less accumulated amortization.............. (23,591) (40,983) (51,512)
-------- -------- --------
$ 54,259 $ 27,558 $ 18,029
======== ======== ========
</TABLE>
7. INCOME TAXES
Because RoweCom has incurred net losses since inception, no provision for
income taxes has been recorded. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. A valuation allowance is required to offset any deferred tax
assets if, based upon the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
As required by Statement of Financial Accounting Standards No. 109, management
of RoweCom has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised principally of
intangible assets and net operating loss carryforwards. Management has
determined that it is more likely than not that RoweCom will not recognize the
benefit of the net deferred tax assets and, as a result, a full valuation
allowance has been established for the net deferred tax assets of approximately
$579,000 at December 31, 1997.
At December 31, 1997, RoweCom had net operating loss carryforwards for federal
income tax purposes of approximately $595,000 which begin to expire in 2012.
The use of these credit and loss carryforwards may be limited due to certain
changes in ownership interests.
F-10
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rowe Communications, Ltd. recorded a provision for Canadian federal and
provincial income taxes of $136,352 in 1997, $15,695 in 1996 and $7,832 in
1995. Rowe Communications Ltd. recognized a net deferred tax asset at December
31, 1997 of $102,162 relating to issuance costs of its Class A Redeemable
Convertible Preferred Stock. Rowe Communications Ltd. has not recorded a
valuation allowance for the Canadian net deferred tax assets since it is more
likely than not that these net deferred tax assets will be realized in the
future. Included in other current assets is $20,432 representing the current
portion of the net deferred tax asset of Rowe Communications Ltd.
8. LOAN PAYABLE
The Company's loan payable of $200,000 outstanding at December 31, 1996 with a
third-party individual with an interest rate of 8%, compounded daily, was
converted to preferred shares and stock purchase warrants in 1997 (see Note
15).
On June 19, 1998, the Company entered into an equipment loan agreement with a
bank. Under this loan agreement the Company may borrow up to $500,000, for the
purpose of acquisition of equipment, for a period of six months. At December
19, 1998 the outstanding balance will be converted into a term loan, to be
repaid in thirty equal monthly installments. The interest on the outstanding
balance is calculated daily at the bank's prime rate, plus 1.0%. The loan is
secured by all the Company's assets, including accounts receivable and
equipment, but excluding intellectual property. The Company is required to
maintain certain financial ratios, including a "quick ratio" (current assets
divided by current liabilities) of 1.50 through December 31, 1998, and 1.10
thereafter. At September 30, 1998 a total of $213,000 had been borrowed under
this equipment loan agreement.
Effective September 23, 1998, the Company and the bank amended the agreement by
adding a revolving line of credit totaling $4,000,000. Outstanding principal is
due on the earlier of the 85th day after the date of each revolving loan, or
September 23, 1999. The interest rate on the outstanding balance is computed
daily at the bank's prime rate plus 0.5%. At September 30, 1998, the Company
had not borrowed any funds under this revolving line of credit.
9. RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1996 was $1,701 for consulting
services rendered by members of the board of directors and $24,000 for legal
services rendered by a party related to a significant shareholder. The December
31, 1997 and September 30, 1998 accounts payable includes $313 and $6,807,
respectively, for legal services rendered by a party related to a principal
shareholder.
10. MAJOR CUSTOMERS
For the year ended December 31, 1997 and the nine months ended September 30,
1998, three customers represented 23% and 43% of revenues, respectively.
11. COMMITMENTS
The Company leases office space in Cambridge, Massachusetts and London, Ontario
under operating lease agreements which expire on August 31, 2000 and April 30,
1999, respectively. Rent expense for the years ended December 31, 1995, 1996
and 1997 was $27,251, $31,461 and $108,000, respectively, and for the nine
months ended September 30, 1997 and 1998 was $79,137 and $137,835,
respectively. Future minimum lease payments are $273,321, $83,683 and $3,088
for 1999, 2000 and 2001, respectively.
12. RETIREMENT PLAN
The Company maintains a contributory 401(k) defined contribution plan (the
"Plan") to provide retirement benefits for principally all employees of the
Company, as defined. Under the terms of the Plan, participants may defer
between 1% and 15% of their compensation, a portion of which may be contributed
on a pretax basis as defined by law. The Company may also make discretionary
contributions to the Plan. Participants vest in employer contributions over a
five-year period. The Company did not make any contributions to the Plan during
1995, 1996 and 1997 or during the nine months ended September 30, 1998.
F-11
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCKHOLDERS' (DEFICIT) EQUITY
COMMON STOCK
The Company has authorized 24,000,000 shares of common stock, $.01 par value.
Common stock has full voting rights. Dividend and liquidation rights of common
stock are subordinated to those of all classes of preferred stock.
14. CLASS A AND CLASS B REDEEMABLE CONVERTIBLE PREFERRED STOCK
RoweCom
The Company has authorized 5,000,000 shares of Class A Redeemable Convertible
Preferred Stock ("Class A") of which 161,289 shares were issued and outstanding
at December 31, 1997 and September 30, 1998. The Company has authorized
5,000,000 shares of Class A-1 Redeemable Convertible Preferred Stock ("Class A-
1") of which none were issued and outstanding at December 31, 1997 and
September 30, 1998 and the Company has authorized 8,000,000 shares of Class B
Redeemable Convertible Preferred Stock ("Class B") of which 5,140,370 were
issued and outstanding at December 31, 1997 and September 30, 1998.
In April 1997, the loan payable for $200,000 held by a third party at December
31, 1996 and an additional loan payable of $100,000 which was entered into in
1997 were converted into 161,289 shares of Class A.
In May 1998, the Company sold 5,140,370 shares of Class B at $1.2645 per share.
Net proceeds to the Company were $6,373,158.
The terms of Class A, Class A-1 and Class B are as follows:
Conversion. Each share of Class A, Class A-1 and Class B may be converted
into one common share at the option of the stockholder.
In addition, upon the closing of an initial public offering of the
Company's common stock at a per price share of at least $5.00, which
results in proceeds of at least $20,000,000 (a "Qualified IPO"), all
outstanding shares of Class A, Class A-1 and Class B are automatically
converted into shares of common stock.
Dividend and Voting Rights. Holders of Class A, Class A-1 and Class B are
entitled to fixed, preferential, cumulative dividends in the amount of
6.75% per annum on the liquidation preference of $2.48, $1.2645 and $1.2645
for each Class A share, Class A-1 share and Class B share, respectively.
When and if declared by the Board of Directors (the "Board"), dividends on
Class A, Class A-1 and Class B are payable in cash or additional Class A,
Class A-1 and Class B shares in preference and prior to any payment of any
dividend on the common shares. The determination of whether a dividend
shall be payable in cash or in additional shares is to be made at the
discretion of the Board. Any dividend that is not declared by the Board or
paid in cash or additional preferred shares will accrue and compound
annually at a rate of 6.75%. Upon the consummation of a Qualified IPO, any
and all rights to accrued and unpaid dividends shall cease. The holders of
Class A, Class A-1 and Class B are entitled to vote on all matters and are
entitled to the number of votes equal to the number of common shares into
which the Class A, Class A-1 and Class B are convertible as of the date of
record.
Liquidation Preferences. In the event of any liquidation, dissolution or
winding up of the Company, the holders of Class A, Class A-1 and Class B
are entitled to receive, prior to and in preference to any payment or
distribution of any assets or surplus funds of the Company to the holders
of the common shares, an amount for each Class A, Class A-1 share and Class
B share held, equal to $2.48, $1.2645 and $1.2645, respectively, plus in
each case, any accrued and unpaid dividends on the Class A, Class A-1 and
Class B shares, whether or not declared. If upon such liquidation, the
assets and funds thus distributed among the holders of the preferred shares
shall be insufficient to permit the payment to such holders of the
F-12
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
full liquidation preference, then the entire assets and funds of the
Company legally available for distribution shall be distributed in the
following order: (i) first, among the holders of Class B shares and (ii)
second, pro rata according to liquidation preference among the holders of
Class A and Class A-1, treated as a single class.
Redemption. Upon the earlier of the occurrence of certain events or May 5,
2003 and at any time thereafter, the holders of Class A will be entitled to
require the Company to redeem all of the Class A shares at a price of $2.48
per share, plus all unpaid cumulative dividends, whether or not declared,
which have accrued thereon. The holders of Class A-1 and Class B will have
the right to require the Company to purchase from the holders all of the
outstanding Class A-1 and Class B shares on May 5, 2003 and at any time
thereafter up until May 5, 2005. The Company must purchase the Class A-1
and Class B shares at a purchase price equal to the greater of (i) the fair
market value of such shares or (ii) the liquidation preference of $1.2645
plus all accrued but unpaid dividends.
Rowe Communications Ltd.
Rowe Communications Ltd. ("Ltd.") has an unlimited authorized number of its
Class A Redeemable Convertible Voting Preferred Stock ("Ltd. Class A") and an
unlimited authorized number of its Class B Redeemable Convertible Non-Voting
Preferred Stock ("Ltd. Class B").
In April 1997 Ltd. sold 1,611,568 shares of Ltd. Class A at $2.48 per share, in
a private offering to a Canadian venture capital firm. Net proceeds to Ltd.
were $3,712,464.
In May 1998, Ltd. sold 1,186,240 shares of Ltd. Class B at $1.2645, in a second
private offering to a Canadian venture capital firm. Net proceeds to Ltd. were
$1,458,235.
Conversion. The holder of Ltd. Class A has the right (pursuant to the
RoweCom Amended and Restated Stockholders Agreement (the "Agreement")) at
any time to require RoweCom to issue 3,163,306 Class A-1 shares in the
capital stock of RoweCom, in exchange for such holder's Ltd. Class A shares
(the "Class A Exchange Option") plus any additional shares or assets
(including dividends, whether declared or accumulated) which the holder
would have acquired had the holder held such number of Class A-1 shares in
the capital stock of RoweCom. If the stockholder of Ltd. Class A has
exercised the Class A Exchange Option, the stockholder must transfer a
total of 889,187 (subject to adjustments) Class A-1 shares to certain
existing stockholders of the Company upon the occurrence of certain events.
The holder of Ltd. Class B has the right at any time to require RoweCom to
issue Class B shares, in exchange for such holders Ltd. Class B shares
(Class B Exchange Option) on a one for one basis plus any additional shares
or assets (including dividends, whether declared or accumulated) which the
holder would have acquired had the holder held the same number of Class B
shares in the capital stock of RoweCom.
Pursuant to an Exchange Option Exercise Agreement, the holder of the Ltd.
Class A Preferred Shares and the Ltd. Class B Preferred Shares irrevocably
agrees to exercise its Class A Exchange Option and Class B Exchange Option
upon the closing of an Initial Public Offering meeting certain conditions.
Dividend and Voting Rights. The holder of Ltd. Class A was entitled to
receive fixed, preferential, cumulative dividends in the amount of 6.75%
per annum on the liquidation preference of $2.48 for each Ltd. Class A
share from April 1997 through May 1998. In May 1998 and upon the closing of
the Ltd. Class B offering, the Articles of Incorporation of Ltd. were
amended such that the holder of Ltd. Class A and the holder of Ltd. Class B
are entitled to receive dividends as and when declared by the Board. The
holders of Ltd. Class B are not entitled to receive notice of or to attend
and vote at meetings of the shareholders of Ltd. except to the extent that
such holders are entitled to vote under the Business Corporations Act
(Ontario). The holders of Ltd. Class A Preferred Shares shall be entitled
to receive notice of and attend all meetings of the shareholders of Ltd.
and each Ltd. Class A Preferred Share shall confer the right to one (1)
vote.
F-13
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Liquidation Preferences. In the event of any liquidation, dissolution or
winding up of Ltd., holders of Ltd. Class A and Ltd. Class B are entitled
to receive prior to and in preference to any payment or distribution of any
assets to the holders of the common shares, an amount for each Ltd. Class A
share and Ltd. Class B share held, equal to $2.48 and $1.2645, plus any
accrued and unpaid dividends on the Ltd. Class A and Ltd. Class B shares
declared.
Redemption. Upon the earlier of the occurrence of certain events or May 5,
2003 and at any time thereafter, the holders of Ltd. Class A and Ltd. Class
B may require the Company to redeem all of the Ltd. Class A and Ltd. Class
B shares at a price of $2.48 and $1.2645 per Ltd. Class A and Ltd. Class B
share, plus all accrued and unpaid cumulative dividends, declared.
15. STOCK PURCHASE WARRANTS
In connection with the issuance of Ltd. Class A (Note 14) and the conversion of
the loans payable into 161,289 shares of Class A, 120,968 stock purchase
warrants of RoweCom were issued with an exercise price of $2.48 per share. The
value of the warrants was immaterial at the time of issuance.
16. STOCK OPTIONS
In 1996 as part of the initial formation and operating agreement of the Company
and prior to the inception of the 1997 Incentive and Non-qualified Stock Option
Plan (the "1997 Option Plan"), stock options were issued to key employees and
members of the Board. Vesting terms range from immediate vesting to vesting at
a rate of 20% per year. All options expire ten years from the Company's date of
formation. A total of 275,000 options were issued in 1996 and an additional
200,000 were authorized for future grants.
On April 25, 1997, the Company adopted the 1997 Option Plan for directors,
officers, employees, and consultants of the Company. A total of 330,371 shares
of common stock were reserved for issuance under the 1997 Option Plan. These
options vest over a five-year period and expire over a period not exceeding ten
years.
On April 8, 1998, the Company adopted the 1998 Incentive and Non-qualified
Stock Option Plan (the "1998 Option Plan"). A total of 1,000,000 shares of
common stock were reserved for issuance under the 1998 Option Plan. These
options vest over a four year period and expire over a period not exceeding ten
years.
The Board establishes the exercise price and vesting period at the time the
options are granted and specifies these terms in the applicable option
agreements.
Under the terms of the Plans, the exercise price of incentive stock options
granted must not be less than 100% (110% in certain cases) of the fair market
value of the common stock on the date of grant, as determined by the Board of
Directors. In reaching the determination of fair market value at the time of
each grant, the Board considers a broad range of factors including the illiquid
nature of an investment in the Company's common stock, the Company's historical
financial performance, and the Company's future prospects.
F-14
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No options were exercised in 1996 and 1997. In 1998, 2,000 options were
exercised. Information related to stock options granted by the Company is as
follows:
<TABLE>
<CAPTION>
--------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at January 1, 1996
Granted............................................ 340,000 $ .70
Exercised.......................................... -- --
Forfeited/canceled................................. (50,000) .50
---------- -----
Outstanding at December 31, 1996..................... 290,000 .62
Granted............................................ 165,000 .89
Exercised.......................................... -- --
Forfeited/canceled................................. (10,000) 1.00
---------- -----
Outstanding at December 31, 1997..................... 445,000 .71
Granted............................................ 2,361,600 .57
Exercised.......................................... (2,000) .25
Forfeited/canceled................................. (1,313,870) .89
---------- -----
Outstanding at September 30, 1998.................... 1,490,730 $ .40
========== =====
</TABLE>
At September 30, 1998, 168,133 options were exercisable at exercise prices
ranging from $.25 to $1.00 and 42,641 were available for grant.
The following table summarizes information about fixed stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
EXERCISABLE OPTIONS OUTSTANDING OPTIONS
----------- ------------------------------------- -------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER
PRICE OUTSTANDING LIFE PRICE EXERCISABLE
PRICE ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ .25 1,147,270 8.36 $ .25 168,133 $.25
1.00 343,460 10.00 1.00 -- --
--------- ----- ----- ------- ----
1,490,730 8.72 $ .40 168,133 $.25
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS No. 123), encourages but does not require companies
to record compensation cost for stock-based employee contribution plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plan.
Had compensation cost for the Company's stock option plans been determined
based on the estimated fair value of the option at the date of grant for awards
in 1996 and 1997 using the minimum value method consistent with SFAS No. 123,
the adjustment to net loss would have been insignificant. For this purpose, the
fair value of options at the date of grant was estimated using the minimum
value method with the following weighted-average assumptions: risk-free
interest rate of 7.74%; no dividend yields; no volatility factors; and a
weighted-average expected life of the options of eight years.
17. RECENT DEVELOPMENTS
On December 11, 1998, the Company sold 4,586,599 shares of Class C Preferred
Stock ("Class C") at a price of $3.407 per share for a total consideration of
approximately $15,000,000 (after deducting expenses associated with the sale).
The Class C was issued with similar terms to those of the Company's Class A and
Class B Preferred Stock.
F-15
<PAGE>
[ROWECOM LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<CAPTION>
-------
TOTAL
-------
<S> <C>
SEC Registration Fee............................................... $13,900
NASD Fees.......................................................... $ 5,500
NASDAQ Listing Fees................................................ $ *
Printing and Engraving Expenses.................................... $ *
Legal Fees and Expenses............................................ $ *
Accountants' Fees and Expenses..................................... $ *
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees................................................... $ *
Transfer Agent and Registrar's Fees................................ $ *
Miscellaneous Costs................................................ $ *
-------
Total............................................................ $ *
=======
</TABLE>
*To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
The Third Amended and Restated Certificate of Incorporation of the Registrant
and the Amended and Restated By-laws of the Registrant, copies of the forms of
which are filed as Exhibits 3.1 and 3.2, provide for indemnification of
officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
The above discussion of the Registrant's Amended and Restated Certificate of
Incorporation Amended and Restated By-Laws and Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in
its entirety by the forms of such Third Amended and Restated Certificate of
Incorporation Amended and Restated By-Laws and statute.
The Registrant will agree to indemnify the Underwriters and their controlling
persons, and the Underwriters will agree to indemnify the Registrant and its
controlling persons, including directors and executive officers of the
Registrant, against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of the Underwriting Agreement
that will be filed as part of the Exhibits hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to a Share Purchase Agreement, dated as of April 1, 1997, Working
Ventures Canadian Fund Inc. ("Working Ventures") acquired 1,611,568 shares of
Class A Preferred Stock of Rowe Communications Ltd. ("RoweCom Canada") and an
option to exchange such shares of RoweCom Canada Class A Preferred Stock for
shares of common stock of the Registrant (the "Exchange Option"). The Exchange
Option was issued in reliance on the exemption under the Securities Act of
1933, as amended (the "Securities Act") provided by Regulation S thereunder.
On April 1, 1997, the Company issued 80,645 shares of the Registrant's Class A
Preferred Stock to Philippe Villers in exchange for the cancellation of
indebtedness of the Registrant to Mr. Villers, and 40,322 shares of Class A
Preferred Stock to Mr. Jerome Rubin in exchange for the cancellation of
indebtedness of the Registrant to Mr. Rubin. In connection with the issuance of
these shares of Class A Preferred Stock of the Registrant, the Registrant
issued Stock Purchase Warrants (the "Warrants") to each of Messrs. Villers and
Rubin providing for the purchase of up to 80,645 shares of the Registrant's
capital stock in the case of the Warrant issued to Mr. Villers, and up to
40,322 shares of the Registrant's capital stock in the case of the Warrant
issued to Mr. Rubin. These shares of Class A Preferred Stock and the Warrants
were issued in reliance on the exemptions from registration under the
Securities Act provided by Regulation D or Regulation S thereunder.
II-1
<PAGE>
Pursuant to a Stock Purchase Agreement, dated as of May 4, 1998, Crystal
Internet Venture Fund, L.P., Highland Capital Partners III Limited Partnership,
Highland Entrepreneurs' Fund III Limited Partnership, Pai, Wei Ming Chung, Fu
Kuan Investment Corp., and Puretech Profits Limited (BVI) purchased an
aggregate of 5,140,370 shares of the Class B Preferred Stock of the Registrant
for an aggregate purchase price of $6,499,997.50, and Working Ventures acquired
1,186,240 shares of the Class B Preferred Stock of RoweCom
Canada and an option to exchange such shares of RoweCom Canada Class B
Preferred Stock for shares of Class B Preferred Stock of the Registrant for an
aggregate purchase price of $1,500,001.48. The sales made by the Registrant
were made, in each case, in reliance upon the exemptions from registration
under the Securities Act provided by Regulation D or Regulation S thereunder.
On May 4, 1998, in connection with the sale of the Registrant's Class B
Preferred Stock, the Exchange Option was amended to permit Working Ventures to
exchange its shares of RoweCom Canada Class A Preferred Stock for shares of the
Class A-1 Preferred Stock of the Registrant. The sale of the option to exchange
such stock for shares of Class A-1 Preferred Stock of the Registrant was made
in reliance on the exemption from registration under the Securities Act
provided by Regulation S thereunder.
As of September 30, 1998, the Registrant had issued options to purchase an
aggregate of shares of common stock pursuant to the Registrant's 1997
Incentive and Non-qualified Stock Option Plan and Amended and Restated 1998
Stock Incentive Plan. The Registrant has also issued an aggregate of shares
of common stock to various employees upon the exercise of options granted
pursuant to the Registrant's 1997 Stock Incentive Plan for an aggregate
consideration of $ , at an average exercise price of $ per share. These
grants of options, and the sales of common stock upon the exercise of these
options, were made in reliance on the exemptions from registration under the
Securities Act provided by Rule 701 thereunder.
Pursuant to a Stock Purchase Agreement, dated as of December 11, 1998, Axiom
Venture Partners II Limited Partnership, Zero Stage Capital VI, L.P., Moore
Global Investments, Ltd. and other unaffiliated parties purchased an aggregate
of 4,586,599 shares of Class C Preferred Stock of the Registrant for an
aggregate purchase price of approximately $15,000,000 (after deducting expenses
related to the sale). These shares of Class C Preferred Stock were issued in
reliance on the exemption from the registration requirements under the
Securities Act provided by Regulation D thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this registration
statement:
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Amended and Restated By-Laws of the Registrant.
*4.1 Specimen Certificate for shares of the Registrant's Common
Stock.
*5.1 Opinion of Bingham Dana LLP counsel to the Registrant, regarding
the legality of the shares of Common Stock.
10.1 1997 Stock Incentive Plan of the Registrant
10.2 Form of 1998 Non-Employee Director Stock Option Plan
10.3 Form of 1998 Employee Stock Purchase Plan
10.4 Form of Amended and Restated 1998 Stock Incentive Plan
10.5 Lease of 725 Concord Ave., Cambridge, Massachusetts, dated as of
August 30, 1996, between David E. Clem and David M. Roby,
Trustees of Lyme Properties Realty Trust u/d/t dated September
30, 1994 and the Registrant, as amended by First Addendum to
Lease, dated August 20, 1997, among David E. Clem and David M
Roby, Trustees of Lyme Properties Realty Trust u/d/t, Curtin
Insurance Agency, Inc. and the Registrant.
10.6 Consent to Cross Assignment of Leases, dated August 1, 1998,
between David E. Clem and David M. Roby, Trustees of Lyme
Properties Realty Trust u/d/t dated September 30, 1994 and the
Registrant.
10.7 Stock Purchase Agreement, dated May 4, 1998, between the
Registrant, Rowe Communications Ltd. ("RoweCom Canada"), and the
Purchasers named therein, relating to the sale by the Registrant
of its Class B Convertible Preferred Stock.
10.8 Share Purchase Agreement, dated as of April 1, 1997, between the
Registrant and the Purchasers named therein relating to the sale
by the Registrant of shares of its Class A Convertible Preferred
Stock.
*10.9 Second Amended and Restated Stockholders' Agreement, dated as of
December 11, 1998, by and among the Registrant and certain
stockholders of the Registrant.
*10.10 Stock Purchase Agreement, dated as of December 11, 1998, between
the Registrant and the Purchasers named therein, relating to the
sale by the Registrant of shares of Class C Preferred Stock.
*10.11 Second Amended Registration Rights Agreement, dated as of
December 11, 1998, by and among the Registrant, RoweCom Canada,
and the Purchasers named therein.
10.12 Executive Employment Agreement, dated as of November 4, 1998
between the Registrant and Mr. Louis Hernandez.
10.13 Loan Agreement, dated June 19, 1998, between Imperial Bank and
the Registrant, as amended by Amendment No. 1 to the Loan
Agreement, dated September 23, 1998, between the Registrant and
Imperial Bank.
10.14 General Security Agreement, dated June 19, 1998, between
Imperial Bank and the Registrant.
10.15 Form of Non-Competition Agreements by and between the Registrant
and each of Richard Rowe, Ph.D., Louis Hernandez, Stephen
Vozella, Walter Crosby, Steven Woit and Ronald Grigg.(/1/)
+10.16 Electronic Commerce Referral and Revenue Sharing Agreement,
dated August 24, 1998, by and between Intelisys Electronic
Commerce LLC and the Registrant.
+10.17 Marketing and Integration Agreement, dated as of August 20,
1998, by and between barnesandnoble.com llc and the Registrant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.18 Content and Co-Marketing Agreement, dated September 28, 1998 by
and between the Registrant and NewSub Services, Inc.
+10.19 Content and Co-Marketing Agreement, dated October 23, 1998
between the Registrant and Publications Resource Group, Inc.
10.20 Stock Purchase Warrant between Philippe Villers and the
Registrant.
10.21 Stock Purchase Warrant between Jerome Rubin and the Registrant.
*10.22 Exchange Option Agreement, dated as of December , 1998, between
the Registrant and Working Ventures.
21.1 Subsidiary of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
*23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included
in Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
(1)Each of the Non-Competition Agreements is identical in all respects, except
as described in the prospectus.
*To be filed by amendment.
+Confidential treatment requested.
SCHEDULES
Schedule II Valuation and Qualifying Accounts
Except for the financial statement schedule listed above, all other schedules
have been omitted because either they are not required, are not applicable or
the information is otherwise set forth in the Consolidated Financial Statements
and notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) To provide the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names
as required by the Underwriter to permit prompt delivery to each purchaser.
(2) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
ROWECOM INC., HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE,
COMMONWEALTH OF MASSACHUSETTS, ON THIS 11TH DAY OF DECEMBER, 1998.
ROWECOM INC.
By: _________________________________
Richard Rowe
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Rowe, Louis
Hernandez and Brian Keeler, each of them severally, as such person's true and
lawful attorneys-in-fact, with full power of substitution or resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign on such person's behalf, individually and in each capacity
stated below, any and all amendments, including post-effective amendments to
this Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities of the Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board of December 11, 1998
______________________________________ Directors, President,
RICHARD ROWE Chief Executive Officer
and Director (principal
executive officer)
Executive Vice President December 11, 1998
______________________________________ and Chief Financial
LOUIS HERNANDEZ Officer (principal
financial and accounting
officer)
Director December 11, 1998
______________________________________
STANLEY FUNG
Director December 11, 1998
______________________________________
THOMAS LEMBERG
Director December 11, 1998
______________________________________
JEROME RUBIN
Director December 11, 1998
______________________________________
PHILIPPE VILLERS
Director December 11, 1998
______________________________________
JAMES WHITAKER
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Amended and Restated By-Laws of the Registrant.
*4.1 Specimen Certificate for shares of the Registrant's Common
Stock.
*5.1 Opinion of Bingham Dana LLP counsel to the Registrant, regarding
the legality of the shares of Common Stock.
10.1 1997 Stock Incentive Plan of the Registrant
10.2 Form of 1998 Non-Employee Director Stock Option Plan
10.3 Form of 1998 Employee Stock Purchase Plan
10.4 Form of Amended and Restated 1998 Stock Incentive Plan
10.5 Lease of 725 Concord Ave., Cambridge, Massachusetts, dated as of
August 30, 1996, between David E. Clem and David M. Roby,
Trustees of Lyme Properties Realty Trust u/d/t dated September
30, 1994 and the Registrant, as amended by First Addendum to
Lease, dated August 20, 1997, among David E. Clem and David M
Roby, Trustees of Lyme Properties Realty Trust u/d/t, Curtin
Insurance Agency, Inc. and the Registrant.
10.6 Consent to Cross Assignment of Leases, dated August 1, 1998,
between David E. Clem and David M. Roby, Trustees of Lyme
Properties Realty Trust u/d/t dated September 30, 1994 and the
Registrant.
10.7 Stock Purchase Agreement, dated May 4, 1998, between the
Registrant, Rowe Communications Ltd. ("RoweCom Canada"), and the
Purchasers named therein, relating to the sale by the Registrant
of its Class B Convertible Preferred Stock.
10.8 Share Purchase Agreement, dated as of April 1, 1997, between the
Registrant and the Purchasers named therein relating to the sale
by the Registrant of shares of its Class A Convertible Preferred
Stock.
*10.9 Second Amended and Restated Stockholders' Agreement, dated as of
December 11, 1998, by and among the Registrant and certain
stockholders of the Registrant.
*10.10 Stock Purchase Agreement, dated as of December 11, 1998, between
the Registrant and the Purchasers named therein, relating to the
sale by the Registrant of shares of Class C Preferred Stock.
*10.11 Second Amended Registration Rights Agreement, dated as of
December 11, 1998, by and among the Registrant, RoweCom Canada,
and the Purchasers named therein.
10.12 Executive Employment Agreement, dated as of November 4, 1998
between the Registrant and Mr. Louis Hernandez.
10.13 Loan Agreement, dated June 19, 1998, between Imperial Bank and
the Registrant, as amended by Amendment No. 1 to the Loan
Agreement dated September 23, 1998 between the Registrant and
Imperial Bank.
10.14 General Security Agreement, dated June 19, 1998, between
Imperial Bank and the Registrant.
10.15 Form of Non-Competition Agreements by and between the Registrant
and each of Richard Rowe, Ph.D., Louis Hernandez, Stephen
Vozella, Walter Crosby, Steven Woit and Ronald Grigg.(/1/)
+10.16 Electronic Commerce Referral and Revenue Sharing Agreement,
dated August 24, 1998, by and between Intelisys Electronic
Commerce LLC and the Registrant.
+10.17 Marketing and Integration Agreement, dated as of August 20,
1998, by and between barnesandnoble.com llc and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.18 Content and Co-Marketing Agreement, dated September 28, 1998 by
and between the Registrant and NewSub Services, Inc.
+10.19 Content and Co-Marketing Agreement, dated October 23, 1998
between the Registrant and Publications Resource Group, Inc.
10.20 Stock Purchase Warrant between Philippe Villers and the
Registrant.
10.21 Stock Purchase Warrant between Jerome Rubin and the Registrant.
*10.22 Exchange Option Agreement, dated as of December , 1998, between
the Registrant and Working Ventures.
21.1 Subsidiary of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
*23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included
in Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
(1)Each of the Non-Competition Agreements is identical in all respects, except
as described in the prospectus.
*To be filed by amendment.
+Confidential treatment requested.
<PAGE>
EXHIBIT 3.2
ROWECOM, INC.
------------
FORM OF AMENDED AND RESTATED BY-LAWS
------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Article I. - General.
- ------- -------
1.1. Offices................................................................................... 1
1.2. Seal...................................................................................... 1
1.3. Fiscal Year. ............................................................................. 1
Article II. - Stockholders....................................................................... 1
- ------- ------------
2.1. Place of Meetings......................................................................... 1
2.2. Annual Meeting............................................................................ 1
2.3. Quorum.................................................................................... 1
2.4. Right to Vote; Proxies.................................................................... 2
2.5. Voting.................................................................................... 2
2.6. Notice of Annual Meetings................................................................. 2
2.7. Stockholders' List........................................................................ 3
2.8. Special Meetings.......................................................................... 3
2.9. Notice of Special Meetings................................................................ 3
2.10. Inspectors................................................................................ 3
2.11. Stockholders' Consent in Lieu of Meeting.................................................. 4
2.12. Procedures................................................................................ 4
Article III. - Directors......................................................................... 5
- ------- ---------
3.1. Number of Directors....................................................................... 5
3.2. Change in Number of Directors; Vacancies.................................................. 7
3.3. Resignation............................................................................... 7
3.4. Removal................................................................................... 7
3.5. Place of Meetings and Books............................................................... 7
3.6. General Powers............................................................................ 7
3.7. Executive Committee....................................................................... 7
3.8. Other Committees.......................................................................... 8
3.9. Powers Denied to Committees............................................................... 8
3.10. Substitute Committee Member............................................................... 9
3.11. Compensation of Directors................................................................. 9
3.12. Annual Meeting............................................................................ 9
3.13. Regular Meetings.......................................................................... 9
3.14. Special Meetings.......................................................................... 9
3.15. Quorum.................................................................................... 9
3.16. Telephonic Participation in Meetings...................................................... 10
3.17. Action by Consent......................................................................... 10
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
<S> <C>
Article IV. - Officers........................................................................... 10
- ------- --------
4.1. Selection; Statutory Officers............................................................. 10
4.2. Time of Election.......................................................................... 10
4.3. Additional Officers....................................................................... 10
4.4. Terms of Office........................................................................... 11
4.5. Compensation of Officers.................................................................. 11
4.6. Chairman of the Board..................................................................... 11
4.7. President................................................................................. 11
4.8. Vice-Presidents........................................................................... 11
4.9. Treasurer................................................................................. 11
4.10. Secretary................................................................................. 12
4.11. Assistant Secretary....................................................................... 12
4.12. Assistant Treasurer....................................................................... 12
4.13. Subordinate Officers...................................................................... 13
Article V. - Stock............................................................................... 13
- ------- -----
5.1. Stock..................................................................................... 13
5.2. Fractional Share Interests................................................................ 13
5.3. Transfers of Stock........................................................................ 14
5.4. Record Date............................................................................... 14
5.5. Transfer Agent and Registrar.............................................................. 15
5.6. Dividends................................................................................. 15
5.7. Lost, Stolen or Destroyed Certificates.................................................... 15
5.8. Inspection of Books....................................................................... 15
Article VI. - Miscellaneous Management Provisions................................................ 16
- ------- -----------------------------------
6.1. Checks, Drafts and Notes.................................................................. 16
6.2. Notices................................................................................... 16
6.3. Conflict of Interest...................................................................... 16
6.4. Voting of Securities owned by this Company................................................ 17
Article VII. - Indemnification................................................................... 17
- ------- ---------------
7.1. Right to Indemnification.................................................................. 17
7.2. Right of Indemnitee to Bring Suit......................................................... 18
7.3. Non-Exclusivity of Rights................................................................. 19
7.4. Insurance................................................................................. 19
7.5. Indemnification of Employees and Agents of the Company.................................... 19
Article VIII. - Amendments....................................................................... 20
- ------- ----------
8.1. Amendments................................................................................ 20
</TABLE>
<PAGE>
ROWECOM, INC.
-------------
AMENDED AND RESTATED BY LAWS
ARTICLE I - GENERAL.
-------------------
1.1. OFFICES. The registered office of RoweCom, Inc. (the "Company")
-------
will be in the City of Wilmington, County of New Castle, State of Delaware. The
Company may also have offices at such other places both within and without the
State of Delaware as the Board of Directors may from time to time determine or
the business of the Company may require.
1.2 SEAL. The seal, if any, of the Company will be in the form of a
----
circle and will have inscribed thereon the name of the Company, the year of its
organization and the words "Corporate Seal, Delaware."
1.3 FISCAL YEAR. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Company will be the period from January 1st
through December 31st.
ARTICLE II - STOCKHOLDERS.
-------------------------
2.1 PLACE OF MEETINGS. Each meeting of the stockholders will be held at
-----------------
such place or places as the Board of Directors may have determined and as will
be stated in the notices of the meetings.
2.2 ANNUAL MEETING. The annual meeting of the stockholders will be held
--------------
each year on such date and at such time as the Board of Directors may determine.
At each annual meeting the stockholders entitled to vote will elect such members
of the Board of Directors as are standing for election, by plurality vote, and
they may transact such other corporate business as may properly be brought
before the meeting. At the annual meeting any business may be transacted,
irrespective of whether the notice calling such meeting will have contained a
reference thereto, except where notice is required by law, the Company's
Certificate of Incorporation as amended and/or restated from time to time and as
in effect as of the relevant time (the "Certificate of Incorporation"), or these
by-laws.
2.3 QUORUM. At all meetings of the stockholders the holders of a majority
------
of the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, will constitute a quorum requisite for the
transaction of business except as otherwise provided by
<PAGE>
-2-
law, the Certificate of Incorporation, or these by-laws. If, however, such
majority will not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or by proxy, by a
majority vote, will have power to adjourn the meeting from time to time without
notice other than announcement at the meeting until the requisite amount of
voting stock will be present. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting will be given to each stockholder of
record entitled to vote at the meeting. At such adjourned meeting, at which the
requisite amount of voting stock will be represented, any business may be
transacted that might have been transacted if the meeting had been held as
originally called.
2.4 RIGHT TO VOTE; PROXIES. Subject to the provisions of the Certificate
----------------------
of Incorporation, each holder of a share or shares of capital stock of the
Company having the right to vote at any meeting will be entitled to one vote for
each such share of stock held by him. Any stockholder entitled to vote at any
meeting of stockholders may vote either in person or by proxy, but no proxy that
is dated more than three years prior to the meeting at which it is offered will
confer the right to vote thereat unless the proxy provides that it will be
effective for a longer period. A proxy may be granted by a writing executed by
the stockholder or his authorized agent or by transmission or authorization of
transmission of a telegram, cablegram, or other means of electronic transmission
to the person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission, subject
to the conditions set forth in Section 212 of the Delaware General Corporation
Law, as it may be amended from time to time (the "DGCL").
2.5 VOTING. At all meetings of stockholders, except as otherwise
------
expressly provided for by statute, the Certificate of Incorporation, or these
by-laws, (i) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote on such matter will be the act of the
stockholders and (ii) directors will be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors.
2.6 NOTICE OF ANNUAL MEETINGS. Written notice of the annual meeting of
-------------------------
the stockholders will be mailed to each stockholder entitled to vote thereat at
such address as appears on the stock books of the
<PAGE>
-3-
Company at least ten (10) days (and not more than sixty (60) days) prior to the
meeting. It will be the duty of every stockholder to furnish to the Secretary of
the Company or to the transfer agent, if any, of the class of stock owned by
him, his post-office address and to notify said Secretary or transfer agent of
any change therein.
2.7 STOCKHOLDERS' LIST. A complete list of the stockholders entitled to
------------------
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each stockholder, and the number of shares registered in the name
of each stockholder, will be prepared by the Secretary and filed either at a
place within the city where the meeting is to be held, which place will be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, at least ten days before such meeting, and will
at all times during the usual hours for business, and during the whole time of
said election, be open to the examination of any stockholder for a purpose
germane to the meeting.
2.8 SPECIAL MEETINGS. Special meetings of the stockholders for any purpose
----------------
or purposes, unless otherwise provided by statute, may be called only by the
Board of Directors, the President, or a majority of the Board of Directors.
2.9 NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting of
--------------------------
stockholders, stating the time and place and object thereof will be mailed,
postage prepaid, not less than ten (10) nor more than sixty (60) days before
such meeting, to each stockholder entitled to vote thereat, at such address as
appears on the books of the Company. No business may be transacted at such
meeting except that referred to in said notice, or in a supplemental notice
given also in compliance with the provisions hereof, or such other business as
may be germane or supplementary to that stated in said notice or notices.
2.10 INSPECTORS.
----------
1. One or more inspectors may be appointed by the Board of Directors
before or at any meeting of stockholders, or, if no such appointment will
have been made, the presiding officer may make such appointment at the
meeting. At the meeting for which the inspector or inspectors are
appointed, he or they will open and close the polls, receive and take
charge of the proxies and ballots, and decide all questions touching on the
qualifications of voters, the validity of proxies and the acceptance and
rejection of votes. If any inspector previously appointed will fail to
attend or refuse or be
<PAGE>
-4-
unable to serve, the presiding officer will appoint an inspector in his
place.
2. At any time at which the Company has a class of voting stock that
is (i) listed on a national securities exchange, (ii) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or (iii) held of record by more than 2,000
stockholders, the provisions of Section 231 of the DGCL with respect to
inspectors of election and voting procedures will apply, in lieu of the
provisions of paragraph 1 of this (S)2.10.
2.11 STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Unless otherwise provided
----------------------------------------
in the Certificate of Incorporation:
(a) Prior to the closing of an underwritten public offering
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offering and
sale of capital stock of the Company (the "IPO"), any action
required by law to be taken at any annual or special meeting of
stockholders of the Company, or any action that may be taken at
any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so
taken, are signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and are delivered
to the Company by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or
agent of the Company having custody of the book in which
proceedings of meetings of stockholders are recorded.
(b) From and after the closing of the IPO, any action
required to be taken at any annual or special meeting of
stockholders of the Company, or any action that may be taken at
any annual or special meeting of such stockholders, may be taken
only at such meeting and not by written consent of the
stockholders.
2.12 PROCEDURES. For nominations for the Board of Directors or for other
----------
business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely written notice
thereof to the Secretary of the Company. To be timely, a
<PAGE>
-5-
notice of nominations or other business to be brought before an annual meeting
of stockholders must be delivered to the Secretary not less than 120 nor more
than 150 days prior to the first anniversary of the date of the Company's proxy
statement delivered to stockholders in connection with the preceding year's
annual meeting, or if the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary, or if no proxy statement was
delivered to stockholder by the Company in connection with the preceding year's
annual meeting, such notice must be delivered not earlier than 90 days prior to
such annual meeting and not later than the later of (i) 60 days prior to the
annual meeting or (ii) 10 days following the date on which public announcement
of the date of such annual meeting is first made by the Company. With respect to
special meetings of stockholders, such notice must be delivered to the Secretary
not more than 90 days prior to such meeting and not later than the later of (i)
60 days prior to such meeting or (ii) 10 days following the date on which public
announcement of the date of such meeting is first made by the Company. Such
notice must contain the name and address of the stockholder delivering the
notice and a statement with respect to the amount of the Company's stock
beneficially and/or legally owned by such stockholder, the nature of any such
beneficial ownership of such stock, the beneficial ownership of any such stock
legally held by such stockholder but beneficially owned by one or more others,
and the length of time for which all such stock has been beneficially and/or
legally owned by such stockholder, and information about each nominee for
election as a director substantially equivalent to that which would be required
in a proxy statement pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder, and/or a description of the proposed business to
be brought before the meeting, as the case may be.
Article III - Directors.
-----------------------
3.1 NUMBER OF DIRECTORS.
-------------------
(a) Except as otherwise provided by law, the Certificate of
Incorporation or these by-laws, the property and business of the
Company will be managed by or under the direction of a board of
not less than one nor more than thirteen directors. Within the
limits specified, the number of directors will be determined by
resolution of the Board of Directors or by the stockholders at
the annual meeting. Directors need not be stockholders, residents
of Delaware, or citizens of the United States.
<PAGE>
-6-
(b) Subject to the provisions of the Certificate of
Incorporation, prior to the closing of the IPO, the directors
will be elected by ballot at the annual meeting of the
stockholders and each director will be elected to serve until his
successor will be elected and will qualify or until his earlier
resignation or removal; provided that in the event of failure to
hold such meeting or to hold such election at such meeting, such
election may be held at any special meeting of the stockholders
called for that purpose.
(c) Subject to the provisions of the Certificate of
Incorporation, effective from and after the closing of the IPO:
The number of directors constituting the full Board of Directors
initially shall be [six] (or such other number as the Board of
Directors from time to time may determine). The Board of
Directors shall be divided into three classes of directors, such
classes to be as nearly equal in number of directors as possible,
having staggered three-year terms of office, the term of office
of the directors of the first such class to expire as of the
first annual meeting of the Company's stockholder following the
closing of the IPO, those of the second class to expire as of the
second annual meeting of the Company's stockholders following
such closing, and those of the third class as of the third annual
meeting of the Company's stockholders following such closing,
such that at each annual meeting of stockholders after such
closing, nominees will stand for election to succeed those
directors whose terms are to expire as of such meeting. Members
of the Board of Directors shall hold office until the annual
meeting of stockholders at which their respective successors are
elected and qualified or until their earlier death, incapacity,
resignation, or removal. Any director may resign at any time upon
written notice to the Company. Except as the DGCL may otherwise
require, in the interim between annual meetings of stockholders
or special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and for
the filling of any vacancy in that connection, any vacancies in
the Board of Directors, including unfilled vacancies resulting
from the removal of directors for cause, may be filled by the
vote of a majority of the remaining directors then in office,
although less than a quorum, or by the sole remaing director. Any
director or the entire Board of Directors may be removed only for
cause and only by the vote
<PAGE>
-7-
of the holders of a majority of the shares of the Company's stock
entitled to vote for the election of directors.
(d) If the office of any director becomes vacant by reason
of death, resignation, disqualification, removal, failure to
elect, or otherwise, the remaining directors, although more or
less than a quorum, by a majority vote of such remaining
directors may elect a successor or successors who will hold
office for the unexpired term.
3.2 CHANGE IN NUMBER OF DIRECTORS; VACANCIES. The maximum number of
----------------------------------------
directors may be increased by an amendment to these by-laws adopted by a
majority vote of the Board of Directors or by a majority vote of the capital
stock having voting power, and if the number of directors is so increased by
action of the Board of Directors or of the stockholders or otherwise, then the
additional directors may be elected in the manner provided above for the filling
of vacancies in the Board of Directors or at the annual meeting of stockholders
or at a special meeting called for that purpose.
3.3 RESIGNATION. Any director of this Company may resign at any time by
-----------
giving written notice to the Chairman of the Board the President, or the
Secretary of the Company. Such resignation will take effect at the time
specified therein, at the time of receipt if no time is specified therein and at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation will not be necessary to make it effective.
3.4 REMOVAL. Any director or the entire Board of Directors may be removed,
-------
but only for good cause shown, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.5 PLACE OF MEETINGS AND BOOKS. The Board of Directors may hold their
---------------------------
meetings and keep the books of the Company outside the State of Delaware, at
such places as they may from time to time determine.
3.6 GENERAL POWERS. In addition to the powers and authority expressly
--------------
conferred upon them by these by-laws, the board may exercise all such powers of
the Company and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
3.7 EXECUTIVE COMMITTEE. There may be an executive committee of one or
-------------------
more directors designated by resolution passed by a majority of
<PAGE>
-8-
the whole board. The act of a majority of the members of such committee will be
the act of the committee. Such committee may meet at stated times or on notice
to all by any of their own number, and will have and may exercise those powers
of the Board of Directors in the management of the business affairs of the
Company as are provided by law and may authorize the seal of the Company to be
affixed to all papers that may require it. Vacancies in the membership of such
committee will be filled by the Board of Directors at a regular meeting or at a
special meeting called for that purpose.
3.8 OTHER COMMITTEES. The Board of Directors may also designate one or
----------------
more committees in addition to the executive committee, by resolution or
resolutions passed by a majority of the whole board; such committee or
committees will consist of one or more directors of the Company, and to the
extent provided in the resolution or resolutions designating them, will have and
may exercise specific powers of the Board of Directors in the management of the
business and affairs of the Company to the extent permitted by statute and will
have power to authorize the seal of the Company to be affixed to all papers
which may require it. Such committee or committees will have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors.
3.9 POWERS DENIED TO COMMITTEES. Committees of the Board of Directors
---------------------------
will not, in any event, have any power or authority to amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares adopted by the
Board of Directors as provided in Section 151(a) of the DGCL, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the Company or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's property and
assets, recommend to the stockholders a dissolution of the Company or a
revocation of a dissolution or to amend the by-laws of the Company. Further, no
committee of the Board of Directors will have the power or authority to declare
a dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL, unless the resolution
or resolutions designating such committee expressly so provides.
<PAGE>
-9-
3.10 SUBSTITUTE COMMITTEE MEMBER. In the absence or on the
---------------------------
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee will keep regular minutes of its proceedings and report
the same to the board as may be required by the board.
3.11 COMPENSATION OF DIRECTORS. The Board of Directors will have the power
-------------------------
to fix the compensation of directors and members of committees of the Board. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment will preclude any director from serving the Company in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.12 ANNUAL MEETING. The newly elected board may meet at such place and
--------------
time as will be fixed and announced by the presiding officer at the annual
meeting of stockholders, for the purpose of organization or otherwise, and no
further notice of such meeting will be necessary to the newly elected directors
in order legally to constitute the meeting, provided a quorum will be present,
or they may meet at such place and time as will be stated in a notice given to
such directors two (2) days prior to such meeting, or as will be fixed by the
consent in writing of all the directors.
3.13 REGULAR MEETINGS. Regular meetings of the board may be held without
----------------
notice at such time and place as will from time to time be determined by the
board.
3.14 SPECIAL MEETINGS. Special meetings of the board may be called by the
----------------
Chairman of the Board, if any, or the President, on two (2) days notice to each
director, or such shorter period of time before the meeting as will nonetheless
be sufficient for the convenient assembly of the directors so notified; special
meetings will be called by the Secretary in like manner and on like notice, on
the written request of two or more directors.
3.15 QUORUM. At all meetings of the Board of Directors, a majority of the
------
total number of directors will be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a
<PAGE>
-10-
majority of the directors present at any meeting at which there is a quorum will
be the act of the Board of Directors, except as may be otherwise specifically
permitted or provided by statute, or by the Certificate of Incorporation, or by
these by-laws. If at any meeting of the board there will be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given other
than by announcement at said meeting that will be so adjourned.
3.14 TELEPHONIC PARTICIPATION IN MEETINGS. Members of the Board of
------------------------------------
Directors or any committee designated by such board may participate in a meeting
of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section will constitute presence in person at such meeting.
3.15 ACTION BY CONSENT. Unless otherwise restricted by the Certificate of
-----------------
Incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if written consent thereto is signed by all members of the
board or of such committee as the case may be and such written consent is filed
with the minutes of proceedings of the board or committee.
ARTICLE IV - OFFICERS.
---------------------
4.1 SELECTION; STATUTORY OFFICERS. The officers of the Company will be
-----------------------------
chosen by the Board of Directors. There will be a President, a Secretary and a
Treasurer, and there may be a Chairman of the Board of Directors, one or more
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, as the Board of Directors may elect. Any number of offices may be
held by the same person, except that the offices of the President and Secretary
shall not be held by the same person simultaneously.
4.2 TIME OF ELECTION. The officers above named will be chosen by the Board
----------------
of Directors. None of such officers need be a director.
4.3 ADDITIONAL OFFICERS. The board may appoint such other officers and
-------------------
agents as it will deem necessary, who will hold their offices for such terms and
will exercise such powers and perform such duties as will be determined from
time to time by the board.
<PAGE>
-11-
4.4 TERMS OF OFFICE. Each officer of the Company will hold office until
---------------
his successor is chosen and qualified, or until his earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors.
4.5 COMPENSATION OF OFFICERS. The Board of Directors will have power to
------------------------
fix the compensation of all officers of the Company. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors will
---------------------
preside at all meetings of the stockholders and directors, and will have such
other duties as may be assigned to him from time to time by the Board of
Directors.
4.7 PRESIDENT. Unless the Board of Directors otherwise determines, the
---------
President will be the chief executive officer and head of the Company. Unless
there is a Chairman of the Board, the President will preside at all meetings of
directors and stockholders. Under the supervision of the Board of Directors and
of the executive committee, the President will have the general control and
management of its business and affairs, subject, however, to the right of the
Board of Directors and of the executive committee to confer any specific power,
except such as may be by statute exclusively conferred on the President, upon
any other officer or officers of the Company. The President will perform and do
all acts and things incident to the position of President and such other duties
as may be assigned to him from time to time by the Board of Directors or the
executive committee.
4.8 VICE-PRESIDENTS. The Vice-Presidents will perform such of the duties
---------------
of the President on behalf of the Company as may be respectively assigned to
them from time to time by the Board of Directors or by the executive committee
or by the President. The Board of Directors or the executive committee may
designate one of the Vice-Presidents as the Executive Vice-President, and in the
absence or inability of the President to act, such Executive Vice-President will
have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the board and of the executive committee.
4.9 TREASURER. The Treasurer will have the care and custody of all the
---------
funds and securities of the Company that may come into his hands as Treasurer,
and the power and authority to endorse checks, drafts and other instruments for
the payment of money for deposit or collection when
<PAGE>
-12-
necessary or proper and to deposit the same to the credit of the Company in such
bank or banks or depository as the Board of Directors or the executive
committee, or the officers or agents to whom the Board of Directors or the
executive committee may delegate such authority, may designate, and he may
endorse all commercial documents requiring endorsements for or on behalf of the
Company. He may sign all receipts and vouchers for the payments made to the
Company. He will render an account of his transactions to the Board of Directors
or to the executive committee as often as the board or the committee will
require the same. He will enter regularly in the books to be kept by him for
that purpose full and adequate account of all moneys received and paid by him on
account of the Company. He will perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors and of the executive
committee. He will when requested, pursuant to vote of the Board of Directors or
the executive committee, give a bond to the Company conditioned for the faithful
performance of his duties, the expense of which bond will be borne by the
Company.
4.10 SECRETARY. The Secretary will keep the minutes of all meetings of the
---------
Board of Directors and of the stockholders; he will attend to the giving and
serving of all notices of the Company. Except as otherwise ordered by the Board
of Directors or the executive committee, he will attest the seal of the Company
upon all contracts and instruments executed under such seal and will affix the
seal of the Company thereto and to all certificates of shares of capital stock
of the Company. He will have charge of the stock certificate book, transfer book
and stock ledger, and such other books and papers as the Board of Directors or
the executive committee may direct. He shall, in general, perform all the duties
of Secretary, subject to the control of the Board of Directors and of the
executive committee.
4.11 ASSISTANT SECRETARY. The Board of Directors or any two of the officers
-------------------
of the Company acting jointly may appoint or remove one or more Assistant
Secretaries of the Company. Any Assistant Secretary upon his appointment will
perform such duties of the Secretary, and also any and all such other duties as
the executive committee or the Board of Directors or the President or the
Executive Vice-President or the Treasurer or the Secretary may designate.
4.12 ASSISTANT TREASURER. The Board of Directors or any two of the officers
-------------------
of the Company acting jointly may appoint or remove one or more Assistant
Treasurers of the Company. Any Assistant Treasurer upon his appointment will
perform such of the duties of the Treasurer, and also any and all such other
duties as the executive committee or the
<PAGE>
-13-
Board of Directors or the President or the Executive Vice-President or the
Treasurer or the Secretary may designate.
4.13 SUBORDINATE OFFICERS. The Board of Directors may select such
--------------------
subordinate officers as it may deem desirable. Each such officer will hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
ARTICLE V - STOCK.
-----------------
5.1 STOCK. Each stockholder will be entitled to a certificate or
-----
certificates of stock of the Company in such form as the Board of Directors may
from time to time prescribe. The certificates of stock of the Company will be
numbered and will be entered in the books of the Company as they are issued.
They will certify the holder's name and number and class of shares and will be
signed by both of (i) either the President or a Vice-President, and (ii) any one
of the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, and will be sealed with the corporate seal of the Company. If such
certificate is countersigned (l) by a transfer agent other than the Company or
its employee, or, (2) by a registrar other than the Company or its employee, the
signature of the officers of the Company and the corporate seal may be
Facsimiles. In case any officer or officers who will have signed, or whose
facsimile signature or signatures will have been used on, any such certificate
or certificates will cease to be such officer or officers of the Company,
whether because of death, resignation or otherwise, before such certificate or
certificates will have been delivered by the Company, such certificate or
certificates may nevertheless be adopted by the Company and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature will have been used thereon had not
ceased to be such officer or officers of the Company.
5.2 FRACTIONAL SHARE INTERESTS. The Company may, but will not be required
--------------------------
to, issue fractions of a share. If the Company does not issue fractions of a
share, it will (i) arrange for the disposition of fractional interests by those
entitled thereto, (ii) pay in cash the fair value of fractions of a share as of
the time when those entitled to receive such fractions are determined, or (iii)
issue scrip or warrants in registered or bearer form that will entitle the
holder to receive a certificate for a full share upon the surrender of such
scrip or warrants aggregating a full share. A certificate for a fractional share
shall, but scrip or warrants will not unless otherwise provided therein, entitle
the holder to exercise voting
<PAGE>
-14-
rights, to receive dividends thereon, and to participate in any of the assets of
the Company in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they will become void if
not exchanged for certificates representing full shares before a specified date,
or subject to the conditions that the shares for which scrip or warrants are
exchangeable may be sold by the Company and the proceeds thereof distributed to
the holders of scrip or warrants, or subject to any other conditions which the
Board of Directors may impose.
5.3 TRANSFERS OF STOCK. Subject to any transfer restrictions then in
------------------
force, the shares of stock of the Company will be transferable only upon its
books by the holders thereof in person or by their duly authorized attorneys or
legal representatives and upon such transfer the old certificates will be
surrendered to the Company by the delivery thereof to the person in charge of
the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they will be canceled and new certificates will
thereupon be issued. The Company will be entitled to treat the holder of record
of any share or shares of stock as the holder in fact thereof and accordingly
will not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it will have express
or other notice thereof save as expressly provided by the laws of Delaware.
5.4 RECORD DATE. For the purpose of determining the stockholders entitled
-----------
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, that will not
be more than sixty (60) days nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If no such
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders will
be at the close of business on the day next preceding the day on that notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, will be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose will be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record
<PAGE>
-15-
entitled to notice of or to vote at any meeting of stockholders will apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
5.5 TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint one
----------------------------
or more transfer agents or transfer clerks and one or more registrars and may
require all certificates of stock to bear the signature or signatures of any of
them.
5.6 DIVIDENDS.
---------
1. Power to Declare. Dividends upon the capital stock of the
----------------
Company, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate
of Incorporation and the laws of Delaware.
2. Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the Company available for dividends such sum or
sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Company, or for such other purpose as the directors will think conducive to
the interest of the Company, and the directors may modify or abolish any
such reserve in the manner in which it was created.
5.7 LOST, STOLEN OR DESTROYED CERTIFICATES. No certificates for shares of
--------------------------------------
stock of the Company will be issued in place of any certificate alleged to have
been lost, stolen, or destroyed, except upon production of such evidence of the
loss, theft, or destruction and upon indemnification of the Company and its
agents to such extent and in such manner as the Board of Directors may from time
to time prescribe.
5.8 INSPECTION OF BOOKS. The stockholders of the Company, by a majority
-------------------
vote at any meeting of stockholders duly called, or in case the stockholders
will fail to act, the Board of Directors will have power from time to time to
determine whether and to what extent and at what times and places and under what
conditions and regulations the accounts and books of the Company (other than the
stock ledger) or any of them, will be open to inspection of stockholders; and no
stockholder will have any right to inspect any account or book or document of
the Company except as
<PAGE>
-16-
conferred by statute or authorized by the Board of Directors or by a resolution
of the stockholders.
ARTICLE VI - MISCELLANEOUS MANAGEMENT PROVISIONS.
------------------------------------------------
6.1 CHECKS, DRAFTS AND NOTES. All checks, drafts, or orders for the
------------------------
payment of money, and all notes and acceptances of the Company will be signed by
such officer or officers, or such agent or agents, as the Board of Directors may
designate.
6.2 NOTICES.
-------
1. Notices to directors may, and notices to stockholders shall, be
in writing and delivered personally or mailed to the directors or
stockholders at their addresses appearing on the books of the Company.
Notice by mail will be deemed to be given at the time when the same will be
mailed. Notice to directors may also be given by telegram, telecopy or
orally, by telephone or in person.
2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation of the
Company of the Company or of these by-laws, a written waiver of notice,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein or the meeting or action to which such notice
relates, will be deemed equivalent to notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
6.3 CONFLICT OF INTEREST. No contract or transaction between the Company
--------------------
and one or more of its directors or officers, or between the Company and any
other Company, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, will be void or voidable solely for this reason, or solely because the
director or officer is present at or participates in the meeting of the board of
or committee thereof that authorized the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (i) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee and the
board or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though
<PAGE>
-17-
the disinterested directors be less than a quorum; or (ii) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders of the Company entitled to vote
thereon, and the contract or transaction as specifically approved in good faith
by vote of such stockholders; or (iii) the contract or transaction is fair as to
the Company as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the Board
of Directors or of a committee that authorizes the contract or transaction.
6.4 VOTING OF SECURITIES OWNED BY THIS COMPANY. Subject always to the
------------------------------------------
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other company and owned or controlled by the company
may be voted in person at any meeting of security holders of such other company
by the President of the Company if he is present at such meeting, or in his
absence by the Treasurer of the Company if he is present at such meeting, and
(ii) whenever, in the judgment of the President, it is desirable for the Company
to execute a proxy or written consent in respect to any shares or other
securities issued by any other company and owned by the Company, such proxy or
consent will be executed in the name of the Company by the President, without
the necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer, provided
that if the President is unable to execute such proxy or consent by reason of
sickness, absence from the United States or other similar cause, the Treasurer
may execute such proxy or consent. Any person or persons designated in the
manner above stated as the proxy or proxies of the Company will have full right,
power and authority to vote the shares or other securities issued by such other
Company and owned by the Company the same as such shares or other securities
might be voted by the Company.
ARTICLE VII - INDEMNIFICATION.
-----------------------------
7.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
------------------------
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Company or serving or having served at the request of the Company as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (an "Indemnitee"), whether the basis of such proceeding is
alleged action or
<PAGE>
-18-
failure to act in an official capacity as a director, trustee, officer, employee
or agent or in any other capacity while serving as a director, trustee, officer,
employee or agent, will be indemnified and held harmless by the Company to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than permitted prior thereto) (as used in this Article 7,
the "Delaware Law"), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith and such indemnification will continue as to an Indemnitee
who has ceased to be a director, trustee, officer, employee or agent and will
inure to the benefit of the Indemnitee's heirs, executors and administrators;
provided, however, that, except as provided in (S)7.2 hereof with respect to
Proceedings to enforce rights to indemnification, the Company will indemnify any
such Indemnitee in connection with a Proceeding (or part thereof) initiated by
such Indemnitee only if such Proceeding (or part thereof) was authorized by the
board of directors of the Company. The right to indemnification conferred in
this Article 7 will be a contract right and will include the right to be paid by
the Company the expenses (including attorneys' fees) incurred in defending any
such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee will be made only upon
delivery to the Company of an undertaking (an "Undertaking"), by or on behalf of
such Indemnitee, to repay all amounts so advanced if it will ultimately be
determined by final judicial decision from which there is no further right to
appeal (a "Final Adjudication") that such Indemnitee is not entitled to be
indemnified for such expenses under this Article 7 or otherwise.
7.2 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under (S)7.1 hereof is
---------------------------------
not paid in full by the Company within sixty days after a written claim has been
received by the Company, except in the case of a claim for an Advancement of
Expenses, in which case the applicable period will be twenty days, the
Indemnitee may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Company to recover an Advancement of Expenses
pursuant to the terms of an Undertaking, the Indemnitee will be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the Indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the Indemnitee to enforce a right to an Advancement of
<PAGE>
-19-
Expenses) it will be a defense that, and (ii) in any suit by the Company to
recover an Advancement of Expenses pursuant to the terms of an Undertaking the
Company will be entitled to recover such expenses upon a Final Adjudication
that, the Indemnitee has not met the applicable standard of conduct set forth in
the Delaware Law. Neither the failure of the Company (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the Delaware Law, nor an actual
determination by the Company (including its board of directors, independent
legal counsel, or its stockholders) that the Indemnitee has not met such
applicable standard of conduct, will create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an Advancement of
Expenses hereunder, or by the Company to recover an Advancement of Expenses
pursuant to the terms of an Undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such Advancement of
Expenses, under this Article 7 or otherwise will be on the Company.
7.3 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
-------------------------
Advancement of Expenses conferred in this Article 7 will not be exclusive of any
other right that any person may have or hereafter acquire under any statute, the
Company's Certificate of Incorporation, by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
7.4 INSURANCE. The Company may maintain insurance, at its expense, to
---------
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
this Article 7 or under the Delaware Law.
7.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE COMPANY. The Company
------------------------------------------------------
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification, and to the Advancement of Expenses, to any employee
or agent of the Company to the fullest extent of the provisions of this Article
7 with respect to the indemnification and Advancement of Expenses of directors
and officers of the Company.
<PAGE>
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ARTICLE VIII - AMENDMENTS.
-------------------------
8.1 AMENDMENTS. Subject always to any limitations imposed by the Company's
----------
Certificate of Incorporation, from and after the closing of the IPO, these
By-laws may be altered, amended or repealed or new By-laws may be adopted, only
by affirmative vote of the holders of at least a majority of the outstanding
voting stock of the Company, provided, that the affirmative vote of the holders
of at least 67% of the outstanding voting stock of the Company shall be required
for any such alteration, amendment, repeal, or adoption that would affect or be
inconsistent with the provisions of Sections 2.11, 2.12, and 3.1(c) and this
Section 8.1 (in each case, in addition to any separate class vote that may be
required pursuant to the terms of any then outstanding preferred stock of the
Company), or (ii) by resolution of the Board of Directors duly adopted by not
less than a majority of the directors then constituting the full Board of
Directors.
<PAGE>
EXHIBIT 10.1
ROWECOM INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this 1997 Stock Incentive Plan of RoweCom Inc. (the
"Company") are to promote the interests of the Company and its stockholders by
strengthening the Company's ability to attract, motivate, and retain officers,
directors, employees, and consultants of exceptional ability and to provide a
means to encourage stock ownership and a proprietary interest in the Company to
selected officers, directors, employees, and consultants of the Company upon
whose judgment, initiative, and efforts the financial success and growth of the
business of the Company largely depend.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Compensation Committee of the Board; provided,
that the Board by resolution duly adopted may at any time or from time to time
determine to assume any or all of the functions of the Committee under the Plan,
and during the period of effectiveness of any such resolution, references herein
to the "Committee" will mean the Board acting in such capacity.
(c) "Common Stock" means the Common Stock, $0.01 par value, of the
Company.
(d) "Company" means RoweCom Inc., a Delaware corporation.
(e) "Eligible Person" means any person who, at the time of the grant of an
Option or Restricted Stock Award, is an officer, director, employee, or
consultant of the Company or any Subsidiary.
(f) "Fair Market Value" means the value of a share of Common Stock as of
the relevant time of reference, as determined as follows. If the Common Stock
is then publicly traded, Fair Market Value will be (i) the last sale price, on
the preceding business day, of a share of Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last sale price, on
the preceding business day, of the Common Stock reported in The NASDAQ Stock
Market's National Market, if the Common Stock is not then
<PAGE>
traded on a national securities exchange; or (iii) the average of the closing
bid and asked prices, on the preceding business day, for the Common Stock quoted
by an established quotation service for over-the-counter securities, if the
Common Stock is not then traded on a national securities exchange or reported in
The NASDAQ Stock Market's National Market. If the Common Stock is not then
publicly traded, Fair Market Value will be the fair value of a share of the
Common Stock as determined by the Board or the Committee, taking into
consideration such factors as it deems appropriate, which may include recent
sale and offer prices of Common Stock in arms'-length transactions.
(g) "Participant" means any Eligible Person selected to receive an Option
or Restricted Stock Award pursuant to Section 5.
(h) "Restricted Stock Award" means a right to the grant or purchase, at a
price determined by the Committee, of Common Stock which is nontransferable and
subject to substantial risk of forfeiture until specific conditions of
continuing employment or other performance are met.
(i) "Incentive Stock Option" means an Option intended to qualify as an
"incentive stock option" under Section 422A of the Internal Revenue Code and
regulations thereunder.
(j) "Option" means an Incentive Stock Option or a nonqualified stock
option.
(k) "Plan" means this 1997 Stock Incentive Plan, as it may be amended
and/or restated and in effect from time to time.
(l) "Subsidiary" means any subsidiary corporation (as defined in Section
425 of the Internal Revenue Code) of the Company.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of Section
3(c) and Section 8 of the Plan, the aggregate number of shares of Common Stock
that may be issued or transferred pursuant to Options or Restricted Stock Awards
under the Plan will not exceed an aggregate of 330,371 shares.
(b) The shares of Common Stock to be delivered under the Plan will be made
available, at the discretion of the Committee, from authorized but
<PAGE>
unissued shares of Common Stock and/or from previously issued shares of Common
Stock reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any reason,
and/or shares covered by Restricted Stock Awards are forfeited, such number of
shares will no longer be charged against the limitation provided in Section 3(a)
and may again be made subject to Options or Restricted Stock Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in
accordance with the internal laws of the State of Delaware (without reference to
principles of conflicts or choice of law). The captions of sections of the Plan
are for reference only and will not affect the interpretation or construction of
the Plan.
(b) The Plan will be administered by the Committee, which will consist of
two or more persons. The Committee has and may exercise such powers and
authority of the Board as may be necessary or appropriate for the Committee to
carry out its functions as described in the Plan. The Committee will determine
the Eligible Persons to whom, and the time or times at which, Options or
Restricted Stock Awards may be granted and the number of shares subject to each
Option or Restricted Stock Award. The Committee also has authority (i) to
interpret the Plan, (ii) to determine the terms and provisions of the Option or
Restricted Stock Award instruments, and (iii) to make all other determinations
necessary or advisable for Plan administration. The Committee has authority to
prescribe, amend, and rescind rules and regulations relating to the Plan. All
interpretations, determinations, and actions by the Committee will be final,
conclusive, and binding upon all parties.
(c) No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award under it.
5. GRANTS.
(a) The Committee will determine and designate from time to time those
Eligible Persons who are to be granted Options or Restricted Stock Awards, the
type of each Option to be granted (provided, that no Incentive Stock Option may
be granted to any person who is not then an employee of the Company) and the
number of shares covered thereby or issuable upon exercise thereof, and the
number of shares covered by each Restricted Stock Award. Each Option and
Restricted Stock Award will be evidenced by a written
<PAGE>
agreement or instrument and may include any other terms and conditions not
inconsistent with the Plan, as the Committee may determine.
(b) No person will be eligible for the grant of an Incentive Stock Option
who owns or would own immediately before the grant of such Option, directly or
indirectly, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any parent corporation or
Subsidiary of the Company. This will not apply if, at the time such Incentive
Stock Option is granted, its exercise price is at least 110% of the Fair Market
Value of the Common Stock and by its terms, it is not exercisable after the
expiration of five years from the date of grant. Subject to adjustment in
accordance with the provisions of Section 8 of the Plan, (i) no person may in
any year be granted Options or Restricted Stock Awards with respect to more than
150,000 shares of Common Stock, and (ii) no more than an aggregate of 330,371
shares of Common Stock may be issued pursuant to the exercise of Incentive Stock
Options granted under the Plan.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The price at which Common Stock may be purchased by a Participant
under an Option will be determined by the Committee; provided, however, that the
purchase price under an Incentive Stock Option will not be less than 100% (110%,
in the case of an Incentive Stock Option granted to a greater-than-10%
stockholder) of the Fair Market Value of the Common Stock on the date of grant
of such Option.
(b) Each Option will be exercisable at such time or time, during such
periods, and for such numbers of shares as is determined by the Committee and
set forth in the agreement or instrument evidencing the Option grant (subject to
acceleration by the Committee, in its discretion; provided, that each
outstanding Option granted to an officer, director, or employee of the Company
will vest and become exercisable in its entirety immediately prior to the
closing of any sale of the Company or its business (whether by merger,
consolidation, sale of all or substantially all assets or capital stock, or
otherwise). An Incentive Stock Option will expire no later than three months
following termination of the optionee's employment relationship with the Company
or a Subsidiary, except in the event that such termination is due to death or
disability, in which case the Option may be exercisable for a maximum of twelve
months after such termination. In any event, an Option will expire no later
than the tenth anniversary of the date of grant.
<PAGE>
(c) Unless the Compensation Committee otherwise determines (whether at the
time the Option is granted or otherwise), upon the exercise of an Option, the
purchase price will be payable in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to
employees of the Company or a Subsidiary, and the aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the number
of shares with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year will not exceed one hundred
thousand dollars ($100,000) or such other limit as may be imposed by the
Internal Revenue Code. Any Options that purport to be Incentive Stock Options
but which are granted to persons other than employees of the Company or a
Subsidiary will be, and any Options that purport to be Incentive Stock Options
but are granted in amounts in excess of those specified in this Section 6(d),
will to the extent of such excess be, nonqualified Options.
(e) No fractional shares will be issued pursuant to the exercise of an
Option, nor will any cash payment be made in lieu of fractional shares.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards granted
or sold pursuant to the Plan may be issued or transferred for such consideration
(which may consist wholly of services) as the Committee may determine, and will
be subject to the following conditions:
(i) The shares may not be sold, transferred, or otherwise alienated
or hypothecated until the restrictions are removed or expire, unless the
Committee determines otherwise.
(ii) The Committee may provide in the agreement or instrument
evidencing the grant of the Restricted Stock Awards that the certificates
representing shares subject to Restricted Stock Awards granted or sold
pursuant to the Plan will be held in escrow by the Company until the
restrictions on the shares lapse in accordance with the provisions of
subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to Restricted
Stock Awards granted or sold pursuant to the Plan will bear a legend making
appropriate reference to the restrictions imposed.
(iv) The Committee may impose other conditions on any shares subject
to Restricted Stock Awards granted or sold pursuant to the Plan
<PAGE>
as it may deem advisable, including without limitation, restrictions under
the Securities Act of 1933, as amended, under the requirements of any stock
exchange or securities quotations system upon which such shares or shares
of the same class are then listed, and under any blue sky or other
securities laws applicable to such shares.
(b) The restrictions imposed under subparagraph (a) above upon Restricted
Stock Awards will lapse at such time or times, and/or upon the achievement of
such predetermined performance objectives, as is determined by the Committee and
set forth in the agreement or instrument evidencing the Restricted Stock Award,
subject to acceleration by the Committee, in its discretion; provided, that with
respect to each outstanding Restricted Stock Award granted to an officer,
director, or employee of the Company, all such restrictions (other than those is
clause (iv)) will lapse in their entirety immediately prior to the closing of
any sale of the Company or its business (whether by merger, consolidation, sale
of all or substantially all assets or capital stock, or otherwise). In the event
a holder of a Restricted Stock Award ceases to be an officer, director,
employee, or consultant (as the case may be) of the Company, all shares under
the Restricted Stock Award that remain subject to restrictions at the time his
or her officership, directorship, employment, or consulting relationship
terminates will be returned to or repurchased by the Company unless the
Committee determines otherwise.
(c) Subject to the provisions of subparagraphs (a) and (b) above, the
holder will have all rights of a shareholder with respect to the shares covered
by Restricted Stock Awards granted or sold, including the right to receive all
dividends and other distributions paid or made with respect thereto; provided,
however, that he or she will execute an irrevocable proxy or enter into a voting
agreement with the Company as determined by the Committee for the purpose of
granting the Company or its nominee the right to vote all shares that remain
subject to restrictions under this Section 7 in the same proportions (for and
against) as the outstanding voting shares of the Company that are not subject to
such restrictions are voted by the other shareholders of the Company on any
matter, unless the Committee determines otherwise.
8. ADJUSTMENT PROVISIONS.
(a) Subject to Section 8(b), if the outstanding shares of Common Stock of
the Company are increased, decreased, or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all the property of the Company, reorganization, recapitalization,
<PAGE>
reclassification, stock dividend, stock split, reverse stock split, or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment will be made in (i) the maximum
numbers and kinds of shares provided in Sections 3 and 5, (ii) the numbers and
kinds of shares or other securities subject to the then outstanding Options and
Restricted Stock Awards, and (iii) the price for each share or other unit of any
other securities subject to then outstanding Options (without change in the
aggregate purchase price as to which such Options remain exercisable).
(b) Adjustments under this Section 8 will be made by the Committee in
accordance with the terms hereof, whose determination as to what adjustments
will be made and the extent thereof so as to effectuate the intent of such
sections will be final, binding, and conclusive. The Company may, but will not
be required to, issue fractional shares by reason of any such adjustments.
<PAGE>
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue in the employ of or as an
officer or director of or consultant to the Company or any of its Subsidiaries
or affect the right of the Company or any Subsidiary to terminate the
employment, officership, directorship, or consulting relationship of any
Participant at any time, with or without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to an
Option or Restricted Stock Award unless and until all then applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges or securities quotations systems upon which the Common Stock may be
listed, have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Option or Restricted Stock Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option, except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) The Committee will adopt rules regarding the withholding of federal,
state, or local taxes of any kind required by law to be withheld with respect to
payments and delivery of shares to Participants under the Plan. With respect to
any nonqualified stock option, the Committee, in its discretion, may permit the
Participant to satisfy, in whole or in part, any tax withholding obligation that
may arise in connection with the exercise of the nonqualified stock option by
electing to have the Company withhold shares of Common Stock having a Fair
Market Value equal to the amount of the tax withholding.
(e) No Option and no right under the Plan, contingent or otherwise, will
be transferable or assignable or subject to any encumbrance, pledge, or charge
of any nature except that, under such rules and regulations as the Committee may
establish pursuant to the terms of the Plan, a beneficiary may be designated
with respect to an Option in the event of death of a Participant. If such
beneficiary is the executor or administrator of the estate of the Participant,
any rights with respect to such Option may be transferred to the person or
persons or entity (including a trust) entitled thereto under the will of the
holder of such Option.
<PAGE>
(f) The Committee may cancel, with the consent of the Participant, all or
a portion of any Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Option for the same or a different number
of shares as the Option surrendered, or may require such voluntary surrender as
a condition to a grant of a new Option to such Participant; in the case of an
Incentive Stock Option, such new Options, if Incentive Stock Options, to have an
exercise price per share based upon the Fair Market Value of the Common Stock as
of the new grant date (i.e., the purchase price under a new Incentive Stock
Option will not be less than 100% of the Fair Market Value of the Common Stock
on the date of grant of such new Incentive Stock Option (110%, if the grantee of
such new Incentive Stock Option is a greater-than-10% stockholder of the
Company, as set forth in Section 5(b) above)). Subject to the provisions of
Section 6(d), such new Option will be exercisable at such time or time, during
such periods, and for such numbers of shares, and in accordance with any other
terms or conditions, as are specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.
(g) The written agreements or instruments evidencing Restricted Stock
Awards or Options granted under the Plan may contain such other provisions as
the Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the Option covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value at such time, equal to any such excess, or by a combination of cash
and shares. Upon any such payment of cash or issuance of shares, (i) there will
be charged against the aggregate limitations set forth in Section 3(a) a number
of shares equal to the number of shares so issued plus the number of shares
purchasable with the amount of any cash paid to the Participant on the basis of
the Fair Market Value as of the date of payment, and (ii) the number of shares
subject to the portion of the Option so canceled, less the number of shares so
charged against such limitations, will thereafter be available for other grants.
<PAGE>
10. AMENDMENT AND TERMINATION.
(a) The Board will have the power, in its discretion, to amend, modify,
suspend, or terminate the Plan at any time, subject to the rights of holders of
outstanding Options and Restricted Stock Awards on the date of such action.
(b) The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Option or Restricted Stock Award
held by such Participant as it deems advisable.
(c) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate, impair, or adversely affect any
right or obligation under any Option or Restricted Stock Award previously
granted to such Participant under the Plan.
11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The effective date of the Plan is April 25, 1997, the date on which it was
approved by the Board. No option may be granted under the Plan after the tenth
anniversary of such effective date. Subject to the foregoing, options may be
granted under the Plan at any time subsequent to such effective date, provided,
however, that (a) no Incentive Option will be exercised or exercisable unless
the stockholders of the Company approve the Plan not later than one year from
such effective date, and (b) all Incentive Options, if any, issued prior to the
date of such stockholders' approval will contain a reference to such condition.
<PAGE>
EXHIBIT 10.2
ROWECOM INC.
FORM OF 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
This 1998 Non-Employee Director Stock Option Plan (this "Plan") is a stock
option plan pursuant to which options to purchase shares of the Common Stock,
$0.01 par value per share ("Common Stock"), of RoweCom Inc. (the "Company") will
be granted to non-employee directors of the Company. The purpose of this Plan
is to attract and retain the services as directors of the Company of qualified
persons who are not employees of the Company, to express the Company's
appreciation for their service as directors, and to provide them with additional
incentives to contribute to the future success of the Company's business.
ARTICLE II
DEFINITIONS
"Board" means the Board of Directors of the Company.
"Change in Control" means either of the following transactions:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the beginning of such period, or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members
<PAGE>
-2-
described in the preceding clause (A) who were still in office at the
time such election or nomination was approved by the Board.
"Director" means a member of the Board who is not, and during the twelve
months preceding the relevant time of reference, has not been, an employee of
the Company or any of its subsidiaries.
"Fair Market Value" has the following meaning: If, at the time an Option
is granted under this Plan, the Common Stock is publicly traded, Fair Market
Value will be determined as of the date on which such Option is granted and will
be (i) the last sale price of a share of Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last sale price of
the Common Stock reported in the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the average
of the closing bid and asked prices for the Common Stock quoted by an
established quotation service for over-the-counter securities, if the Common
Stock is not then traded on a national securities exchange or reported in the
NASDAQ National Market System; provided, that in the case of the Options granted
hereunder on the date this Plan first becomes effective pursuant to Article X
hereof, Fair Market Value will be the initial public offering price at which
Shares are offered to the public pursuant to the registration statement referred
to in Article X. If the Common Stock is not publicly traded at the time an
Option is granted under this Plan, Fair Market Value will be the fair value of a
share of the Common Stock as determined by the Board, taking into consideration
such factors that as it deems appropriate, which may include recent sale and
offer prices of Common Stock in arms'-length private transactions.
"Option" means an option to purchase shares of Common Stock, granted under
this Plan.
"Option Agreement" means an agreement between the Company and an Optionee,
setting forth the terms and conditions of an Option.
"Optionee" means a person to whom an outstanding Option has been granted
under this Plan.
"Shares" means shares of Common Stock.
ARTICLE III
SHARES AVAILABLE FOR OPTIONS
<PAGE>
-3-
A. Maximum Number of Reserved Shares. The maximum number of Shares for
which Options may be issued under this Plan is _________ (subject to automatic
proportionate adjustment in the event of any stock dividend, stock split, stock
combination, recapitalization, or other similar event affecting the Common
Stock). In the event that an Option granted under this Plan to any Optionee
expires or is terminated unexercised as to any Shares covered thereby, such
Shares will thereafter again be available for purposes of this Plan.
B. Adjustment of Number of Shares; Fractional Shares. In the event of
any stock dividend, stock split, stock combination, recapitalization, or other
similar event affecting the Common Stock and occurring after the date on which
an Option is granted, the number and kind of securities for which such Option
may thereafter be exercised, and the exercise price payable therefor, will be
proportionately adjusted. Immediately prior to the occurrence of any
Acquisition or Change of Control, each Option will become fully exercisable with
respect to the total number of shares of Common Stock subject to such Option.
No fraction of a share of the Common Stock will be purchasable or deliverable
upon exercise of any Option, but in the event any adjustment of the number of
Shares covered by the Option causes such number to include a fraction of a
Share, such fraction will be adjusted to the nearest smaller whole number of
Shares.
ARTICLE IV
GRANTING OF OPTIONS
A. Automatic Grants.
(i) Each Director serving as such on the date this Plan becomes
effective in accordance with Article X hereof will automatically receive a
grant of Options to purchase a number of Shares equal to the quotient of
(1) $________ divided by (2) the Fair Market Value as of such date; and
each other person who first becomes a Director subsequent to such date will
automatically receive a grant of Options to purchase a number of Shares
equal to the quotient of (1) $_______ divided by (2) the Fair Market Value
as of the date such person first becomes a Director; in each case,
provided, that the number of Shares so determined will be reduced in
proportion to the number of whole months, if any, by which the grantee's
remaining term of service as a Director is less than 36 months (giving full
retroactive and prospective effect to the classified Board structure that
will be in place when this Plan first becomes effective pursuant to Article
X hereof). [NOTE THAT THIS IS JUST ONE POSSIBLE WAY OF SETTING UP THE
FORMULA.]
<PAGE>
-4-
(ii) After a Director's initial grant of Options under this Plan,
such Director will receive, upon and as of each date on which such Director
is reelected as a Director of the Company, an option to purchase a number
of Shares equal to the quotient of (1) $________ divided by (2) the Fair
Market Value as of such date; provided, that the number of Shares so
determined will be reduced in proportion to the number of whole months, if
any, by which the term of service as a Director for which such Director is
then being reelected is less than 36 months.
(iii) Each Option will vest (i.e., become exercisable) ratably on
the last day of each calendar month during the Optionee's remaining term of
service as a Director as of the date of grant; provided, that the Optionee
continues to serve as a Director of the Company as of each such vesting
date.
(iv) No Options will be granted after the tenth anniversary of the
date on which this Plan first becomes effective in accordance with Article
X hereof.
B. Option Agreement. As soon as practicable after the grant of an Option
under this Plan, the Company and the Optionee will enter into a Stock Option
Agreement evidencing the Option so granted. Such agreement will be in such form
consistent with this Plan as the Board may deem appropriate.
ARTICLE V
TERMS OF STOCK OPTIONS
The terms of Options granted under this Plan will be as follows:
(i) The option price will be the Fair Market Value of the Shares
subject to the Option on the date of grant.
(ii) Options will not be transferable other than by will or by the
laws of descent and distribution, except as may be otherwise determined by
the Board. No Option will be subject, in whole or in part, to attachment,
execution, or levy of any kind.
(iii) Each Option will expire and all rights thereunder will end at
the expiration of ten years after the date on which it was granted, subject
in all cases to earlier termination as provided in this Plan or in the
Option Agreement relating to such Option.
<PAGE>
-5-
[(iv) If an Optionee ceases to be a Director for any reason, such
Optionee's Options will thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such
cessation of service as a director; and upon any such cessation of service
as a Director, such remaining rights to purchase will in any event
terminate upon the earlier of (A) the expiration of the original term of
the option, or (B) if such cessation of service as a Director is on account
of death or disability, the expiration of one year from the date of such
cessation of service as a Director and, otherwise, the expiration of three
months from such date. For purposes of this Plan, the term "disability"
will mean "permanent and total disability" as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended.] [NOTE: THIS IN ESSENCE
TREATS OUTSIDE DIRECTORS' OPTIONS SIMILARLY TO EMPLOYEES' INCENTIVE STOCK
OPTIONS. ALTERNATIVELY, OPTIONS COULD REMAIN EXERCISABLE UNTIL THE TENTH
ANNIVERSARY OF THE DATE OF GRANT, NOTWITHSTANDING THE OPTIONEES' CEASING TO
BE A DIRECTOR.]
ARTICLE VI
DELIVERY OF SHARES
Shares delivered upon the exercise of an Option will be Shares heretofore
or hereafter authorized and then unissued, or previously issued shares
heretofore or hereafter acquired through purchase in the open market or
otherwise, or some of each. No Optionee will have any rights as a stockholder
of the Company (including without limitation any rights to vote or to receive
dividends or other distributions) in respect of Shares underlying any Option
unless and until such Option has been duly exercised and such Shares have been
duly issued to such Optionee. No Shares will be delivered upon the exercise of
an Option until the Option price has been paid in full in cash or by check. The
obligations of the Company to sell and deliver Shares upon exercise of Options
will be subject to all applicable laws, rules, and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by government agencies as may be deemed necessary or appropriate by
the Board or the relevant committee of the Board. If so required by the Board,
no Shares will be delivered upon the exercise of an Option until the Optionee
has given the Company a satisfactory written statement that he is purchasing the
Shares for investment, and not with a view to the sale or distribution of any
such Shares, and with respect to such other matters as the Board may deem
advisable in order to assure compliance with applicable securities laws. All
Shares issued upon exercise of Options will bear appropriate restrictive
legends. The Company may require of any person to whom Options are granted that
he or she agree that, if the Company will deem it necessary or desirable to make
any public offering of shares of Common Stock, then without the prior written
consent of the Company or the managing underwriter of any such offering, he or
she
<PAGE>
-6-
will not sell, make any short sale of, loan, grant any option for the purchase
of, pledge or otherwise encumber, or otherwise dispose of any Shares issued or
issuable pursuant to Options, during such period (not to exceed 210 days)
commencing on the effective date of the registration statement relating to such
offering as the Company may request.
ARTICLE VII
CONTINUATION AS A DIRECTOR
Neither this Plan nor any Option granted hereunder will confer upon any
individual any right to continue as a member of the Board, or limit or otherwise
affect any rights of the Company.
ARTICLE VIII
ADMINISTRATION
This Plan will be governed by and interpreted and construed in accordance
with the internal laws of the State of Delaware (without reference to principles
of conflicts or choice of law). The captions of the articles of this Plan are
for reference only and will not affect the interpretation or construction of
this Plan. The Board or an authorized committee of the Board may make such
rules and regulations and establish such procedures as it deems appropriate for
the administration of this Plan. In the event of a disagreement as to the
interpretation of this Plan or any amendment thereto or any rule, regulation, or
procedure thereunder or as to any right or obligation arising from or related to
this Plan, the decision of the Board or such committee of the Board will be
final and binding upon all persons, including the Company and its stockholders.
ARTICLE IX
TERMINATION AND AMENDMENT OF PLAN
The Board may at any time terminate this Plan or make such modifications of
this Plan as it will deem advisable. No termination or amendment of this Plan
may adversely affect the rights of any Optionee, as such, without the consent of
such Optionee.
ARTICLE X
<PAGE>
-7-
EFFECTIVE DATE
This Plan will become effective as of the effective date of the Company's
first effective registration statement to become effective pursuant to the
Securities Act of 1933, as amended.
<PAGE>
BD DRAFT 11/20/98
ROWECOM INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
UNDER THE 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
RoweCom Inc. (the "Company") hereby grants, effective as of ____________,
199__ (the "effective date"), to _____________ (the "Optionee") the right and
option (the "Director Option") to purchase up to ____________ shares of its
Common Stock, $0.01 par value, at a price of $_________ per share, subject to
the following terms and conditions.
1. RELATIONSHIP TO PLAN. This Director Option is granted pursuant to the
fixed-grant formula prescribed under the Company's 1998 Non-Employee Director
Stock Option Plan (the "Plan"), and is in all respects subject to the terms,
conditions, and definitions of the Plan, which will be administered by the
Company pursuant to the terms of the Plan. Capitalized terms used and not
otherwise defined herein are used as defined in the Plan. The Optionee hereby
accepts this Director Option subject to all the terms and provisions of the Plan
(including without limitation provisions relating to expiration of the Director
Option and adjustment of the number of shares subject to this Director Option
and the exercise price therefor). The Optionee further agrees that all
decisions under and interpretations of the Plan by the Company will be final,
binding, and conclusive upon the Optionee and his or her successors, permitted
assigns, heirs, and legal representatives.
2. VESTING. This Director Option will vest (i.e., become exercisable)
ratably on the last day of each calendar month during the Optionee's remaining
term of service as a Director as of the date of this Option Agreement; provided,
that the Optionee continues to serve as a Director of the Company as of each
such vesting date.
3. TERMINATION. This Director Option will remain exercisable until the
tenth anniversary of the effective date of this Option Agreement, unless earlier
terminated in accordance with the provisions of the Plan.
4. "LOCK-UP" AGREEMENT. The Company may require of the Optionee that he
or she agree that, if the Company will deem it necessary or desirable to make
any public offering of shares of Common Stock, then without the prior written
consent of the Company or the managing underwriter of any such offering, he or
she will not sell, make any short sale of, loan, grant any option for the
purchase of, pledge or otherwise encumber, or otherwise dispose of any shares of
Common Stock issued or issuable pursuant to Options, during such period (not to
exceed 210 days)
<PAGE>
-2-
commencing on the effective date of the registration statement relating to such
offering as the Company may request.
5. METHODS OF EXERCISE. This Director Option will be exercisable by a
written notice in the form adopted by the Company, specifying the number of
shares to be purchased and be accompanied by payment by cash or check of the
aggregate purchase price for the Shares for which this Director Option is being
exercised.
6. GENERAL. The Optionee may not assign any of his or her rights under
this Agreement without the prior written consent of the Company, and any attempt
to do so will be void. This Agreement will be governed by and interpreted and
construed in accordance with the internal laws of the State of Delaware (without
reference to principles of conflicts or choice of law). The captions of the
sections of this Agreement are for reference only and will not affect the
interpretation or construction of this Agreement. This Agreement will bind and
inure to the benefit of the parties and their respective successors, permitted
assigns, heirs, and legal representatives.
IN WITNESS WHEREOF, the Company and the Optionee have executed and
delivered this Agreement as an agreement under seal as of the date first above
written.
ROWECOM INC.
By _________________________
Name:
Title:
____________________________
Optionee
<PAGE>
EXHIBIT 10.3
ROWECOM INC.
FORM OF 1998 EMPLOYEE STOCK PURCHASE PLAN
1. Definitions. As used in this 1998 Employee Stock Purchase Plan
-----------
of RoweCom Inc., the following terms have the respective meanings ascribed to
them below:
(a) Base Compensation means annual or annualized base compensation,
---- ------------
exclusive of overtime, bonuses, contributions to employee benefit plans, and
other fringe benefits.
(b) Beneficiary means, with respect to any Participating Employee,
-----------
the person designated as beneficiary on such Participating Employee's Membership
Agreement or other form provided by the Company for such purpose, or if no such
beneficiary is named, the person to whom the Option is transferred by will or
under the applicable laws of descent and distribution.
(c) Board means the board of directors of the Company, except that
-----
if and for so long as the board of directors of the Company has delegated its
authority with respect to the Plan to the Committee pursuant to Section 4, then
all references in this Plan to the Board will be deemed to refer to the
Committee acting in such capacity.
(d) Code means the Internal Revenue Code of 1986, as amended.
----
(e) Company means RoweCom Inc., a Delaware corporation.
-------
(f) Committee means the Compensation Committee of the Board.
---------
(g) Effective Date means the effective date of the Company's first
--------------
registration statement to become effective pursuant to the Securities Act of
1933, as amended.
(h) Eligible Employee means a person who is eligible under the
-------- --------
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.
(i) Employer means, as to any particular Offering Period, the
--------
Company and any Related Corporation that is designated by the Board as a
corporation whose Eligible Employees are to receive Options as of that Period's
Offering Commencement Date, and any Related Corporation that has been designated
by the Board as such a corporation as to a prior Offering Period, unless and
until the Board acts to revoke such designation.
<PAGE>
-2-
(j) Market Value means, as of the Offering Commencement Date of the
------ -----
first Offering Period under this Plan, the initial public offering price at
which shares of Stock are offered to the public, as specified in the Company's
registration statement referred to above, and as of any other particular date,
(i) if the Stock is listed on a national securities exchange, the closing price
of the Stock on such exchange on such date, (ii) if the Stock is not listed on a
national securities exchange but is quoted through the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System
or any successor thereto, the last sale price of the Stock so quoted on such
date, and (iii) if the Stock is not listed on a national securities exchange or
quoted through the NASDAQ National Market System or any successor thereto, but
is quoted through NASDAQ other than through the National Market System, or is
otherwise publicly traded, the average of the closing bid and asked prices of
the Stock so quoted or otherwise reported on such date.
(k) Membership Agreement means an agreement whereby a Participating
---------- ---------
Employee authorizes an Employer to withhold payroll deductions from his or her
Base Compensation.
(l) Offering Commencement Date means the first business day of an
-------- ------------ ----
Offering Period on which Options are granted to Eligible Employees.
(m) Offering Period means each of the periods described in Section 8
-------- ------
that is designated or deemed designated by the Board as an "Offering Period."
(n) Offering Termination Date means the last business day of an
-------- ----------- ----
Offering Period, on which Options must, if ever, be exercised.
(o) Option means an option to purchase shares of Stock granted under
------
the Plan.
(p) Option Shares means shares of Stock purchasable under an Option.
------ ------
(q) Participating Employee means an Eligible Employee to whom an
------------- --------
Option is granted.
(r) Plan means this 1998 Employee Stock Purchase Plan of the
----
Company, as amended from time to time.
(s) Related Corporation means any corporation that is or during the
------- -----------
term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
<PAGE>
-3-
(t) Stock means the common stock, $0.01 par value per share, of the
-----
Company.
2. Purpose of the Plan. The Plan is intended to encourage ownership
------- -- --- ----
of Stock by employees of the Company and any Related Corporations and to provide
an additional incentive for the employees to promote the success of the business
of the Company and any Related Corporations. It is intended that the Plan
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
3. Term of the Plan. The Plan will become effective on the
---- -- --- ----
Effective Date. No Option may be granted under the Plan after the tenth
anniversary of the Effective Date.
4. Administration of the Plan. The Plan will be governed by and
-------------- -- --- ----
interpreted and construed in accordance with the internal laws of the State of
Delaware (without reference to principles of conflicts or choice of law). The
captions of sections of the Plan are for reference only and will not affect the
interpretation or construction of the Plan. The Plan will be administered by
the Board. The Board will determine which semi-annual periods will be Offering
Periods in accordance with Section 8, and which (if any) Related Corporations
will be Employers as to each Offering Period. The Board will have authority to
interpret the Plan, to prescribe, amend, and rescind rules and regulations
relating to the Plan, to determine the terms of Options granted under the Plan,
and to make all other determinations necessary or advisable for the
administration of the Plan. All determinations of the Board under the Plan will
be final and binding as to all persons having or claiming any interest in or
arising out of the Plan, including the Company, its stockholders, and any and
all Participating Employees. The Board may delegate all or any portion of its
authority with respect to the Plan to the Committee, and thereafter until such
delegation is revoked by the Board all powers under the Plan delegated to the
Committee will be exercised by the Committee.
5. Termination and Amendment of Plan. The Board may terminate the
----------- --- --------- -- ----
Plan at any time, and may amend the Plan at any time and from time to time.
Without limiting the generality of the foregoing, the Board may amend the Plan
from time to time to increase or decrease the length of any future Offering
Periods and to make all required conforming changes to the Plan. No termination
or amendment of the Plan may adversely affect the rights of a Participating
Employee with respect to any Option held by the Participating Employee prior to
such termination or amendment.
6. Shares of Stock Subject to the Plan. No more than an aggregate
------ -- ----- ------- -- --- ----
of __________ shares of Stock may be issued or delivered pursuant to the
exercise of Options granted under the Plan (subject to automatic proportionate
<PAGE>
-4-
adjustment in the event of any other stock dividend, stock split, stock
combination, recapitalization, or other similar event affecting the Common
Stock, and to adjustments made in accordance with Section 9.7). Shares to be
delivered upon exercise of Options may be either shares of Stock that are
authorized but unissued or shares of Stock held by the Company in its treasury.
If an Option expires or terminates for any reason without having been exercised
in full, the unpurchased shares subject to the Option will not count against the
above _______-share limit and will become available for other Options granted
under the Plan.
7. Persons Eligible to Receive Options. Each employee of an
------- -------- -- ------- -------
Employer will be granted an Option on each Offering Commencement Date on which
such employee meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more
than twenty hours per week and for more than five months per calendar year.
(b) The employee will not, after grant of the Option, own Stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any Related Corporation. For purposes
of this paragraph (b), the rules of Section 424(d) of the Code will apply in
determining the Stock ownership of the employee, and Stock that the employee may
purchase under outstanding options will be treated as Stock owned by the
employee.
(c) Upon grant of the Option, the employee's rights to purchase
Stock under all employee stock purchase plans (as defined in Section 423(b) of
the Code) of the Company and its Related Corporations will not accrue at a rate
exceeding $25,000 of Market Value of Stock (determined as of the grant date) for
each calendar year in which such Option is outstanding at any time. The accrual
of rights to purchase Stock will be determined in accordance with Section
423(b)(8) of the Code.
8. Offering Commencement Dates. Options will be granted on the
-------- ------------ -----
first business day of the period running from the Effective Date to___________,
1999, and of each semi-annual period running from _________ to the next
following _________ or from _________ to the next following _________ that is
designated by the Board as an Offering Period. Following the initial Offering
Period under the Plan (i.e., the period running from the Effective Date to
_________), all succeeding semi-annual periods described above will be deemed
Offering Periods without need of further Board action unless and until contrary
action will have been taken by the Board prior to the beginning of what would
otherwise be an Offering Period.
<PAGE>
-5-
9. Terms and Conditions of Options.
----- --- ---------- -- -------
9.1 General. All Options granted on a particular Offering
-------
Commencement Date will comply with the terms and conditions set forth in
Sections 9.2 through 9.11. Subject to Sections 7(c) and 9.9, each Option
granted on a particular Offering Commencement Date will entitle the
Participating Employee to purchase that number of shares of Stock equal to the
result of $12,500 (or such lesser amount as is selected by the Board, prior to
the applicable Offering Commencement Date, and applied uniformly during the
Offering Period then beginning) divided by the Market Value of one such share on
the Offering Commencement Date and then rounded down, if necessary, to the
nearest whole number.
9.2 Purchase Price. The purchase price of each Option Share will be
-------- -----
85% of the lesser of (a) the Market Value of a share of Stock as of the Offering
Commencement Date or (b) the Market Value of a share of Stock as of the Offering
Termination Date.
9.3 Restrictions on Transfer.
------------ -- --------
(a) Options may not be transferred otherwise than by will or
pursuant to applicable laws of descent and distribution. During the lifetime of
a Participating Employee, such Participating Employee's Options may not be
exercised by anyone other than such Participating Employee.
(b) The Optionee will agree in the Membership Agreement to notify
the Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company will have the right to
place a legend on all stock certificates representing Option Shares instructing
the transfer agent to notify the Company of any transfer of such Option Shares.
The Company will also have the right to place a legend on all stock certificates
representing Option Shares setting forth or referring to the restriction on
transferability of such Option Shares.
9.4 Expiration. Each Option will expire at the close of business on
----------
the Offering Termination Date or on such earlier date as may result from the
operation of Sections 9.5 or 9.6.
9.5 Termination of Employment of Optionee. If a Participating
----------- -- ---------- -- --------
Employee ceases for any reason (other than death) to be continuously employed by
an Employer, whether due to voluntary severance, involuntary severance,
transfer, or disaffiliation of a Related Corporation with the Company, his or
her Option will immediately expire, and the Participating Employee's accumulated
payroll deductions will be returned by the Company. For purposes of this
Section 9.5, a Participating Employee will be deemed to be employed throughout
<PAGE>
-6-
any leave of absence for military service, illness, or other bona fide purpose
that does not exceed the longer of ninety days or the period during which the
Participating Employee's reemployment rights are guaranteed by statute
(including without limitation the Veterans Reemployment Rights Act or similar
statute relating to military service) or by contract. If the Participating
Employee does not return to active employment prior to the termination of such
period, his or her employment will be deemed to have ended on the ninety-first
day of such leave of absence (or such longer period guaranteed by statute or by
contract as provided above).
9.6 Death of Optionee. If a Participating Employee dies, his or her
-----------------
Beneficiary will be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The number of
shares purchasable will be limited by the amount of the Participating Employee's
accumulated payroll deductions as of the date of his or her death. Accumulated
payroll deductions will be applied by the Company toward the purchase of shares
only if, not later than the Offering Termination Date, the Participating
Employee's Beneficiary submits to the Employer a written request that the
deductions be so applied. Accumulated payroll deductions not withdrawn or
applied to the purchase of shares will be delivered by the Company to the
Beneficiary within a reasonable time after the Offering Termination Date.
9.7 Capital Changes Affecting the Stock. In the event that, between
------- ------- --------- --- -----
the Offering Commencement Date and the Offering Termination Date with respect to
an Option, a stock dividend is paid or becomes payable in respect of the Stock,
or there occurs a split-up or contraction in the number of shares of Stock, the
number of shares of Stock for which the Option may thereafter be exercised and
the price to be paid for each such share will both be proportionately adjusted.
In the event that, after the Offering Commencement Date, there occurs a
reclassification or change of outstanding shares of Stock or a consolidation or
merger of the Company with or into another corporation or a sale or conveyance,
substantially as a whole, of the property of the Company, the Participating
Employee will be entitled on the Offering Termination Date to receive shares of
Stock or other securities equivalent in kind and value to the shares of Stock he
or she would have held if he or she had exercised the Option in full immediately
prior to such reclassification, change, consolidation, merger, sale, or
conveyance and had continued to hold such shares (together with all other shares
and securities thereafter issued in respect thereof) until the Offering
Termination Date. In the event that there is to occur a recapitalization
involving an increase in the par value of the Stock that would result in a par
value exceeding the exercise price under an outstanding Option, the Company may
notify the affected Participating Employee of such proposed
<PAGE>
-7-
recapitalization, after which the Participating Employee will have the right to
exercise his or her Option prior to such recapitalization; if the Participating
Employee fails to exercise the Option prior to recapitalization, the exercise
price under the Option will be appropriately adjusted. In the event that, after
the Offering Commencement Date, there occurs a dissolution or liquidation of the
Company, except pursuant to a transaction to which Section 424(a) of the Code
applies, each Option will terminate, but the Participating Employee will have
the right to exercise his or her Option prior to such dissolution or
liquidation.
9.8 Payroll Deductions. A Participating Employee may purchase shares
------- ----------
under his or her Option during any particular Offering Period by completing and
returning to the Company at least 15 days prior to the beginning of such
Offering Period a Membership Agreement indicating a percentage (which will be a
full integer between one and ten, inclusive) of his or her Base Compensation
that is to be withheld each pay period (not to exceed an aggregate of $12,500 in
any Offering Period). No Participating Employee will be permitted to change the
percentage of Base Compensation withheld during an Offering Period. However, not
more than once per Offering Period the Participating Employee may cancel his or
her Agreement, and withdraw all (but not less than all) of his or her
accumulated payroll deductions, by submitting a written request therefor to the
Company not later than the close of business on the Offering Termination Date.
The percentage of Base Compensation withheld may be changed from one Offering
Period to another.
9.9 Exercise of Options. On the Offering Termination Date the
-------- -- -------
Participating Employee may purchase the number of shares purchasable by his or
her accumulated payroll deductions, or if less, the maximum number of shares
subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares that all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds the
total number of shares that may be purchased under the Plan pursuant to Section
6, the number of shares that each Optionee is permitted to purchase will be
decreased pro rata based on the Participating Employee's accumulated payroll
deductions in relation to all accumulated payroll deductions currently being
withheld under the Plan.
(b) If the number of shares purchasable includes a fraction, such
number will be adjusted to the next smaller whole number and the purchase price
will be adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering Termination
Date will be automatically applied by the Company toward the purchase of Option
Shares, or to the extent in excess of the aggregate purchase
<PAGE>
-8-
price of the shares then purchasable by the Participating Employee, refunded to
the Participating Employee, except that where such excess is less than the
purchase price for a single share of Stock on the Offering Termination Date,
such excess will not be refunded but instead will be carried over and applied to
the purchase of shares in the first following Offering Period (subject to the
possibility of withdrawal by the Participating Employee during such Offering
Period in accordance with the terms of the Plan).
9.10 Delivery of Stock. Except as provided below, within a reasonable
-------- -- -----
time after the Offering Termination Date, the Company will deliver or cause to
be delivered to the Participating Employee a certificate or certificates for the
number of shares purchased by the Participating Employee. A stock certificate
representing the number of Shares purchased will be issued in the participant's
name only, or if his or her Membership Agreement so specifies, in the name of
the employee and another person of legal age as joint tenants with rights of
survivorship. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises requires that the
Company or the Participating Employee take any action in connection with the
shares being purchased under the Option, delivery of the certificate or
certificates for such shares will be postponed until the necessary action will
have been completed, which action will be taken by the Company at its own
expense, without unreasonable delay. The Optionee will have no rights as a
shareholder in respect of shares for which he or she has not received a
certificate.
9.11 Return of Accumulated Payroll Deductions. In the event that the
------ -- ----------- ------- ----------
Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, or death, or in the event that accumulated payroll
deductions exceed the price of shares purchased, such amount will be returned by
the Company to the Participating Employee or the Beneficiary, as the case may
be, not later than within a reasonable time following the Offering Termination
Date applicable to the Option Period in which such deductions were taken.
Accumulated payroll deductions held by the Company will not bear interest nor
will the Company be obligated to segregate the same from any of its other
assets.
<PAGE>
EXHIBIT 10.4
ROWECOM INC.
FORM OF AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this Amended and Restated 1998 Stock Incentive Plan of
RoweCom Inc. (the "Company") are to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract, motivate, and
retain employees and consultants of exceptional ability and to provide a means
to encourage stock ownership and a proprietary interest in the Company to
selected employees and consultants of the Company upon whose judgment,
initiative, and efforts the financial success and growth of the business of the
Company largely depend.
2. DEFINITIONS.
(a) "Accelerate," "Accelerated," and "Acceleration," when used with respect
to an Option, mean that as of the relevant time of reference, such Option will
become fully exercisable with respect to the total number of shares of Common
Stock subject to such Option and may be exercised for all or any portion of such
shares.
(b) "Acquisition" means
(i) a merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from the persons who held those securities immediately prior
to such transaction, or
(ii) the sale, transfer, or other disposition of all or
substantially all of the Company's assets to one or more persons
(other than any wholly owned subsidiary of the Company) in a single
transaction or series of related transactions.
(c) "Beneficial Ownership" means beneficial ownership determined pursuant
to Securities and Exchange Commission Rule 13d-3 promulgated under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company.
<PAGE>
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(e) "Committee" means the Compensation Committee of the Board; provided,
that the Board by resolution duly adopted may at any time or from time to time
determine to assume any or all of the functions of the Committee under the Plan,
and during the period of effectiveness of any such resolution, references herein
to the "Committee" will mean the Board acting in such capacity.
(f) "Change in Control" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the beginning of such period, or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
the preceding clause (A) who were still in office at the time such
election or nomination was approved by the Board.
(g) "Common Stock" means the authorized common stock of the Company.
(h) "Company" means RoweCom Inc., a Delaware corporation.
(i) "Eligible Employee" means any person who, at the time of the grant of
an Option or Restricted Stock Award, is an employee (including officers and
employee directors) or consultant of the Company or any Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time.
<PAGE>
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(k) "Fair Market Value" means the value of a share of Common Stock as of
the relevant time of reference, as determined as follows. If the Common Stock
is then publicly traded, Fair Market Value will be (i) the last sale price of a
share of Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last sale price of the Common Stock reported in
the NASDAQ National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the average of the closing bid and asked
prices for the Common Stock quoted by an established quotation service for over-
the-counter securities, if the Common Stock is not then traded on a national
securities exchange or reported in the NASDAQ National Market System. If the
Common Stock is not then publicly traded, Fair Market Value will be the fair
value of a share of the Common Stock as determined by the Board or the
Committee, taking into consideration such factors as it deems appropriate, which
may include recent sale and offer prices of Common Stock in arms'-length private
transactions.
(l) "Hostile Takeover" means a change in ownership of the Company effected
through a transaction in which:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, and
(ii) more than 50% of the securities so acquired in such tender
or exchange offer are accepted from holders other than the officers
and directors of the Company who are subject to the short-swing profit
restrictions of Section 16 of the Exchange Act.
(m) "Participant" means any Eligible Employee selected to receive an Option
or Restricted Stock Award pursuant to Section 5.
(n) "Restricted Stock Award" means a right to the grant or purchase, at a
price determined by the Committee, of Common Stock which is nontransferable and
subject to substantial risk of forfeiture until specific conditions of
continuing employment or performance are met.
<PAGE>
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(o) "Incentive Stock Option" means an Option intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code and
regulations thereunder.
(p) "Option" means a right to acquire shares of Common Stock granted under
the Plan, which right may but need not qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code and regulations thereunder.
(q) "Plan" means this Amended and Restated 1998 Stock Incentive Plan, as it
may be amended and/or restated from time to time.
(r) "Subsidiary" means any subsidiary corporation (as defined in Section
424 of the Internal Revenue Code) of the Company.
(s) "Takeover Price" means, with respect to any Incentive Stock Option, the
Fair Market Value per share of Common Stock on the date such Option is
surrendered to the Company in connection with a Hostile Takeover, or in the case
of any other Option, such Fair Market Value or, if greater, the highest reported
price per share of Common Stock paid by the tender or exchange offeror in
effecting such Hostile Takeover.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of Section 3(c)
and Section 8 of the Plan, the aggregate number of shares of Common Stock that
may be issued or transferred pursuant to Options or Restricted Stock Awards
under the Plan will not exceed ____________ shares, which aggregate number of
shares, automatically and without further action, will increase, effective as of
January 1, 2000, and each January 1 thereafter during the term of the Plan, by
an additional number of shares of Common Stock equal to ____________ per cent
(___%) of the total number of shares of Common Stock issued and outstanding as
of the close of business on the immediately preceding December 31.
(b) The shares of Common Stock to be delivered under the Plan will be made
available, at the discretion of the Committee, from authorized but unissued
shares of Common Stock and/or from previously issued shares of Common Stock
reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any reason,
and/or shares covered by Restricted Stock Awards are forfeited, such number of
shares will no longer be charged against the limitation provided in Section 3(a)
and may again be made subject to Options or Restricted Stock Awards.
<PAGE>
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4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in
accordance with the internal laws of the State of Delaware (without reference to
principles of conflicts or choice of law). The captions of sections of the Plan
are for reference only and will not affect the interpretation or construction of
the Plan.
(b) The Plan will be administered by the Committee. The Committee has and
may exercise such powers and authority of the Board as may be necessary or
appropriate for the Committee to carry out its functions as described in the
Plan. The Committee will determine the Eligible Employees to whom, and the time
or times at which, Options or Restricted Stock Awards may be granted and the
number of shares subject to each Option or Restricted Stock Award. The
Committee also has authority (i) to interpret the Plan, (ii) to determine the
terms and provisions of the Option or Restricted Stock Award instruments, and
(iii) to make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee will be final, conclusive, and
binding upon all parties.
(c) No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award under it.
5. GRANTS.
(a) The Committee will determine and designate from time to time those
Eligible Employees who are to be granted Options or Restricted Stock Awards, the
type of each Option to be granted and the number of shares covered thereby or
issuable upon exercise thereof, and the number of shares covered by each
Restricted Stock Award. Each Option and Restricted Stock Award will be
evidenced by a written agreement or instrument and may include any other terms
and conditions consistent with the Plan, as the Committee may determine.
(b) Subject to adjustment in accordance with the provisions of Section 8 of
the Plan, (i) no person may in any year be granted Options or Restricted Stock
Awards with respect to more than ____________ shares of Common Stock, and (ii)
no more than an aggregate of ____________ shares of Common Stock may be issued
pursuant to the exercise of Incentive Stock Options granted under the Plan.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
<PAGE>
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(a) The price at which Common Stock may be purchased by a Participant under
an Option will be determined by the Committee; provided, however, that the
purchase price under a nonqualified Option will not be less than 85% of the Fair
Market Value of the Common Stock on the date of grant of such Option, and the
purchase price under an Incentive Stock Option will not be less than 100% of the
Fair Market Value of the Common Stock on the date of grant of such Option (or
110% of such Fair Market Value, in the case of any Incentive Stock Option
granted to a 10% owner (within the meaning of Section 422(b)(6) of the Code)).
(b) Each Option will be exercisable at such time or time, during such
periods, and for such numbers of shares as is determined by the Committee and
set forth in the agreement or instrument evidencing the Option grant (subject to
Acceleration by the Committee, in its discretion). In any event, the Option
will expire no later than the tenth anniversary of the date of grant (or the
fifth anniversary of the date of grant, in the case of any Incentive Stock
Option granted to a 10% owner (within the meaning of Section 422(b)(6) of the
Code)).
(c) Unless the Compensation Committee otherwise determines (whether at the
time the Option is granted or otherwise), upon the exercise of an Option, the
purchase price will be payable in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to employees
of the Company or a Subsidiary, and the aggregate Fair Market Value (determined
as of the date the Incentive Stock Option is granted) of the number of shares
with respect to which Incentive Stock Options are exercisable for the first time
by a Participant in any calendar year may not exceed any applicable limit from
time to time imposed on Incentive Stock Options by the Internal Revenue Code
(such limit currently being $100,000). To the extent that an Incentive Stock
Option, whether at the time of grant or thereafter, exceeds such limits, the
excess shares will be considered to have been granted under a separate Option
not constituting an Incentive Stock Option.
(e) No fractional shares need be issued pursuant to the exercise of an
Option, nor need any cash payment be made in lieu of fractional shares.
(f) Subject to the short-swing profit restrictions of the Federal
securities laws, upon the occurrence of a Hostile Takeover, each Option granted
to any officer of the Company, if outstanding for at least six months, will
automatically be canceled in exchange for a cash distribution from the Company
in an amount equal to the excess of (i) the aggregate Takeover Price of the
shares of Common Stock at the time subject to the canceled Option (regardless of
whether the Option is otherwise then exercisable for such shares) over (ii) the
<PAGE>
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aggregate Option price payable for such shares. Such cash distribution will be
made within five days after the consummation of the Hostile Takeover. Neither
the approval of the Committee nor the consent of the Board will be required in
connection with such Option cancellation and cash distribution.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards granted
or sold pursuant to the Plan may be issued or transferred for such consideration
(which may consist wholly of services), and subject to such restrictions, as the
Committee may determine, and will be subject to the following conditions:
(i) The shares may not be sold, transferred, or otherwise
alienated or hypothecated until the restrictions are removed or expire,
unless the Committee determines otherwise.
(ii) The Committee may provide in the agreement or instrument
evidencing the grant of the Restricted Stock Awards that the certificates
representing shares subject to Restricted Stock Awards granted or sold
pursuant to the Plan will be held in escrow by the Company until the
restrictions on the shares lapse in accordance with the provisions of
subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to Restricted
Stock Awards granted or sold pursuant to the Plan will bear a legend making
appropriate reference to the restrictions imposed.
(iv) The Committee may impose other conditions on any shares
subject to Restricted Stock Awards granted or sold pursuant to the Plan as
it may deem advisable, including without limitation restrictions under the
Securities Act of 1933, as amended, under the requirements of any stock
exchange or securities quotations system upon which such shares or shares
of the same class are then listed, and/or under any blue sky or other
securities laws applicable to such shares.
(b) The restrictions imposed under subparagraph (a) above upon Restricted
Stock Awards will lapse at such time or times, and/or upon the achievement of
such predetermined performance objectives, as may be determined by the
Committee. In the event a holder of a Restricted Stock Award ceases to be an
employee or consultant of the Company, all shares under the Restricted Stock
Award that remain subject to restrictions at the time his or her employment or
consulting relationship terminates will be returned to or repurchased by the
Company unless the Committee determines otherwise.
<PAGE>
-8-
(c) Subject to the provisions of subparagraphs (a) and (b) above, and
except as otherwise determined by the Committee, the holder will have all rights
of a shareholder with respect to the shares covered by Restricted Stock Awards
granted or sold, including the right to vote such shares and to receive all
dividends and other distributions paid or made with respect thereto.
8. ADJUSTMENT PROVISIONS.
(a) All of the share numbers set forth in the Plan reflect the current
capital structure of the Company. Subject to Section 8(b), if subsequent to
such date the outstanding shares of Common Stock of the Company are increased,
decreased, or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all the
property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other distribution with
respect to such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum numbers and kinds of
shares provided in Sections 3 and 5, (ii) the numbers and kinds of shares or
other securities subject to the then outstanding Options and Restricted Stock
Awards, and (iii) the price for each share or other unit of any other securities
subject to then outstanding Options (without change in the aggregate purchase
price as to which such Options remain exercisable).
(b) The Committee will have discretion to provide for the Acceleration of
one or more outstanding Options held by employees and the vesting of unvested
shares held by employees as Restricted Stock Awards upon the occurrence of a
Change in Control of the Company. Such Accelerated vesting may be conditioned
on the subsequent termination of the affected optionee's employment and/or such
other conditions as the Committee may determine. Except as determined by the
Committee prior to the occurrence of a Change of Control, any Options
Accelerated in connection with a Change in Control will remain fully exercisable
until the expiration or sooner termination of their respective terms.
(c) In the event of an Acquisition: The unvested shares of Common Stock
held by employees as Restricted Stock Awards shall immediately vest in full,
except to the extent that the Company's repurchase rights with respect to those
shares are to be assigned to the acquiring entity; and all outstanding Options
held by employees will Accelerate to the extent not assumed by the acquiring
entity or replaced by comparable options to purchase shares of the capital stock
of the successor or acquiring entity or parent thereof (the determination of
comparability to be made by the Committee, which determination shall be final,
binding, and conclusive). The Committee shall
<PAGE>
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have discretion, exercisable either in advance of an Acquisition or at the time
thereof, to provide (upon such terms as it may deem appropriate) for (i) the
automatic Acceleration of one or more outstanding Options held by employees that
are assumed or replaced and do not otherwise Accelerate by reason of the
Acquisition, and/or (ii) the subsequent termination of one or more of the
Company's repurchase rights with respect to shares held by employees as
Restricted Stock Awards that are assigned in connection with the Acquisition and
do not otherwise terminate at that time, in the event that the employment of the
respective grantees of such Options or Restricted Stock Awards should
subsequently terminate following such Acquisition.
(d) Each outstanding Option that is assumed in connection with an
Acquisition, or is otherwise to continue in effect subsequent to such
Acquisition, will be appropriately adjusted, immediately after such Acquisition,
to apply to the number and class of securities that would have been issued to
the Option holder, in consummation of such Acquisition, had such holder
exercised such Option immediately prior to such Acquisition. Appropriate
adjustments will also be made to the Option price payable per share, provided,
that the aggregate Option price payable for such securities will remain the
same. The class and number of securities available for issuance under the Plan
following the consummation of such Acquisition will be appropriately adjusted.
(e) Adjustments under this Section 8 will be made by the Committee in
accordance with the terms of this Section 8, and such determination of the
Committee as to what (if any) adjustments will be made and the extent thereof so
as to effectuate the intent of this Section 8 will be final, binding, and
conclusive. No fractional shares need be issued on account of any such
adjustments.
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue in the employ of or as a
consultant to the Company or any of its Subsidiaries or affect the right of the
Company or any Subsidiary to terminate the employment or consulting relationship
of any Participant at any time, with or without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to an
Option or Restricted Stock Award unless and until all then applicable
requirements imposed by Federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges or securities quotations systems upon which the Common Stock may be
listed, have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Option or Restricted Stock Award,
<PAGE>
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the Company may require the Participant to take any reasonable action to meet
such requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option, except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) The Committee may adopt rules regarding the withholding of federal,
state, or local taxes of any kind required by law to be withheld with respect to
payments and delivery of shares to Participants under the Plan. With respect to
any Option not intended to qualify as an Incentive Stock Option, the Committee,
in its discretion, may permit the Participant to satisfy, in whole or in part,
any tax withholding obligation that may arise in connection with the exercise of
the nonqualified stock option by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of the tax
withholding.
(e) No Option and no right under the Plan, contingent or otherwise, will be
transferable or assignable or subject to any encumbrance, pledge, or charge of
any nature except under such rules and regulations as the Committee may
establish, except that a beneficiary may be designated with respect to an Option
in the event of death of a Participant, and if such beneficiary is the executor
or administrator of the estate of the Participant, any rights with respect to
such Option may be transferred to the person or persons or entity (including a
trust) entitled thereto under the will of the holder of such Option.
(f) The Committee, with the consent of the relevant Participant, may cancel
all or a portion of any Option granted under the Plan and grant to the
Participant of a new Option for the same or a different number of shares as the
Option surrendered, or may require such voluntary surrender as a condition to a
grant of a new Option to such Participant. Subject to the provisions of Section
6(d), such new Option will be exercisable at such time or time, during such
periods, and for such numbers of shares, and in accordance with any other terms
or conditions, as are specified by the Committee at the time the new Option is
granted, without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.
(g) The written agreements or instruments evidencing Restricted Stock
Awards or Options granted under the Plan may contain such other provisions as
the Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
<PAGE>
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obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the Option covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value at such time, equal to any such excess, or by a combination of cash
and shares. Upon any such payment of cash or issuance of shares, (i) there will
be charged against the aggregate limitations set forth in Section 3(a) a number
of shares equal to the number of shares so issued plus the number of shares
purchasable with the amount of any cash paid to the Participant on the basis of
the Fair Market Value as of the date of payment, and (ii) the number of shares
subject to the portion of the Option so canceled, less the number of shares so
charged against such limitations, will thereafter be available for other grants.
10. AMENDMENT AND TERMINATION.
(a) The Board will have the power, in its discretion, to amend, modify,
suspend, or terminate the Plan at any time, subject to the rights of holders of
outstanding Options and Restricted Stock Awards on the date of such action.
(b) The Committee may make such modifications in the terms and conditions
of an Option or Restricted Stock Award held by a Participant as it deems
advisable; provided, that no such modification that adversely affects such
Participant's rights will be made without such Participant's consent.
(c) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, terminate, impair, or adversely affect any right or
obligation under any Option or Restricted Stock Award previously granted to such
Participant under the Plan.
11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The Plan first became effective upon its adoption by the Board and the
Company's stockholders as of May 4, 1998. Unless previously terminated, the
Plan will terminate on May 4, 2008.
<PAGE>
EXHIBIT 10.5
DATE OF LEASE EXECUTION: AUGUST 30, 1996
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
LANDLORD: David E. Clem and David M. Roby, Trustees of Lyme Properties Realty
Trust u/d/t dated September 30, 1994, and recorded with the Middlesex
South District Registry of the Land Court as Document No. 960475 noted
on Certificate of Title No. 200660, Book 1133, Page 10
MANAGING AGENT. Meredith & Grew, Incorporated
LANDLORD'S & MANAGING AGENTS ADDRESS:
Meredith & Grew, Incorporated
160 Federal Street
Boston, Massachusetts 02110
Attn: Mr. Richard Horgan
TENANT: RoweCom
TENANT'S ADDRESS (FOR NOTICE AND BILLING):
725 Concord Avenue
Cambridge, Massachusetts 02138
Attn: Richard Rowe
LOT: The land known and numbered as 725 Concord Avenue, Cambridge, Massachusetts
and shown on Exhibit A.
BUILDING: The building located on the Lot.
PREMISES: The space located on the fifth (5th) floor of the Building as shown on
Exhibit B.
RENTABLE FLOOR AREA OF THE PREMISES: 2,248 square feet
TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 84,600 square feet
<PAGE>
SCHEDULED TERM COMMENCEMENT DATE: September 1, 1996
TERM Commencing on the Term Commencement Date and continuing for two (2) years
thereafter, plus the partial month, if any, at the beginning of the Term,
unless sooner terminated as provided herein.
ANNUAL BASE RENT: $44,960.00 ($3,746.67/mo.)
PERMITTED USES: Office Uses
COMMERCIAL GENERAL LIABILITY INSURANCE:
$1,000,000 combined single limit per occurrence, $4,000,000 annual
aggregate, if aggregate is location specific, otherwise $10,000,000 annual
aggregate.
BROKER: CB Commercial Real Estate Group, Inc. and
Meredith & Grew, Incorporated
SECURITY DEPOSIT: $7,493.33
1.2 EXHIBITS.
The exhibits listed below in this section are incorporated in this Lease by
reference and are to be construed as part of this Lease:
EXHIBIT A Plan showing Lot
EXHIBIT B Plan showing Premises.
EXHIBIT C INTENTIONALLY OMITTED.
EXHIBIT D INTENTIONALLY OMITTED.
EXHIBIT E Rules and Regulations.
-2-
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1.3 TABLE OF CONTENTS PAGE
<S> <C>
ARTICLE II PREMISES AND TERM........................................... 5
2.1 DESCRIPTION OF PREMISES...................................... 5
2.2 TERM......................................................... 5
ARTICLE III CONSTRUCTION............................................... 5
3.1 INITIAL CONSTRUCTION......................................... 5
3.2 PREPARATION OF PREMISES FOR OCCUPANCY........................ 6
3.3 GENERAL PROVISIONS APPLICABLE TO
CONSTRUCTION................................................ 6
3.4 CONSTRUCTION REPRESENTATIVES................................. 6
3.5 ALTERATIONS AND ADDITIONS.................................... 7
ARTICLE IV RENT........................................................ 8
4.1 RENT......................................................... 8
4.2 OPERATING COSTS.............................................. 8
4.3 ESTIMATED PREMISES EXPENSE PAYMENTS.......................... 10
4.4 CHANGE OF CALENDAR YEAR...................................... 11
4.5 PAYMENTS..................................................... 11
4.6 ELECTRICITY.................................................. 11
ARTICLE V LANDLORD'S COVENANTS......................................... 11
5.1 LANDLORD'S COVENANTS DURING THE TERM......................... 11
5.1.1 Building Services.................................... 11
5.1.2 Additional Building Services......................... 12
5.1.3 Repairs.............................................. 12
5.1.4 Tenant Directory..................................... 12
5.1.5 Quiet Enjoyment...................................... 12
5.2 INTERRUPTIONS................................................ 12
ARTICLE VI TENANT'S COVENANTS.......................................... 13
6.1 TENANT'S COVENANTS DURING THE TERM........................... 13
6.1.1 Tenant's Payments.................................... 13
6.1.2 Repairs and Yielding Up.............................. 13
6.1.3 Occupancy and Use.................................... 14
6.1.4 Rules and Regulations................................ 14
6.1.5 Safety Appliances.................................... 14
6.1.6 Assignment and Subletting............................ 15
6.1.7 Indemnity............................................ 17
6.1.9 Tenant's Worker's Compensation Insurance............. 18
6.1.10 Landlord's Right of Entry........................... 18
6.1.11 Loading............................................. 18
6.1.12 Landlord's Costs.................................... 18
6.1.13 Tenants Property.................................... 18
6.1.14 Labor or Materialmen's Liens........................ 19
6.1.15 Changes or Additions................................ 19
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<TABLE>
<S> <C>
6.1.16 Holdover............................................ 19
6.1.17 Security............................................ 19
ARTICLE VII DAMAGE AND DESTRUCTION; CONDEMNATION....................... 19
7.1 FIRE OR OTHER CASUALTY....................................... 19
7.2 EMINENT DOMAIN............................................... 21
ARTICLE VIII RIGHTS OF MORTGAGEE....................................... 22
8.1 PRIORITY OF LEASE............................................ 22
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF
MORTGAGEE'S LIABILITY....................................... 23
8.3 MORTGAGEE'S ELECTION......................................... 24
8.4 NO PREPAYMENT OR MODIFICATION, ETC........................... 24
8.5 NO RELEASE OR TERMINATION.................................... 24
8.6 CONTINUING OFFER............................................. 24
ARTICLE IX DEFAULT..................................................... 25
9.1 EVENTS OF DEFAULT............................................ 25
9.2 TENANT'S OBLIGATTONS AFTER TERMINATION....................... 26
ARTICLE X MISCELLANEOUS................................................ 27
10.1 NOTICE OF LEASE............................................. 27
10.2 NOTICES FROM ONE PARTY TO THE OTHER......................... 27
10.3 BIND AND INURE.............................................. 27
10.4 NO SURRENDER................................................ 28
10.5 NO WAIVER, ETC.............................................. 28
10.6 NO ACCORD AND SATISFACTION.................................. 28
10.7 CUMULATIVE REMEDIES......................................... 28
10.8 LANDLORD'S RIGHT TO CURE.................................... 29
10.9 ESTOPPEL CERTIFICATE........................................ 29
10.10 WAIVER OF SUBROGATION...................................... 29
10.11 ACTS OF GOD................................................ 30
10.12 BROKERAGE.................................................. 30
10.13 SUBMISSION NOT AN OFFER.................................... 30
10.14 APPLICABLE LAW AND CONSTRUCTION............................ 30
10.15 AUTHORITY OF TENANT........................................ 31
10.16 SIGNAGE.................................................... 31
ARTICLE XI SECURITY DEPOSIT............................................ 31
</TABLE>
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ARTICLE II
PREMISES AND TERM
2.1 DESCRIPTION OF PREMISES.
Subject to and with the benefit of the provisions of this Lease, Landlord
hereby leases to Tenant, and Tenant leases from Landlord, the Premises.
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto: (a) the common facilities included in the
Building or on the Lot, including the right to use six (6) unreserved parking
spaces, and (b) the building service fixtures and equipment serving the
Premises.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use, (a) to install, repair, replace, use, maintain
and relocate for service to the Premises building service fixtures and equipment
wherever located in the Building or on the Lot and (b) to alter or relocate any
common facilities, it being understood that if any parking spaces are provided,
the same may be relocated from time to time by Landlord, provided that in all
events substitutions are substantially equivalent Landlord also reserves the
right at all reasonable times upon reasonable advance notice (except no notice
is required in the event of an emergency) to enter upon the Premises, inspect
the same and show the same to others, and in Landlord's discretion to make
repairs, alterations or substitutions for the protection and maintenance of the
Building or any part thereof.
2.2 TERM
To have and to hold for a period (the "Term") commencing on the earlier of
(a) the date on which the Premises are deemed ready for occupancy as provided in
Section 3.2, or (b) the date on which Tenant occupies all or any part of the
premises (such earlier date being referred to herein as the "Term Commencement
Date") and continuing for the Term, unless sooner terminated as provided herein.
ARTICLE III
CONSTRUCTION
3.1 INITIAL CONSTRUCTION.
There will be no initial construction of the Premises as the Premises is
being delivered to Tenant "as is". Notwithstanding the foregoing, prior to the
Term Commencement Date Landlord shall clean the carpet, replace all damaged
ceiling tiles and replace light bulbs as necessary within the Premises.
<PAGE>
Tenant shall have the right to construct partition walls within the
Premises in accordance with plans to be approved by Landlord.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance or taxes on the
Building or of Landlord's services called for by Section 5.1 unless Tenant first
gives assurances acceptable to Landlord that such readaptation will be made
prior to such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. Landlord will also
disapprove any actions or additions requested by Tenant which will delay
completion of the Premises. All changes and additions shall be part of the
Building except such items as by writing at the time of approval the parties
agree either shall be removed by Tenant on termination of this Lease, or shall
be removed or left at Tenant's election.
3.2 PREPARATION OF PREMISES FOR OCCUPANCY.
Except as set forth in Section 3.1 hereof, Tenant shall be responsible for
all work to be performed in the Premises prior to Tenant's occupancy of same.
Tenant may occupy the Premises upon execution of this Lease, however, Tenant.
shall not be required to pay rent until the Term Commencement Date.
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building and the Lot.
Either party may inspect the work of the other at reasonable times and promptly
shall give notice of observed defects. Landlord's obligations under Sections
3.1 and 3.2 shall be deemed to have been performed when Tenant commences to
occupy any portion of the Premises for the Permitted Uses except for items which
are incomplete or do not conform with the requirements of Section 3.1 and as to
which Tenant shall in either case have given written notice to Landlord prior to
such commencement. If Tenant shall not have commenced to occupy the Premises
for the Permitted Uses within 30 days after the Term Commencement Date, a
certificate of completion by a licensed architect or registered engineer shall
be conclusive evidence that Landlord has performed all such obligations except
for items stated in such certificate to be incomplete or not in conformity with
such requirements.
3.4 CONSTRUCTION REPRESENTATIVES.
Each party authorizes the other to rely in connection with their respective
rights and obligations under this Article III upon approval and other actions on
the party's behalf by any person designated by such party as its construction
representative by notice to the party relying.
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3.5 ALTERATIONS AND ADDITIONS.
This Section 3.5 shall apply before and during the Term. Tenant shall not
make any alterations and additions to the Premises except in accordance with
plans and specifications first approved by Landlord, which approval shall be
subject to Landlord's sole and absolute discretion. In no event shall any
alterations or additions be considered or approved by Landlord which (a) involve
or might affect any structural or exterior element of the Building or Building
mechanical systems, including the common facilities of the Building, or (b) will
require unusual expense to readapt the Premises to normal office use on Lease
termination or increase the cost of construction or of insurance or taxes on the
Building or the Lot. All alterations and additions shall become a part of the
Premises, unless and until Landlord, at its option, shall specify the same for
removal pursuant to Section 6.1.2. All of Tenant's alterations and additions
and installation and delivery of telephone systems, furnishings, and equipment
shall. be coordinated with any work being performed by Landlord and shall be
performed in such manner, and by such persons as shall maintain harmonious labor
relations and not cause any damage to the Building or interference with Building
construction or operation and, except for installation of furnishings, equipment
and telephone systems, and except as otherwise expressly set, forth herein,
shall be performed by general contractors first approved by Landlord. Before
commencing any work Tenant shall: secure all licenses and permits necessary
therefor, deliver to Landlord a statement of the names of all its contractors
and subcontractors (the identity of which must have been previously approved by
Landlord as hereinabove contemplated) and the estimated cost of all labor and
material to be furnished by them; and cause each contractor to carry (i)
workmen's compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and (ii) comprehensive public
liability insurance with such limits as Landlord may reasonably require, but in
no event less than a combined single limit of $3,000,000 (all such insurance to
be written in companies approved by Landlord and insuring Landlord and Tenant as
well as the contractors), and to deliver to Landlord certificates of all such
insurance. Tenant agrees to pay promptly when due, and to defend and indemnify
Landlord from and against the entire cost of any work done on the Premises by
Tenant, its agents, employees or independent contractors, and not to cause or
permit any liens for labor or materials performed or furnished in connection
therewith to attach to the Building or the Lot and immediately to discharge any
such liens which may so attach. Tenant shall pay within fourteen (14) days
after being billed therefor by Landlord, as additional rent, one hundred percent
(100%) of any increase in real estate taxes on the Premises not otherwise billed
to Tenant which shall, at any time after the commencement of the Term, result
from any alteration, addition or improvement to the Premises made by or on
behalf of Tenant.
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ARTICLE IV
RENT
4.1 RENT.
Tenant agrees to pay rent to Landlord without any offset or reduction
whatever (except as made in accordance with the express provisions of this
Lease), equal to 1/12th of the Annual Base Rent in equal monthly installments in
advance on the first day of each calendar month included in the Term after the
Commencement Date; and for any portion of a calendar month at the beginning or
end of the Term, at the proportionate rate payable for such portion, in advance.
4.2 OPERATING COSTS.
A. Tenant shall pay to Landlord, as additional rent, Tenant's Share of
Premises Expenses (as defined below), if any, on or before the 30th day
following receipt by Tenant of Landlord's Statement (as defined below). As soon
as practicable after the end of each calendar year ending during the Term and
after Lease termination, Landlord shall render a statement ("Landlord's
Statement") in reasonable detail and according to usual accounting practices
certified by Landlord and showing for the preceding calendar year or fraction
thereof, as the case may be, Landlord's Operating Costs,
EXCLUDING the interest and amortization on mortgages for the Building and
the Lot or leasehold interests therein and the cost of special services rendered
to tenants (including Tenant) for which a special charge is made,
but INCLUDING, without limitation: real estate taxes (as defined below) on
the Building and the Lot; installments and interest on assessments for public
betterments or public improvements; expenses of any proceedings for abatement of
taxes and assessments with respect to any fiscal year or fraction of a fiscal
year; premiums for insurance (including, without limitation. fire, casualty and
liability insurance); fees payable to third parties for financial audits of
Landlord's Operating Costs; compensation and all fringe benefits, worker's
compensation insurance premiums and payroll taxes paid by Landlord to, for or
with respect to all persons engaged in the operating, maintaining, or cleaning
of the Building and the Lot, including, without limitation, a superintendent
available to the Building; all electricity charges related to the common areas
of the Building and heat pumps servicing the Building, and all utility charges
incurred in the operation and maintenance of the Premises, the Building and the
Lot not billed directly to tenants by Landlord or by the utility, all costs of
cleaning the common areas of the Building and all windows on the exterior of the
Building; all costs of maintenance, repairing, managing and operating the
Building (including without limitation, all structural components and common
facilities of the Building); payments to. independent contractors under service
contracts for cleaning the common areas and windows of
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the Building as aforesaid and for operating, managing, maintaining and repairing
the Building and the Lot (which payments may be to affiliates of Landlord or
Managing Agent provided the same are at reasonable rates consistent with the
type of occupancy) and payments for the Managing Agent space for a building
office on the ground floor or above; management fees at the rate of five percent
(5%) of the aggregate fixed rent for the Building; if the Building shares common
areas or facilities with another building or buildings, the Building's pro rata
share (as reasonably determined by Landlord) of the cost of cleaning, operating,
managing, maintaining and repairing such common areas and facilities; fixed and
additional rent payable under any ground lease of the Building; and all other
reasonable and necessary expenses paid in connection with the cleaning,
operating, managing. maintaining and repairing of the Building and the Lot, and
properly chargeable against income, it being agreed that if Landlord installs a
new or replacement capital item for the purpose of reducing Landlord's Operating
Costs or which is required by law or the purpose of which is to maintain the
Building as a first class office building, the cost thereof as reasonably
amortized by Landlord, with interest at the prime commercial rate in effect from
time to time at BankBoston in Boston, Massachusetts on the unamortized amount,
shall be included in Landlord's Operating Costs.
The term "real estate taxes" as used above shall mean all taxes of every
kind and nature assessed by any governmental authority on the Lot, Building and
improvements which Landlord shall become obligated to pay because of or in
connection with the ownership, leasing and operation of the Lot, Building and
improvements, subject to the following: There shall be excluded from such taxes
all income taxes, excess profits taxes, excise taxes, franchise taxes, and
estate, succession, inheritance and transfer taxes, provided, however, that if
at any time during the Term the present system of ad valorem taxation of real
property shall be changed so that in lieu of the whole or any part of the ad
valorem tax on real property, there shall be assessed on Landlord a capital levy
or other tax on the gross rents received with respect to the Lot, Building and
improvements, or both, or a federal, state, county, municipal, or other local
income, franchise, excise or similar tax, assessment levy or charge (distinct
from any now in effect) measured by or based, in whole or in part, upon any such
gross rents, then any and all of such taxes, assessments, levies or charges, to
the extent so measured or based, shall be deemed to be included within the term
"real estate taxes."
B. "Premises Expenses" shall mean one hundred (100%) percent of
Landlord's Operating Costs attributable to the Building and the Lot,
C. If with respect to any calendar year falling within the Term or for
any fraction of any calendar year falling at the end of the Term, Premises
Expenses for a full calendar year exceed the sum of (x) Landlord's Operating
Costs for calendar year 1996 (excluding that portion of Landlord's Operating
Costs for real estate taxes on the Building and Lot) and (y) real estate taxes
for fiscal year 1996 (collectively,
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<PAGE>
the sum of the amounts set forth in (x) and (y) are hereinafter referred to as
the "Premises Expense Base"), or for any such fraction of a calendar year,
exceed the corresponding fraction of the Premises Expense Base, then Tenant
shall pay to Landlord, as additional rent, an amount equal to the product of (i)
the amount of such excess and (ii) a fraction, the numerator of which shall be
the Rentable Floor Area of the Premises and the denominator of which hall be the
Total Rentable Floor Area of the Building or, if the Building is not fully
occupied, the greater of the Total Rentable Floor Area of the Building which is
occupied or 90% of-the Total Rentable Floor Area of the Building (such amount
being referred to as "Tenant's Share of Premises Expenses").
D. Notwithstanding any other provision of this Section 4.2, if the Term
expires or is terminated as of a date other than the last day of a calendar
year, then for such fraction of a calendar year at the end of the Term, Tenant's
last payment to Landlord under this Section 4.2 shall be made on the basis of
Landlord's best estimate of the items otherwise includable in Landlord's
Statement and shall be made on or before the later of (a) 10 days after Landlord
delivers such estimate to Tenant or (b) the last day of the Term, with an
appropriate payment or refund to be made upon submission of Landlord's
Statement.
E. Landlord agrees to keep books and records with respect to Premises
Expenses in accordance with General Accounting Principles. Tenant, its
authorized agent or representative, or a public accounting firm selected by
Tenant, shall have the right upon advance written notice to Landlord to inspect
those portions of the books of Landlord relating to Premises Expenses at the
offices of Landlord's Managing Agent during business hours for the purpose of
verifying information set forth in Landlord's Statements.
4.3 ESTIMATED PREMISES EXPENSE PAYMENTS.
If, with respect to any calendar year or fraction thereof during the Term,
Landlord estimates that Tenant shall be obligated to pay Premises Expenses, then
Tenant shall pay, as additional rent, on the first day of each month of such
calendar year and each ensuing calendar year thereafter, estimated monthly
Premises Expense payments (hereinafter "Estimated Monthly Premises Expense
Payments") equal to 1/12th of the Tenant's Share of Premises Expenses for the
respective calendar year, with an appropriate additional payment (or credit by
Landlord against Tenant's future payments of Tenant's Share of Premises
Expenses) to be made within 30 days after Landlord's Statement is delivered to
Tenant. Landlord may adjust such Estimated Monthly Premises Expense Payments
from time to time and at any time during a calendar year, and Tenant shall pay,
as additional rent, on the first day of each month following receipt of
Landlord's notice thereof the adjusted Estimated Monthly Premises Expense
Payment.
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4.4 CHANGE OF CALENDAR YEAR.
Landlord shall have the right from time to time to change the periods of
accounting under Section 4.2 to any annual period other than a calendar year,
and upon any such change all items referred to in this Section 4.4 shall be
appropriately apportioned. In all Landlord's Statements tendered under this
Section 4.4, amounts for periods partially within and partially without the
accounting periods shall be appropriately apportioned, and any items which are
not determinable at the time of a Landlord's Statement shall be included therein
on the basis of Landlord's estimate, and with respect thereto Landlord shall
render promptly after determination a supplemental Landlord's Statement, and
appropriate adjustment shall be made according thereto. All Landlord's
Statements shall be prepared on an accrual basis of accounting.
4.5 PAYMENTS.
All payments of Annual Base Rent and additional rent shall be made to
Managing Agent; or to such other person as Landlord may from time to time
designate. If any installment of Annual Base Rent or additional rent or on
account of leasehold improvements is paid more than 10 days after the due date
thereof, at Landlord's election, it shall bear interest at a rate equal to the
average prime commercial rate from time to time established by the BankBoston in
Boston, Massachusetts plus 4% per annum from such due date, which interest shall
be immediately due and payable as further additional rent.
4.6 ELECTRICITY.
Tenant shall pay its pro rata share, or the charges as may be separately
metered, if applicable, of all electric charges for Tenant's lights and outlet
consumption in the Premises.
Landlord shall not in any way be liable or responsible to the Tenant for
any loss or damage or expense which Tenant may sustain or incur if, during the
Term of this Lease, either the quantity or character of electric current is
changed or electric current is no longer available or suitable for Tenant's
requirements due to a factor or cause beyond Landlord's control.
ARTICLE V
LANDLORD'S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM
Landlord covenants during the Term:
5.1.1 Building Services - To furnish during normal working hours heat,
air-conditioning, elevator service, hot and chilled water and septic service
during the
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Term. "Normal working hours" shall mean the hours of 7:00 A.M. through 6:00 P.M.
Monday through Friday and no hours on legal holidays, Saturdays and Sundays;
provided, however, that Tenant shall have access to the Building 24 hours a day,
365 days a year, by means of a key or other access device to the main lobby of
the Building to be provided to Tenant by Landlord. Landlord shall also provide
Tenant with access to the dumpster serving the Building in recognition of
Tenant's responsibility to provide all cleaning services for the Premises in
accordance with Section 6.1.3 hereof. To the extent the cost of such services is
not included in Landlord's Operating Costs, Tenant shall pay when due all
amounts and charges for such services and shall indemnify and hold harmless
Landlord from and against any and all claims, liabilities, damages, losses,
costs and expenses (including reasonable attorneys' fees) in connection
therewith. Landlord is not and shall not be required to furnish to Tenant or any
other occupant of the Premises telephone or other communication service.
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional Building operation
services upon reasonable advance request of Tenant at equitable rates from time
to time established by Landlord to be paid by Tenant. In the case of after-hours
heat and air-conditioning services, Tenant must provide Landlord with notice
during normal working hours and at least 24 hours in advance that it wishes such
extra services and the hours for which it is requesting such services.
5.1.3 Repairs - Except as otherwise provided in Article VII, to make such
repairs to the roof, exterior walls, floor slabs, other structural components
and common facilities of the Building as may be necessary to keep them in
serviceable condition.
5.1.4 Tenant Directory - To include Tenants name on the Tenant directory
maintained by Landlord in the main lobby of the Building.
5.1.5 Quiet Enjoyment - That Landlord has the right to make this Lease and
that Tenant on paying the rent and performing its obligations hereunder shall
peacefully and quietly have, hold and enjoy the Premises throughout the Term
without any manner of hindrance or molestation from Landlord or anyone claiming
under Landlord, subject however to all the terms and provisions hereof.
5.2 INTERRUPTIONS.
Landlord shall not be liable to Tenant for any compensation or reduction of
rent by reason of inconvenience or annoyance or for loss of business arising
from power losses or shortages or from the necessity of Landlord's entering the
Premises for any of the purposes in this Lease authorized, or for repairing the
Premises or any portion of the Building or the Lot, unless said interruption or
inconvenience is caused by the Landlord's negligence. In case Landlord is
prevented or delayed from
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making any repairs, alterations or improvements, or furnishing any service or
performing any other covenant or duty to be performed on Landlord's part, by
reason of any cause beyond Landlord's reasonable control, Landlord shall not be
liable to Tenant therefor, nor, except as expressly otherwise provided in
Article VII, shall Tenant be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive total or partial, eviction from
the Premises.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
Landlord will use its best efforts not to inconvenience Tenant in making said
repairs and to remedy the situation in a timely manner.
Landlord also reserves the right to institute such reasonable policies,
programs and measures as may be necessary, required or expedient for the
conservation or preservation of energy or energy services or as may be necessary
or required to comply with applicable codes, rules, regulations or standards,
and provided that the same do not adversely affect Tenants occupancy.
ARTICLE VI
TENANT'S COVENANTS
6.1 TENANT'S COVENANTS DURING THE TERM.
Tenant covenants during the Term and such further time as Tenant occupies
any part of the Premises:
6.1.1 Tenant's Payments - To pay when due (a) all Annual Base Rent and
additional rent, (b) all taxes which may be imposed on Tenant's personal
property in the Premises (including, without limitation, Tenant's fixtures and
equipment) regardless to whomever assessed, (c) all charges by public utilities
for electricity, telephone (including service inspections therefor) and other
services rendered to the Premises not otherwise required hereunder to be
furnished by Landlord without charge and not consumed in connection with any
services required to be furnished by Landlord without charge, and (d) as
additional rent, all charges to Landlord for services rendered pursuant to
Section 5.1.2 hereof.
6.1.2 Repairs and Yielding Up - Except as otherwise provided in Article
VII and Section 5.1.3, to keep the Premises in good order, repair and condition,
reasonable wear only excepted; and at the expiration or termination of this
Lease peaceably to yield up the Premises and all alterations and additions
therein in such order, repair and condition, first removing all goods and
effects of Tenant and any
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alterations and additions, the removal of which alterations and additions is
required by agreement or specified to be removed by Landlord by notice to
Tenant, and repairing all damage caused by such removal and restoring the
Premises and leaving them clean and neat.
6.1.3 Occupancy and Use - Continuously from the Commencement Date, to use
and occupy the Premises only for the Permitted Uses, not to injure or deface the
Building or the Lot; to keep the Premises clean and in a neat and orderly
condition, Tenant agreeing that it shall be responsible for all cleaning
services for the Premises; and not to permit in the Building any use thereof
which is improper, offensive, contrary to law or ordinances, or liable to create
a nuisance or to invalidate or increase the premiums for any insurance on the
Building or its contents or liable to render necessary any alteration or
addition to the Building; not to dump, flush, or in any way introduce any
hazardous substances or any other toxic substances into the septic, sewage or
other waste disposal system serving the Premises, not to generate, store or
dispose of hazardous substances in or on the Premises, or the Lot or dispose of
hazardous substances from the Premises to any other location without the prior
written consent of Landlord and then only in compliance with the Resource
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901 et seq., and
all other applicable laws, ordinances and regulations; to notify Landlord of any
incident which would require the filing of a notice under applicable federal,
state, or local law; not to store or dispose of hazardous substances on the
Premises without first submitting to Landlord a list of all such hazardous
substances and all permits required therefor and thereafter providing to
Landlord on an annual basis Tenants certification that all such permits have
been renewed with copies of such renewed permits; and to comply with the orders
and regulations of all governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or laws
applicable to the Premises. "Hazardous substances" as used in this paragraph
shall mean "hazardous substances" as defined in the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S)9601
and regulations adopted pursuant to said Act, and "hazardous substances",
"hazardous wastes", "toxic substances", "toxic wastes" and terms of similar
import under other applicable federal and state statutes and regulations adopted
pursuant thereto.
6.1.4 Rules and Regulations - To comply with the Rules and Regulations set
forth in Exhibit E and all other reasonable Rules and Regulations hereafter made
by Landlord, of which Tenant has been given notice, for the care and use of the
Building and the Lot and their facilities and approaches, it being understood
that Landlord shall not be liable to Tenant for the failure of other tenants of
the Building to conform to such Rules and Regulations.
6.1.5 Safety Appliances - To keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation of any public
authority because of any use made by Tenant and to procure all licenses and
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permits so required because of such use and, if requested by Landlord, to do any
work so required because of such use, it being understood that the foregoing
provisions shall not be construed to broaden in any way Tenant's Permitted Uses.
6.1.6 Assignment and Subletting.
A. Not without the prior written consent of Landlord to assign, mortgage,
pledge, encumber, sell or transfer this Lease, in whole or in part, to make any
sublease, or to permit occupancy of the Premises or any part thereof by anyone
other than Tenant, voluntarily or by operation of law (it being understood that
in no event shall Landlord consent to any such assignment, sublease or occupancy
if the same is on terms more favorable to the successor occupant than to the
then occupant); as additional rent, to reimburse Landlord promptly for
reasonable legal and other expenses incurred by Landlord in connection with any
request by Tenant for consent to assignment or subletting; no assignment or
subletting shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee); no consent
to any of the foregoing in a specific instance shall operate as a waiver in any
subsequent instance. Landlord's consent to any proposed assignment or
subletting is required both as to the terms and conditions thereof, and as to
the creditworthiness of the proposed assignee or subtenant and the consistency
of the proposed assignee's or subtenant's business with other uses and tenants
in the Building. In the event that any assignee or subtenant pays to Tenant any
amounts in excess of the Annual Base Rent and additional rent then payable
hereunder, or pro rata. portion thereof on a square footage basis for any
portion of the Premises, Tenant shall promptly pay 50% of said excess to
Landlord as and when received by Tenant. If Tenant requests Landlord's consent
to assign this Lease or sublet more than 25% of the Premises, Landlord shall
have the option, exercisable by written notice to Tenant given within 10 days
after receipt of such request, to terminate this Lease as of a date specified in
such notice which shall. be not less than 30 or more than 60 days after the date
of such notice.
If, at any time during the Term of this Lease, Tenant is:
(i) a corporation or a trust (whether or not having shares of
beneficial interest) and then shall occur any change in the identity
of any of the persons then having power to participate in the election
or appointment of the directors, trustees or other persons exercising
like functions and managing the affairs of Tenant; or
(ii) a partnership or association or otherwise not a natural
person (and is not a corporation or a. trust) and there shall occur
any change in the identity of any of the persons who then are members
of such Partnership or association or who comprise Tenant;
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Tenant shall so notify Landlord and Landlord may terminate this Lease by notice
to Tenant given within 90 days thereafter if, in Landlord's reasonable judgment
the credit of Tenant is thereby impaired. This paragraph shall not apply if the
initial Tenant named herein is a corporation and the outstanding voting stock
thereof is listed on a recognized securities exchange.
B. The foregoing provisions of subparagraph (A) of this Section 6.1.6
shall not be deemed violated by an assignment of this Lease to any parent,
wholly-owned subsidiary of such parent corporation or affiliate of Tenant
("affiliate or Tenant' shall mean any corporation which directly controls,
beneficially owns or is under escrow control with Tenant); provided however,
that no such assignment shall be binding upon Landlord unless the assignee shall
execute, acknowledge and deliver to Landlord an agreement in recordable form,
whereby the assignee agrees unconditionally to be personally bound by and to
perform all the terms, covenants and conditions of this Lease on Tenant's part
to be observed and performed, whether or not accruing prior to or after the date
of such assignment and whether or not relating to matters arising prior to such
assignment and further agrees that, notwithstanding such assignment the
provisions of this Section 6.1.6 shall continue to be binding upon such assignee
with respect to all future assignments.
Not to assign this Lease to a party which results from a consolidation,
merger, acquisition or sale of substantially all of the assets and stock of
Tenant without obtaining, on each occasion, the prior written consent of
Landlord.
C. Landlord agrees not to withhold its consent to an assignment of this
Lease by Tenant provided that (a) Tenant is not in default hereunder beyond any
applicable grace period (provided that it shall be a condition of the approval
of any assignment that the default in question is cured prior to the expiration
of the applicable grace period), (b) Landlord determines in. its sole discretion
that the proposed assignee (i) is a first-class office establishment and would
use the leased premises solely for the Permitted Uses, and (ii) has (x) a
financial standing acceptable to Landlord or (y) a tangible net worth comparable
or greater than Tenant's net worth at the time of execution of this Lease which
is evidenced by financial statements in scope and substance satisfactory to
Landlord and in conformity with generally accepted accounting principles and
certified by a certified public accountant acceptable to Landlord, (c) the
proposed assignee is not in default of any of its loan agreements, (d) the
proposed assignee specifically assumes and agrees in writing to be bound by all
of the obligations of the Tenant hereunder, (e) the rent charged by Tenant on a
square footage basis shall not be less than the Annual Base Rent and additional
rent due hereunder, on a square footage basis, and (f) the proposed assignee
shall not be (i) a tenant of the Building or an affiliate of such tenant or (ii)
an entity (or an affiliate of any entity) with which Landlord was negotiating
for space in the Building during the preceding eighteen (18) months.
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6.1.7 Indemnity - To defend, with counsel approved by Landlord, all
actions against Landlord, any partner, trustee, stockholder, officer, director,
employee or beneficiary of Landlord, holders of mortgages secured by the
Premises or the Building and Lot and any other party having on interest in the
Premises ("Indemnified Parties") with respect to, and to pay, protect, indemnify
and save harmless, to the extent permitted by law, all Indemnified Parties from
and against, any and all liabilities, losses, damages, costs, expenses
(including reasonable attorneys' fees and expenses), causes of action, suits,
claims, demands or judgments of any nature (a) to which any Indemnified Party is
subject because of its estate or interest in the Premises, or (b) arising from
(i) injury to or death of any person, or damage to or loss of property, on the
Premises or on adjoining sidewalks, streets or ways, or connected with the use,
condition or occupancy of any thereof unless caused by the negligence of
Landlord or its servants or agents, (ii) violation of this Lease, or (iii) any
act, fault, omission, or other misconduct of Tenant or its agents, contractors,
licensees, sublessees or invitees.
6.1.8 Tenant's Insurance - To maintain (a.) all risk property insurance in
amounts. sufficient to fully cover Tenant's improvements and all property in the
Premises which is not owned by Landlord and (b) public liability insurance on
the Premises, with Landlord named as an additional insured, indemnifying
Landlord and Tenant against all claims and demands for (i) injury to or death of
any person or damage to or loss of property, on the Premises or adjoining walks,
streets or ways, or connected with the use, condition or occupancy of any
thereof unless caused by the negligence of Landlord or its servants or agents,
(ii) violation of this Lease, or (iii) any act, fault or omission, or other
misconduct of Tenant or its agents, contractors, licensees, sublessees or
invitees, in amounts which shall, at the beginning of the Term, be at least
equal to the limits set forth in Section 1.1, and from time to time during the
Term, shall be for such higher limits, if any, as are customarily carried in the
area in which the Premises are located on property similar to the Premises and
used for similar purposes, and shall be written on the "Occurrence Basis", and
to furnish Landlord with certificates thereof. Such insurance shall be effected
under valid and enforceable policies with insurers authorized to do business in
Massachusetts as stock or mutual companies that are rated in the current edition
of Best's Key Rating Guide, Property and Casualty as A and as Class VII or
----------------------------------------------
higher. Such policies shall name Landlord and Tenant as the insureds as their
respective interests may appear. Not later than the first to occur of (a) the
Commencement Date or (b) the commencement of any activities by Tenant in or
about the Premises and thereafter not less than30 days prior to the expiration
dates of the expiring policies theretofore furnished pursuant to this Section
6.1.8, Tenant shall deliver to Landlord certificates of insurance issued by the
insurers evidencing all such policies it form satisfactory to Landlord,
accompanied by evidence satisfactory to Landlord of payment of the first
installment of the premiums. Each such policy shall provide that it may not be
canceled and that its
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form, terms or conditions may not be changed without at least 30 days prior
written notice to each insured named therein.
6.1.9 Tenant's Worker's Compensation Insurance - To keep all of Tenant's
employees working in the Premises covered by worker's compensation insurance in
Story amounts and to furnish Landlord with certificates thereof.
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's
agents entry: to examine the Premises at reasonable times and, if Landlord shall
so elect, to make repairs or replacements; to remove, at Tenants expense, any
changes, additions, signs, curtains, blinds, shades, awnings, aerials,
flagpoles, or the like not consented to in writing; and to show the Premises-to
prospective tenants during the 12 months preceding expiration of the Term and to
prospective purchasers and mortgagees at all reasonable times.
6.1.11 Loading - Not to place Tenant's Property, as defined in Section
6.1.13, upon the Premises so as to exceed a rate of 80 pounds of live load per
square foot and not to move any safe, vault or other heavy equipment in, about
or out of the Premises except in such manner as Landlord shall in each instance
approve; Tenant's business machines and mechanical equipment which Cause
vibration or noise that may be transmitted to the Building structure shall be
placed and maintained by Tenant in settings of cork, rubber, spring, or other
types of vibration eliminators sufficient to eliminate such vibration or noise.
6.1.12 Landlord's Costs - In case Landlord shall be made party to any
litigation commenced by or against Tenant or by or against any parties in
possession of the Premises or any pay thereof claiming under Tenant, to pay, as
additional rent, all costs including, without, implied limitation, reasonable
counsel fees incurred by or imposed upon Landlord in connection with such
litigation and, as additional rent, also to pay all such costs and fees incurred
by Landlord in connection with the successful enforcement by Landlord of any
obligations of Tenant under this Lease.
6.1.13 Tenants Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of Tenant and of all
persons claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises or elsewhere in the Building or on the Lot shall
be at the sole risk and hazard of Tenant, and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft, or from any
other cause, no part of said loss or damage is to be charged to or to be borne
by Landlord unless due to the gross negligence of Landlord.
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6.1.14 Labor or Materialmen's Liens - To pay promptly when due the entire
cost of any work done on the Premises by Tenant, its agents, employees, or
independent contractors; not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Premises; and
immediately to discharge any such liens which may so attach.
6.1.15 Changes or Additions - Not to make any changes or addition to the
Premises without Landlords prior written consent and only in accordance with
Article ill hereto, provided that Tenant shall reimburse Landlord for all costs
incurred by Landlord in reviewing Tenant's proposed changes or additions, and
provided further that, in order to protect the functional integrity of the
Building, all such changes and additions shall be performed by contractors
selected from a list of approved contractors prepared by Landlord from time to
time.
6.1.16 Holdover - To pay to Landlord the greater of twice (a) the then
fair market rent as conclusively determined by Landlord or (b) the total of the
Annual Base Rent and additional rent then applicable for each month or portion
thereof Tenant shall retain possession of the Premises or any part thereof after
the termination of this Lease, whether by lapse of time or otherwise, and also
to pay all damages sustained by Landlord on account thereof; the provisions of
this subsection shall not operate as a waiver by Landlord of the right of re-
entry provided in this Lease; at the option of Landlord exercised by a written
notice given to Tenant While such holding over continues, such holding over
shall constitute an extension of this Lease for a period of one year.
6.1.17 Security - To indemnify, and save Landlord harmless from any claim
for injury to person or damage to property asserted by any personnel, employee,
guest, invitee or agent of Tenant which is suffered or occurs in or about the
Premises or in or about the Building or the Lot by reason of the act of any
intruder or any other person in or about the Premises or the Building, Tenant
acknowledging that Landlord does not provide any security at the Building at any
time and that, in all events, Tenant is responsible for providing security to
the Premises, its own personnel and any parking spaces available to Tenant.
ARTICLE VII
DAMAGE AND DESTRUCTION; CONDEMNATION
7.1 FIRE OR OTHER CASUALTY.
7.1.1 Subject to the provisions of Section 7.1.2 hereof, in the event
during the Term hereof the Premises shall be partially damaged (as distinguished
from "substantially damaged" as such term is hereinafter defined) by fire,
explosion, casualty or any other occurrence covered or as may be required to be
covered, as herein provided, by Landlord's insurance or by such casualty plus
required demolition, or by action taken to reduce the impact of any such event,
Landlord
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shall forthwith proceed to repair such damage and restore the Premises, or so
much thereof as was originally constructed or delivered by Landlord to
substantially its condition at the time of such fire, explosion, casualty or
occurrence, provided the Landlord shall not be obligated to expend for such
repair an amount in excess of the insurance proceeds recovered as a result of
such damage and, further provided that Tenant is not then in default of any of
its obligations under this Lease beyond any applicable cure period. Landlord
shall not be responsible for any delay which may result from any cause beyond
Landlord's reasonable control.
7.1.2 If, however, (i) the Premises should be damaged or destroyed (a) by
fire or other casualty (1) to the extent of 25% or mom of the cost of
replacement, or (2) so that 25% or more of the principal area contained in the
Premises shall be rendered untenantable, or (b) by any casualty other than those
covered by insurance policies required to be maintained by Landlord under this
Lease (hereinafter "substantially damaged"), or (ii) the Premises shall be
damaged in whole or in part during the last 2 years of the Term, or (iii) there
shall be damage to the Premises of a character as cannot reasonably be expected
to be repaired within 12 months from the date of casualty, or (iv) such
restoration involves the demolition of or repair of damage to 25% or more of the
Premises, or (y) applicable law requires the demolition of the Building or
forbids the rebuilding of the damaged portion of the Building, or (vi) such
restoration requires repairs in an amount in excess of the insurance proceeds
recovered or recoverable, or (vii) Landlord's mortgagee shall require tat the
insurance proceeds from such damage or destruction be applied against the
principal balance due on any mortgage, Landlord may, at its option, either
terminate this Lease or elect to repair the Premises and Landlord shall notify
Tenant as to its election within 90 days after such fire or casualty. If
Landlord elects to terminate this Lease, the Term hereof shall end on the date
specified in the notice (which shall be the end of a calendar month and not
sooner than 30 days after such election was made). If Landlord does not elect to
terminate this Lease, then Landlord shall perform such repairs set forth in
Section 7.1.3 hereof and Tenant shall perform such repairs in the Building as
set forth in Section 7.1.4 hereof, and the Term shall continue without
interruption and this Lease shall remain in full force and effect.
If Landlord has not elected to terminate this Lease and if there shall be
damage to the Premises of a character as cannot (in the judgment of Landlord's
engineer) reasonably be expected to be repaired within 24 months from the date
of casualty, then Tenant may, at its option, terminate this Lease provided that
Tenant's election shall be made within 30 days of Landlord's delivery of the
estimate of Landlord's engineer as to the time period required for restoration.
7.1.3 If Landlord does not elect to topic this Lease as provided in
Section 7.1.2 hereof and if Tenant is not then in default of any of its
obligations under the Lease beyond any applicable cure period provided for
herein. Landlord shall. provided any third party mortgagee of the Building makes
insurance proceeds
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available for restoration, reconstruct as much of the Premises as was originally
constructed by Landlord (it being understood by Tenant that Landlord shall not
be responsible for any reconstruction of leasehold improvements, which
reconstruction is the sole response of Tenant) to substantially its condition at
the time of such damage, but Landlord shall not be responsible for any delays
which may result from any cause beyond Landlord's reasonable control.
7.1.4 If Landlord does not elect to terminate, this Lease as provided in
Section 7.1.2 hereof, Tenant shall, at its own cost and expense, repair and
restore the Premises in accordance with the provisions of Section 6.1.8 hereof
to the extent not required to be repaired by Landlord pursuant to the provisions
of this Section 7.1, including, but not limited to, the repairing and/or
replacement of its merchandise, trade fixtures, furnishings and equipment in a
manner and to at least a condition equal to that prior to its damage or
destruction Tenant agrees to commence the performance of its work when notified
by Landlord that the work to be performed by Tenant can, in accordance with good
construction practices, then be commenced and Tenant shall complete such work as
promptly thereafter as is practicable, but in no event more than 90 days
thereafter.
7.1.5 All proceeds payable from Landlord's insurance policies with respect
to the Premises shall belong to and shall be payable to Landlord. If Landlord
does nut elect to terminate this Lease as provided in Section 7.1.2 hereof,
Landlord shall disburse and apply so much of any insurance recovery as shall be
necessary against the cost to Landlord of restoration and rebuilding of
Landlord's work referred to in Section 7.1.3 hereof, subject to the prior rights
of any lessor under a ground or underlying lease covering the Building and/or
the holder of any mortgage liens against the Building.
7.1.6 In the event that the provisions of Section 7.1.1 or Section 7.1.2
shall become applicable, the Annual Base Rent and additional rent shall be
abated or reduced proportionately during any period in which, by reason of such
damage or destructions, there is substantial interference with the operation of
the business of Tenant in the Premises, having regard to the extent to which
Tenant may be required to discontinue its business in the Premises, and such
abatement or reduction shall continue for the period commencing with such
destruction or damage and ending with the completion by Landlord of such work of
repair and/or reconstruction as Landlord is obligated to do.
7.2 EMINENT DOMAIN.
If, after the execution and before termination of this Lease, the entire
Premises shall be taken by eminent domain or destroyed by the action of any
public or quasi-public authority, or in the event of conveyance in lieu thereof,
the Term shall cease as of the day possession shall be taken by such authority,
and Tenant shall pay rent up to that date with a pro-rata refund by Landlord of
such rent and
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additional rent as shall have been paid in advance for a period subsequent to
the date of the told of possession.
If less than 25% of the Premises shall be so taken or conveyed, this Lease
shall cease only as respects the parts so taken or conveyed, as of the day
possession shall be taken, and Tenant shall pay rent up to that day, with an
appropriate refund by Landlord of such rent as may have been paid in advance for
a period subsequent to the date of the taking of possession, and thereafter the
Annual Base Rent shall be equitably adjusted. Pending agreement of such rental
adjustment, Tenant agrees to pay to Landlord the Annual Base Rent in effect
immediately prior to the taking by eminent domain. Landlord shall at its expense
make all necessary repairs or alterations so as to constitute the remaining
premises a complete architectural unit.
If more than 25% of the Premises shall be so taken or conveyed, then the
Term shall cease only as respects the part so taken or conveyed, from the day
possession shall be taken, and Tenant shall pay rent to that date with an
appropriate refund by Landlord of such rent as may have been paid in advance for
a period subsequent to the date of the taking of possession, but Landlord shall
have the right to terminate this Lease upon notice to Tenant in writing within
30 days after such taking of possession. If Landlord does not elect to terminate
the Lease, all of the terms herein provided shall continue in effect except that
the Annual Base Rent shall be equitably adjusted, and Landlord shall make all
necessary repairs or alterations so as to constitute the remaining premises a
complete architectural unit.
All compensation awarded for any such taking or conveyance, whether for the
whole or a part of the Premises, shall be the property of Landlord, whether such
damages shall be awarded as compensation for diminution in the value of the
leasehold or of the fee of or underlying leasehold interest in the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation provided, however, that Tenant shall be
entitled to seek a separate award for Tenant's stock, trade fixtures and
relocation expense.
In the event of any taking of the Premises or any part thereof for
temporary use, this Lease shall be and remain unaffected thereby and rent shall
not abate.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE.
This Lease is and shall continue to be subject and subordinate to any
presently existing mortgage or deed of trust of record covering the Lot or
Building or both (the "mortgaged premises"). The holder of any such presently
existing mortgage or deed of trust shall have the election to subordinate the
same to the rights and interests of Tenant under this Lease exercisable by
filing with the
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appropriate recording office a notice of such election, whereupon the Tenants
rights and interests hereunder shall have priority over such mortgage or deed of
trust.
Unless the option provided for in the following sentence shall be
exercised, this Lease shall, be superior to and shall not be subordinate to, any
mortgage, deed of trust or other voluntary lien hereafter placed on the
mortgaged premises. The holder of any such mortgage, deed of trust or other
voluntary lien shall have the option to subordinate this Lease to the same,
provided that such holder enters into an agreement with Tenant by the terms of
which the holder will agree to recognize the rights of Tenant under this Lease
and to accept Tenant as tenant of the. Premises under the terms and conditions
of this Lease in the event of acquisition of title by such holder through
foreclosure proceedings or otherwise and Tenant will agree to recognize the
holder of such mortgage as Landlord in such event, which agreement shall be made
to expressly bind and inure to the benefit of the successors and assigns of
Tenant and of the holder and upon anyone purchasing the mortgaged premises at
any foreclosure sale. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the holder
deems usual or customary.
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY.
The word "mortgage" as used herein includes mortgages, deeds of trust or
other similar instruments evidencing other voluntary liens or encumbrances, and
modifications, consolidations, extensions, renewals, replacements and
substitutes thereof. The word "holder' shall mean a mortgagee, and any
subsequent holder or holders of a mortgage. Until the holder of a mortgage shall
enter and take possession of the Premises for the purpose of foreclosure, such
holder shall have only such rights of Landlord as are necessary to preserve the
integrity of this Lease as security. Upon entry and taking possession of the
Premises for the purpose of foreclosure, such holder shall. have all the rights
of Landlord.
Notwithstanding any other provision of this Lease to the contrary, including
without Limitation Section 10.4, no such holder of a mortgage shall be liable,
either as mortgagee or as assignee, to perform, or be liable in damages for
failure to perform any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure, and such holder shall not in any event be liable to perform or for
failure to perform the obligations of Landlord under Section 3.1. Upon entry for
the purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord (except for the obligations under Section 3.1), subject
to and with the benefit of the provisions of Section 10.4, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance under
said provisions to the owner of the equity of the Premises.
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8.3 MORTGAGEE'S ELECTION.
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to substantial completion of Landlords obligations under Article
III, any holder of a first mortgage on the mortgaged premises enters and takes
possession thereof for the purpose of foreclosing the mortgage, such holder may
elect, by written notice given to Tenant and Landlord at any time within 90 days
after such entry and taking of possession, not to perform Landlords obligations
under Article III, and in such event such holder and all persons claiming under
it shall be relieved of all obligations to perform, and all liability for
failure to perform said Landlord's obligations under Article III, and Tenant may
terminate this Lease and all its obligations hereunder by written notice to
Landlord and such holder given within 30 days after the day on which such holder
shall have given its notice as aforesaid.
8.4 NO PREPAYMENT OR MODIFICATION, ETC.
Tenant shall not pay Annual Base Rent, additional rent or any other charge
more than 10 days prior to the due date thereof. No prepayment of Annual Base
Rent, additional rent or other charge, no assignment of this Lease and no
agreement to modify so as to reduce the rent, change the Term, or otherwise
materially change the rights of Landlord under this Lease, or to relieve Tenant
of any obligations or liability under this Lease, shall be valid unless
consented to in writing by Landlords mortgagees of record, if any.
8.5 NO RELEASE OR TERMINATION.
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenants obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall have
first given written notice of Landlord's act or failure to art to Landlords
mortgagees of record, if any, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights and (ii) such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 8.5 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist.
8.6 CONTINUING OFFER.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a
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continuing offer to any person, corporation or other entity, which by accepting
or requiring an assignment of this Lease or by entry or foreclosure assumes the
obligations herein set forth with respect to such mortgagee; such mortgagee is
hereby constituted a party to this Lease as an obligee hereunder to the same
extent as though its name were written hereon as such; and such mortgagee shall
be entitled to enforce such provisions in its own name. Tenant agrees on request
of Landlord to execute and deliver from time to time any agreement which may
reasonably be deemed necessary to implement the provisions of this Article VIII.
ARTICLE IX
DEFAULT
9.1 EVENTS OF DEFAULT.
If any default by Tenant continues, in case of Annual Base Rent, additional
rent or any other monetary obligation to Landlord for more than 5 days, or in
any other case for more than 30 days after notice and such additional time, if
any, as is reasonably necessary to cure the default if the default is of such a
nature that it cannot reasonably be cured in 30 days and Tenant diligently
endeavors to cure such default; or if Tenant becomes insolvent, fails to pay its
debts as they fall due, files a petition under any chapter of the U.S.
Bankruptcy Code, 11 U.S.C. 101 et seq., as it may be amended (or any similar
petition under any insolvency law of any jurisdiction), or if such petition is
filed against Tenant; or if Tenant proposes any dissolution, liquidation,
composition, financial reorganization or recapitalization with creditors, makes
an assignment or trust mortgage for benefit of creditors, or if a receiver,
trustee, custodian or similar agent is appointed or takes possession with
respect to any property of Tenant; or if the leasehold hereby created is taken
on execution or other process of law in any action. against Tenant; then, and in
any such case, Landlord and the agents and servants of Landlord may, in addition
to and not in derogation of my remedies for any preceding breach of covenant,
immediately or at any time thereafter while such default continues and without
further notice, at Landlord's election, do any one or more of the following: (1)
give Tenant written notice stating that the Lease is terminated, effective upon
the giving of such notice or upon a date stated in such notice, as Landlord may
cle4 in which event the Lease shall be irrevocably extinguished and terminated
as stated in such notice without any further action, or (2) with or without
process of law, in a lawful manner enter and repossess the Premises as of
Landlord's former estate, and expel Tenant and those claims through or under
Tenant, and remove its and their effects, without being guilty of trespass, in
which event the Lease shall be irrevocably extinguished and terminated at the
time of such entry, or (3) pursue any other rights or remedies permitted by law.
Any such termination of the Lease shall be without prejudice to any remedies
which might otherwise be used for arrears of rent or prior breach of covenants
and in the event of such termination Tenant shall remain liable under this Lease
as hereinafter provided. Tenant hereby waives all statutory rights (including.
without limitation, rights of redemption. if any) to the
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extent such rights may be lawfully waived, and Landlord, without notice to
Tenant, may store Tenant's effects and those of any person claiming through or
under Tenant at the expense and risk of Tenant and, if Landlord so elects, may
sell such effects at public auction or private sale and apply the net proceeds
to the payment of all. sums due to Landlord from Tenant if any, and pay over the
balance, if any, to Tenant.
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION.
In the event that this Lease is terminated under any of-the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, (i) the excess of the total rent reserved for the residue of the
Tenant over the rental value of the Premises for said residue of the Term and
(ii) the unamortized portion of the actual out-of-pocket costs and expenses
incurred by Landlord in completing the Leasehold Improvements (the "Funded
Leasehold Improvements"), amortized on a straight-line reduction basis from 100%
to 0% over a seven year period commencing on the Commencement Date. In
calculating the rent reserved, there shall be included, in addition to the
Annual Base Rent and all additional rent the value of all other consideration
agreed to be paid or performed by Tenant for said residue. Tenant further
covenants as an additional and cumulative obligation after any such ending to
pay punctually to Landlord all the sums and perform all the obligations which
Tenant covenants in this Lease to pay and to perform in the same manner and to
the same extent and at the same time as if this Lowe bad not been terminated. In
calculating the amounts to be paid by Tenant under the need foregoing covenant,
Tenant shall be credited with any amount paid to Landlord as compensation as
provided in the first sentence of this Section 9.2 and also with the net
proceeds of any rents obtained by Landlord by reletting the Premises, after
deducting all Landlord's expenses in connection with such relenting, including,
without implied limitation, all repossession costs, brokerage commissions, fees
for legal services and expenses of preparing the Premises for such relenting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof for a term or terms which may at Landlords option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Term and may grant such concessions and free rent as Landlord in
its sole judgment considers advisable or necessary to relet the same and (ii)
make such alterations, repairs and decorations in the Premises as Landlord in
its sole judgment considers advisable or necessary to relet the same, and no
action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under reletting shall operate or be construed to release or reduce
Tenant's liability as aforesaid.
So long as at least 12 months of the Term remain unexpired at the time of
such termination, in lieu of any other damages or indemnity and in lieu of any
recovery by Landlord of all sums payable under all the foregoing provisions of
this
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Section 9.2, Landlord may by written notice to Tenant, at any time after this
Lease is terminated under any of the provisions contained in Section 9.1, or is
otherwise terminated for breach of any obligation of Tenant and before such fall
recovery, elect to recover and Tenant shall there upon pay, as liquidated
damages, an amount equal to the aggregate of the Annual Base Rent and additional
rent accrued under Article IV in the 12 months ended next prior to such
termination plus the amount of Annual Base Rent and additional rent of any kind
accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section 9.2 up to
the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
ARTICLE X
MISCELLANEOUS
10.1 NOTICE OF LEASE
Upon request of either party, both parties shall execute and deliver, after
the Term begins, a short form of this Lease in form appropriate for recording or
registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
10.2 NOTICES FROM ONE PARTY TO THE OTHER.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at Tenant's Address or such other address as Tenant
shall have last designated by notice in writing to Landlord and, if to Landlord,
at Landlord's Address or such other address as Landlord shall have last
designated by notice in writing to Tenant. Any notice shall have been deemed
duly given if mailed to such address postage prepaid, registered or certified
mail, return receipt requested, when deposited with the U.S. Postal Service, or
if delivered to such address by hand, when so delivered.
10.3 BIND AND INURE.
The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that, the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its: ownership. The obligations of Landlord shall
be binding upon the assets of Landlord which comprise the Building and the Lot
but not upon other
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assets of Landlord. No individual partner, trustee, stockholders, officer,
director, employee or beneficiary of Landlord shall be personally liable under
this Lease and Tenant shall look solely to Landlord's interest in the Building
and the Lot in pursuit of its remedies upon an event of default hereunder, and
the general assets of the individual partners, trustees, stockholders, officers,
employees or beneficiaries of Landlord shall not be subject to levy, execution
or other enforcement procedure for the satisfaction of the remedies of Tenant.
10.4 NO SURRENDER
The delivery of keys to any employee of Landlord or to Landlord's agent or
any employee thereof shall not operate as a termination of this Lease or a
surrender of the Premises.
10.5 NO WAIVER, ETC.
The failure of Landlord or of Tenant to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this Lease
or, with respect to such failure of Landlord, any of the Rules and Regulations
referred to in Section 6.1.4, whether heretofore or hereafter adopted by
Landlord, shall not be deemed a waiver of such violation nor prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation, nor shall. the failure of
Landlord to enforce any of said Rules and Regulations against any other tenant
in the Building be deemed a waiver of any such Rules or Regulations. The receipt
by Landlord of Annual Base Rent or additional rent with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach by
Landlord,. unless such waiver be in writing and signed by Landlord. No consent
or waiver, express or implied, by Landlord or Tenant to or of any breach of any
agreement or duty shall be construed as a waiver or consent to or of any other
breach of the same or any other agreement or duty.
10.6 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Annual Base Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any, letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlords right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
10.7 CUMULATIVE REMEDIES.
The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which it may be lawfully entitled in case of any breach
or
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threatened breach by Tenant of any provisions of this Lease. In addition to the
other remedies provided in this Lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants, conditions or provisions of this Lease or to a decree
compelling specific performance of any such covenants, conditions or provisions.
10.8 LANDLORD'S RIGHT TO CURE.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to Perform such obligation, notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of 4% per annum in excess
of the then average prime commercial rate of interest being charged by the
BankBoston in Boston, Massachusetts) and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord, shall
be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
10.9 ESTOPPEL CERTIFICATE.
Tenant agrees, from time to time, upon not less than 15 days' prior
written request by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full force
and effect; that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Annual Base Rent and additional rent and to perform its
other covenants under this Lease; that there are no uncured defaults of Landlord
or Tenant under this Lease (or, if there have been modifications, that this
Lease is in full force and effect as modified and stating the modifications,
and, if there are any defenses, off-sets, counterclaims, or defaults, setting
them forth in reasonable detail); and the dates to which the Annual Base Rent,
additional rent and other charges have been paid. Any such statement delivered
pursuant to this Section 10.10 shall be in a form reasonably acceptable to and
may be relied upon by any prospective purchaser or mortgagee of premises which
include the Premises or any prospective assignee of any such mortgagee.
10.10 WAIVER OF SUBROGATION.
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrences of injury or
loss. Each
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party, notwithstanding any provisions of this Lease to the contrary, hereby
waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
10.11 ACTS OF GOD.
In any case where either party hereto is required to do any act; delays
caused by or resulting from Acts of God, war, civil commotion, fire, flood or
other casualty, labor difficulties, shortages of labor, materials or equipment
government regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or a "reasonable time", and such time shall be deemed to be
extended by the period of such delay.
10.12 BROKERAGE.
Tenant and Landlord represent and warrant that they dealt with no brokers
in connection with this transaction other than the Broker and agree to defend,
with counsel approved by the other, indemnify and save the other harmless from
and against any and all cost, expense or liability for any compensation,
commissions or charges claimed by a broker or agent, other than the Broker in
connection with this Lease. Landlord hereby agrees to pay the brokerage fees to
the Broker in connection with the execution and delivery of this Lease.
10.13 SUBMISSION NOT AN OFFER.
The submission of a draft of this Lease or a summary of some or all of
its provisions does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been executed by both Landlord and Tenant and a fully executed copy has been
delivered to each of them.
10.14 APPLICABLE LAW AND CONSTRUCTION.
This Lease shall be governed by and construed in accordance with the laws
of the state in which the Premises are located. If any term, covenant, condition
or provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, two she be substituted a like, but
valid and enforceable provision which
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comports to the findings of the aforesaid court and most nearly accomplishes the
original intention of the parties.
There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions hereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words 'Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant,
the obligations imposed by this Lease upon Tenant shah be joint and several.
10.15 AUTHORITY OF TENANT.
Tenant represents and warrants to Landlord (which representations and
warranties shall survive the delivery of this Lease) that: (a) Tenant (i) is
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (ii) has to corporate power and authority to carry on
businesses now being conducted and is qualified to do business in every
jurisdiction where such qualification is necessary and (iii) has the corporate
power to execute and deliver and perform its obligations under this Lease and
(b) the execution, delivery and performance by Tenant of its obligations under
this Lease have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the corporate charter or by-laws of the Tenant or any indenture,
agreement or other instrument to which it is a party or by which it is bound.
10.16 SIGNAGE.
Tenant at Tenant's sole cost and expense may install a sign with its
corporate logo on the wall by the fifth (5th) floor elevator. Tenants sign shall
in all respects comply with the Building Standard signage and shall be approved
by Landlord prior to installation thereof.
ARTICLE XI
SECURITY DEPOSIT
Upon execution of this Lease, Tenant shall deliver the Security Deposit
to Landlord. Landlord shall hold the Security Deposit as security, without
interest, for and during the Term, Landlord shall have the right, but not the
obligation from time to time without prejudice to any other remedy Landlord may
have on account
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thereof, to apply the Security Deposit or any portion thereof or interest
thereon, to Landlord's damage resulting from any default by Tenant. On
termination of the Term, the Security Deposit, or the portion thereof then held
by Landlord shall be returned to Tenant, provided there exists no breach of any
provision of this Lease by Tenant. If all or any part of the Security Deposit is
applied to an obligation of Tenant hereunder, Tenant shall immediately upon
request by Landlord restore the Security Deposit to its original amount. Tenant
shall not have the right to call upon Landlord to apply all or any part of the
Security Deposit to cure any default or fulfill any obligation of Tenant, but
such we shall be solely in the discretion of Landlord. Upon any conveyance by
Landlord of its interest under this Lease, the Security Deposit my be delivered
by Landlord to Landlords grantee or transferee. Upon any such delivery, Tenant
hereby releases Landlord herein named of any and all liability with respect to
the Security Deposit its application and return, and Tenant agrees to look
solely to such grantee or transferee. It is further understood that this
provision shall also apply to subsequent grantees and transferees.
EXECUTED as a sealed instrument in two or more counterparts on the day and
year first above written.
LANDLORD:
LYME PROPERTIES REALTY TRUST
By: ________________________
David E. Clem, Trustee
By: ________________________
David M. Roby, Trustee
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TENANT:
ROWECOM
By: ___________________________________
Richard Rowe
Its President
Hereunto duly authorized
A copy of Tenants corporate authorization for
such execution is attached hereto.
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FIRST ADDENDUM TO LEASE
Reference is hereby made to that certain Lease dated August 30, 1996, (the
"Lease") by and between David E. Clem and David M. Roby, Trustees of Lyme
Properties Realty Trust under Declaration of Trust dated September 30, 1994,
("Landlord"), registered with the Middlesex South District Registry of the Land
Court as Document No. 960475, noted on Certificate of Title No. 200660, in Book
1133, Page 10, RoweCom ("Tenant").
WHEREAS, the original Lease Term, is for the Premises located on the fifth
(5/th/) floor of the building which consists of 2,248 square feet of space (the
"Original Premises").
WHEREAS, the Lease for the Original Premises will expire on August 31,
1998.
WHEREAS, Tenant has requested and Landlord has agreed to amend the Lease
Term set forth in the Lease and to relocate Tenant to space located on the first
(1/st/) floor of the Building (the "New Premises") described herein upon the
terms and conditions set forth below.
WHEREAS, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the Landlord and Tenant agree to amend the Lease
as follows:
1. Article I, Section 1.1 is hereby amended:
(a) to change the definition of the Premises to 5,609 ?????? square
feet of space located on the first (1/st/) floor of the Building more
particularly described in Exhibit "A" attached hereto (the "New Premises");
(b) To change the definition of Annual Base Rent as follows:
(i) $112,180.00 for the period beginning on the New Premises
Commencement Date (as hereinafter defined) through the
termination of the Lease as extended payable in monthly
installments on the first (1/st/) day of each month in the
amount of $9,348.33;
(c) to add a definition for the New Premises Commencement Date which
shall be the earlier of (i) occupancy of the New Premises by
<PAGE>
Tenant or (ii) September 2, 1997, but in no event later than September 2, 1997.
Time being of the essence;
(d) to change the definition of Term to be:
"Commencing on the New Premises Commencement Date and
continuing for three (3) years (the "New Premises Term").
(e) to add a definition for New Premises Termination Date as August
31, 2000.
(f) to change the amount of the Security Deposit from $7,493.33 to
$18,606.66.
2. Tenant shall be responsible for the payment of all charges for
electricity supplying lights, plugs and heat pumps to the New Premises as
separately metered.
3. Landlord shall deliver and Tenant shall accept the New Premises in an
"as is" condition. Notwithstanding the foregoing, Landlord agrees at its sole
cost and expense to paint the entrance area of New Premises where the prior
tenant's logo was displayed.
4. Tenant shall have the right to use twelve (12) parking spaces located
on the Lot.
5. Upon the New Premises' Commencement Date, all references in the Lease
to the Premises shall be construed to mean the New Premises whereby the
obligations of the Landlord and Tenant with respect to the Original Premises
shall terminate.
6. Unless otherwise set forth herein, all capitalized terms used herein
shall have the same meaning as set forth in the Lease.
<PAGE>
7. Except as expressly set forth herein, all other terms of the Lease are
hereby ratified and confirmed and shall remain in full force and effect.
EXECUTED under this seal this 20/th/ day of August, 1997.
LANDLORD:
LYME PROPERTIES REALTY
TRUST
By___________________________________
David E. Clem, Trustee and
not individually
By___________________________________
David M. Roby, Trustee and
not individually
TENANT:
RoweCom
By___________________________________
Louis Hernandez, Jr.
Title:
<PAGE>
EXHIBIT 10.6
CONSENT TO CROSS ASSIGNMENT OF LEASES
AGREEMENT made and entered into effective as of August 1, 1998 by and
among the following parties:
A. DAVID E. CLEM and DAVID M. ROBY, Trustees of Lyme Properties Realty
Trust, u/d/t dated September 30, 1994 and recorded with the Middlesex
South District Registry of the Land Court as Document No. 960475 noted
on Certificate of Title No. 200660, Book 1133, Page 10 (the
"Landlord");
B. THE CURTIN INSURANCE AGENCY, INC., a Massachusetts corporation having
its principal place of business at 725 Concord Avenue, Cambridge,
Massachusetts 02138, ("Curtin"); and
C. ROWECOM, INC., a Massachusetts corporation having its principal place
of business at 725 Concord Avenue, Cambridge, Massachusetts 02138
("RoweCom").
WHEREAS, Curtin is a tenant occupying office space on the first floor of
725 Concord Avenue, Cambridge, Massachusetts (the "Curtin Premises") as set
forth in a written lease with the Landlord which expires on October 31, 1999
(the "Curtin Lease"), and
WHEREAS, RoweCom is a tenant occupying office space on the first floor of
725 Concord Avenue, Cambridge, Massachusetts (the "RoweCom Premises") as set
forth in a written lease with the Landlord which expires on August 31, 2000 (the
"RoweCom Lease"), and
WHEREAS, Curtin and RoweCom desire to swap the office premises they each
occupy by Curtin assuming the RoweCom Lease and RoweCom assuming the Curtin
Lease;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto do hereby agree as follows:
WITNESSETH:
1. Subject to the terms and conditions of this instrument, the Landlord
does hereby grant its consent to (a) the assignment by Curtin of the Curtin
Lease to RoweCom and (b) the assignment by RoweCom of the RoweCom Lease to
Curtin, both effective as of August 1, 1998 (the "Assignment Date").
<PAGE>
2. RoweCom does hereby agree with the Landlord that it shall be liable
and responsible to the Landlord for (a) all of the obligations of RoweCom
arising or accruing under the RoweCom Lease through the expiration date of the
RoweCom Lease and (b) all of the obligations of Curtin arising or accruing under
the Curtin Lease commencing with the Assignment Date.
3. Curtin does hereby agree with the Landlord that it shall be liable and
responsible to the Landlord for (a) all of the obligations of Curtin arising or
accruing under the Curtin Lease through the expiration date of the Curtin Lease
and (b) all of the obligations of RoweCom arising or accruing under the RoweCom
Lease commencing with the Assignment Date.
4. This Agreement shall not constitute the consent of the Landlord to any
further assignment of the RoweCom Lease or the Curtin Lease or the consent of
the Landlord to any sublease of the premises demised pursuant to either such
lease. Nothing set forth herein shall affect the continuing primary liability
of Curtin pursuant to the Curtin Lease or of RoweCom pursuant to the RoweCom
Lease.
5. The Landlord does hereby certify that, as of the date of this
instrument, (a) RoweCom is not in arrears in the payment of any rent or other
sum due to the Landlord under the RoweCom Lease, nor is RoweCom in default of
any term or condition applicable to RoweCom pursuant to the RoweCom Lease and
that said lease is in full force and effect and (b) Curtin is not in arrears in
the payment of any rent or other sum due to the Landlord under the Curtin Lease
not is it in default of any term or condition applicable to Curtin pursuant to
the Curtin Lease and that said lease is in full force and effect. The Landlord
does hereby acknowledge that each of RoweCom and Curtin is relying upon the
foregoing certification by the Landlord in assuming the Curtin Lease and RoweCom
Lease, respectively.
6. This instrument may not be modified, revised, altered, added to, or
extended in any manner, or superseded except by an instrument in writing signed
by the parties hereto.
7. This instrument may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument representing the agreement of the parties hereto.
8. This instrument shall be binding upon, and shall inure to, the benefit
of the parties hereto and their successors in interest and assignees.
9. Curtin hereby releases and agrees to hold the Landlord harmless from
and against all claims that Curtin has or may have against the Landlord pursuant
to the Curtin Lease or otherwise, which claims relate to the right or ability of
Curtin to place signs on the outside of the premises or the failure of the
Landlord to obtain zoning variances from the City of Cambridge to permit such
signs or any other claims, if any, that Curtin may have against the Landlord
with respect to signs.
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10. The language used in this instrument shall be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against either party.
IN WITNESS WHEREOF, each of DAVID E. CLEM and DAVID M. ROBY, Trustees as
aforesaid, has executed this instrument and each of THE CURTIN INSURANCE AGENCY,
INC. and ROWECOM, INC. has caused this instrument to be executed in its name and
on its behalf by a duly authorized officer, each on the date set forth following
the signatures, effective as of the date first above written; it being
understood and agreed that no party signatory hereto shall be bound hereunder
until this instrument shall be executed by all parties hereto.
LYME PROPERTIES REALTY TRUST
By:_________________________
David E. Clem, Trustee
Date of Signature:__________
By:_________________________
David M. Roby, Trustee
Date of Signature:__________
THE CURTIN INSURANCE AGENCY, INC.
By:_________________________
Robert E. Howe, Chairman
Date of Signature: 7/30/98
ROWECOM, INC.
By:_________________________
Louis Hernandez Jr.
Date of Signature: 7/30/98
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EXHIBIT 10.7
ROWECOM INC.
ROWE COMMUNICATIONS LTD.
CRYSTAL INTERNET VENTURE FUND, L.P.
HIGHLAND CAPITAL PARTNERS III LIMITED PARTNERSHIP
HIGHLAND ENTREPRENEURS' FUND III LIMITED PARTNERSHIP
PAI, WEI MING CHUNG
FU KUAN INVESTMENT CORP.
PURETECH PROFITS LIMITED (BVI)
WORKING VENTURES CANADIAN FUND INC.
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STOCK PURCHASE AGREEMENT
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DATED AS OF MAY 4, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 INTERPRETATION......................................... 2
1.1 Defined Terms.......................................... 2
1.2 Gender and Number...................................... 8
1.3 Headings, Etc.......................................... 8
1.4 Currency............................................... 8
1.5 Severability........................................... 8
1.6 Entire Agreement....................................... 8
1.7 Amendments............................................. 8
1.8 Waiver................................................. 8
1.9 Governing Law.......................................... 9
1.10 Inclusion.............................................. 9
1.11 Accounting Terms....................................... 9
1.12 Incorporation of Schedules and Exhibits................ 9
ARTICLE 2 PURCHASED SHARES....................................... 10
2.1 Purchase and Sale...................................... 10
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND OF ROWECAN.......................... 11
3.1 Representations and Warranties of the Company
and of RoweCan......................................... 11
3.2 Covenants of the Company and of RoweCan................ 25
3.3 Conduct of Business Prior to Closing................... 25
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.............................................. 26
4.1 Representations and Warranties of the Purchasers....... 26
ARTICLE 5 CONDITIONS OF CLOSING.................................. 27
5.1 Conditions for the Benefit of the Purchasers........... 27
ARTICLE 6 MISCELLANEOUS.......................................... 29
6.1 Notices................................................ 29
6.2 Time of the Essence.................................... 29
6.3 Brokers................................................ 29
6.4 Third Party Beneficiaries.............................. 30
6.5 Survival of Representations, Warranties and Covenants.. 30
6.6 Expenses............................................... 30
6.7 Enurement.............................................. 30
6.8 Counterparts........................................... 30
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of May 4, 1998, is by and among
RoweCan Inc., a corporation incorporated under the laws of Delaware (the
"Company"), Rowe Communications Ltd., a corporation incorporated under the laws
of the Province of Ontario ("RoweCan"), Crystal Internet Venture Fund, L.P., a
limited partnership organized under the laws of Delaware ("CIVF"), Highland
Capital Partners III Limited Partnership, a limited partnership organized under
the laws of Delaware ("HCP"), Highland Entrepreneurs' Fund III Limited
Partnership, a limited partnership organized under the laws Corp., a corporation
incorporated under the laws of Taiwan ("FKIC"), Puretech Profits Limited (BVI),
a corporation incorporated under the laws of the British Virgin Islands
("Puretech"; and together with Chung, FKIC, CIVF, HEF and HCP, the "US
Purchasers" and each a "US Purchaser") and Working Ventures Canadian Fund Inc.,
a corporation incorporated under the laws of Canada ("AW", and together with the
US Purchasers, the "Purchasers" and each a "Purchaser"). Unless otherwise
indicated herein, capitalized terms used herein are defined. in Section 1. 1
hereof.
PRELIMINARY STATEMENTS:
A. The Company has agreed to issue to the US Purchasers and the US Purchasers,
in reliance upon the representations and warranties of the Company and of
RoweCan contained herein and subject to certain conditions contained
herein, have agreed to take up and subscribe for an aggregate of 5,140,372
shares (the "US Purchased Shares") of Class B Preferred Stock, $.01 par
value, of the Company (the "Class B Preferred Shares").
B. RoweCan has agreed to issue to WV and WV, in reliance upon the
representations and warranties of the Company and of RoweCan contained
herein and subject to certain conditions contained herein, has agreed to
take up and subscribe for 1,186,240 RoweCan Class B Preferred Shares (the
"Purchased RoweCan Shares").
C. RoweCan and the Company have agreed to sell to WV and WV, in reliance upon
the representations and warranties of the Company and of RoweCan contained
herein, has agreed to purchase from RoweCan and the Company an option to
exchange the Purchased RoweCan Shares for 1,186,240 Class B Shares (the
"Class B Exchange Option"; together with the US Purchased Shares and the
Purchased RoweCan Shares, the "Purchased Shares").
<PAGE>
D. Simultaneously with the Closing, the Unanimous Shareholders' Agreement,
dated April 25, 1997, among the Company, WV and the Company's stockholders
(the "Original Stockholders' Agreement") shall be amended and restated
substantially in the form of Exhibit A attached hereto (the "Amended
Stockholders' Agreement") and shall be entered into among the Purchasers,
the Company and its shareholders.
E. The Original Stockholders' Agreement granted WV the right to exchange its
RoweCan Class A Preferred Shares for Common Shares. The Amended
Stockholders' Agreement shall amend this right so that WV shall have the
right to exchange its RoweCan Class A Preferred Shares for Class A-1
Preferred Shares (such amended right, as amended, the "Class A Exchange
Option").
F. Simultaneously with the Closing, the Unanimous Shareholders' Agreement,
dated April 25, 1997, among WV, RoweCan and Garry Wolfe shall be amended
and restated substantially in the form of Exhibit B attached hereto (the
"Amended RoweCan Shareholders' Agreement").
G. Simultaneously with the execution of this Agreement, the Registration
Rights Agreement, dated as of April 25, 1997, among WV, RoweCan and the
Company shall be amended and restated substantially in the form of Exhibit
E attached hereto (the "Amended Registration Rights Agreement") and shall
be among the Purchasers, the Company and RoweCan.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNTS PAYABLE" means all accounts payable and accrued liabilities owed
by either of the Company or RoweCan in connection with the Business;
"ACCOUNTS RECEIVABLE" means all accounts receivable, notes receivable and
other debts due or accruing due to either of the Company or RoweCan in
connection with the Business;
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"AGREEMENT" means this stock purchase agreement and all schedules and
instruments in amendment or confirmation of it; "HEREOF", "HERETO" and
"HEREUNDER" and similar expressions mean and refer to this Agreement and not to
any particular Article, Section, Subsection or other subdivision; "ARTICLE",
"SECTION", "SUBSECTION" or other subdivision of this Agreement followed by a
number means and refers to the specified Article, Section, Subsection or other
subdivision of this Agreement;
"AMENDED ARTICLES OF INCORPORATION" means the Articles of Incorporation of
RoweCan and the Articles of Amendment thereto in the form attached hereto as
Exhibit C;
"AMENDED CERTIFICATE OF INCORPORATION" means the Amended and Restated
Certificate of Incorporation of the Company in the form attached hereto as
Exhibit D;
"AMENDED REGISTRATION RIGHTS AGREEMENT" has the meaning ascribed thereto in
the preliminary statements;
"AMENDED ROWECAN SHAREHOLDERS' AGREEMENT" has the meaning ascribed thereto
in the preliminary statements,
"AMENDED STOCKHOLDERS' AGREEMENT" has the meaning ascribed thereto in the
preliminary statements;
"ANCILLARY AGREEMENTS" means all agreements, certificates and other
instruments delivered or given pursuant to this Agreement including, without
limitation, the Amended Stockholders' Agreement and the Amended RoweCan
Shareholders' Agreement; and "Ancillary Agreement" means any one of such
agreements, certificates or other instruments;
"ASSETS" means all property and assets of each of the Company and RoweCan
of every kind and wheresoever situate;
"AUTHORIZATION" means, with respect to any Person, any authorization,
order, permit, approval, grant, license, consent, right, franchise, privilege,
certificate, judgment, writ, injunction, award, determination, direction,
decree, or by-law, rule or regulation of any Governmental Entity, whether or not
having the force of law, having jurisdiction over such Person;
"BENEFIT PLANS" means all employee benefit plans relating to the employees
of each of the Company and RoweCan, including profit sharing,
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pension and other deferred compensation arrangements, phantom stock option,
stock option, employee stock purchase, bonus, severance, retirement, health or
insurance plans or arrangement (oral or written);
"BOOKS AND RECORDS" means all technical, business and financial and
accounting records, financial books and records of account, books, data,
reports, files, lists, drawings, plans, logs, briefs, customer and supplier
lists, deeds, certificates, contracts, surveys, title opinions or any other
documentation and information in any form whatsoever (including written,
printed, electronic or computer printout form) relating to the Business;
"BUSINESS" means, collectively, the Company's Business and the RoweCan
Business;
"BUSINESS DAY" means any day other than Saturday, Sunday or a day on which
chartered banks are closed for business in New York, New York;
"CLAIM" means any claim or liability of any nature whatsoever, including
any demand, obligation, liability, debt, cause of action, suit, proceeding,
judgment, award, assessment or reassessment;
"CLASS A EXCHANGE OPTION" has the meaning ascribed thereto in the
preliminary statements;
"CLASS B EXCHANGE OPTION" has the meaning ascribed thereto in the
preliminary statements;
"CLASS A PREFERRED SHARES" means the shares of Class A Preferred Stock,
$.01 par value, of the Company;
"CLASS A-1 PREFERRED SHARES" means the shares of Class A-1 Preferred Stock,
$.01 par value, of the Company;
"CLASS B PREFERRED SHARES" has the meaning ascribed thereto in the
preliminary statements;
"CLOSING" means the completion of the transaction of purchase and sale of
the Purchased Shares as contemplated in this Agreement;
"CLOSING DATE" means, with respect to the Closing, any time prior to April
21, 1998 or such other time as may be specified by all of the Purchasers;
"COMMON SHARES" means the shares of Common Stock, $.01 par value, of the
Company;
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"COMPANY'S BUSINESS" means the business presently and heretofore carried on
by the Company, consisting of the provision of secure electronic commerce
products and services;
"CONSENTS" means the consents of contracting parties to any Contract or
Lease to the change in control of the Company contemplated in this Agreement,
and "Consent" means any one of such Consents;
"CONTRACTS" means all contracts to which the Company or RoweCan is a party
including all contracts, leases of personal property, licenses, undertakings,
engagements or commitments of any nature, written or oral, to which either the
Company or RoweCan is entitled in connection with its Business including,
without limitation, unfilled purchase orders received by either the Company or
RoweCan, forward commitments by either the Company or RoweCan for supplies or
materials entered into in the ordinary course of the Business, all restrictive
agreements and negative covenant agreements which either the Company or RoweCan
may have with its employees, past or present and the Contracts listed in
Schedule 3. 1 (p);
"CORPORATE RECORDS" means the corporate records of each of the Company and
RoweCan, including (i) all articles or similar constating documents, operating
agreements, by-laws, any stockholders' agreements and any amendments thereto;
(ii) all minutes of meetings and resolutions of stockholders, directors and any
committee thereof; and (iii) the stock certificate books, register of
stockholders, register of transfers and register of directors;
"ENCUMBRANCES" means any mortgage, lien, pledge, assignment, charge,
security interest, title retention agreement, hypothec, levy, execution,
seizure, attachment, garnishment, right of distress or other claim in respect of
property of any nature or kind whatsoever howsoever arising (whether consensual,
statutory or arising by operation of law or otherwise) and includes arrangements
known as sale and lease-back, sale and buy-back and sale with an option to buy-
back;
"ENVIRONMENTAL LAWS' means all applicable federal, provincial, state,
municipal or local laws, statutes, regulations or ordinances relating to the
environment, occupational safety, health, product liability and transportation;
"ERISA" means the Employee Retirement Income Security Act of 1974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time;
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"FINANCIAL STATEMENTS" means, collectively, the balance sheets for each of
the Corporation and RoweCan for the fiscal year ending December 31, 1996 and the
accompanying statements of income, retained earnings and changes in financial
position for the year then ended and all notes thereto as reported upon by
Coopers & Lybrand, Chartered Accountants and the unaudited balance sheets, and
accompanying statements of income and changes in financial position for each of
the Company and RoweCan for the fiscal year ended December 31, 1997;
"GAAP" means at any time, generally accepted accounting principles from
time to time approved by, in the case of RoweCan, the Canadian Institute of
Chartered Accountants, or any successor institute, and in the case of the
Company, the Financial Accounting Standards Board or any successor institute,
applicable as at the date on which a given calculation is made or required to be
made in accordance with generally accepted accounting principles;
"GOVERNMENTAL ENTITY" means (i) any multinational, federal, provincial,
state, municipal, local or other governmental or public department, court,
commission, board, bureau, agency or instrumentality, domestic or foreign; (ii)
any subdivision, agent, commission, board, or authority of any of the foregoing;
or (iii) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing;
"HAZARDOUS SUBSTANCE" means any substance which is or is deemed to be,
alone or in any combination, hazardous, hazardous waste, toxic. radioactive, a
pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, whether or not such substance is
defined as hazardous under the Environmental Law;
"INTELLECTUAL PROPERTIES" means all right, title, interest and benefit of
each of the Company and RoweCan in and to any registered or unregistered
worldwide trademarks, trade or brand names, service marks, copyrights, copyright
applications, designs, inventions, patents, patent applications, patent rights,
licenses, sub-licenses, franchises, formulas, processes, know-how, technology,
computer rights and other intellectual or industrial property of the Company or
of RoweCan or pertaining to the Business, including the property listed in
Schedule 3.1(q);
"INTERIM FINANCIAL STATEMENTS" means, collectively, the unaudited balance
sheets of the Company and of RoweCan as at March 31, 1998 and the accompanying
statement of income for the three-month period then ended;
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"LAWS" means all statutes, codes, ordinances, decrees, miles, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
policies, voluntary restraints, guidelines, or any provisions of the foregoing,
including general principles of common and civil law and equity, binding on or
affecting the Person referred to in the context in which such word is used; and
"LAW" means any one of them;
"LEASED PROPERTIES" means the real properties forming the subject matter of
the Leases at the municipal addresses listed in Schedule 3. 1 (o);
"LEASES" means all of the leases and subleases of real property to which
either the Company or RoweCan is a party, as listed and described in Schedule 3.
1 (o);
"LOSS" means any loss whatsoever, including expenses, costs, damages,
penalties, fines, charges, claims, demands, liabilities, interest and any and
all legal fees and disbursements;
"ORIGINAL STOCKHOLDERS' AGREEMENT" has the meaning ascribed thereto in the
preliminary statements.
"OWNED PROPERTIES" means, collectively, the land and premises listed on
Schedule 3.1(k) and the buildings, improvements and fixtures thereon;
"PARTIES" means the Purchasers, the Company, RoweCan and any other person
who may become a party to this Agreement; and "PARTY" means any one of them;
"PERMITTED ENCUMBRANCES" means (i) Encumbrances for taxes, assessments or
governmental charges or levies not yet due and delinquent; (ii) easements,
rights-of-way or other minor imperfections of title which do not, individually
or in the aggregate, materially detract from the value of or impair the use or
marketability of any real property; (iii) restrictions on the transfer of shares
imposed by the Amended Certificate of Incorporation or the Amended Articles of
Incorporation and (iv) Encumbrances disclosed in Schedule 3. 1 (k);
"PERSON" means an individual, partnership, corporation, trust,
unincorporated association, joint venture or other entity or Governmental
Entity, and pronouns have a similarly extended meaning;
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"PURCHASED ROWECAN SHARES" has the meaning ascribed thereto in the
preliminary statements;
"PURCHASED SHARES" has the meaning ascribed thereto in the preliminary
statements;
"PURCHASERS" has the meaning ascribed thereto in the preamble hereto;
"ROWECAN BUSINESS" means the business presently and heretofore carried on
by RoweCan consisting of the provision of secure electronic commerce products
and services;
"ROWECAN COMMON SHARES" means the Common Shares of RoweCan;
"ROWECAN CLASS A PREFERRED SHARES" means the Class A Preferred Shares of
RoweCan;
"ROWECAN CLASS B PREFERRED SHARES" means the Class B Preferred Shares of
RoweCan;
"SECURITIES ACT" shall mean the 1933 Securities Act, as amended.
"SHAREHOLDER LOANS" means any indebtedness owing by RoweCan or the Company,
directly or indirectly, to any of their shareholders, or to a person controlled
individually or in concert by their shareholders;
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, association or other business entity in
respect of which that Person owns securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors, partnership
committee, board of managers or trustees or other managerial body thereof,
whether directly or indirectly through one or more of the other Subsidiaries of
that Person or a combination thereof; and
"TIME OF CLOSING" means 10:00 a.m. (Cleveland time) on the Closing Date or
such later time as the Closing may occur.
1.2 GENDER AND NUMBER. Any reference in this Agreement to gender shall include
all genders, and words importing the singular number only shall include the
plural and vice versa.
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1.3 HEADINGS, ETC. The provision of a table of contents, the division of this
Agreement into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall not affect
or be utilized in the construction or interpretation of this Agreement.
1.4 CURRENCY. All references in this Agreement or any Ancillary Agreement to
dollars are expressed in United States currency.
1.5 SEVERABILITY. Any Article, Section, Subsection or other subdivision of
this Agreement or any Ancillary Agreement or any other provision of this
Agreement or any Ancillary Agreement which is, or becomes, illegal, invalid or
unenforceable shall be severed from this Agreement and any Ancillary Agreement
and be ineffective to the extent of such illegality, invalidity or
unenforceability and shall not affect or impair the remaining provisions hereof
or thereof.
1.6 ENTIRE AGREEMENT. This Agreement together with the Ancillary Agreements
constitutes the entire agreement between the Parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties. Except as set forth
in this Agreement, the Amended Stockholders' Agreement and the Amended RoweCan
Shareholders' Agreement, there are no representations, warranties, conditions or
other agreements, express or implied, statutory or otherwise, between the
Parties in connection with the subject matter of this Agreement. If there is
any conflict between the provisions of this Agreement and the provisions of any
Ancillary Agreement, the provisions of this Agreement shall govern.
1.7 AMENDMENTS. This Agreement and any Ancillary Agreement may be amended,
modified or supplemented only by a written agreement signed by the Company and
each of CIVF, HCP and WV.
1.8 WAIVER. No waiver of any of the provisions of this Agreement or any
Ancillary Agreement shall be deemed to constitute a waiver of any other
provision (whether or not similar), nor shall such waiver constitute a waiver or
continuing waiver unless otherwise expressly provided in writing duly executed
by the Party to be bound thereby; provided, however, that (i) with respect to
rights of the holders of the Class B Preferred Shares, the written consent of
the holders of a majority of the Class B Preferred Shares shall be binding upon
all of the holders of the Class B Preferred Shares and (ii) with respect to the
rights of the holders of the Class A-1 Preferred Shares, the written consent of
the holders of a majority of the Class A-1 Preferred Shares shall be binding
upon the holders of the Class A1 Preferred Shares.
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<PAGE>
1.9 GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
1.10 INCLUSION. Where the word "including" or "includes" is used in this
Agreement it means including (or includes) without limitation.
1.11 ACCOUNTING TERMS. All accounting terms not specifically defined in this
Agreement shall be construed in accordance with GAAP.
1.12 INCORPORATION OF SCHEDULES AND EXHIBITS. The following are the schedules
and exhibits attached to and incorporated in this Agreement:
SCHEDULES
Schedule 2.1 - Schedule of Purchasers
Schedule 3.1(c) - Jurisdictions in which RoweCan Business Carried
On
Schedule 3.1(d) - Capitalization Schedule
Schedule 3.1(e) - Options
Schedule 3.1(f) - Dividends and Distributions
Schedule 3.1(k) - Owned Properties and Permitted Encumbrances
Schedule 3.1(o) - Leases and Leased Properties
Schedule 3.1(p) - Contracts
Schedule 3.1(q) - Intellectual Property Rights
Schedule 3.1(s) - Financial Statements as at December 31, 1996 and
December 31, 1997 and Interim Financial
Statements as at March 31, 1998
Schedule 3.1(t) - Accounts Payable and Accrued Liabilities
Schedule 3.1(u) - Cumulative Tax Losses
Schedule 3.1(z) - Environmental Compliance
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Schedule 3.1(aa) - Authorizations
Schedule 3.1(ab)(iii) - Contingent Liabilities/Indebtedness
Schedule 3.1(ac)(iv) - Collective Agreements
Schedule 3.1(ac)(xi) - Benefit Plans
Schedule 3.1(ac)(vii) - Employee Matters and Designated Employees
Schedule 3.1(ad) - Insurance Policies
Schedule 3.1(ae) - Litigation
Schedule 3.1(af) - Shareholder Loans
Schedule 3.1(ai) - Bonus or Profit Sharing Distributions
Schedule 3.2 - Source and Use of Funds
Schedule 5.1(i) - Persons Entering Into Noncompetition Agreements
EXHIBITS
Exhibit A - Amended Stockholders' Agreement
Exhibit B - Amended RoweCan Shareholders' Agreement
Exhibit C - Amended Articles of Incorporation
Exhibit D - Amended Certificate of Incorporation
Exhibit E - Amended Registration Rights Agreement
Exhibit F - ERISA Certificate
Exhibit G - Amended and Restated By-Laws
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<PAGE>
ARTICLE 2
PURCHASED SHARES
2.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, each US
Purchaser hereby subscribes for and agrees to take up the number of the US
Purchased Shares set forth opposite such US Purchaser's name on Schedule 2.1 for
the subscription price set forth opposite such US Purchaser's name on Schedule
2.1. Subject to the terms and conditions hereof, WV hereby subscribes for and
agrees to take up the Purchased RoweCan Shares and RoweCan hereby agrees to
issue the Purchased RoweCan Shares for an aggregate subscription price of
$1,500,000.48. Subject to the terms and conditions hereof, RoweCan and the
Company hereby agree to sell and WV hereby agrees to purchase the Class B
Exchange Option (the terms of which are contained in the Amended Stockholders'
Agreement) for a purchase price of $1.00.
ARTICLE 3
REPRESENTATIONS, W
SENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND OF ROWECAN
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND OF ROWECAN. Each of the
Company and RoweCan represents and warrants as follows to the Purchasers and
acknowledges and confirms that the Purchasers are relying upon such
representations and warranties in connection with the purchase by the Purchasers
of the Purchased Shares:
CORPORATE MATTERS RELATING TO THE COMPANY AND ROWECAN
- -----------------------------------------------------
(a) Due Incorporation and Existence. The Company is a corporation duly
-------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. RoweCan is a corporation duly incorporated, validly existing and in
good standing under the laws of the Province of Ontario. RoweCan is a "private
company" within the meaning of the Securities Act (Ontario).
(b) Corporate Power. Each of the Company and RoweCan has all requisite
---------------
corporate power and authority to own its property and to carry on its business
as now being conducted by it.
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(c) Extra-Territorial Qualification. The Company is duly qualified, licensed or
-------------------------------
registered to carry on business in the State of Delaware and in the State of
Massachusetts. RoweCan is duly qualified, licensed or registered to carry on
business in the Province of Ontario pursuant to its charter and in the
jurisdictions listed in Schedule 3.1(c). The jurisdictions listed in Schedule
3.1(c) include all jurisdictions in which the nature of the Assets or its
Business make such qualifications necessary except where the failure to be so
qualified would have a material adverse effect on the affairs, assets,
liabilities, business or prospects, operations or conditions of either the
Company or RoweCan or their respective Business, financial or otherwise, or
where either the Company or RoweCan owns or leases any material properties or
assets or conducts any material business.
(d) Authorized Capital. The authorized capital of the Company consists of
------------------
24,000,000 Common Shares, 5,000,000 Class A Preferred Shares, 5,000,000 Class A-
1 Preferred Shares and 8,000,000 Class B Preferred Shares, of which at the date
hereof, and after giving effect to the issue of the US Purchased Shares,
4,423,836 Common Shares (and no more), 161,289 Class A Preferred Shares (and no
more), 0 Class A-1 Preferred Shares (and no more) and 5,140,372 Class B
Preferred Shares (and no more) shall be owned of record and beneficially
nonassessable, and shall be issued in conformity with all applicable state and
federal securities laws. The authorized capital of RoweCan consists of an
unlimited number of RoweCan Common Shares, an unlimited number of RoweCan Class
A Preferred Shares and an unlimited number of RoweCan Class B Preferred Shares
of which at the date hereof, and after giving effect to the issue of the
Purchased RoweCan Shares, 1,611,569 RoweCan Common Shares (and no more),
1,611,568 RoweCan Class A Preferred Shares (and no more), and 1, 186,240 RoweCan
Class B Preferred Shares shall be owned of record and beneficially as reflected
on Schedule 3. l(d) and shall be duly authorized, validly issued, fully paid and
nonassessable, and shall be issued in conformity with all applicable state and
federal securities laws.
(e) Options, etc, Except for the Purchasers' rights hereunder, and under the
------------
Class A Exchange Option with respect to the exchange of the RoweCan Class A
Preferred Shares into Class A-1 Preferred Shares and under the Class B Exchange
Option with respect to the exchange of the RoweCan Class B Preferred Shares into
Class B Preferred Shares, and except as disclosed in Schedule 3.1(e), no Person
has any option, wan-ant, right, call, commitment, conversion right, right of
exchange or other agreement or any right or privilege (whether by law, pre-
emptive or contractual) capable of becoming an option, warrant, right, call,
commitment, conversion right, right of exchange or other agreement (i) for the
purchase from the Company or from RoweCan of any of the Purchased Shares; or
(ii) for the purchase, subscription,
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allotment or issuance of any of the unissued shares in the capital of the
Company or of RoweCan or of any securities of the Company or of RoweCan.
(f) Dividends and Distributions. Except as disclosed on Schedule 3.1(f), since
---------------------------
the date of the Financial Statements, neither the Company nor RoweCan has,
directly or indirectly, declared or paid any dividends or declared or made any
other distribution on any of its shares of any class and has not, directly or
indirectly, redeemed, purchased or otherwise acquired any of its shares of any
class or agreed to do so.
(g) Subsidiaries. The Company has no Subsidiaries or agreements of any nature
------------
to acquire any Subsidiary or acquire or lease any other business operations.
RoweCan has no Subsidiaries and has no agreements of any nature to acquire any
Subsidiary or acquire or lease any other business operations.
(h) Corporate Records.
-----------------
(i) The Corporate Records of the Company are complete and accurate and all
corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all Laws and with the Amended
Certificate of Incorporation and by-laws of the Company, and without
limiting the generality of the foregoing, (i) the minute books contain
complete and accurate minutes of all meetings of the directors and
stockholders of the Company held since the incorporation of the
Company, and all such meetings were duly called and held; (ii) the
minute books contain all written resolutions passed by the directors
and stockholders of the Company and all such resolutions were duly
passed; (iii) the stock certificate books, register of stockholders
and register of transfers of the Company are complete and accurate,
and all such transfers have been duly completed and approved and any
exigible tax payable in connection with the transfer of any securities
of the Company has been duly paid; and (iv) the registers of directors
and officers are complete and accurate and all former and present
directors and officers of the Company were duly elected or appointed,
as the case may be.
(ii) The Corporate Records of RoweCan are complete and accurate and all
corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all Laws and with the Amended
Articles of Incorporation and by-laws of RoweCan, and without limiting
the generality of the foregoing: (i) the minute books contain
complete and accurate minutes of all
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meetings of the directors and shareholders of RoweCan held since the
incorporation of RoweCan, and all such meetings were duly called and
held; (ii) the minute books contain all written resolutions passed by
the directors and shareholders of RoweCan and all such resolutions
were duly passed; (iii) the share certificate books, register of
shareholders and register of transfers of RoweCan are complete and
accurate, and all such transfers have been duly completed and approved
and any exigible tax payable in connection with the transfer of any
securities of RoweCan has been duly paid; and (iv) the registers of
directors and officers are complete and accurate and all former and
present directors and officers of RoweCan were duly elected or
appointed, as the case may be.
(i) Validity of Agreement. Each of the Company and RoweCan has all necessary
---------------------
corporate power to enter into and perform its obligations under this Agreement
and the Ancillary Agreements to which it is a party. The execution and delivery
and performance by each of the Company and RoweCan of this Agreement and the
Ancillary Agreements to which each is a party and the consummation of the
transactions contemplated thereby:
(i) have been duly authorized by all necessary corporate action on the
part of the Company and of RoweCan; and
(ii) do not (or would not with the giving of notice, the lapse of time or
the happening of any other event or condition) result in a violation
or a breach of, or a default under or give rise to a right of
termination, greater rights or increased costs, amendment or
cancellation or the acceleration of any obligation under (A) any
charter or by-law instruments of the Company or of RoweCan; (B) any
contracts or instruments to which either of the Company or RoweCan is
a party or by which either of them is bound; or (C) any Laws
applicable to either of the Company or RoweCan.
Each of this Agreement and any Ancillary Agreement to which either the Company
or RoweCan is a party constitutes legal, valid and binding obligations of the
Company or of RoweCan enforceable against each of them in accordance with its
terms, subject only to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are
considered an adequate remedy; and
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<PAGE>
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting the enforceability of creditors' rights.
(j) Restrictive Documents. Neither the Company nor RoweCan is subject to, or a
---------------------
party to, any charter or by-law restriction, any Law, any Claim, any contract or
instrument, any Encumbrance or any other restriction of any kind or character
which would prevent the consummation of the transactions contemplated by this
Agreement or any Ancillary Agreement or compliance by the Company or of RoweCan
with the terms, conditions and provisions hereof or thereof or the continued
operation of the Business by the Company or of RoweCan after the date hereof on
substantially the same basis as heretofore operated or which would restrict the
ability of the Purchasers to acquire any of the Purchased Shares, in each case
except for:
(i) the necessity of obtaining the Consents; and
(ii) the necessity of passing the appropriate resolutions of the directors
and shareholders of the Company to permit the transfer of the
Purchased Shares.
MATTERS RELATING TO THE ASSETS
- ------------------------------
(k) Title to the Assets. Except as set forth on Schedule 3.1(k), each of the
-------------------
Company and RoweCan has good title to all of its Assets and good and marketable
title in fee simple to its Owned Properties. Each of the Company and RoweCan has
legal and beneficial ownership of its Assets free and clear of all Encumbrances,
except for Permitted Encumbrances. Each of the Company and RoweCan has a valid
leasehold title to all of its Leases.
(l) No Options, etc. No Person has any written or oral agreement, option,
---------------
understanding or commitment, or any right or privilege capable of becoming such
for the purchase from the Company or of RoweCan of any of the Assets, other than
pursuant to purchase orders accepted by the Company or RoweCan in the ordinary
course of their Business.
(m) Accounts Receivable. All Accounts Receivable are bona fide, and, subject
-------------------
to an allowance for doubtful accounts taken in accordance with GAAP, collectible
without set-off or counterclaim.
(n) Real Property.
-------------
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<PAGE>
(i) Neither the Company nor RoweCan is the owner of, or under any
agreement or option to own, any real property or any interest therein,
other than the Leases; and
(ii) All of the buildings, improvements and fixtures on the Owned
Properties and the Leased Properties (A) were constructed in
accordance with all Laws and with all Authorizations validly issued
pursuant thereto; (B) are in good operating condition and in a state
of good maintenance and repair; and (C) are adequate and suitable for
the purposes for which they are presently being used; and with respect
to each (and to the Owned Properties and the Leased Properties), the
owner has adequate rights of ingress and egress for the operation of
the Business in the ordinary course. None of the Owned Properties, the
Leased Properties or the buildings and fixtures thereon, or the use,
operation or maintenance thereof for the purpose of carrying on the
Business, violates in any material respect, any restrictive covenant
or any provision of any Law or encroaches on any property owned by any
other Person. No condemnation or expropriation proceeding is pending
or, to the best knowledge of each of the Company and RoweCan,
threatened which would preclude or impair the use of any such property
or any part thereof for the purposes for which it is currently used.
There are no outstanding work orders with respect to any of the Assets
from or required by any municipality, police department, fire
department, sanitation, health or safety authorities or from any other
Person and there are no matters under discussion with or by the
Company or RoweCan relating to work orders.
(o) Leases. Each Lease is in good standing, creates a good and valid leasehold
------
estate in the Leased Properties thereby demised and is in full force and effect
without amendment thereto, except as disclosed in Schedule 3.1(o). With respect
to each Lease, (i) all rents and additional rents due to the date hereof have
been paid, (ii) neither the lessor, to the best of the knowledge of the Company
or RoweCan, nor the lessee is in default thereunder, (iii) no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor, (iv) there exists no event of default or event, occurrence, condition or
act (including the purchase of the Purchased Shares hereunder) which, with the
giving of notice, the lapse of time or the happening of any other event or
condition, would become a default under such Lease, (v) neither the Company nor
RoweCan has violated any of the terms or conditions under any such Lease in any
material respect, and (vi) to the best knowledge of the Company and of RoweCan,
all of the covenants to be performed by any other party under any such Lease
have been fully
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performed. Each of the Leased Properties is in a state of good maintenance and
repair, normal wear and tear excepted, and is adequate and suitable for the
purposes for which it is presently being used. True, correct and complete copies
of the Leases have been provided to the Purchasers. Schedule 3.1(o) contains a
true, correct and complete list of all of the Leases, together with a brief and
accurate description of each Lease, including a description of the leased
premises, the term of the Lease, the rental payments under the Lease (specifying
any breakdown of base rent and additional rents), any rights of renewal and the
term thereof, and any restrictions on assignment.
(p) No Breach of Contracts. Each of the Contracts listed in Schedule 3.1(p) is
----------------------
in full force and effect, unamended, and there exists no default or event of
default or event, occurrence, condition or act (including the purchase of the
Purchased Shares hereunder) which, with the giving of notice, the lapse of time
or the happening of any other event or condition, would become a default or
event of default thereunder, except for the necessity of obtaining the Consents,
which Consents are listed in Schedule 3.1(p). Neither the Company nor RoweCan
has violated or breached, in any material respect, any of the terms or
conditions of any Contract, and to the best of the knowledge of the Company and
of RoweCan, all the covenants to be performed by any other party thereto have
been fully performed. True, correct and complete copies of all Contracts listed
in Schedule 3.1(p) have been delivered to the Purchasers.
(q) Intellectual Property Rights. The Intellectual Properties used in whole or
----------------------------
in part in, or required for the carrying on of, the Business in the manner
heretofore carried on are set out in Schedule 3.1(q) (other than "off the shelf"
or standard products) and are owned by, or validly licensed to, the Company or
to RoweCan as indicated in Schedule 3.1(q). Except as otherwise expressly stated
in Schedule 3.1(q), the Company (i) has the exclusive right to use such
Intellectual Properties, (ii) is the owner of record of such Intellectual
Properties, and (iii) has not conveyed, assigned or encumbered any of them. All
registrations and filings necessary to preserve the rights of the Company and of
RoweCan in the Intellectual Properties have been made and are in good standing.
Except as disclosed on Schedule 3.1(q), to the best of the knowledge of each of
the Company and RoweCan, the conduct of the Business does not infringe upon the
intellectual properties of any other Person. Except as disclosed on Schedule
3.1(q), there are no outstanding options, licenses or agreements of any kind
relating to the Intellectual Properties, nor is the Company or RoweCan bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf"
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<PAGE>
or standard products. Except as disclosed on Schedule 3.1 (q), neither the
Company nor RoweCan has received any communications alleging that the Company or
RoweCan has violated or, by conducting its business as presently proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.
Except as disclosed on Schedule 3.1 (q), neither the Company nor RoweCan is
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court of administrative agency, that
would materially interfere with their duties to the Company or RoweCan or that
would conflict with the Company's or RoweCan's business as presently proposed to
be conducted. Except as disclosed on Schedule 3.1 (q), neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's and RoweCan's
businesses by the employees of the Company, nor the conduct of the Company's and
RoweCan's businesses as presently proposed, will, to the Company's or RoweCan's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee of the Company or RoweCan is now obligated.
Except as disclosed on Schedule 3.1(q), neither the Company nor RoweCan believes
it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by the Company or RoweCan, except for inventions, trade secrets or proprietary
information that have been assigned to the Company or RoweCan employing such
employee.
(r) Condition of Equipment. All tangible personal property forming part of the
----------------------
Assets, including furniture, and office and computer equipment, whether owned or
leased, are in good operating condition and are in a state of good repair and
maintenance having regard to the age and use thereof, reasonable wear and tear
and obsolescence excepted.
FINANCIAL MATTERS
- -----------------
(s) Financial Statements. The Financial Statements and the Interim Financial
--------------------
Statements have been prepared in accordance with GAAP applied on a basis
consistent with those of previous fiscal years and present fairly:
(i) the Assets, liabilities (whether denied, absolute, contingent or
otherwise) and financial position of each of the Company and RoweCan
as at the respective dates of the relevant statements; and
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(ii) the sales and earnings of each of the Company and RoweCan during the
periods covered thereby.
The financial statements to be provided to the Purchasers pursuant to Section
3.2(2) shall contain no material variances from the financial information
previously provided to the Purchasers.
As at the date hereof, there are no liabilities, absolute or contingent of the
Company and RoweCan save and except for liabilities set forth in the Interim
Financial Statements, liabilities set forth in the Contracts listed in Schedule
3.1(p) or in Contracts which, by the terms of Section 3.1(ab) are not required
to be disclosed, liabilities incurred in the ordinary course since the date of
the Interim Financial Statements and liabilities set forth in the Accounts
Payable and Accrued Liabilities listed in Schedule 3.1(t).
True, correct and complete copies of the Financial Statements and the Interim
Financial Statements are attached as Schedule 3.1(s).
(t) Accounts Payable and Accrued Liabilities. The aggregate amount of Accounts
----------------------------------------
Payable for each of the Company and RoweCan as of March 31, 1998 does not exceed
the amount set out in Schedule 3.1(t).
(u) Taxes. As of the date hereof, each of RoweCan and the Company has filed or
-----
caused to be filed, within the times and within the manner prescribed by Law,
all federal, provincial, local, state and foreign tax returns and tax reports
which are required to be filed by or with respect to each of them. The
information contained in such returns and reports is correct and complete and
such returns and reports reflect accurately all liability for taxes of the
Company and of RoweCan for the periods covered thereby. As of the date hereof,
all federal, provincial, local, state and foreign income, profits, franchise,
sales, use, occupancy, excise and other taxes and assessments (including
interest and penalties) that are or may become payable by or due from each of
the Company and RoweCan have been fully paid or fully disclosed and fully
provided for in the Books and Records, the Financial Statements and the Interim
Financial Statements. The federal income tax liability of RoweCan has been
assessed for all fiscal years to and including its fiscal year ended December
31, 1996. As of the date hereof, no examination of any tax return of either of
the Company or RoweCan is currently in progress, there are no outstanding
agreements or waivers extending the statutory period providing for an extension
of time with respect to the assessment or re-assessment of tax or the filing of
any tax return by, or any payment of any tax by either of the Company or
RoweCan, and there are no Claims now threatened or pending against either of the
Company or RoweCan in respect of taxes or any matters under discussion with any
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Governmental Entity relating to taxes. As of the date hereof, each of the
Company and RoweCan has withheld from each payment made by it the amount of all
taxes and other deductions required to be withheld therefrom and has paid the
same to the proper taxing or other authority within the time prescribed under
any Law. The cumulative tax losses set forth on Schedule 3. 1 M are true,
correct and complete for the Company as at the date hereof.
PARTICULAR MATTERS RELATING TO ROWECAN'S BUSINESS
- -------------------------------------------------
(v) Eligibility.
-----------
(i) RoweCan is a taxable Canadian corporation within the meaning of the
Income Tax Act (Canada);
(ii) RoweCan carries on no business other than the Business;
(iii) RoweCan has been in active business (as such term is defined in the
Income Tax Act (Canada)) for at least two years or, where RoweCan
has been carrying on business for less than two years, throughout
such shorter period of time;
(iv) at least 50% of RoweCan's full-time employees are employed in
Ontario;
(v) at least 50% of the wages and salaries paid by RoweCan are paid to
employees whose ordinary place of employment is a permanent
establishment of RoweCan located in Ontario;
(vi) not less than 90% of the fair market value of the property of
RoweCan is attributable to property used in RoweCan's Business;
(vii) RoweCan and all corporations related to it (as the term "related" is
defined in the Income Tax Act (Canada)) have 500 or fewer employees;
and
(viii) the carrying value of the total assets (determined in accordance
with GAAP on a consolidated or combined basis, where applicable) of
RoweCan and all corporations related to it (determined in accordance
with the Income Tax Act (Canada)) together with the amount of the
aggregate subscription price for the Purchased Shares does not
exceed $50,000,000.
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<PAGE>
(w) Sufficiency of Assets. The Assets include all rights and property
---------------------
necessary to the conduct of the Business by the Company and RoweCan
substantially in the manner presently carried on by each of them.
(x) No Material Adverse Change. Since the date of the Financial Statements
--------------------------
there has been no change in the affairs, assets, liabilities, business,
prospects, operations or conditions of any of the Company or RoweCan or the
Business, financial or otherwise, whether arising as a result of any legislative
or regulatory change, revocation of any license or right to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise, which has materially
adversely affected or which will materially adversely affect any of the Company,
RoweCan or the Business, except for general economic conditions affecting
Canada, the United States or the industry in which the Company, RoweCan or the
Business operates.
(y) Compliance with Laws. Each of the Company and RoweCan is conducting its
--------------------
Business in compliance with all applicable Laws of each jurisdiction in which
its Business is carried on, except for acts of non-compliance which in the
aggregate are not material.
(z) Environmental Disclosure.
------------------------
(i) Each of the Company and RoweCan has at all times received, handled,
generated, used, stored, deposited, labelled, handled, treated,
documented, transported and disposed of any Hazardous Substances in
compliance with all applicable Environmental Laws, approvals or
Authorizations, except as set forth in Schedule 3.1(z).
(ii) None of the Owned Properties or Leased Properties has ever been used
by any Person as a landfill site, a waste disposal site or as a
location for the disposal of Hazardous Substance or waste and has
ever had urea formaldehyde foam insulation, asbestos, PCB waste,
radioactive substances or aboveground or underground storage vessels,
active or abandoned, located thereon.
(iii) Neither the company nor RoweCan has been required by any Governmental
Entity to:
(A) alter its properties in a material way in order to be in
compliance with Environmental Laws;
-22-
<PAGE>
(B) remove any material from any of the Leased Properties; or
(C) perform any remedial studies, investigations, closure,
decommissioning, rehabilitation, restoration and post-remedial
studies, investigations or monitoring on, about or in connection
with any of the Leased Properties.
(iv) The Assets of the Company and of RoweCan are capable of being
operated at maximum production levels in accordance with
Environmental Laws.
(aa) Authorizations. Each of the Company and RoweCan owns, holds, possesses or
--------------
lawfully uses in the operation of the Business all Authorizations which are in
any manner necessary for it to conduct the Business as presently or previously
conducted or for the ownership and use of the Assets, free and clear of all
Encumbrances and in compliance with all Laws applicable thereto. All such
Authorizations are listed and described in Schedule 3. 1 (aa) and neither the
Company nor RoweCan is in default, nor has it received any notice of any Claim
in default, with respect to any such Authorizations. All such Authorizations are
renewable by their terms or in the ordinary course of business without the need
for the Company or RoweCan to comply with any special qualification or
procedures or to pay any amounts other than routine filing fees. None of such
Authorizations will be adversely affected by the consummation of the
transactions contemplated hereby, except as set forth in Schedule 3. 1 (aa).
Neither the Company or RoweCan nor any affiliate of the Company or of RoweCan
owns or has any proprietary, financial or other interests (direct or indirect)
in any Authorization which the Company or RoweCan owns, possesses or uses in the
operation of the Business as now or previously conducted.
(ab) Material Contracts. Schedule 3.1(p) contains a list of all Contracts of
--------
the Company and of RoweCan which involve the expenditure of more than $25,000 or
which have a term left to run of more than 2 years (the "Material Contracts").
Except for the Benefit Plans set forth in Schedule 3.1(ac)(xi), Leases and the
Contracts set forth in Schedule 3.1(p), neither the Company nor RoweCan is a
party to or bound by:
(i) any Benefit Plans or any collective agreements;
(ii) any agreement or commitment relating to the borrowing of money;
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<PAGE>
(iii) any guarantee or other contingent liability in respect of any
indebtedness or other liability or obligation of any other Person
(other than the endorsement of negotiable instruments for collection
in the ordinary course of the Business) other than those disclosed on
Schedule 3. 1(ab)(iii);
(iv) any contract or commitment limiting the freedom of the Company or of
RoweCan to engage in any line of business or to compete with any
other Person;
(v) any licensing, distribution or other contract or commitment relating
to Intellectual Properties used by either the Company or of RoweCan
in the conduct of its Business;
(vi) any agreement or commitment not entered into in the ordinary course
of the Business; and
(vii) any agreement or arrangement with any Person with whom the Company or
RoweCan (or their present or former directors, officers and
employees) does not deal at arm's length within the meaning of the
Income Tax Act (Canada).
(ac) Employees.
---------
(i) Each of the Company and RoweCan is in compliance with all Laws
respecting employment and employment practices, terms and conditions
of employment, pay equity and wages and hours and has not and is not
engaged in any unfair labor practice;
(ii) No unfair labor practice, complaint or grievance against either the
Company or RoweCan is pending or, to the best of the knowledge of the
Company and RoweCan, threatened before any labor relations board or
similar Governmental Entity with respect to the Business;
(iii) There is no labor strike, dispute, slowdown or stoppage actually
pending or involving or, to the best of the knowledge of the Company
and of RoweCan, threatened against either of the Company or RoweCan
with respect to its Business;
(iv) No union representation question exists respecting the employees of
either the Company or RoweCan in connection with its Business and no
collective bargaining agreement is in
-24-
<PAGE>
place or currently being negotiated by the Company or by RoweCan
except as disclosed in Schedule 3. 1 (ac)(iv);
(v) No grievance which might have an adverse effect upon either of the
Company or RoweCan or the conduct of its Business exists, no
arbitration proceeding arising out of or under any collective
agreement is pending, and no claim therefor has been asserted;
(vi) No notice has been received by the Company or RoweCan of any
complaint which has not been resolved filed by any of its employees
claiming that RoweCan or the Company has violated any applicable
employee or human rights or similar legislation, or of any
complaints or proceedings which have not been resolved of any kind
involving the Company or RoweCan or, to the Company's or RoweCan's
knowledge, after due inquiry, any of the employees of the Company or
RoweCan before any labor relations board. There are no outstanding
orders or charges against the Company or RoweCan under any
applicable health and safety legislation. All levies, assessments
and penalties made against the Company or RoweCan pursuant to any
applicable workers' compensation legislation have been paid by the
Company or RoweCan, as applicable, and the Company and RoweCan have
not been reassessed under any such legislation except such as has
been resolved;
(vii) Schedule 3.1(ac)(vii) contains a complete list of all permanent and
full time employees of each of the Company and RoweCan, their
salaries and wage rates, bonus arrangements, benefits, positions and
length of service. Schedule 3.1(ac)(vii) provides a correct and
complete list showing all amounts due or accrued due for all salary,
wages, bonuses, commissions, vacation with pay, pension benefits or
other employee benefits relating to all employees;
(viii) No employee of the Company or of RoweCan has any agreement as to
length of notice required to terminate his or her employment, other
than such as results by law from the employment of an employee
without agreement as to such notice or as to length of employment;
(ix) All vacation pay (including all banked vacation pay), bonuses,
commissions and other employee benefit payments are reflected and
have been accrued in the Books and Records of the Company and of
RoweCan, as applicable;
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<PAGE>
(x) The aggregate amount of salaries, pensions, bonuses, or other
remuneration of any nature paid or payable by each of the Company
and RoweCan to or for its present or former officers, directors,
shareholders, employees or Persons not dealing at arm's length (as
such term is defined in the Income Tax Act (Canada)) with them
during the year ended on the date of the Financial Statements, are
as set out in Schedule 3. l(ac)(vii) and, since that date, such
payments have been made at no greater rates;
(xi) The only benefit plans existing in respect of the employees of the
Company and of RoweCan are the Benefit Plans disclosed on Schedule
3.1(ac)(xi). True, correct and complete copies of all written
Benefit Plans and related documentation have been provided to the
Purchasers and any oral or written Benefit Plans are accurately
described on Schedule 3.1(ac)(xi). The Benefit Plans are duly
registered where required by, and are in good standing under, all
applicable Laws. All required employer and employee contributions
and premiums under the Benefit Plans to the date hereof have been
made, the respective fund or funds established under the Benefit
Plans are funded in accordance with applicable Laws, and no past
service funding liabilities exist thereunder;
(xii) None of the Benefit Plans, nor any trust created thereunder, nor any
trustee or administrator thereof, has engaged in any "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of
the Internal Revenue Code. The 401k plan of the Company (the "401k
Plan") is (A) "qualified" within the meaning of Section 401(a) of
the Internal Revenue Code; (B) no facts or circumstances exist which
would adversely affect the qualified status of the 401k Plan; and
(C) the trust established pursuant to the 401k Plan is tax exempt
under section 501(a) of the Internal Revenue Code. No matter
relating to any of the Benefit Plans is pending before any court or
government agency. Each of the Benefit Plans which is group health
plans, as defined in Section 4980(B) of the Internal Revenue Code,
is in compliance with the requirements of Internal Revenue Code
Section 4980(B) and Part 6 of Subtitle B of Title I of ERISA; and
(xiii) No payments have been made or authorized since the date of the
Financial Statements by either the Company or RoweCan to its
officers, directors, former directors, shareholders or employees
-26-
<PAGE>
or to any Person not dealing at arm's length (as such term is
defined in the Income Tax Act (Canada)) with any of the foregoing,
except in the ordinary course of the Business and at the regular
rates payable to them of salary, pension, bonuses, rents or other
remuneration of any nature.
(ad) Insurance. Each of the Company and RoweCan maintains insurance policies
---------
with responsible insurers as are appropriate to the Business and Assets in such
amounts and against such risks as are customarily carried and insured against by
prudent owners of comparable businesses and assets. All such policies of
insurance coverage are in full force and effect. Neither the Company nor RoweCan
is in default with respect to any of the provisions contained in any such
insurance policy and has not failed to give any notice or present any claim
under any such insurance policy in due and timely fashion. A summary of such
policies is contained in Schedule 3. 1 (ad).
(ae) Litigation. Other than as set forth in Schedule 3.1(ae) there is no
----------
action, suit or proceeding, at law or in equity, by any Person, nor any
arbitration, administrative or other proceeding by or before (or, to the best of
the knowledge of the Company and of RoweCan, any investigation by) any
Governmental Entity pending, or, to the best of the knowledge of the Company and
of RoweCan, threatened against or affecting either of the Company or RoweCan or
any of its properties or rights or any of the Assets, and neither the Company
nor RoweCan knows of any valid basis for any such action, suit, proceeding,
arbitration or investigation. Neither the Company nor RoweCan is subject to any
judgment, order or decree entered in any lawsuit or proceeding.
(af) Shareholder Loans. Schedule 3.1(af) contains a true, correct and complete
-----------------
list of all Shareholder Loans including the amount owing and the terms
applicable thereto.
(ag) No Insolvency Proceeding. Neither the Company nor RoweCan has made any
------------------------
assignment for the benefit of its creditors nor has any receiving order been
made against it under any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws, nor has any petition for such an order been served
upon it, nor has it attempted to take the benefit of any legislation with
respect to financially distressed debtors, nor, after giving effect to this
financing, is an insolvent person within the meaning of the Bankruptcy and
Insolvency Act (Canada) or under any applicable bankruptcy legislation.
(ah) Full Disclosure. Neither this Agreement nor any Ancillary Agreement or any
---------------
certificate or statement in writing which has been supplied by or on
-27-
<PAGE>
behalf of the Company or RoweCan or by any of the directors, officers or
employees of the Company or of RoweCan in connection with the transactions
contemplated hereby contains any untrue statement of a material fact, or omits
any statement of a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to the
Company or to RoweCan which materially and adversely affects the affairs,
businesses, prospects, operations or conditions of the Company or of RoweCan,
financial or otherwise, or the Business or the Assets, which has not been set
forth in this Agreement.
(ai) Conduct of Business. Except as disclosed on Schedule 3.1(ai), since the
-------------------
date of the Financial Statements the Business has been carried on in the
ordinary course and neither the Company nor RoweCan has, other than disclosed in
writing to the Purchasers:
(i) incurred any liability, obligation or expenditure of any nature
(whether accrued, absolute, contingent or otherwise) or committed to
make or perform any capital expenditures or maintenance or repair
projects, except for (A) liabilities, obligations or expenditures
incurred or made in the ordinary course of the Business or deferred
income taxes or income tax credits; and (B) capital expenditures or
maintenance or repair projects that do not exceed $25,000 on a per-
item basis or $100,000 in the aggregate;
(ii) made any bonus or profit sharing distribution or payment of any kind;
(iii) drawn down on any operating line, increased its indebtedness for
borrowed money or made any loan to any Person;
(iv) written off as uncollectible any notes or Accounts Receivable
exceeding $25,000 in the aggregate;
(v) cancelled or waived any claims or rights of the Company or of RoweCan
having a value greater than $25,000;
(vi) granted any increase in the rate of wages, salaries, bonuses or other
remuneration to any executive or other employee;
(vii) entered into any transaction with a Person not dealing at arm's
length;
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<PAGE>
(viii) made any change in any method of accounting or auditing practice;
(ix) agreed, whether or not in writing, to do any of the foregoing.
3.2 COVENANTS OF THE COMPANY AND OF ROWECAN.
(1) The Company hereby covenants that in addition to the restrictions
contained in the Amended Stockholders' Agreement, it will not use and does not
intend to use the proceeds received from the Purchasers as the subscription
price for the purpose of investment in land (except land that is incidental and
ancillary to the Company's Business).
(2) Each of the Company and/or RoweCan shall provide the audited
consolidated and unconsolidated financial statements for the year ended December
31, 1997 to the Purchasers no later than thirty days from the date hereof.
(3) The Company shall use funds received from the Purchasers in
satisfaction of the subscription price substantially in the manner set forth in
Schedule 3.2.
3.3 CONDUCT OF BUSINESS PRIOR TO CLOSING. Prior to the Closing Date, each of
the Company and RoweCan shall conduct the Business in the ordinary course
thereof unless the Company or RoweCan, as the case may be, has been given the
prior written consent of all of the Purchasers to do otherwise. Without
limiting the generality of the foregoing:
(a) Each of the Company and RoweCan will continue to maintain and service the
Assets used in the conduct of the Business in the same manner as has been its
consistent past practice.
(b) Each of the Company and RoweCan shall use its best efforts to keep
available the services of the present employees and agents of the Business and
to maintain the relations and goodwill with the suppliers, customers,
distributors and any others having business relations with the Business.
(c) Each of the Company and RoweCan shall use its best efforts to conduct the
Business in such a manner that on the Closing Date the representations and
warranties of the Corporation and of RoweCan contained in this Agreement shall
be true, correct and complete as if such representations and warranties were
made on and as of such date.
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<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser represents
and warrants, severally and not jointly, as follows to the Company and to
RoweCan and acknowledges and confirms that the Company and RoweCan are relying
on such representations and warranties in connection with the sale by the
Company and by RoweCan of the Purchased Shares:
(a) Due Incorporation and Existence. Such Purchaser is duly formed or
-------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization or formation.
(b) Validity of Agreement. Such Purchaser has all requisite power and authority
---------------------
to enter into and to perform its obligations under this Agreement and the
Ancillary Agreements to which it is a party. The execution, delivery and
performance by such Purchaser of this Agreement and the Ancillary Agreements to
which it is a party and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of such
Purchaser. This Agreement and the Ancillary Agreements to which it is a party
constitute legal, valid and binding obligations of such Purchaser enforceable
against it in accordance with their respective terms. Such Purchaser is an
"accredited investor" within the meaning of that term as defined in Rule 501(a)
promulgated under the Securities Act.
(c) Restrictive Documents. Such Purchaser is not subject to, or a party to, any
---------------------
charter or by-law restriction, any Law, any Claim, any contract or instrument,
any Encumbrance or any other restriction of any kind or character which would
prevent consummation of the transactions contemplated by this Agreement.
(d) Investment. The Purchased Shares purchased by such Purchaser will be
----------
acquired for investment for such Purchaser's own account and not with a view to
the distribution of any part thereof. Such Purchaser does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third person, with respect to any the
Purchased Shares.
(e) Restricted Securities. Such Purchaser understands that the Purchased Shares
---------------------
may not be sold, transferred or otherwise disposed of without registration under
the Securities Act, or an exemption therefrom, and that in the absence of an
effective registration statement covering the Purchased
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<PAGE>
Shares or an available exemption from registration under the Securities Act, the
Purchased Shares must be held indefinitely. In the absence of an effective
registration statement covering the Purchased Shares such Purchaser will sell,
transfer, or otherwise dispose of the Purchased Shares only in a manner
consistent with its representations and agreements set forth herein.
(f) Financial Condition. Such Purchaser's financial condition is such that it
-------------------
is able to bear the risk of holding the Purchased Shares for an indefinite
period of time and can bear the loss of its entire investment in its Purchased
Shares.
(g) Experience. Such Purchaser has such knowledge and experience in financial
----------
and business matters and in making high risk investment of this type that it is
capable of evaluating the merits and risks of the purchase of its Purchased
Shares.
(h) Receipt of Information. Such Purchaser has been furnished access to the
----------------------
business records of the Company and such additional information and documents as
such Purchaser has requested and has been afforded an opportunity to ask
questions of and receive answers from representatives of the Company concerning
the terms and conditions of this Agreement, the purchase of the Purchased
Shares, the Company's business, operations, market potential, capitalization,
financial condition and prospects, and all other matters deemed relevant by such
Purchaser, without prejudice to the representations and warranties of the
Company in this Agreement.
(i) Brokerage. No broker, agent or other intermediary acted for such Purchaser
---------
in connection with the sale of the Purchased Shares and such Purchaser shall
indemnify and save harmless the Company and the other Purchasers from and
against any Claims whatsoever for any commission or other remuneration payable
or alleged to be payable to any broker, agent or other intermediary who purports
to act or have acted for such Purchaser.
ARTICLE 5
CONDITIONS OF CLOSING
5.1 CONDITIONS FOR THE BENEFIT OF THE PURCHASERS. The purchase and sale of the
--------------------------------------------
Purchased Shares is subject to the following conditions to be fulfilled or
performed at or prior to the Closing Date, which conditions are for the
exclusive benefit of the Purchasers and may be waived in whole or in part by
agreement of all of the Purchasers:
-31-
<PAGE>
(a) Truth of Representations and Warranties of each of RoweCan and the Company.
--------------------------------------------------------------------------
The representations and warranties of each of RoweCan and the Company contained
in this Agreement or in any Ancillary Agreement shall be true and correct as of
the Closing Date with the same force and effect as if such representations and
warranties had been made on and as of such date.
(b) Performance of Covenants by each of RoweCan and the Company. RoweCan and
-----------------------------------------------------------
the Company shall have fulfilled or complied with all covenants contained in
Section 3.2 to be performed or caused to be performed by them at or prior to the
Time of Closing.
(c) Amended Stockholders' Agreement. Each of the Company, the Purchasers and
-------------------------------
the other stockholders of the Company shall have entered into the Amended
Stockholders' Agreement.
(d) Amended Registration Rights Agreement. Each of the Company, RoweCan and
-------------------------------------
the Purchasers shall have entered into the Amended and Restated Registration
Rights Agreement.
(e) Deliveries. The Company or RoweCan, as applicable, shall have delivered or
----------
caused to be delivered to each of the Purchasers the following in form and
substance satisfactory to the Purchasers:
(i) share certificates representing the Purchased Shares duly made out
in the name of the Purchasers, together with evidence satisfactory
to the Purchasers that the Purchasers have been duly entered upon
the books of the Company or of RoweCan, as applicable, as the holder
of the Purchased Shares;
(ii) certified copies of (A) the charter documents and the by-laws of the
Company and of RoweCan; (B) all resolutions of the stockholders, the
board of directors or any duly authorized committee thereof, of the
Company and of RoweCan approving the entering into of this Agreement
and the Ancillary Agreements and the completion of all transactions
contemplated hereunder and thereunder; and (C) all other instruments
evidencing necessary corporate action of the Company and of RoweCan
and of Authorizations, if any, with respect to such matters;
(iii) certificates of the Secretary or an Assistant Secretary of the
Company and of RoweCan certifying the names and true signatures of
their respective officers authorized to sign this Agreement and the
other instruments to be delivered hereunder;
-32-
<PAGE>
(iv) a certificate of status, compliance, good standing or like
certificate with respect to the Company and RoweCan, issued by
appropriate government officials of the jurisdiction of their
incorporation and of each jurisdiction in which the Company and
RoweCan carries on business as listed in Schedule 3.1(c);
(v) the certificates referred to in subsection 5.1(a);
(vi) an opinion of counsel to the Company and to RoweCan, in form and
substance reasonably satisfactory to the Purchasers and their
counsel, and such other documents as the Purchasers may request;
(vii) the Company's current and complete business plan; and
(viii) the certificate executed by the Company in the form of Exhibit F.
(f) Amended RoweCan Shareholders' Agreement. Each of RoweCan, WV and Ronald
---------------------------------------
Grigg shall have entered into the Amended RoweCan Shareholders' Agreement.
(g) Amended Certificate of Incorporation. The Company shall have obtained the
------------------------------------
requisite board of director and stockholder approval to amend and restate its
certificate of incorporation in the form of the Amended Certificate of
Incorporation and shall have filed the Amended Certificate of Incorporation with
the Secretary of State of the State of Delaware.
(h) Amended Articles of Incorporation. RoweCan shall have obtained the
---------------------------------
necessary board of director and shareholder approval to amend and restate its
articles of incorporation in the form of the Amended Articles of Incorporation
and shall have filed the Amended Articles of Incorporation with the appropriate
Canadian authorities.
(i) Noncompetition Agreements. The Company shall have entered into
-------------------------
Noncompetition Agreements, reasonably acceptable to the Purchasers, with those
Persons set forth on Schedule 5.1(i).
(j) Amended By-Laws. The Company shall have amended and restated its by-laws
---------------
in the form attached hereto as Exhibit G.
-33-
<PAGE>
ARTICLE 6
MISCELLANEOUS
6.1 NOTICES. Any notice, request, consent or other communication hereunder to
any party will be in writing and will be either personally delivered, or sent by
certified mail, return receipt requested, or sent by facsimile, confirmation of
receipt requested, or sent by reputable overnight courier service (charges
prepaid) to the address set forth below such party's signature on the signature
pages hereto. Notices will be deemed to have been given hereunder when delivered
personally; five business days after deposit in the mail; when confirmation of
receipt is received; and one day after deposit with a reputable overnight
courier service.
6.2 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement.
6.3 BROKERS. It is understood and agreed that no broker, agent or other
intermediary acted for the Company or for RoweCan in connection with the sale of
the Purchased Shares and the Company and RoweCan shall indemnify and save
harmless the Purchasers from and against any Claims whatsoever for any
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for the Company or
for RoweCan.
6.4 THIRD PARTY BENEFICIARIES. Each Party hereto intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
Person, other than the Parties hereto, and no Person, other than the Parties
hereto, shall be entitled to rely on the provisions hereof in any action, suit,
proceeding, hearing or other forum.
6.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations,
warranties and covenants contained herein or contained in any Ancillary
Agreement, or made in writing by any Person in connection herewith, will survive
the execution and delivery of this Agreement, regardless of any investigation
made by the Company or any Purchaser or on their behalf.
6.6 EXPENSES. All fees and expenses of legal counsel and accounting firms
engaged by the Purchasers incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Company; provided,
however, that the Company shall not be required to pay for any fees of legal
counsel and accounting firms engaged by the U.S. Purchasers in excess of
$35,000, plus all out-of-pocket expenses incurred by such counsel or accounting
firms.
-34-
<PAGE>
6.7 ENUREMENT. This Agreement shall enure to the benefit of and be binding upon
the Parties, their successors and any permitted assigns.
6.8 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same agreement.
[Signature pages follow.]
-35-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of
the date first above written.
ROWECOM INC.
By: ________________________________________
Name: Richard R. Rowe
Title: President & CEO
By: ________________________________________
Name: Louis Hernandez, Jr.
Title: Executive VP & CFO
725 Concord Avenue
Cambridge, Massachusetts
USA 02138
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: 617-497-6825
ROWE COMMUNICATIONS LTD
By: ________________________________________
Name: Richard R. Rowe
Title: President & CEO
100 Collip Circle
London, Ontario
N6G 4X8
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: 519-858-5107
WORKING VENTURES CANADIAN FUND INC.
By: ________________________________________
Name: James Whitaker
Title: Vice President
250 Bloor Street East, Suite 1600
Toronto, Ontario M4W 1E6
Attn: Graham Matthews and W. James Whitaker
Facsimile: 416-929-2421
-36-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of
the date first above written.
ROWECOM INC.
By: ________________________________________
Name:
Title:
By: ________________________________________
Name:
Title:
725 Concord Avenue
Cambridge, Massachusetts
USA 02138
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: 617-497-6825
ROWE COMMUNICATIONS LTD
By: ________________________________________
Name:
Title:
100 Collip Circle
London, Ontario
N6G 4X8
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: 519-858-5107
WORKING VENTURES CANADIAN FUND INC.
By: ________________________________________
Name: James Whitaker
Title: Vice President, Investments
250 Bloor Street East, Suite 1600
Toronto, Ontario M4W 1E6
Attn: Graham Matthews and W. James Whitaker
Facsimile: 416-929-2421
-37-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of
the date first above written.
HIGHLAND CAPITAL PARTNERS III LIMITED PARTNERSHIP
By: Highland Management Partners III Limited Partnership
Title: General Partner
By: _________________________________
Name: Daniel J. Nova
Title: General Partner
Two International Place
Boston, Massachusetts 02110
Attn:
Facsimile:
HIGHLAND ENTREPRENEURS' FUND III LIMITED PARTNERSHIP
By: HEF III LLC
Title: General Partner
By: _________________________________
Name: Daniel J. Nova
Title: Member
Two International Place
Boston, Massachusetts 02110
Attn:
Facsimile:
-38-
<PAGE>
CRYSTAL INTERNET VENTURE FUND, L.P.
By: Crystal Venture, Ltd.
Title: General Partner
By: ____________________________
Name: Daniel Kellogg
Title: Vice President
1120 Chester Avenue Suite 310
Cleveland, Ohio
USA 44114
Attn: Dan Kellogg
Facsimile: 216-263-5518
PAI, WEI MING CHUNG
By: CIVF Management Ltd.,
Attorney in fact pursuant to Power
Of Attorney dated _____________, 1998
By: _____________________________
Name: Daniel Kellogg
Title: Vice President
2 FL, No. 420
Fu-husing N. Road
Taipei, Taiwan ROC
Facsimile: 011-886-22-517-6418
-39-
<PAGE>
FU KUAN INVESTMENT CORP.
By: CIVF Management Ltd.,
Attorney in fact pursuant to Power
Of Attorney dated _____________, 1998
By: ________________________________
Name: CIVF Management Ltd.,
Title: General Partner
14FL, No. 22
AI Kuo E. Road
Taipei, Taiwan
Attn: Irene Su
Facsimile: 011-886-22-397-2106
PURETECH PROFITS LIMITED (BVI)
By: CIVF Management, Ltd.,
Attorney in fact pursuant to Power
Of Attorney dated _____________, 1998
By: ________________________________
Name: Daniel Kellogg
Title: General Partner
c/o Mr. Y.L. Shen
Suite 2613
26FL
333 Keeiung Road
Sec. 1
Taipei, Taiwan ROC
Facsimile: 011-886-22-757-6931
-40-
<PAGE>
SCHEDULE 2.1
<TABLE>
<CAPTION>
Purchaser Shares Purchase Price Number of Class B Preferred
---------------- -------------- ---------------------------
<S> <C> <C>
Crystal Internet Venture Fund, L.P. $2,000,001.48 1,581,654
Highland Capital Partners III Limited $3,839,999.20 3,036,773
Partnership
Pai, Wei Ming Chung $ 249,999.24 197,706
Fu Kuan Investment Corp. $ 149,998.78 118,623
Puretech Profits Limited (BVI) $ 99,999.19 79,082
Highland Entrepreneurs' Fund III $ 159,999.97 126,532
Limited Partnership
</TABLE>
-41-
<PAGE>
ROWECOM INC.
ROWE COMMUNICATIONS LTD.
------------------------
CRYSTAL INTERNET VENTURE FUND, L.P.
HIGHLAND CAPITAL PARTNERS
AND
WORKING VENTURES CANADIAN FUND INC.
STOCK PURCHASE AGREEMENT
SCHEDULE 3.1(D) - AUTHORIZED CAPITAL
POST-INVESTMENT
ROWECOM INC. - ISSUED AND OUTSTANDING
Common Shares
- -------------
Dr. Richard Rowe 4,274,024
Garry Wolfe 53,454
Donna Wolfe 43,266
Ron Grigg 47,726
Simon Reisman 2,683
Frank Angelletii 2,683
Preferred Series A
- ------------------
Phillipe Villers 80,645
Jerry Rubin 40,322
Jacques Raimon 40,322
Preferred Series B
- ------------------
Crystal Internet 1,581,655
Highland Capital Partners III 3,036,773
Wei Ming Chung Pai 197,706
Fu Kuan Investment Corp. 118,623
Puretech Profits Limited (BVI) 79,082
Highland Entreprenuers' Fund III L.P. 126,532
ROWE COMMUNICATIONS LTD. - ISSUED AND OUTSTANDING
Common Shares
- -------------
RoweCom Inc 1,611,568
Ron Grigg 1
Class A Preferred Shares
- ------------------------
Working Ventures 1,611,568
Class B Preferred Shares
- ------------------------
Working Ventures 1,186,240
-42-
<PAGE>
EXHIBIT 10.8
Investment in
ROWE COMMUNICATIONS LTD.
By
WORKING VENTURES CANADIAN FUND INC
BERG KENNEDY CLEAVER BROAD
Barristers & Solicitors
1900 - 140 Fullarton Street
London, Ontario
N6A 5P2
(519) 679-8000
<PAGE>
INDEX
BOOK ONE
- --------
1. Share Purchase Agreement with Working Ventures Canadian Fund Inc. as
Purchaser Schedules attached;
BOOK TWO
- --------
2. Certificate of Officer of Rowe Communications Ltd. - Resolutions with
respect Working Ventures Transaction attached
3. Certificate of Officer of Rowecom Inc. with all relevant corporate document
attached
4. Unanimous Shareholder's Agreement with respect to Rowecom Inc.
5. Unanimous Shareholder's Agreement with respect to Rowe Communications Ltd.
6. Marketing Intangible License Agreement
7. Technology License Agreement
8. Marketing Intangible Development Agreement
9. Security Agreement
10. Trademark Collateral Security and Pledge Agreement
11. Memorandum of Grant of Security Interest in Copyrights
12. Summary of Distribution of Proceeds
13. Certificate of Merger
14. Agreement and Plan of Merger
<PAGE>
ROWECOM LLC
("RoweCom")
AND
ROWE COMMUNICATIONS LTD.
(the "Corporation")
AND
WORKING VENTURES CANADIAN FUND INC.
(the "Purchaser")
- --------------------------------------------------------------------------------
SHARE PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
DATED APRIL 1, 1997
<PAGE>
SHARE PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I
INTERPRETATION
<TABLE>
<S> <C>
1.1 Defined Terms...................................................
1.2 Gender and Number...............................................
1.3 Headings, Etc...................................................
1.4 Currency........................................................
1.5 Severability....................................................
1.6 Entire Agreement................................................
1.7 Amendments......................................................
1.8 Waiver..........................................................
1.9 Governing Law...................................................
1.10 Inclusion.......................................................
1.11 Accounting Terms................................................
1.12 Incorporation of Schedules......................................
ARTICLE 2
PURCHASED SHARES
2.1 Purchase and Sale...............................................
2.2 Receipt.........................................................
2.3 Additional Purchased Shares.....................................
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE CORPORATION AND OF ROWECOM
3.1 Representations and Warranties of the Corporation
and of RoweCom..................................................
3.2 Covenants of the Corporation and RoweCom........................
3.3 Conduct of Business prior to....................................
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Representations and Warranties of the Purchaser.................
</TABLE>
<PAGE>
ARTICLE 5
CONDITIONS OF CLOSING
<TABLE>
<S> <C>
5.1 Conditions for the Benefit of the Purchaser.....................
ARTICLE 6
MISCELLANEOUS
6.1 Notices.........................................................
6.2 Time of the Essence ............................................
6.3 Brokers.........................................................
6.4 Third Party Beneficiaries ......................................
6.5 Expenses........................................................
6.6 Enurement ......................................................
6.7 Counterparts....................................................
</TABLE>
<PAGE>
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 1/st/ day of April, 1997.
BETWEEN:
ROWECOM LLC, a limited liability company organized and existing under
the laws of the State of Delaware
(hereinafter referred to as "RoweCom")
OF THE FIRST PART,
ROWE COMMUNICATIONS LTD., a corporation incorporated under the laws of
the Province of Ontario
(hereinafter referred to as the "Corporation")
OF THE SECOND PART,
- and -
WORKING VENTURES CANADIAN FUND INC., a corporation incorporated under
the laws of Canada
(hereinafter referred to as the "Purchaser")
OF THE THIRD PART.
WHEREAS:
A. The Corporation has agreed to issue to the Purchaser and the
Purchaser, in reliance upon the representations and warranties of the
Corporation and of RoweCom contained herein, has agreed to take up and
subscribe for 402,892 Preferred Shares in the capital of the
Corporation (the "Initial Purchased Shares").
B. Concurrently with the execution hereof, RoweCom and its members are
providing an undertaking to the Purchaser to, among other things,
convert RoweCom into a corporation organized and existing under the
laws of the State of Delaware ("RoweCom Inc.").
<PAGE>
-2-
C. The Corporation has agreed to issue to the Purchaser and the
Purchaser, in reliance upon the representations and warranties of the
Corporation and of RoweCom contained herein and subject to certain
conditions contain herein, has agreed to subscribe for an additional
1,208,676 Preferred Shares in the capital of the Corporation (the
"Additional Purchased Shares").
D. RoweCom has agreed to sell to the Purchaser and the Purchaser, in
reliance upon the representations and warranties of the Corporation
and of RoweCom contained herein, has agreed to purchase from RoweCom.
an option to exchange the Initial Purchased Shares and the Additional
Purchased Shares for 1,611,568 common shares in the capital of RoweCom
Inc. (the "Exchange Option") (together with the Initial Purchased
Shares and the Additional Purchased Shares, the "Purchased Shares").
E. Subsequent to the conversion of RoweCom into RoweCom Inc. and the
subscription by the Purchaser for the Additional Purchased Shares, the
Purchaser, RoweCom Inc. and its shareholders will enter into a
unanimous shareholders' agreement substantially in the form of
Schedule 22 attached hereto (the "RoweCom Shareholders' Agreement").
F. Concurrently with the execution hereof, the Purchaser, the
Corporation, RoweCom and Garry Wolfe are entering into a unanimous
shareholders agreement (the "Unanimous Shareholders' Agreement").
NOW THEREFORE, in consideration of the premises and the mutual
agreements contained in this Agreement and other valuable consideration (the
receipt and adequacy of this consideration by each of the Parties are
acknowledged), the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS. As used in this Agreement including the recitals
hereto, the following terms have the following meanings:
"ACCOUNTS PAYABLE" means all accounts payable and accrued liabilities
owed by either of the Corporation and RoweCom in connection with the Business;
<PAGE>
-3-
"ACCOUNTS RECEIVABLE" means all accounts receivable, notes receivable
and other debts due or accruing due to either of the Corporation and RoweCom, in
connection with the Business;
"ADDITIONAL PURCHASED SHARES" has the meaning ascribed thereto in the
recitals;
"AGREEMENT" means this share purchase agreement and all schedules and
instruments in amendment or confirmation of it; "HEREOF", "HERETO" AND
"HEREUNDER" and similar expressions mean and refer to this Agreement and not to
any particular Article, Section, Subsection or other subdivision; "ARTICLE",
"SECTION", "SUBSECTION" or other subdivision of this Agreement followed by a
number means and refers to the specified Article, Section, Subsection or other
subdivision of this Agreement;
"ANCILLARY AGREEMENTS" means all agreements, certificates and other
instruments delivered or given pursuant to this Agreement including, without
limitation, the Unanimous Shareholders' Agreement, the RoweCom Shareholders'
Agreement, and the Undertaking; and "Ancillary Agreement" means any one of such
agreements, certificates or, other instruments;
"ASSETS" means all property and assets of each of the Corporation and
RoweCom of every kind and wheresoever situate;
"AUTHORIZATION" means, with respect to any Person, any authorization,
order, permit, approval, grant, license, consent, right, franchise, privilege,
certificate, judgment, writ, injunction, award, determination, direction,
decree, or by-law, rule or regulation of any Governmental Entity, whether or not
having the force of law, having jurisdiction over such Person;
"BENEFIT PLANS" means all employee benefit plans relating to the
employees of each of the Corporation and RoweCom, including profit sharing,
pension and other deferred compensation arrangements, phantom stock option,
stock option, employee stock purchase, bonus, retirement, health or insurance
plans (oral or written);
"BOOKS AND RECORDS" means all technical, business and financial and
accounting records, financial books and records of account, books, data,
reports, files, lists, drawings, plans, logs, briefs, customer and supplier
lists, deeds, certificates, contracts, surveys, title opinions or any other
documentation and information in any form whatsoever (including
<PAGE>
-4-
written, printed, electronic or computer printout form) relating to the
Business;
"BUSINESS" means, collectively, the Corporation's Business and the
RoweCom Business;
"BUSINESS DAY" means any day other than Saturday, Sunday or a day on
which chartered banks are closed for business in Toronto, Ontario;
"CLAIM" means any claim or liability of any nature whatsoever,
including any demand, obligation, liability, debt, cause of action, suit,
proceeding, judgment, award, assessment or reassessment;
"CLOSING" means the completion of the transaction of purchase and sale
of the Additional Purchased Shares as contemplated in this Agreement;
"CLOSING DATE" means, with respect to the Closing, any time prior to
April 30, 1997 or such other time as may be specified by the Purchaser;
COMMON SHARES" means the common shares in the capital of the
Corporation;
"CONSENTS" means the consents of contracting parties to any Contract
or Lease to the change in control of the Corporation contemplated in this
Agreement, and "CONSENT" means any one of such Consents;
"CONTRACTS" means all contracts to which the Corporation or RoweCom is
a party including all contracts, leases of personal property, licenses,
undertakings, engagements or commitments of any nature, written or oral, to
which either the Corporation or RoweCom is entitled in connection with its
Business including, without limitation, unfilled purchase orders received by
either the Corporation or RoweCom, forward commitments by either the Corporation
or RoweCom for supplies or materials entered into the ordinary course of the
Business, all restrictive agreements and negative covenant agreements which
either the Corporation or RoweCom may have with its employees, past or present
and the Contracts listed in Schedule 4;
"CORPORATE RECORDS" means the corporate records of each of the
Corporation and RoweCom, including (i) all articles or similar constating
documents, operating agreements, by-laws, any unanimous shareholders agreements
and any amendments thereto; (ii) all minutes of meetings and resolutions of
shareholders, directors and any committee thereof; and (iii) the
<PAGE>
-5-
share certificate books, register of shareholders, register of transfers and
register of directors;
"CORPORATION'S BUSINESS" means the business presently and heretofore
carried on by the Corporation, consisting of the provision of secure electronic
commerce products and services;
"ENCUMBRANCES" means any mortgage, lien, pledge, assignment, charge,
security interest, title retention agreement, hypothec, levy, execution,
seizure, attachment, garnishment, right of distress or other claim in respect of
property of any nature or kind whatsoever howsoever arising (whether consensual,
statutory or arising by operation of law or other-wise) and includes
arrangements known as sale and lease-back, sale and buy-back and sale with an
option to buy-back;
"ENVIRONMENTAL LAWS" means all applicable federal, provincial, state,
municipal or local laws, statutes, regulations or ordinances relating to the
environment, occupational safety, health, product liability and transportation;
"ERISA" means the Employee Retirement Income Security Act of 1974, and
any regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time;
"EXCHANGE OPTION" has the meaning ascribed thereto in the recitals;
"FINANCIAL STATEMENTS" means, collectively, the balance sheets for
each of the Corporation and RoweCom for the fiscal year ending December 31,
1995, and the accompanying statements of income, retained earnings and changes
in financial position for the year then ended and all notes thereto as reported
upon in draft form by Coopers & Lybrand, Chartered Accountants and the unaudited
balance sheets, and accompanying statements of income and changes in financial
position for each of the Corporation and RoweCom for the fiscal year ended
December 31, 1996;
"GAAP" means at any time, generally accepted accounting principles
from time to time approved by, in the case of the Corporation, the Canadian
Institute of Chartered Accountants, or any successor institute, and in the case
of RoweCom, the Financial Accounting Standards Board or any successor institute,
applicable as at the date on which a given calculation is made or required to be
made in accordance with generally accepted accounting principles;
<PAGE>
-6-
"GOVERNMENTAL ENTITY" means (i) any multinational, federal,
provincial, state, municipal, local or other governmental or public department,
court, commission, board, bureau, agency or instrumentality, domestic or
foreign; (ii) any subdivision, agent, commission, board, or authority of any of
the foregoing; or (iii) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of any of
the foregoing;
"HAZARDOUS SUBSTANCE" means any substance which is or is deemed to be,
alone or in any combination, hazardous, hazardous waste, toxic, radioactive, a
pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, whether or not such substance is
defined as hazardous under the Environmental Law;
"INITIAL PURCHASED SHARES" has the meaning ascribed thereto in the
recitals;
"INTELLECTUAL PROPERTIES" means all right, title, interest and benefit
of each of the Corporation and RoweCom in and to any registered or unregistered
worldwide trademarks, trade or brand names, service marks, copyrights, copyright
applications, designs, inventions, patents, patent applications, patent rights,
licenses, sub-licenses, franchises, formulas, processes, know-how, technology,
computer rights and other intellectual or industrial property of the Corporation
or of RoweCom or pertaining to the Business, including the property listed in
Schedule 6;
"INTERIM FINANCIAL STATEMENTS" means, collectively, the unaudited
balance sheets of the Corporation and of RoweCom as at January 31, 1997 and the
accompanying statement of income for the one month period then ended;
"LAWS" means all statutes, codes, ordinances, decrees, rules,
regulations, municipal by-laws, judicial or arbitral. or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, policies, voluntary restraints, guidelines, or any provisions of the
foregoing, including general principles of common and civil law and equity,
binding on or affecting the Person referred to in the context in which such word
is used; and "Law"' means any one of them;
"LEASED PROPERTIES" means the real properties forming the subject
matter of the Leases at the municipal addresses listed in Schedule 5;
<PAGE>
-7-
"LEASES" means the leases and subleases of real property to which
either the Corporation or RoweCom is a party, as listed and described in
Schedule 5;
"LOSS" means any loss whatsoever, including expenses, costs, damages,
penalties, fines, charges, claims, demands, liabilities, interest and any and
all legal fees and disbursements;
"OPERATING AGREEMENT" means the Limited Liability Operating Agreement
for RoweCom dated June 1, 1996;
"OWNED PROPERTIES" means, collectively, the land and premises listed
on Schedule 3 and the buildings and fixtures thereon;
"PARTIES" means the Purchaser, the Corporation, RoweCom and any other
person who may become a party to this Agreement; and "PARTY" means any one of
them;
"PERMITTED ENCUMBRANCES" means (i) Encumbrances for taxes, assessments
or governmental charges or levies not yet due and delinquent; (ii) easements,
rights-of-way or other minor imperfections of title which do not, individually
or in the aggregate, materially detract from the value of or impair the use or
marketability of any real property; (iii) restrictions on the transfer of shares
imposed by the articles of the Corporation or the Operation Agreement of RoweCom
and (iv) Encumbrances disclosed in Schedule 12;
"PERSON" means an individual, partnership, corporation, trust,
unincorporated association, joint venture or other entity or Governmental
Entity, and pronouns have a similarly extended meaning;
"PREFERRED SHARES" means the Class A Preferred Shares in the capital
of the Corporation;
"PURCHASED SHARES" means, collectively, the Initial Purchased Shares,
the Additional Purchased Shares and the Exchange Option;
"ROWECOM BUSINESS" means the business presently and heretofore carried
on by RoweCom consisting of the provision of secure electronic commerce products
and services;
"ROWECOM INC." means the successor corporation to RoweCom resulting
from its conversion into a corporation organized and existing under the laws of
the State of Delaware;
<PAGE>
-8-
"ROWECOM SHAREHOLDERS' AGREEMENT" has the meaning ascribed thereto in
the recitals;
"SHAREHOLDER LOANS" means any indebtedness owing by RoweCom or the
Corporation, directly or indirectly to any of their shareholders, or to a person
controlled individually or in concert by their shareholders;
"SUBSIDIARY" means a corporation controlled by the Corporation or by
RoweCom, as the term "control" is defined in the Business Corporations Act
(Ontario) as in effect at the date hereof and without reference to any
amendments thereto after the date hereof;
"TIME OF CLOSING" means 10:00 a.m. (Toronto time) on the Closing Date
or such later time as the Closing may occur;
"UNANIMOUS SHAREHOLDERS' AGREEMENT" means the unanimous shareholders'
agreement of even date herewith among the Corporation and its shareholders;
"UNDERTAKING" means the undertaking of RoweCom and certain others to
the Purchaser of even date herewith; and
"US$" means United States dollars.
1.2 GENDER AND NUMBER. Any reference in this Agreement to gender shall
include all genders, and words importing the singular number only shall include
the plural and vice versa.
1.3 HEADINGS, ETC. The provision of a Table of Contents, the division of
this Agreement into Articles, Sections, Subsections and other subdivisions and
the insertion of headings are for convenience of reference only and shall not
affect or be utilized in the construction or interpretation of this Agreement.
1.4 CURRENCY. All references in this Agreement or any Ancillary Agreement
to dollars, unless otherwise specifically indicated, are expressed in Canadian
currency.
1.5 SEVERABILITY. Any Article, Section, Subsection or other subdivision of
this Agreement or any Ancillary Agreement or any other provision of this
Agreement or any Ancillary Agreement which is, or becomes, illegal, invalid or
unenforceable shall be severed from this Agreement and
<PAGE>
-9-
any Ancillary Agreement and be ineffective to the extent of such illegality,
invalidity or unenforceability and shall not affect or impair the remaining
provisions hereof or thereof.
1.6 ENTIRE AGREEMENT. This Agreement together with the Ancillary
Agreements constitutes the entire agreement between the Parties pertaining to
the subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties. Except as
set forth in the Unanimous Shareholders' Agreement, there are no representation,
warranties, conditions or other agreements, express or implied, statutory or
otherwise, between the Parties in connection with the subject matter of this
Agreement, except as specifically set forth herein and therein. If there is any
conflict between the provisions of this Agreement and the provisions of any
Ancillary Agreement, the provisions of this Agreement shall govern.
1.7 AMENDMENTS. This Agreement and any Ancillary Agreement may be amended,
modified or supplemented only by a written agreement signed by all of the
parties to such agreement.
1.8 WAIVER. No waiver of any of the provisions of this Agreement or any
Ancillary Agreement shall be deemed to constitute a waiver of any other
provision (whether or not similar), nor shall such waiver constitute a waiver or
continuing waiver unless otherwise expressly provided in writing duly executed
by the party to be bound thereby.
1.9 GOVERNING LAW. This Agreement shall be governed by the laws of the
Province of Ontario and the federal laws of Canada applicable therein.
1.10 INCLUSION. Where the word "including" or "includes" is used in this
Agreement it means "including (or includes) without limitation".
1.11 ACCOUNTING TERMS. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with GAAP.
1.12 INCORPORATION OF SCHEDULES. The following are the schedules attached
to and incorporated in this Agreement:
FINANCIAL SCHEDULES
Schedule 1 - Financial Statements as at December 31, 1995 and December 31,
1996
<PAGE>
-10-
Schedule 2 - Interim Financial Statements as at January 31, 1997
ASSET SCHEDULES
Schedule 3 - Owned Properties
Schedule 4 - Contracts
Schedule 5 - Leases and Leased Properties
Schedule 6 - Intellectual Property Rights
DISCLOSURE SCHEDULES
Schedule 7 - Jurisdictions in which Business Carried On
Schedule 8 - Environmental Compliance
Schedule 9 - Authorizations
Schedule 10 - Collective Agreements
Schedule 11 - Insurance Policies
Schedule 12 - Permitted Encumbrances
Schedule 13 - Benefit Plans
Schedule 14 - Employee Matters and Designated Employees
Schedule 15 - Shareholder Loans
Schedule 16 - Options
Schedule 17 - Litigation
Schedule 18 - Cumulative Tax Losses
Schedule 19 - Accounts Payable and Accrued Liabilities
Schedule 20 - Source and Use of Funds
Schedule 21 - Ownership of RoweCom Shares
<PAGE>
-11-
SCHEDULES OF FORMS
Schedule 22 - Form of RoweCom Shareholders' Agreement
Schedule 23 - Form of Registration Rights Agreement
ARTICLE 2
PURCHASED SHARES
2.1 PURCHASE AND SALE. Subject to the terms and conditions hereof, the
Purchaser hereby subscribes for and takes up the Initial Purchased Shares and
the Corporation hereby issues the Initial Purchased Shares for an aggregate
subscription price of US$1,000,000, the receipt of which is hereby acknowledged
by the Corporation. Subject to the terms and conditions hereof, RoweCom hereby
sells and the Purchaser hereby purchases the Exchange Option (the terms of which
are contained in the RoweCom Shareholders' Agreement) for a purchase price of
US$1.00, the receipt of which is hereby acknowledged by RoweCom.
2.2 RECEIPT. The Purchaser hereby acknowledges receipt of the Initial
Purchased Shares and of the Exchange Option.
2.3 ADDITIONAL PURCHASED SHARES. Subject to the terms and conditions
hereof, the Corporation agrees to issue and the Purchaser agrees to subscribe
for the Additional Purchased Shares on the Closing Date. The subscription price
payable by the Purchaser to the Corporation for the Additional Purchased Shares
shall be $US3,000,000.
ARTICLE 3
REPRESENTATIONS9 WARRANTIES AND COVENANTS
OF THE CORPORATION AND OF ROWECOM
3.1 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND of RoweCom.
Each of the Corporation and RoweCom represents and warrants as follows to the
Purchaser and acknowledges and confirms that the Purchaser is relying upon such
representations and warranties in connection with the purchase by the Purchaser
of the Purchased Shares:
<PAGE>
-12-
CORPORATE MATTERS RELATING TO THE CORPORATION AND ROWECOM
- ---------------------------------------------------------
(a) Due Incorporation and Existence. The Corporation is a corporation
----------------------
incorporated and existing under the laws of the Province of Ontario. The
Corporation is a "private company" within the meaning of the Securities Act
(Ontario). RoweCom is a limited liability company organized and existing under
the laws of the State of Delaware.
(b) Corporate Power. Each of the Corporation and RoweCom has the requisite
---------------
power to own its property and to carry on its business as now being conducted by
it.
(c) Extra-Territorial Qualification. The Corporation is duly qualified,
---------------------------------
licensed or registered to carry on business in the Province of Ontario and as an
extra-provincial corporation in the jurisdictions listed in Schedule 7. RoweCom
is duly qualified, licensed or registered to carry on business in the State of
Massachusetts and in the jurisdictions listed in Schedule 7. The jurisdictions
listed in Schedule 7 include all jurisdictions in which the nature of the Assets
or its Business make such qualifications necessary or where failure to be so
qualified would have a material adverse effect on the affairs, assets,
liabilities, business or prospects, operations or conditions of either the
Corporation or RoweCom or their respective Business, financial or otherwise, or
where either the Corporation or RoweCom owns or leases any material properties
or assets or conducts any material business.
(d) Authorized Capital. The authorized capital of the Corporation consists of
--------------------
an unlimited number of Common Shares and an unlimited number of Preferred Shares
of which at the date hereof, and after giving effect to the issue of the Initial
Purchased Shares, 402,893 Common Shares (and no more) and 402,892 Preferred
Shares (and no more) have been duly issued and are outstanding as fully paid and
non-assessable and legally and beneficially owned as set forth in the Unanimous
Shareholders' Agreement. The authorized capital of RoweCom consists of an
unlimited number of common shares and an unlimited number of preferred shares of
which 4,423,836 common shares and no preferred shares have been duly issued and
are outstanding as fully paid and non-assessable and legally and beneficially
owned as set forth in Schedule 21.
(e) Options, etc. Except for the Purchaser's right hereunder, and under the
------------
Exchange Option with respect to the conversion of the Purchased Shares into
common shares of RoweCom, and except as disclosed in Schedule 16 hereto, no
Person has any option, warrant, right, call, commitment, conversion right, right
of exchange or other agreement or any right or privilege (whether by law, pre-
emptive or contractual) capable of becoming an option, warrant,
<PAGE>
-13-
right, call, commitment, conversion right, right of exchange or other agreement
(i) for the purchase from the Corporation of any of the Purchased Shares; or
(ii) for the purchase, subscription, allotment or issuance of any of the
unissued shares in the capital of the Corporation or of RoweCom or of any
securities of the Corporation or of RoweCom.
(f) Dividends and Distributions. Since the date of the Financial Statements
---------------------------
neither the Corporation nor RoweCom has, directly or indirectly, declared or
paid any dividends or declared or made any other distribution on any of its
shares of any class and has not, directly or indirectly, redeemed, purchased or
otherwise acquired any of its shares of any class or agreed to do so.
(g) Subsidiaries. The Corporation has no Subsidiaries or agreements of any
------------
nature to acquire any Subsidiary or acquire or lease any other business
operations. RoweCom has no Subsidiaries and has no agreements of any nature to
acquire any Subsidiary or acquire or lease any other business operations.
(h) Corporate Records.
------------------
(i) The Corporate. Records of the Corporation are complete and accurate
and all corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all applicable Laws and with the
articles and by-laws of the Corporation, and without limiting the
generality of the foregoing, (i) the minute books contain complete and
accurate minutes of all meetings of the directors and shareholders of
the Corporation held since the incorporation of the Corporation, and
all such meetings were duly called and held; (ii) the minute books
contain all written resolutions passed by the directors and
shareholders of the Corporation-and all such resolutions were duly
passed; (iii) the share certificate books, register of shareholders
and register of transfers of the Corporation are complete and accurate
and, all, such transfers have been duly completed and approved and any
exigible tax payable in connection with the transfer of any securities
of the Corporation has been duly paid; and (iv) the registers of
directors and officers are complete and accurate and all former and
present directors and officers of the Corporation were duly elected or
appointed, as the case may be.
(ii) The Corporate Records of RoweCom. are complete and accurate and all
corporate proceedings and actions reflected therein have
<PAGE>
-14-
been conducted or taken in compliance with all applicable Laws and
with the Operating Agreement, and without limiting the generality of
the foregoing: (i) the minute books contain complete and accurate
minutes of all meetings of the directors and shareholders of RoweCom
held since the incorporation of RoweCom, and all such meetings were
duly called and held; (ii) the minute books contain all written
resolutions passed by the directors and shareholders of RoweCom and
all such resolutions were duly passed; (iii) the share certificate
books, register of shareholders and register of transfers of RoweCom
are complete and accurate, and all such transfers have been duly
completed and approved and any exigible tax payable in connection with
the transfer of any securities of RoweCom has been duly paid; and (iv)
the registers of directors and officers are complete and accurate and
all former and present directors and officers of RoweCom were duly
elected or appointed, as the case may be.
(i) Validity of Agreement. Each of the Corporation and RoweCom has all
---------------------
necessary corporate power to enter into and perform its obligations under this
Agreement and the Ancillary Agreements to which it is a party. The execution,
and delivery and performance by each of the Corporation and RoweCom of this
Agreement and the Ancillary Agreements to which each is a party and the
consummation of the transactions contemplated thereby:
(i) have been duly authorized by all necessary corporate action on the
part of the Corporation and of RoweCom; and
(ii) do not (or would not with the giving of notice, the lapse of time or
the happening of any other event or condition) result in a violation
or a breach of, or a default under or give rise to a right of
termination, greater rights or increased costs, amendment or
cancellation or the acceleration of any obligation under (A) any
charter or by-law instruments of the Corporation or of RoweCom; (B)
any contracts or instruments to which either of the Corporation or
RoweCom is a party or by which either of them is bound; or (C) any
Laws applicable to either of the Corporation or RoweCom.
Each of this Agreement and any Ancillary Agreement to which either the
Corporation or RoweCom is a party constitutes legal, valid and binding
obligations of the Corporation or of RoweCom enforceable against each of them in
accordance with its terms, subject only to the following qualifications:
<PAGE>
-15-
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are
considered an adequate remedy; and
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting the enforceability of creditors' rights.
(j) Restrictive Documents. Neither the Corporation nor RoweCom is subject to,,
---------------------
or a party to, any charter or by-law restriction, any Law, any Claim, any
contract or instrument, any Encumbrance or any other restriction of any kind or
character which would prevent the consummation of the transactions contemplated
by this Agreement or any Ancillary Agreement or compliance by the Corporation or
of RoweCom with the terms, conditions and provisions hereof or thereof or the
continued operation of the Business by the Corporation or of RoweCom after the
date hereof on substantially the same basis as heretofore operated or which
would restrict the ability of the Purchaser to acquire any of the Purchased
Shares, in each case except for:
(i) the necessity of obtaining the Consents; and
(ii) the necessity of passing the appropriate resolutions of the directors
and shareholders of the Corporation to permit the transfer of the
Purchased Shares.
MATTERS RELATING TO THE ASSETS
- ------------------------------
(k) Title to the Assets. Each of the Corporation and RoweCom has good title to
--------------------
all of its Assets and good and marketable title in fee simple to its Owned
Properties. Each of the Corporation and RoweCom has legal and beneficial
ownership of its Assets free and clear of all Encumbrances, except for Permitted
Encumbrances. Each of the Corporation and RoweCom has a valid leasehold title to
all of its Leases.
(l) No Options, etc. No Person has any written or oral agreement, option,
---------------
understanding or commitment, or any right or privilege capable of becoming such
for the purchase from the Corporation or of RoweCom of any of the Assets, other
than pursuant to purchase orders accepted by the Corporation or RoweCom in the
ordinary course of their Business.
(m) Accounts Receivable. All Accounts Receivable are bona fide, and, subject to
-------------------
an allowance for doubtful accounts taken in accordance with GAAP, collectible
without set-off or counterclaim.
<PAGE>
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(n) Real Property.
-------------
(i) Neither the Corporation nor RoweCom is the owner of, or under any
agreement or option to own, any real property or any interest therein,
other than the Leases; and
(ii) All of the buildings and fixtures on the Owned Properties and the
Leased Properties (A) were constructed in accordance with all
applicable laws and with all Authorizations validly issued pursuant
thereto; (B) are in good operating condition and in a state of good
maintenance and repair; and (C) are adequate and suitable for the
purposes for which they are presently being used; and with respect to
each.(and to the Owned Properties and the Leased Properties), the
owner has adequate rights of ingress and egress for the operation of
the Business in the ordinary course. None of the Owned Properties, the
I-eased Properties or the buildings and fixtures thereon, nor the use,
operation or maintenance thereof for the purpose of carrying on the
Business, violates in any material respect, any restrictive covenant
or any provision of any Law or encroaches on any property owned by any
other Person. No condemnation or expropriation proceeding is pending
or, to the best knowledge of each of the Corporation and RoweCom,
threatened which would preclude or impair the use of any such property
or any part thereof for the purposes for which it is currently used.
There are no outstanding work orders with respect to any of the Assets
from or required by any municipality, police department, fire
department, sanitation, health or safety authorities or from any other
Person and there are no matters under discussion with or by the
Corporation or RoweCom relating to work orders.
(o) Leases. Each Lease is in good standing, creates a good and valid leasehold
estate in the Leased Properties thereby demised and is in full force and effect
without amendment thereto, except as disclosed in Schedule 5. With respect to
each Lease, (i) all rents and additional rents due to the date hereof have been
paid, (ii) neither the lessor, to the best of the knowledge of the Corporation
or RoweCom, nor the lessee is in default thereunder, (iii) no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor, (iv) there exists no event of default or event, occurrence, condition or
act (including the purchase of the Purchased Shares hereunder) which, with the
giving of notice, the lapse of time or the happening of any other event or
condition, would become a default under such Lease, (v) neither the Corporation
nor RoweCom has violated any of the terms or conditions under any such Lease in
any material respect, and (vi) to
<PAGE>
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the best knowledge of the Corporation and of RoweCom, all of the covenants to be
performed by any other party under any such Lease have been fully performed.
Each of the Leased Properties is in a state of good maintenance and repair,
normal wear and tear excepted, and is adequate and suitable for the purposes for
which it is presently being used. True, correct and complete copies of the
Leases have been provided to the Purchaser. Schedule 5 contains a true, correct
and complete list of all of the Leases, together with a brief and accurate
description of each Lease, including a description of the leased premises, the
term of the Lease, the rental payments under the Lease (specifying any breakdown
of base rent and additional rents), any rights of renewal and the term thereof,
and any restrictions on assignment.
(p) No Breach of Contracts. Each of the Contracts listed in Schedule 4 is in
----------------------
full force and effect, unamended, and there exists no default or event of
default or event, occurrence, condition or act (including the purchase of the
Purchased Shares hereunder) which, with the giving of notice, the lapse of time
or the happening of any other event or condition, would become a default or
event of default thereunder, except for the necessity of obtaining the Consents,
which Consents are listed in Schedule 4. Neither the Corporation nor RoweCom has
violated or breached, in any material respect, any of the terms or conditions of
any Contract, and to the best of the knowledge of the Corporation and of
RoweCom, all the covenants to be performed by any other party thereto have been
fully performed. True, correct and complete copies of all Contracts listed in
Schedule 4 have been delivered to the Purchaser.
(q) Intellectual Property Rights. The Intellectual Properties used in whole or
----------------------------
in part in, or required for the carrying on of, the Business in the manner
heretofore carried on are set out in Schedule 6 and are owned by, or validly
licensed to, the Corporation or to RoweCom as indicated in Schedule 6. Except as
otherwise expressly stated in Schedule 6, the Corporation (i) has the exclusive
right to use such Intellectual Properties, (ii) is the owner of record of such
Intellectual Properties, and (iii) has not conveyed, assigned or encumbered any
of them. All registrations and filings necessary to preserve the rights of the
Corporation and of RoweCom in the Intellectual Properties have been made and are
in good standing. To the best of the knowledge of each of the Corporation and
RoweCom, the conduct of the Business does not infringe upon the intellectual
properties of any other Person.
(r) Condition of Equipment. All tangible personal property forming part of the
----------------------
Assets, including furniture, and office and computer equipment, whether owned or
leased, are in good operating condition and are in a state of good repair and
maintenance having regard to the age and use thereof, reasonable wear and tear
and obsolescence excepted.
<PAGE>
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FINANCIAL MATTERS
- -----------------
(s) Financial Statements. The Financial Statements and the Interim Financial
--------------------
Statements have been prepared in accordance with GAAP applied on a basis
consistent with those of previous fiscal years and present fairly:
(i) the Assets, liabilities, (whether accrued, absolute, contingent or
otherwise) and financial position. of each of the Corporation and
RoweCom as at the respective dates of the relevant statements; and
(ii) the sales and earnings of each of the Corporation and RoweCom during
the periods covered thereby.
The financial statements to be provided to the Purchaser pursuant to Section
3.2(2) shall contain no material variances from the financial information
previously provided to the Purchaser.
As at the date hereof, there are no liabilities, absolute or contingent of the
Corporation and RoweCom save and except for liabilities set forth in the Interim
Financial Statements, liabilities set forth in the Contracts listed in Schedule
4 or in Contracts which, by the terms of Section 3.1 (ab) are not required to be
disclosed, liabilities incurred in the ordinary course since the date of the
Interim Financial Statements and liabilities set forth in the Accounts Payable
and Accrued Liabilities listed in Schedule 19.
True, correct and complete copies of the Financial Statements and the Interim
Financial Statements are attached as Schedule 1 and Schedule 2.
(t) Accounts Payable and Accrued Liabilities. The aggregate amount of Accounts
----------------------------------------
Payable for each of the Corporation-and RoweCom as of February 28, 1997 does not
exceed the amount set out in Schedule 19.
(u) Taxes. Each of RoweCom and the Corporation has filed or caused to be filed,
within the times and within the manner prescribed by Law, all federal,
provincial, local, state and foreign tax returns and tax reports which are
required to be filed by or with respect to each of them. The information
contained in such returns and reports is correct and complete and such returns
and reports reflect accurately all liability for taxes of the Corporation for
the periods covered thereby. All federal, provincial, local, state and foreign
income, profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) that are or may become payable by
or due from each of the Corporation and RoweCom have been fully
<PAGE>
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paid or fully disclosed and fully provided for in the Books and Records, the
Financial Statements and the Interim Financial Statements. The federal income
tax liability of each of the Corporation and of RoweCom has been assessed for
all fiscal years to and including its fiscal year ended December 31, 1995. No
examination of any tax return of either of the Corporation and RoweCom is
currently in progress, there are no outstanding agreements or waivers extending
the statutory period providing for an extension of time with respect to the
assessment or re-assessment of tax or the filing of any tax return by, or any
payment of any tax by either of the Corporation and RoweCom, and there are no
Claims now threatened or pending against either of the Corporation and RoweCom
in respect of taxes or any matters under discussion with any Governmental Entity
relating to taxes. Each of the Corporation and RoweCom has withheld from each
payment made by it the amount of all taxes and other deductions required to be
withheld therefrom and has paid the same to the proper taxing or other authority
within the time prescribed under any applicable Law. The cumulative tax losses
set forth on Schedule 18 are true, correct and complete for the Corporation as
at the date hereof.
PARTICULAR MATTERS RELATING TO THE CORPORATION'S BUSINESS
- ---------------------------------------------------------
(v) Eligibility.
-----------
(i) The Corporation is a taxable Canadian corporation within the
meaning of the Income Tax Act (Canada);
(ii) the Corporation carries on no business other than the
Corporation's Business;
(iii) the Corporation has been in active business (as such term is
defined in the Income Tax Act (Canada) for at least two years or,
where the Corporation has been carrying on business for less than
two years, throughout such shorter period of time;
(iv) at least 50% of the Corporation's full-time employees are employed
in Ontario;
(v) at least 50% of the wages and salaries paid by the Corporation are
paid to employees whose ordinary place of employment is a
permanent establishment of the Corporation located in Ontario;
(vi) not less than 90% of the fair market value of the property of the
Corporation is attributable to property used in the Corporation's
Business;
<PAGE>
-20-
(vii) the Corporation and all corporations related to it (as the term
"related" is defined in the Income Tax Act (Canada)) have 500 or
fewer employees; and
(viii) the carrying value of the total assets (determined in accordance
with GAAP on a consolidated or combined basis, where applicable)
of the Corporation and all corporations related to it (determined
in accordance with the Income Tax Act (Canada)) together with the
amount of the aggregate subscription price for the Purchased
Shares does not exce ed $50,000,000.
(w) Sufficiency of Assets. The Assets include all rights and property
---------------------
necessary to the conduct of the Business by the Corporation and RoweCom
substantially in the manner presently carried on by each of them.
(x) No Material Adverse Change. Since the date of the Financial Statements
--------------------------
there has been no change in the affairs, assets, liabilities, business,
prospects, operations or conditions of any of the Corporation or RoweCom or the
Business, financial or otherwise, whether arising as a result of any legislative
or regulatory change, revocation of any license or right to do business, fire,
explosion, accident, casualty, labour trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise, which has materially
adversely affected or which will materially adversely affect any of the
Corporation, RoweCom or the Business, except for general economic conditions
affecting Canada, the United States or the industry in which the Corporation,
RoweCom or the Business operates.
(y) Compliance with Laws. Each of the Corporation and RoweCom is conducting its
--------------------
Business in compliance with all applicable Laws of each jurisdiction in which
its Business is carried on, except for acts of non-compliance which in the
aggregate are not material.
(z) Environmental Disclosure.
-------------------------
(i) Each of the Corporation and RoweCom has at all times received,
handled, generated, used, stored, deposited, labelled, handled,
treated, documented, transported and disposed of any Hazardous
Substances in compliance with all applicable Environmental Laws,
approvals or Authorizations, except as set forth in Schedule 8.
(ii) None of the Owned Properties or Leased Properties has ever been used
by any Person as a landfill site, a waste disposal site
<PAGE>
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or as a location for the disposal of Hazardous Substance or waste
and has ever had urea formaldehyde foam insulation, asbestos, PCB
waste, radioactive substances or aboveground or underground storage
vessels, active or abandoned, located thereon.
(iii) Neither the Corporation nor RoweCom has been required by any
Governmental Entity to:
(A) alter its properties in a material way in order to be in
compliance with Environmental Laws;
(B) remove any material from any of the Leased Properties; or
(C) perform any remedial studies, investigations, closure,
decommissioning, rehabilitation, restoration and post-remedial
studies, investigations or monitoring on about or in connection
with any of the Leased Properties.
(iv) The Assets of the Corporation and of RoweCom are capable of being
operated at maximum production levels in accordance with
Environmental Laws.
(aa) Authorizations. Each of the Corporation and RoweCom owns, holds, possesses
----------------
or lawfully uses in the operation of the Business all Authorizations which are
in any manner necessary for it to conduct the Business as presently or
previously conducted or for the ownership and use of the Assets, free and clear
of all Encumbrances and in compliance with all Laws applicable thereto. All such
Authorizations are listed and described in Schedule 9 and neither the
Corporation nor RoweCom is in default, nor has it received any notice of any
Claim in default, with respect to any such Authorizations. All such
Authorizations are renewable by their terms or in the ordinary course of
business without the need for the Corporation or RoweCom to comply with any
special qualification or procedures or to pay any amounts other than routine
filing fees. None of such Authorizations will be adversely affected by the
consummation of the transactions contemplated hereby, except as set forth in
Schedule 9. Neither the Corporation or RoweCom nor any affiliate of the
Corporation or of RoweCom owns or has any proprietary, financial or other
interests (direct or indirect) in any Authorization which the Corporation or
RoweCom in owns, possesses or uses in the operation of the Business as now or
previously conducted.
<PAGE>
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(ab) Material Contracts. Schedule 4 contains a list of all Contracts of the
------------------
Corporation and of RoweCom which involve the expenditure of more than $25,000 or
which have a term left to run of more than 2 years (the "Material Contracts").
Except for the Benefit Plans set forth in Schedule 13, Leases and the Contracts
set forth in Schedule 4, neither the Corporation nor RoweCom is a party to or
bound by:
(i) any Benefit Plans or any collective agreements;
(ii) any agreement or commitment relating to the borrowing of money;
(iii) any guarantee or other contingent liability in respect of any
indebtedness or other liability or obligation of any other Person
(other than the endorsement of negotiable instruments for collection
in the ordinary course of the Business);
(iv) any contract or commitment limiting the freedom of the Corporation or
of RoweCom to engage in any line of business or to compete with any
other Person;
(v) any licensing or other contract or commitment relating to
Intellectual Properties used by either the Corporation or of RoweCom
in the conduct of its Business;
(vi) any agreement or commitment not entered into in the ordinary course
of the Business; and
(vii) any agreement or arrangement with any Person with whom the
Corporation (or their present or former directors, officers and
employees) does not deal at arm's length within the meaning of the
Income Tax Act (Canada).
(ac) Employees.
----------
(i) Each of the Corporation and RoweCom is in compliance with all Laws
respecting employment and employment practices, terms and conditions
of employment, pay equity and wages and hours and has not and is not
engaged in any unfair labour practice;
(ii) No unfair labour practice, complaint or grievance against either the
Corporation or RoweCom is pending or, to the best of the knowledge of
the Corporation and RoweCom, threatened before
<PAGE>
-23-
any labour relations board or similar Governmental Entity with
respect to the Business;
(iii) There is no labour strike, dispute, slowdown or stoppage actually
pending or involving or, to the best of the knowledge of the
Corporation and of RoweCom, threatened against either of the
Corporation or RoweCom with respect to its Business;
(iv) No union representation question exists respecting the employees of
either the Corporation or RoweCom in connection with its Business and
no collective bargaining agreement is in place or currently being
negotiated by the Corporation or by RoweCom except as disclosed in
Schedule 10;
(v) No grievance which might have an adverse effect upon either of the
Corporation or RoweCom or the conduct of its Business exists, no
arbitration proceeding arising out of or under any collective
agreement is pending, and no claim therefor has been asserted;
(vi) No notice has been received by the Corporation of any complaint which
has not been resolved filed by any of its employees claiming that the
Corporation has violated the Employment Standards Act (Ontario) or
the Human Rights Code (Ontario) (or any applicable employee or human
rights or similar legislation in the other jurisdictions in which the
Corporation operates), or of any complaints or proceedings which have
not. been resolved of any kind involving the Corporation or, to the
Corporation's knowledge, after due inquiry, any of the employees of
the Corporation before any labour relations board. There are no
outstanding orders or charges against the Corporation under the
Occupational Health and Safety Act (Ontario) (or any applicable
health and safety legislation in the other jurisdictions in which the
Corporation carries on business). All levies, assessments and
penalties made against the Corporation pursuant to the Workers'
Compensation Act (Ontario) (and any applicable workers' compensation
legislation in the other jurisdictions in which the Corporation
carries on business) have been paid by the Corporation and the
Corporation has not been reassessed under any such legislation except
such as has been resolved;
(vii) Schedule 14 contains a complete list of all permanent and full time
employees of each of the Corporation and RoweCom, their salaries and
wage rates, bonus arrangements, benefits, positions
<PAGE>
-24-
and length of service. Schedule 14 provides a correct and complete
list showing all amounts due or accrued due for all salary, wages, -
bonuses, commissions, vacation with pay, pension benefits or other
employee benefits relating to all employees;
(viii) No employee of the Corporation or of RoweCom has any agreement as to
length of notice required to terminate his or her employment, other
than such as results by law from the employment of an employee
without agreement as to such notice or as to length of employment;
(ix) All vacation pay (including all banked vacation pay), bonuses,
commissions and other employee benefit payments are reflected and
have been accrued in the Books and Records of each of the
Corporation and of RoweCom;
(x) The aggregate amount of salaries, pensions, bonuses, or other
remuneration of any nature paid or payable by each of the
Corporation and RoweCom to or for its present or former officers,
directors, shareholders, employees or Persons not dealing at arm's
length (as such term is defined in the Income Tax Act (Canada)) with
them during the year ended on the date of the Financial Statements,
are as set out in Schedule 14, and since that date, such payments
have been made at no greater rates;
(xi) The only benefit plans existing in respect of the employees of the
Corporation and of RoweCom are the Benefit Plans disclosed on
Schedule 13. True, correct and complete copies of all written
Benefit Plans and related documentation have been provided to the
Purchaser and any oral or written Benefit Plans are accurately
described on Schedule 13. The Benefit Plans are duly registered
where required by, and are in good standing under, all applicable
Laws. All required employer and employee contributions and premiums
under the Benefit Plans to the date hereof have been made, the
respective fund or funds established under the Benefit Plans are
funded in accordance with applicable Laws, and no past service
funding liabilities exist thereunder;
(xii) None of the Benefit Plans, nor any trust created thereunder, nor any
trustee or administrator thereof, has engaged in any "prohibited
transaction" as defined in Section 406 of ERISA., or
<PAGE>
-25-
Section 4975 of the Internal Revenue Code. The 401k Plan is (i)
"qualified" within the meaning of Section 401(a) of the Internal
Revenue Code; (ii) no facts or circumstances exist which would
adversely affect the qualified status of the 401k Plan; and (iii)
the trust established pursuant to the 401k Plan is tax exempt under
section 501(a) of the Internal Revenue Code. No matter relating to
any of the Benefit Plans is pending before any court or government
agency. Each of the Benefit Plans which is group health plans, as
defined in Section 4980(B) of the Internal Revenue Code, is in
compliance with the requirements of Internal Revenue Code Section
4980(B) and Part 6 of Subtitle B of Title I of ERISA; and
(xiii) No payments have been made or authorized since the date of the
Financial Statements by either the Corporation or RoweCom to its
officers, directors, former directors, shareholders or employees or
to any Person not dealing at arm's length (as such term is defined
in the Income Tax Act (Canada)) with any of the foregoing, except in
the ordinary course of the Business and at the regular rates payable
to them of salary, pension, bonuses, rents or other remuneration of
any nature.
(ad) Insurance. Each of the Corporation and RoweCom maintains insurance
---------
policies with responsible insurers as are appropriate to the Business and Assets
in such amounts and against such risks as are customarily carried and insured
against by prudent owners of comparable businesses and assets. All such policies
of insurance coverage are in full force and effect. Neither the Corporation nor
RoweCom is in default with respect to any of the provisions contained in any
such insurance policy and has not failed to give any notice or present any claim
under any such insurance policy in due and timely fashion. A summary of such
policies is contained in Schedule 11.
(ae) Litigation. Other than as set forth in Schedule 17 there is no action, suit
----------
or proceeding, at law or in equity, by any Person, nor any arbitration,
administrative or other proceeding by or before (or to the best of the knowledge
of the Corporation and of RoweCom any investigation by) any Governmental Entity
pending, or, to the best of the knowledge of the Corporation and of RoweCom,
threatened against or affecting either of the Corporation or RoweCom or any of
its properties or rights or any of the Assets, and neither the Corporation nor
RoweCom knows of any valid basis for any such action, suit, proceeding,
arbitration or investigation. Neither the Corporation nor RoweCom is subject to
any judgment, order or decree entered in any lawsuit or proceeding.
<PAGE>
-26-
(af) Shareholder Loans. Schedule 15 contains a true, correct and complete list
-----------------
of all Shareholder Loans including the amount owing and the terms applicable
thereto.
(ag) No Insolvency Proceedings. Neither the Corporation nor RoweCom has made
-------------------------
any assignment for the benefit of its creditors nor has any receiving order been
made against it under the Bankruptcy and Insolvency Act (Canada) or similar laws
of any other jurisdiction, nor has any petition for such an order been served
upon it, nor has it attempted to take the benefit of any legislation with
respect to financially distressed debtors, nor, after giving effect to this
financing, is an insolvent person within the meaning of the Bankruptcy and
Insolvency Act (Canada) or under any applicable bankruptcy legislation.
(ah) Full Disclosure. None of this Agreement or any Ancillary Agreement or any
---------------
certificate or statement in writing which has been supplied by or on behalf of
the Corporation or RoweCom or by any of the directors, officers or employees of
the Corporation or, of RoweCom in connection with the transactions contemplated
hereby contains any untrue statement of a material fact, or omits any statement
of a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Corporation or to RoweCom
which materially and adversely affects the affairs, businesses, prospects,
operations or conditions of the Corporation or of RoweCom, financial or
otherwise, or the Business or the Assets, which has not been set forth in this
Agreement.
(ai) Conduct of Business. Since the date of the Financial Statements the
-------------------
Business has been carried on in the ordinary course and neither the Corporation
nor RoweCom has, other than disclosed in writing to the Purchaser:
(i) incurred any liability, obligation or expenditure of any nature
(whether accrued, absolute, contingent or otherwise) or committed to -
make or perform any capital expenditures or maintenance or repair
projects, except for (x) liabilities, obligations or expenditures
incurred or made in the ordinary course of the Business or deferred
income taxes or income tax credits; and (y) capital expenditures or
maintenance or repair projects that do not exceed $25,000 on a per
item basis;
(ii) made any bonus or profit sharing distribution or payment of any kind;
<PAGE>
-27-
(iii) drawn down on any operating line, increased its indebtedness for
borrowed money or made any loan to any Person;
(iv) written off as uncollectible any notes or Accounts Receivable
exceeding $25,000 in the aggregate;
(v) cancelled or waived any claims or rights of the Corporation or of
RoweCom having a value greater than $25,000;
(vi) granted any increase in the rate of wages, salaries, bonuses or
other remuneration to any executive or other employee;
(vii) entered into any transaction with a Person not dealing at arm's
length;
(viii) made any change in any method of accounting or auditing practice;
(ix) amended the articles or by-laws of either the Corporation or of
RoweCom; or
(x) agreed, whether or not in writing, to do any of the foregoing.
3.2 COVENANTS OF THE CORPORATION AND ROWECOM.
(1) The Corporation hereby covenants that in addition to the
restrictions contained in the Unanimous Shareholders' Agreement, it will not use
and does not intend to use the proceeds received from the Purchaser as the
Subscription Price for the purpose of investment in land (except land that is
incidental and ancillary to the Corporation's Business).
(2) Each of the Corporation and/or RoweCom shall provide the audited
consolidated and unconsolidated financial statements for the year ended December
31, 1996 and final audited consolidated financial statements for the year ended
December 31, 1995 to the Purchaser no later than April 30, 1997.
(3) The Corporation shall use funds received from the Purchaser in
satisfaction of the Subscription Price substantially in the manner set forth in
Schedule 20.
3.3 CONDUCT OF BUSINESS PRIOR TO CLOSING. Prior to the Closing Date,
each of the Corporation and RoweCom will conduct the Business in the ordinary
course thereof unless the Corporation or RoweCom, as the case may
<PAGE>
-28-
be, has been given the prior written consent of the Purchaser to do otherwise.
Without limiting the generality of the foregoing:
(a) Each of the Corporation and RoweCom will continue to maintain and
service the Assets used in the conduct of the Business in the same manner as has
been its consistent past practice.
(b) Each of the Corporation and RoweCom shall use its best efforts to keep
available the services of the present employees and agents of the Business and
to maintain the relations and goodwill with the suppliers, customers,
distributors and any others having business relations with the Business.
(c) Each of the Corporation and RoweCom shall use its best efforts to
conduct the Business in such a manner that on the Closing Date the
representations and warranties of the Corporation and of RoweCom contained in
this Agreement shall be true, correct and complete as if such representations
and warranties were made on and as of such date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants as follows to the Corporation and acknowledges and
confirms that the Corporation is relying on such representations and warranties
in connection with the sale by the Corporation of the Purchased Shares:
(a) Due Incorporation and Existence. The Purchaser is a corporation
-------------------------------
incorporated and existing under the laws of Canada.
(b) Validity of Agreement. The Purchaser has all necessary corporate power to
---------------------
enter into and to perform its obligations under this Agreement and the Ancillary
Agreements to which it is a party. The execution, delivery and performance by
the Purchaser of this Agreement and the Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated thereby have been
duly authorized by all necessary corporate action on the part of the Purchaser.
This Agreement and the Ancillary Agreements to which it is a party constitute
legal, valid and binding obligations of the Purchaser enforceable against it in
accordance with their respective terms.
<PAGE>
-29-
(c) Restrictive Documents. The Purchaser is not subject to, or a party to, any
---------------------
charter or by-law restriction, any Law, any Claim, any contract or instrument,
any Encumbrance or any other restriction of any kind or character which would
prevent consummation of the transactions contemplated by this Agreement.
ARTICLE 5
CONDITIONS OF CLOSING
5.1 CONDITIONS FOR THE BENEFIT OF THE PURCHASER. The purchase and sale of the
Additional Purchased Shares is subject to the following conditions to be
fulfilled or performed at or prior to the Closing Date, which conditions are for
the exclusive benefit of the Purchaser and may be waived in whole or in part by
the Purchaser in its sole discretion:
(a) Truth of Representations and Warranties of the each of RoweCom and the
----------------------------------------------------------------------
Corporation. The representations and warranties of each of RoweCom and the
- -----------
Corporation contained in this Agreement or in any Ancillary Agreement shall be
true and correct as of the Closing Date with the same force and effect as if
such representations and warranties had been made on and as of such date, and
each of RoweCom and the Corporation shall also have executed and delivered a
certificate of a senior officer to that effect. The receipt of such evidence and
the Closing shall not be a waiver of the representations and warranties of each
of RoweCom and the Corporation which are made in this Agreement. Upon the
delivery of such certificates, the representations and warranties of each of
RoweCom and the Corporation in Article 3 shall be deemed to have been made on
and as of the Closing Date with the same force and effect as if made on and as
of such date.
(b) Performance of Covenants by each of RoweCom and the Corporation. RoweCom
---------------------------------------------------------------
and the Corporation shall have fulfilled or complied with all covenants
contained in Section 3.2 to be performed or caused to be performed by them at or
prior to the Time of Closing.
(c) Issuance of Shares to RoweCom Inc. The Corporation shall have issued to
---------------------------------
RoweCom Inc. and RoweCom Inc. shall have subscribed for and taken up 1,208,676
Common Shares for an aggregate subscription price of $1.00.
(d) Conversion of RoweCom into a Corporation. RoweCom shall have converted
----------------------------------------
into a corporation organized and existing under the laws of the State of
Delaware in a manner satisfactory to the Purchaser.
<PAGE>
-30-
(e) Unanimous Shareholders' Agreement. RoweCom Inc. and its shareholders shall
---------------------------------
have entered the RoweCom Shareholders' Agreement with the Purchaser
substantially in the form attached hereto as Schedule 22.
(f) Registration Rights Agreement. RoweCom Inc. shall have entered into a
-----------------------------
registration rights agreement with the Purchaser substantially in the form
attached hereto as Schedule 23.
(g) Conversion of Loans. The loans of, (or other monies advanced by) each of
-----------
Phillippe Villers, Jerome Rubin and Jacques Raiman to RoweCom shall have been
converted to preferred shares in the capital of RoweCom Inc. on terms
satisfactory to the Purchaser.
(h) Deliveries. The Corporation shall have delivered or caused to be delivered
----------
to the Purchaser the following in form and substance satisfactory to the
Purchaser:
(i) share certificates representing the Additional Purchased Shares duly
made out in the name of the Purchaser, together with evidence
satisfactory to the Purchaser that the Purchaser has been duly
entered upon the books of the Corporation as the holder of the
Additional Purchased Shares;
(ii) certified copies of (i) the charter documents and extracts from the
by-laws of the Corporation relating to the execution of documents;
(ii) all resolutions of the shareholders, the board of directors or
any duly authorized committee thereof, of the Corporation approving
the entering into of this Agreement and the completion of all
transactions contemplated hereunder; and (iii) all other instruments
evidencing necessary corporate action of the Corporation and of
Authorizations, if any, with respect to such matters;
(iii) certificates of the Secretary or an Assistant Secretary of the
Corporation certifying the names and true signatures of its officers
authorized to sign this Agreement and the other instruments to be
delivered hereunder;
(iv) a certificate of status, compliance, good standing or like
certificate with respect to the Corporation issued by appropriate
government officials of the jurisdiction of its incorporation and of
each jurisdiction in which the Corporation carries on business as
listed in Schedule 7;
<PAGE>
-31-
the certificates referred to in subsection 5.1(a);
(vi) an opinion of counsel to the Corporation and such other documents as
the Purchaser may request substantially in the form as those delivered
to the Purchaser concurrently with the execution of this Agreement.
ARTICLE 6
MISCELLANEOUS
6.1 NOTICES. Any notice, direction or other instrument required or
permitted to be given hereunder shall be in writing and given by delivering or
sending it by telecopy or other similar form of communication addressed:
(a) to the Purchaser at:
Working Ventures Canadian Fund Inc.
148 York Street, Unit 202
London, Ontario
N6A IA9
Attention: Mr. Rick Jankura
Telecopier: (519) 645-3051
- and -
Working Ventures Canadian Fund Inc.
250 Bloor Street East
Suite 1600
Toronto, Ontario
M4W IE6
Attention: Mr. W. James Whitaker
Telecopier: (416) 929-2421
(b) to the Corporation at:
Rowe Communications Ltd.
100 Collip Circle
London, Ontario
N6G 4X8
<PAGE>
-32-
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Telecopier: (519) 858-5107
(c) to RoweCom at:
RoweCom LLC
725 Concord Avenue
Cambridge, MA
U.S.A. 02138
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Telecopier: (617) 497-6825
Any such notice, direction or other instrument given as aforesaid shall be
deemed to have been effectively given, if sent by telecopier or other similar
form of telecommunications on the next Business Day following such transmission
or, if delivered, to have been received on the date of such delivery. Any Party
may change its address for service from time to time by notice given in
accordance with the foregoing and any subsequent notice shall be sent to the
Party at its changed address.
6.2 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement.
6.3 Brokers. It is understood and agreed that no broker, agent or other
intermediary acted for the Corporation in connection with the sale of the
Purchased Shares and the Corporation shall indemnify and save harmless the
Purchaser from and against any Claims whatsoever for any commission or other
remuneration payable or alleged to be payable to any broker, agent or other
intermediary who purports to act or have acted for the Corporation.
6.4 THIRD PARTY BENEFICIARIES. Each Party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person, other than the Parties hereto, and no Person, other than
the Parties hereto, shall be entitled to rely on the provisions hereof in any
action, suit, proceeding, hearing or other forum.
6.5 Expenses. Except as otherwise expressly provided herein, all out of pocket
costs and expenses (including the fees and disbursements of legal counsel and
the accounting herein engaged by the Purchaser in connection with its due
diligence) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Corporation.
<PAGE>
-33-
6.6 ENUREMENT. This Agreement shall enure to the benefit of and be
binding upon the Parties, their successors and any permitted assigns.
6.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the Parties as
of the date first above written.
ROWE COMMUNICATIONS LTD.
Per:____________________________________
Richard Rowe
President
WORKING VENTURES CANADIAN
FUND INC.
Per:____________________________________
James Whitaker
ROWECOM LLC
Per:____________________________________
Richard Rowe
President
Per:____________________________________
Richard Rowe
Per Rowe Communication, Inc.
<PAGE>
Investment in
ROWE COMMUNICATIONS LTD.
By
WORKING VENTURES CANADIAN FUND INC
BERG KENNEDY CLEAVER BROAD
Barristers & Solicitors
1900 - 140 Fullarton Street
London, Ontario
N6A 5P2
(519) 679-8000
<PAGE>
INDEX
BOOK ONE
- --------
1. Share Purchase Agreement with Working Ventures Canadian Fund Inc. as
Purchaser Schedules attached;
BOOK TWO
- --------
2. Certificate of Officer of Rowe Communications Ltd. - Resolutions with
respect Working Ventures Transaction attached
3. Certificate of Officer of RoweCom Inc. with all relevant corporate document
attached
4. Unanimous Shareholder's Agreement with respect to RoweCom Inc.
5. Unanimous Shareholder's Agreement with respect to Rowe Communications Ltd.
6. Marketing Intangible License Agreement
7. Technology License Agreement
8. Marketing Intangible Development Agreement
9. Security Agreement
10. Trademark Collateral Security and Pledge Agreement
11. Memorandum of Grant of Security Interest in Copyrights
12. Summary of Distribution of Proceeds
13. Certificate of Merger
14. Agreement and Plan of Merger
<PAGE>
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") dated as of November
---------
4, 1998, is by and between ROWECOM INC. (the "Company"), a Delaware corporation
-------
having its principal executive offices at 725 Concord Avenue, Cambridge,
Massachusetts 02138, and LOUIS HERNANDEZ, JR. (the "Executive"), an individual
---------
residing at 15 Vernon Road, Belmont, Massachusetts 02478.
The Company and the Executive agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
(A) EMPLOYMENT. Subject to the terms and conditions of this Agreement,
the Company agrees to employ the Executive, and the Executive agrees to serve,
as the Company's Executive Vice President and Chief Financial Officer, reporting
to the Company's Chief Executive Officer and having such powers and duties
consistent with his positions as may be assigned to him from time to time by the
Company's Chief Executive Officer.
The Executive's employment hereunder will commence on the date hereof, and
unless earlier terminated in accordance with Section 3 hereof, will continue
through December 31, 2000, subject to extension by mutual consent of the
parties.
(B) COMMITMENT. The Executive represents that he is not currently party
to or bound by any commitments that might interfere with or impair his
performance of such duties and responsibilities or that are inconsistent with
his obligations hereunder. The Executive will devote such time and attention to
his duties and responsibilities hereunder as are reasonably required, and will
not undertake any commitments that would interfere with or impair his
performance of such duties and responsibilities.
2. COMPENSATION. During the term of the Executive's employment with the
Company hereunder, the Company will compensate the Executive as follows.
(A) SALARY. The Company will pay to the Executive a salary, payable
monthly, at the rate of $130,000 per annum or such higher rate as the Company's
Board of Directors may set from time to time, in its discretion.
(B) BONUSES. The Executive will be eligible to receive annual cash
bonuses of up to 50% of his salary, based on achievement of certain individual
and Company performance targets to be agreed on by the Executive and the
Company's Chief Executive Officer from time to time.
(C) BENEFITS. The Company will promptly reimburse all out-of-pocket
expenses reasonably incurred by the Executive in the course of performing his
employment duties and responsibilities hereunder, against appropriate
documentation. The Company will also provide the Executive with office space
and administrative support consistent with his position, with
<PAGE>
-2-
Company-paid health and life insurance, and with such other fringe benefits as
it from time to time may make generally available to its other senior executives
at the Executive's level.
3. TERMINATION.
(A) EVENTS CAUSING TERMINATION. The Executive's employment hereunder will
terminate upon the occurrence of any of the following events:
(1) The Executive's death, or a determination of his legal incapacity
by a court of competent jurisdiction; or
(2) The termination of the Executive's employment hereunder by the
Company, by written notice to the Executive, upon the Executive's inability
to perform his duties and responsibilities contemplated hereby for a period
of at least 60 consecutive days, or for an aggregate of at least 90 days in
any twelve-month period, because the Executive's physical or mental health
have become so impaired as to make it impossible or impracticable for him
to perform such duties and responsibilities; or
(3) The termination of the Executive's employment hereunder by the
Company, for Cause, by written notice to the Executive; or
(4) The termination of the Executive's employment hereunder by the
Company, without Cause, by written notice to the Executive; or
(5) The termination of the Executive's employment hereunder by the
Executive, for Good Reason, by written notice to the Company; or
(6) The termination of the Executive's employment hereunder by the
Executive, without Good Reason, by 30 days' written notice to the Company.
(B) "CAUSE" AND "GOOD REASON" DEFINED. For purposes of this Agreement:
"Cause" means (i) any act or acts by the Executive resulting directly or
-----
indirectly in, or intended to result directly or indirectly in, material unjust
gain or personal enrichment to the Executive or any third party at the expense
of the Company; (ii) the willful, wanton, or reckless failure by the Executive
to properly perform his duties with the Company (other than any such failure
resulting from incapacity due to mental or physical illness); (iii) the
Executive's conviction of or plea of nolo contendere to a felony; or (iv)
Executive's material breach of Section 4 of this Agreement; in each case,
provided, that the Executive's employment will in no event be considered to have
been terminated for Cause if the reason for such termination took place as a
result of bad judgment or ordinary negligence.
Notwithstanding any other provision of this Agreement, the Executive shall
not be terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the Board of Directors at a meeting
called and held for the purpose,
<PAGE>
-3-
finding that in the good faith opinion of the Board of Directors, the Executive
is guilty of the conduct which is the basis for termination with Cause as
defined in the Agreement.
"Good Reason" means any of the following occurring without the specific
-----------
prior written consent of the Executive (i) assignment to the Executive of any
duties materially inconsistent with his positions, duties, responsibilities, and
status with the Company (other than promotions), or a material adverse change in
his reporting responsibilities, titles, or offices; (ii) requiring the Executive
to be permanently based more than 100 miles from his present office location in
Cambridge, Massachusetts (excluding business-related travel to an extent
reasonably consistent with past practice); or (iii) the Company's failure to
continue to provide to the Executive with the compensation called for by this
Agreement.
(C) ADJUSTMENTS UPON EARLY TERMINATION. Notwithstanding any other
provision of this Agreement:
(1) If the Executive's employment with the Company terminates pursuant
Section 3(a)(4) (by the Company, without Cause) or Section 3(a)(5) (by the
Executive, for Good Reason), then for a period of one year following the
date of such termination, the Company will continue to pay the Executive a
salary at a rate equal to that at which he was being paid at the time of
termination, and (subject to Section 3(d) below) will continue to provide
the Executive with the benefits that he was receiving at the time of
termination (or if the Company is unable to do so because such benefits may
only be provided to current employees, it will provide the Executive with
the cash value thereof). These will be the Executive's exclusive remedies
in respect of all rights of the Executive under this Agreement and/or any
loss or damages that he may incur by reason of such termination.
(2) If the Executive's employment with the Company terminates other
than pursuant to Section 3(a)(4) (by the Company, without Cause) or Section
3(a)(5) (by the Executive, for Good Reason), then the rights of the
Executive to receive compensation pursuant to Section 2 hereof, and all
other rights of the Executive hereunder, will cease as of the date of such
termination.
(D) NO DUTY TO MITIGATE; TERMINATION OF BENEFITS. The Executive shall not
be required to mitigate the amount of any compensation payable to him pursuant
to Section 3(c)(1) hereof, whether by seeking other employment or otherwise. If
during the period during which he is receiving such compensation, he obtains new
full-time employment providing him with benefits comparable to those he is
entitled to receive from the Company hereunder, then when he begins receiving
such benefits from his new employer, he will no longer be entitled to receive
such benefits from the Company; but he will continue to be entitled to receive
payment of his salary as provided for herein.
4. CERTAIN COVENANTS. The Executive hereby covenants as follows, which
covenants will be in addition to, and not exclusive of, any similar obligations
to which the Executive may be subject from time to time.
<PAGE>
-4-
(A) CONFIDENTIALITY. Both during and following the term of this Agreement
and the Executive's employment hereunder, the Executive will maintain the
confidentiality of all confidential or proprietary information of the Company or
any of its subsidiaries (including without limitation all such information
acquired by the Executive before the commencement of his employment hereunder
and all such information with respect to the Company's or any of its
subsidiaries' respective businesses, finances, and/or technology), all of which
will be and remain the exclusive property of the Company or its respective
subsidiaries, as the case may be, and except as previously authorized in writing
by the Company, and except with respect to information that has otherwise become
public through no action or omission on the part of the Executive, will not
disclose any such information to any third party, or use it for any purpose
other than in the discharge of his employment duties and responsibilities
hereunder.
Upon the termination of the Executive's employment with the Company, the
Executive will promptly return to the Company all documents and other tangible
media that contain or reflect any confidential or proprietary information of the
Company and/or its subsidiaries (including all copies, reproductions, digests,
abstracts, analyses, and notes) in his possession or control, and will destroy
any related files (whether stored electronically, magnetically, optically, or
otherwise) on any equipment not owned by the Company or its subsidiaries.
(B) NON-COMPETITION. During any period during which the Executive is
employed by the Company, and for a period of twelve months following the date of
termination of his employment with the Company (which latter period will
automatically be extended by a period of time equal to any period in which the
Executive is in breach of any obligations under this Section 4; including any
such extension, the "Restricted Period"), the Executive will not engage,
-----------------
directly or indirectly, as a proprietor, equityholder, investor (except as a
passive investor holding not more than 5% of the outstanding capital stock of a
publicly held company), lender, partner, director, officer, employee,
consultant, or representative, or in any other capacity, in any business
involving any business presently engaged in by the Company, or in which the
Company or any of its subsidiaries may engage at any time during the period of
the Executive's employment hereunder, or in which at the time of termination of
the Executive's employment hereunder, the Board of Directors of the Company or
any of its subsidiaries has formally resolved to engage, in any geographic area
in which the Company is presently doing business, or in which where the Company
or any its subsidiaries may be doing business at any time before the termination
of the Executive's employment hereunder, or in which at the time of termination
of the Executive's employment hereunder, the Board of Directors of the Company
or any of its subsidiaries has formally resolved to engage.
(C) NON-SOLICITATION OF EMPLOYEES, ETC. During the Restricted Period, the
Executive will not directly or indirectly recruit, solicit, induce, or attempt
to induce any of the employees or independent contractors of the Company or any
of its subsidiaries to terminate their employment or contractual relationship
with the Company or such subsidiary; and will not assist any other person or
entity to do so, or be a proprietor, equityholder, investor (except as a passive
investor holding not more than 5% of the capital stock of a publicly held
company), lender, partner,
<PAGE>
-5-
director, officer, employee, consultant, or representative of any person or
entity who does or attempts to do so.
(D) NON-SOLICITATION OF CUSTOMERS, SUPPLIERS, ETC. During the Restricted
Period, the Executive will not directly or indirectly solicit, divert, take
away, or attempt to divert or take away, from the Company or any of its
subsidiaries any of the business or patronage of any of their actual or
potential customers, clients, accounts, vendors, or suppliers, or induce or
attempt to induce any such person or entity to reduce the amount of business it
does with the Company or any of its Subsidiaries, and the Executive will not
assist any other person or entity to do so, or be a proprietor, equityholder,
investor (except as a passive investor holding not more than 5% of the capital
stock of a publicly held company), lender, partner, director, officer, employee,
consultant, or representative of any person or entity who does or attempts to do
so.
(E) INVENTIONS, ETC. The Executive will make full and prompt disclosure to
the Company of all inventions, improvements, discoveries, developments,
processes, software, mask works, and works of authorship, whether patentable or
copyrightable or not, that are created, made, conceived, or reduced to practice
by the Executive or under his direction or by him jointly with others before or
during his employment hereunder or during the one-year period following the
termination of his employment hereunder, excluding only such of these things as
both (i) do not relate in any way to any business in which the Company is now
engaged, or in which it or any of its subsidiaries may engage at any time during
the period of the Executive's employment hereunder, or in which before the
termination of the Executive's employment hereunder, the Board of Directors of
the Company or any of its subsidiaries may formally resolve to engage, and (ii)
the Executive demonstrates by clear and convincing evidence were done completely
outside normal working hours, off the Company's premises, and not using the
Company's tools, devices, equipment, property, or Confidential Information
(collectively, subject to such exclusions, all of the foregoing, "Inventions").
----------
The Executive agrees to assign, and hereby does assign, to the Company
without further consideration, all of his rights, titles, and interests in and
to all Inventions and all related intellectual property rights. If requested by
the Company, the Executive will assist it to apply for and obtain any patents or
copyright registrations relating to any Inventions, and will execute and deliver
to the Company all related applications and other documents, all at the
Company's expense. The Executive hereby appoints the Company (with power of
substitution) as his agent and attorney-in-fact to execute and deliver or file
any such document in his name and on his behalf. This power of attorney is
irrevocable and coupled with an interest on the part of the Company.
(F) EQUITABLE REMEDIES. The Executive hereby acknowledges that any breach
by him of his obligations under this Section 4 would cause substantial and
irreparable damage to the Company, and that money damages would be an inadequate
remedy therefor. Accordingly, the Executive acknowledges and agrees that the
Company will be entitled to an injunction, specific performance, and/or other
equitable relief to prevent the breach of such obligations (in addition to all
other rights and remedies to which the Company may be entitled in respect of any
such breach).
<PAGE>
-6-
(G) MODIFICATION. In the event that a court of competent jurisdiction
determines that any of the provisions of this Section 4 would be unenforceable
as written because they cover too extensive a geographic area, too broad a range
of activities, or too long a period of time, or otherwise, then such provisions
will automatically be modified to cover the maximum geographic area, range of
activities, and period of time as may be enforceable, and in addition, such
court is hereby expressly authorized so to modify this Agreement and to enforce
it as so modified. No invalidity or unenforceability of any section of this
Agreement or any portion thereof will affect the validity or enforceability of
any other section or of the remainder of such section.
5. MISCELLANEOUS.
(A) BENEFITS OF AGREEMENT; NO ASSIGNMENTS; NO THIRD-PARTY BENEFICIARIES.
(1) This Agreement will bind and inure to the benefit of the parties
hereto and their respective heirs, successors, and permitted assigns.
(2) Neither party will assign any rights or delegate any obligations
hereunder without the consent of the other party (except that the Company
may assign its rights and delegate its obligations hereunder to any
successor to its business, whether by merger or consolidation, sale of
stock or of all or substantially all of its assets, or otherwise), and any
attempt to do so will be void.
(3) Nothing in this Agreement is intended to or will confer any rights
or remedies on any person or entity other than the parties hereto, their
respective heirs, successors, and permitted assigns.
(B) NOTICES. All notices, requests, payments, instructions, or other
documents to be given hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by registered or certified
mail, return receipt requested, postage prepaid (effective five business days
after dispatch), (iii) sent by a reputable, established courier service that
guarantees next business day delivery (effective the next business day), or (iv)
sent by telecopier followed within 24 hours by confirmation by one of the
foregoing methods (effective upon receipt of the telecopy in complete, readable
form), addressed to the recipient party at his or its address set forth in the
first paragraph hereof (or to such other address as the recipient party may have
furnished to the sending party for the purpose pursuant to this section).
(C) COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be an
original, but all of which together will constitute one and the same agreement.
In pleading or proving this Agreement, it will not be necessary to produce or
account for more than one such counterpart.
<PAGE>
-7-
(D) CAPTIONS. The captions of sections or subsections of this Agreement
are for reference only and will not affect the interpretation or construction of
this Agreement.
(E) CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against either party.
(F) WAIVERS; AMENDMENTS. No waiver of any breach or default hereunder
will be valid unless in a writing signed by the waiving party. No failure or
other delay by any party exercising any right, power, or privilege hereunder
will be or operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. No amendment or modification of this Agreement
will be valid or binding unless in a writing signed by both the Executive and
the Company.
(G) ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties, and supersedes any prior understandings or
agreements between them, with respect to the subject matter hereof, including
without limitation the Noncompetition Agreement dated as of May 4, 1998, between
the Executive and the Company; provided, that this Agreement does not affect any
agreement between the parties relating to stock options granted by the Company
to the Executive, which agreements will survive the execution and delivery of
this Agreement.
(H) GOVERNING LAW. This Agreement will be governed by and interpreted and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts, without reference to principles of conflicts or choice of law.
[The rest of this page is intentionally left blank.]
<PAGE>
-8-
IN WITNESS WHEREOF, each of the Company and the Executive has executed and
delivered this Agreement as an agreement under seal as of the date first above
written.
The EXECUTIVE:
November 23, 1998
___________________________ -----------------
Louis Hernandez, Jr. Date
The COMPANY: ROWECOM INC.
November 23, 1998
___________________________ -----------------
Richard R. Rowe Date
President & CEO
<PAGE>
EXHIBIT 10.13
IMPERIAL BANK
Member FDIC
LOAN AGREEMENT
DATED AS OF: JUNE 19, 1998
This Loan Agreement (as amended or supplemented from time to time, "this
Agreement"), dated as of June 19, 1998, is entered into between ROWECOM INC., a
Delaware corporation (herein called "Borrower"), and IMPERIAL BANK, a California
bank (herein called "Bank").
1. EQUIPMENT LOANS.
a. COMMITMENT TO MAKE EQUIPMENT LOANS. Bank hereby commits, subject
to all the terms and conditions of this Agreement (including, without
limitation, the limitations set forth in Section 2 hereof), and prior to the
termination of Bank's commitment to make Equipment Loans hereunder as
hereinafter provided, to make loans to Borrower from time to time ("Equipment
Loans"). The proceeds of each Equipment Loan shall be used by Borrower on the
date of such Equipment Loan to purchase Qualified Equipment or reimburse
Borrower for the purchase of Qualified Equipment (provided that any such
reimbursement shall be for Qualified Equipment purchased within six (6) months
prior to the date hereof). The amount of any Equipment Loan for any Qualified
Equipment shall not exceed the full invoice purchase price of such Qualified
Equipment, less (to the extent included in such invoice purchase price) the
----
amount of any sales taxes and freight charges payable in respect of the purchase
of such Qualified Equipment or the delivery thereof to the location specified by
Borrower.
b. REQUESTS FOR EQUIPMENT LOANS. Requests for Equipment Loans
hereunder shall be in writing duly executed by Borrower in a form satisfactory
to Bank and shall contain a certification (i) setting forth, in reasonable
detail, (a) the amount of the requested Equipment Loan, (b) a reasonably
detailed description of the equipment purchased or to be purchased with the
proceeds of such Equipment Loan (including the serial number, model and make of
such equipment, if applicable), and the location at which the equipment will be
located, and (c) a copy of the invoices for the equipment to be financed with
such Equipment Loan, (ii) that, upon the purchase thereof by Borrower, such
equipment will constitute Qualified Equipment, and (iii) that no Default or
Event of Default shall be continuing on the date of such requested Equipment
Loan or after giving effect thereto and to the use of proceeds thereof.
Anything herein to the contrary notwithstanding, Bank shall not be obligated to
make any Equipment Loan to Borrower while any Default or Event of Default shall
be continuing, or if any Default or Event of Default would arise from the making
of such Equipment Loan or the use of the proceeds thereof. Bank shall not be
required to make any Equipment Loan requested by Borrower hereunder unless the
amount of such Equipment Loan (it being understood that the Equipment Loan may
finance several pieces of Qualified Equipment) is equal to at least $10,000, or,
if less, the entire unused amount of Bank's commitment to make Equipment Loans
hereunder.
c. TERMINATION OF EQUIPMENT LOAN COMMITMENT; REPAYMENTS AND
PREPAYMENTS OF EQUIPMENT LOANS. Bank's commitment to make Equipment Loans
hereunder shall terminate on December 19, 1998, and Bank shall have no
obligation hereunder to make any additional Equipment Loans to Borrower after
that date. Bank's commitment to make Equipment Loans hereunder may terminate
prior to December 19, 1998 in accordance with Section 11 or 12 hereof. Bank's
commitment to make Equipment Loans hereunder shall also terminate on the date on
which any mandatory prepayment shall be required pursuant to Section 2 hereof.
Borrower promises to pay to Bank the aggregate principal of all Equipment
Loans outstanding on December 19, 1998 in thirty (30) equal monthly installments
on the last day of each calendar month commencing with the first such
installment payment on December 31, 1998. Borrower promises to pay to Bank the
aggregate principal of all Equipment Loans made after December 31, 1998 and
still outstanding on December 31, 1998 in thirty (30) equal monthly installments
on the last day of each calendar month commencing with the first such
installment payment on December 31, 1998. The outstanding principal amount of
Equipment Loans may be prepaid by Borrower at any time without premium or
penalty. If any Qualified Equipment purchased (or refinanced) with the proceeds
of any Equipment Loan is at any time sold, assigned or otherwise transferred,
Borrower will prepay the outstanding principal of the Equipment Loans, on the
date of such sale, assignment or transfer, in an amount equal to the fair market
value of the net proceeds received by Borrower on the date of such sale,
assignment or transfer after payment of any costs
Page 1
<PAGE>
associated therewith. Any such optional or mandatory prepayments shall reduce
each of the remaining installment payments of principal on the Equipment Loans
in the inverse order of the maturities hereof.
Notwithstanding anything to the contrary set forth herein, Borrower
promises to pay to Bank the aggregate unpaid principal amount of all Equipment
Loans on June 19, 2001, or such earlier date on which the outstanding principal
of the Equipment Loans shall be declared to be or shall otherwise become due and
payable pursuant to Section 2, 11 or 12 hereof (June 19, 2001 or such earlier
date being called the "Equipment Loan Maturity Date".)
d. EQUIPMENT NOTE. The obligations of Borrower in respect of the
Equipment Loans and any interest accrued thereon shall be evidenced by a
Promissory Note executed and delivered to Bank on the date hereof, in the face
amount of $500,000 ("Equipment Note"). Borrower hereby irrevocably authorizes
Bank to make appropriate notations on any Schedule attached to the Equipment
Note, which notations, if made, shall evidence the date of, the outstanding
principal of, and payments on the Equipment Loans evidenced thereby. Bank's
notations on any Schedule attached to the Equipment Note shall constitute
rebuttable presumptive evidence of the principal amount of Equipment Loans
outstanding, but any failure to record any information on any such Schedule
shall not limit or affect the obligations of Borrower hereunder or under the
Equipment Note to make payments of principal or interest on the Equipment Loans
when due.
2. SPECIAL PAYMENT OBLIGATION. Borrower will prepay all of its
outstanding obligations under this Agreement and the other Loan Documents on the
date that is three business days prior to the date on which Borrower shall pay
or be required to pay any dividend on, or make or be required to make any
distribution on or in respect of, any of its capital stock, or shall make or be
required to make any payment or distribution in respect of the purchase,
repurchase, redemption or other acquisition of any of its capital stock.
3. INTEREST. Borrower promises to pay to Bank interest on the aggregate
outstanding principal amount of Equipment Loans at the rate of one percent
(1.0%) per annum in excess of the Prime Rate. Interest shall be computed at the
above rates on the basis of the actual number of days elapsed divided by 365,
which shall for interest computation purposes be considered one year. Interest
accrued on the outstanding principal of the Equipment Loans shall be payable in
arrears on the first day of each calendar month.
4. DEFAULT INTEREST. Upon the occurrence and during the continuance of
any Event of Default, the entire unpaid principal of the Equipment Note, and, to
the extent permitted by applicable law, all interest, fees, charges and other
sums that may be due and payable under this Agreement or any other Loan
Document, shall bear interest at the rate of five percent (5%) per year in
excess of the rate otherwise applicable to such principal, as it may vary from
time to time, and shall be payable upon demand by Bank.
5. PAYMENTS. All payments required to be made by Borrower to Bank
hereunder or under any of the Loan Documents shall be made at the SANTA CLARA
REGIONAL OFFICE OF BANK AT 226 AIRPORT PARKWAY, SAN JOSE, CALIFORNIA, on or
prior to 11:00 a.m., San Jose time, on the due date of such payment, without any
set-off or counterclaim, and in immediately available funds. Any partial
payments of the obligations of Borrower hereunder or under any of the other Loan
Documents, except where this Agreement or any other Loan Document otherwise
specifies, shall be applied first, to any charges, sums or other amounts (other
-----
than principal or interest) due and payable under the Loan Documents, second, to
------
accrued and unpaid interest, and third, to the principal of the Equipment Note.
-----
6. SECURITY. All of the obligations of Borrower to Bank under this
Agreement, the Equipment Note, and the other Loan Documents shall be secured by
and entitled to the benefit of certain Collateral. Reference is made to the
Loan Documents for a complete description of the Collateral, and of the rights
of Bank with respect thereto.
7. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered, no matter
how evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general intangibles
and other forms of obligations and receivables. The "amount" of any Accounts
shall be determined in accordance with generally accepted accounting principles.
Page 2
<PAGE>
"Ancillary Documents" means, collectively, (i) Borrower's Certificate
of Incorporation, as amended and in effect from time to time, and (ii) each
other agreement designated by Borrower and Bank from time to time as an
"Ancillary Document" for purposes of this Agreement and the other Loan
Documents.
"Associated Person" means (i) any person that is an affiliate of
Borrower (including, without limitation, any officer or director of Borrower),
(ii) any Family Member of any individual Associated Person described in clause
(i), (iii) any corporation, partnership, limited liability company or other
entity (other than Borrower) that controls or is controlled by any Associated
Person described in clause (i) or (ii), (iv) any Investor, and (v) any
corporation, partnership, limited liability company or other entity (other than
Borrower) that controls or is controlled by any Investor.
"Cash Proceeds" means, with respect to any Financing, the aggregate
amount of cash proceeds actually received by Borrower from and upon the
completion of the issuance and sale by Borrower of securities in such Financing.
"Change of Control" means any event or series of events (including,
without limitation, any consolidation, merger, issue or sale of capital stock or
other securities, reorganization, voting agreement or otherwise) by which the
holders of Borrower's outstanding capital stock as of the date of this Agreement
shall cease to own and control, both legally and beneficially, with full power
to vote, shares of capital stock of Borrower having voting power equal to at
least sixty percent (60%) of the voting power of all outstanding shares of
capital stock of Borrower having voting power under ordinary circumstances to
elect the Board of Directors of Borrower.
"Collateral" means any and all property of Borrower which is or shall
be assigned to Bank as security or in which Bank now has or hereafter acquires a
security interest to secure the payment and performance of any of the
obligations of Borrower to Bank under this Agreement or any of the other Loan
Documents.
"Default" means any of the events specified in Section 11(i) through
11(xi) hereof, whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition has been satisfied.
"Event of Default" is defined in Section 11 hereof.
"Family Member" means, in relation to any individual, any spouse,
parent, grandparent, aunt, uncle, child, grandchild, brother or sister of such
individual, the spouse of any of the foregoing, or any trust established
exclusively for the benefit of any of such persons.
"Financing" means any transaction or series of related transactions
involving the issuance and sale by Borrower at any time after the date hereof of
equity securities of Borrower or securities convertible into, exercisable for or
carrying any rights to purchase or acquire any equity securities of Borrower,
excluding, however, the issuance and sale of capital stock, or options to
- ---------- -------
purchase capital stock, to officers, directors or employees of, or consultants
to, Borrower in their respective capacities as such, and the issuance of capital
stock of Borrower pursuant to warrants described in Schedule 9(f) attached
-------- ----
hereto.
"Indebtedness for Borrowed Money" means, in relation to any person at
any time, (i) all indebtedness of such person for borrowed money (including all
notes payable and drafts accepted representing extensions of credit and all
obligations evidenced by bonds, debentures, notes or other similar instruments
on which interest charges are customarily paid), all indebtedness of such person
relative to the face amount of all letters of credit, whether or not drawn, all
indebtedness of such person constituting capitalized lease obligations, and all
other obligations of such person for the deferred purchase price of property or
services (other than in the ordinary course of business), and (ii) all
contingent obligations of such person in respect of any indebtedness of any
other persons of the kind described in clause (i) of this definition.
"Loan Documents" means, collectively, (i) this Agreement, (ii) each of
the following documents or instruments executed by Borrower and delivered to
Bank in connection with the financing arrangements contemplated hereby: the
Equipment Note and the Security Agreement, and (iii) each other instrument or
agreement, including each of the Subordination Agreements, evidencing,
guarantying or securing any of the obligations of Borrower to Bank under this
Agreement or any other Loan Document, in each case, as amended and in effect
from time to time.
"Materially Adverse Effect" means, in relation to any event,
occurrence or development, (i) a material adverse effect on the business,
property, operations or financial condition of Borrower, (ii) a material adverse
effect on
Page 3
<PAGE>
the ability of Borrower to perform any of its or his obligations, covenants or
agreements under this Agreement or any other Loan Document, or (iii) a material
impairment of the validity or enforceability of any Loan Document, or a material
impairment of the rights, remedies or benefits available to Bank under any Loan
Document.
"Qualified Equipment" means equipment used or useful in the ordinary
course of business of Borrower that will be owned by Borrower free and clear of
any liens, security interests or other encumbrances, other than security
interests in favor of Bank or otherwise permitted hereunder.
"Qualified Financing" means a Financing involving exclusively the
issuance and sale by Borrower of shares of Borrower's convertible preferred
stock, for or in consideration of Cash Proceeds actually received by Borrower at
the initial closing thereof of $2,000,000 or more.
"Quick Ratio" means, as at any time, the ratio equal to (i) the sum of
(A) all cash and cash equivalents of Borrower and its subsidiaries, plus (B) the
----
amount of all of Borrower's Accounts (excluding Accounts from affiliates and
other Accounts which in Borrower's reasonable judgment are not collectable),
divided by (ii) the consolidated current liabilities of Borrower and its
- ------- --
subsidiaries.
"Subordination Agreements" means the Subordination Agreement, dated as
of the date hereof, executed by Rowe Communications Ltd. in favor of the Bank.
8. FINANCIAL INFORMATION. All financial covenants and financial
information referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
previous years.
9. WARRANTIES. In order to induce Bank to make loans to Borrower under
this Agreement, Borrower represents and warrants to Bank that (each of which
representations will be deemed repeated as of the date of any Equipment Loan
hereunder as if made on such date):
a. ORGANIZATION; POWER AND AUTHORITY. Borrower is duly organized
and existing in the State of its incorporation; this Agreement and each of the
other Loan Documents has been duly and validly executed and delivered by
Borrower; and the execution, delivery and performance by Borrower of this
Agreement and each other Loan Document are within Borrower's corporate powers,
have been duly authorized by Borrower, and are not in conflict with any
applicable law or with the terms of Borrower's Certificate of Incorporation or
by-laws, as amended, or any indenture, material agreement or undertaking to
which Borrower is a party or by which Borrower is bound or affected. The
obligations of Borrower set forth in the Loan Documents constitute legal, valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, subject, however, to any applicable bankruptcy or
------- -------
insolvency laws affecting generally the enforcement of creditors' rights against
Borrower, and to the discretion of any court with respect to the enforcement of
any equitable remedies.
b. LITIGATION. There is no litigation or other proceeding pending
or threatened against or affecting Borrower that could reasonably be expected to
have a Materially Adverse Effect, and Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or other governmental
or regulatory authority.
c. FINANCIAL CONDITION.
i. The unaudited balance sheet of Borrower as of September 30, 1997, and
the related unaudited income statement and cash flows of Borrower, and the
unaudited balance sheet of Borrower as of December 31, 1997, and the related
unaudited income statement and cash flows of Borrower (collectively,
"Financials"), copies of which have heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit, and not subsequently
supplemented, modified or amended in writing to Bank, fairly present the
financial condition of Borrower as of the dates thereof and the results of the
operations of Borrower for the periods covered thereby, and have been prepared
in accordance with generally accepted accounting principles on a basis
consistently maintained, subject to the absence of footnotes and to normal end-
of-period adjustments. Since December 31, 1997, there have been no events or
occurrences which, individually or in the aggregate, have had or are reasonably
likely to have a Materially Adverse Effect. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said balance
sheet which are required under generally accepted accounting principles to be so
reflected, and Borrower has not entered into any special commitments or
substantial contracts since the date of such balance sheet, other than
commitments or contracts entered into in the ordinary and normal course of its
business which could not reasonably be expected to
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<PAGE>
have a Materially Adverse Effect. Except for Borrower's obligations under the
Loan Documents, and the Indebtedness for Borrowed Money reflected in Schedule
--------
10(b)(iv) attached hereto, Borrower has no Indebtedness for Borrowed Money.
- ---------
ii. The projected consolidated financial statements of Borrower and its
subsidiaries for the fiscal years ending December 31, 1998, ("Projections"),
copies of which have heretofore been delivered by Bank to Borrower, as the same
have been updated by Borrower verbally or in writing to Bank prior to the date
hereof, have been prepared on the basis of the assumptions accompanying them and
reflect the best good faith estimates by Borrower of the performance of Borrower
for the periods covered thereby, and the financial condition of Borrower as of
the dates thereof, based on such assumptions.
d. TRADEMARKS, PATENTS, COPYRIGHTS. Borrower, as of the date
hereof, possesses all trademarks, service marks, trade names, copyrights,
patents, patent rights, and licenses that are necessary to conduct its business
as now operated, without any known conflict with any trademarks, trade names,
copyrights, patents or license rights of others. Schedule 9(d) sets forth a
-------- ----
true and complete list and description of each (i) patent or patent application
held or filed by Borrower, (ii) registered trademark or service mark, or
trademark or service mark registration application, held or filed by Borrower,
and (iii) material copyright of Borrower, and, with respect to each such
copyright, whether such copyright has been registered by Borrower or whether
Borrower has applied for any such registration.
e. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes.
f. SUBSIDIARIES; CAPITALIZATION: Schedule 9(f) sets forth a true
-------------
and complete list of authorized capital stock of Borrower of each series or
class, the number of shares of capital stock of each series or class of Borrower
outstanding as of the date hereof, and the holder of such capital stock. Except
as set forth on Schedule 9(f), there are no outstanding options, warrants,
-------- ----
subscription rights or other rights to purchase or acquire any capital stock of
Borrower, and there are no outstanding securities convertible into or
exchangeable for any capital stock of Borrower. The Borrower has no
subsidiaries.
g. PROPERTIES. Schedule 9(g) sets forth a true and complete list of
-------- ----
all real property owned or leased by Borrower, the address of such property and
the business conducted by Borrower at such property.
h. AFFILIATE TRANSACTIONS. Except as described in Schedule 9(h)
-------------
attached hereto, Borrower is not a party to or otherwise bound by any written or
oral contracts with any Associated Person. Except as described on Schedule
--------
9(h), there is no Indebtedness for Borrowed Money owing by Borrower to any
Associated Person, and there is no Indebtedness for Borrowed Money owing by any
Associated Person to Borrower. Borrower has delivered to Bank a true and
complete copy of each contract (or, where such contract is oral, a true and
complete description thereof) described in Schedule 9(h).
-------------
i. OTHER REPRESENTATIONS. Each of the representations and
warranties of Borrower in any of the other Loan Documents is true and correct.
10. COVENANTS.
a. CERTAIN AFFIRMATIVE COVENANTS. Borrower affirmatively covenants
that so long as any obligations of Borrower to Bank under this Agreement or any
other Loan Document remain outstanding or any commitment of Bank to make loans
to Borrower hereunder remains outstanding, Borrower will:
i. BANKING RELATIONSHIPS. Maintain with Bank all of its primary banking
and transaction accounts, including accounts to hold cash or cash equivalent
balances from the proceeds of the issuance of Borrower's securities, upon terms
which are reasonably similar to terms provided to other customers of Bank
similarly situated. Notwithstanding the foregoing, Borrower may use the
transaction accounts currently maintained by Borrower with Bank One for the
Borrower's business consistent with past practices.
ii. REPORTING.
(A) Within 30 days after each month-end, deliver to Bank an accounts
receivable aging reconciled to the general ledger of Borrower, a detailed
accounts payable aging reconciled to Borrower's general ledger, and an inventory
certification outlining both inventory composition and activity for the month.
All the foregoing will be in form satisfactory to Bank.
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<PAGE>
(B) Within 30 days after each month-end, deliver to Bank a balance
sheet of Borrower as at the end of such month, together with related statements
of operations and cash flows for such month, in form satisfactory to Bank, all
certified as to fairness of presentation by the chief financial officer of
Borrower.
(C) Within 90 days after the end of each fiscal year of Borrower,
deliver to Bank a balance sheet of Borrower as at the end of such fiscal year,
together with the related statements of operations and cash flows for such
fiscal year, and together with a Cash Flow Statement, prepared on an audited
basis with an unqualified opinion by an independent certified public accountant
selected by Borrower but reasonably acceptable to Bank.
(D) Promptly upon completion thereof, and in any event not later than
March 1 of each fiscal year, deliver to Bank a copy of the annual business plan
and budget for such fiscal year, including budgeted results for each fiscal
quarter and for the fiscal year as a whole, and upon the delivery of any
financial statements relating to any period included in such budget, a summary
comparing the actual financial performance of Borrower during such period to
that shown in the budget.
(E) Deliver to Bank, promptly upon Bank's request, all other
information relating to the affairs or business of Borrower as Bank may
reasonably request.
iii. OTHER NOTICES.
(A) Promptly upon obtaining knowledge thereof, deliver to Bank written
notice of the occurrence of any Default or Event of Default, or of any event
which has had, or is reasonably likely to have, a Materially Adverse Effect.
(B) Until completion of the Qualified Financing, deliver to Bank at
least ten (10) days prior written notice of each Financing and the anticipated
closing date therefor; and promptly upon Borrower's receipt thereof, deliver to
Bank true and complete copies of all term sheets, expressions of interest or
commitment letters for any proposed Financing, including any draft versions
thereof, and any documents or instruments governing any proposed Financing,
including any draft versions thereof, and promptly notify Bank of any material
development (whether positive or negative) in Borrower's discussions with
investors or strategic partners with respect to any Financing (provided that
Borrower shall not be required to disclose any information related to trade
secrets or other confidential technical information of third parties which
Borrower has agreed to keep confidential).
iv. COMPLIANCE CERTIFICATE. Together with the financial statements
described in paragraph (ii)(A) for any month, deliver to Bank a certificate,
prepared and signed by the chief financial officer of Borrower, certifying as to
(A) compliance by Borrower with the covenants set forth in paragraphs 10(b)(i)
and (ii) hereof for the relevant period most recently ended, and showing, in
reasonable detail, the calculations necessary to demonstrate such compliance and
(B) the absence of any Default or Event of Default.
v. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises,
licenses and other authorities adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and
maintain and preserve its corporate existence and good standing.
vi. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property including,
but not limited to, the Collateral against fire and other hazards with
responsible insurance carriers to the extent usually maintained by similar
businesses. At the request of Bank, Borrower will provide evidence of property
and casualty and general liability insurance in amounts and types reasonably
acceptable to Bank. Bank will be named as Loss Payee and Additional Insured on
such policies.
vii. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all of
its indebtedness and other liabilities, except to the extent and so long as:
(A) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any material adverse effect upon its
financial condition or the loss of any right of redemption from any sale
thereunder; and
Page 6
<PAGE>
(B) it shall have set aside on its books reserves segregated (to the
extent required by generally accepted accounting practice) and adequate with
respect thereto.
viii. RECORDS AND REPORTS. Maintain a system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; and permit Bank's representatives to have access to, and to examine,
its properties, books and records on Borrower's site at all reasonable times.
ix. FURTHER ASSURANCES. Borrower hereby agrees that it will, upon the
request of Bank from time to time at its own expense, promptly execute and
deliver all such further instruments including, documents or agreements that
Bank shall require, and take all such further action that may be necessary or
appropriate, or that Bank may reasonably request, in order to perfect, preserve
or protect any liens granted or purported to be granted under the Loan
Documents, to enable Bank to exercise and enforce any of its rights or remedies
under this Agreement or any of the other Loan Documents or otherwise to carry
out the intent of this Agreement or any of the other Loan Documents.
b. CERTAIN NEGATIVE COVENANTS. Borrower agrees that so long as any
obligations of Borrower to Bank under this Agreement or any of the Loan
Documents remain outstanding, or any commitment of Bank to make any loans to
Borrower remains outstanding, Borrower will not without Bank's written consent:
i. QUICK RATIO. Permit the Quick Ratio, as at the last day of any
month (i) through December 31, 1998, to be less than 1.50:1 and (ii) after
December 31, 1998, to be less than 1.10:1.
ii. CONSOLIDATED NET OPERATING LOSSES. Permit the consolidated net
operating losses for the Borrower and its subsidiaries for any month to exceed
120% of Borrower's consolidated net operating loss for such month reflected in
Borrower's budget, dated April 1998, delivered to Bank prior to the date of this
Agreement.
iii. TYPE OF BUSINESS. Make any material change in the character of its
business.
iv. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
Indebtedness for Borrowed Money other than (A) loans from Bank, (B) obligations
existing on the date hereof set forth on Schedule 10(b)(iv), or (C) Indebtedness
------------------
for Borrowed Money of Borrower incurred after the date of this Agreement in the
form of capitalized lease obligations, provided, however, that the aggregate
amount of such capitalized lease obligations shall not exceed $500,000.
v. LIENS AND ENCUMBRANCES. Create, incur, assume or permit to exist any
mortgage, pledge, encumbrance, lien (except for liens for taxes not yet due and
payable or other similar liens incurred in the ordinary course of Borrower's
business) or charge of any kind upon any asset now owned or hereafter acquired
by it, other than (A) liens in Bank's favor, (B) existing liens set forth on
Schedule 10(b)(v), (C) liens of mechanics, warehousemen and other similar liens
- -----------------
which are either (1) in existence less than 120 days from the date of creation
in respect of obligations not yet due, or (2) being contested in good faith by
Borrower and bonded pending the resolution of such dispute, and (D) liens over
leased equipment securing capitalized lease obligations of Borrower permitted by
Section 10(b)(iv).
vi. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Except as otherwise set
forth below, make any loans or advances to any person or other entity, other
than to employees for relocation, travel or other business expenses in the
normal and ordinary course of its business; or make any investment in the
securities of any person or other entity, other than the United States
Government; or guarantee or otherwise become liable upon the obligations of any
other person or entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business; or make
any other investments.
vii. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or, except in the ordinary and normal course of its business, sell
(including without limitation the selling of any property or other asset
accompanied by leasing back of same, other than obsolete assets or assets no
longer used or useful in Borrower's business) any property or assets. Upon any
sale of any property or assets not permitted hereunder, Borrower shall pay to
Bank, immediately upon receipt by Borrower, all of the net proceeds of such
sale, for application by Bank to the outstanding obligations of Borrower under
the Loan Documents in such manner as Bank shall deem appropriate.
Page 7
<PAGE>
viii. DIVIDENDS, DISTRIBUTIONS, RESTRICTED PAYMENTS. Declare or pay any
dividend or make any other distribution on or in respect of any capital stock of
Borrower or any other securities convertible or exchangeable for any capital
stock of Borrower; make any payment in respect of the purchase, repurchase,
redemption or retirement of any of such capital stock or other securities; or
make any payment, prepayment or other distribution on, or payment or
distribution in respect of the purchase, repurchase, retirement or other
acquisition of, any Indebtedness for Borrowed Money or other liability, of
Borrower to any Associated Person. This paragraph (vii) shall not prohibit the
payment by Borrower of any salaries or bonuses to employees, or the making by
Borrower of any loans or advances to employees, in each case in the normal and
ordinary course of business of Borrower consistent with past practices.
ix. TRANSACTIONS WITH ASSOCIATED PERSONS. Engage in any transactions
with any Associated Person, except transactions in the ordinary and normal
------
course of business which (A) include only terms and conditions that are fair and
equitable to Borrower, (B) do not violate or otherwise conflict with any of the
terms and provisions of this Agreement or any of the Loan Documents, (C) require
the payment of no fees, charges or commissions by Borrower to any Associated
Person, and (D) involve terms no less favorable to Borrower than would be the
terms of a similar transaction with any person other than an Associated Person.
x. CHANGE OF CONTROL TRIGGERING EVENTS. Enter into or undertake any
transaction, arrangement or agreement (whether a consolidation, merger, issue or
sale of capital stock or other securities, reorganization, voting agreement or
otherwise) that will or could reasonably be expected to result in a Change of
Control.
xi FORMATION OF NEW SUBSIDIARIES. Create any new subsidiaries.
xii. AMENDMENT OF CERTAIN DOCUMENTS. Amend, restate or otherwise modify,
or waive any of its rights under, (A) any agreements, instruments or contracts
(whether written or oral) between Borrower and any Associated Person, or (B) any
Ancillary Documents (except for amendments to Borrower's Certificate of
Incorporation upon and in connection with the closing of the Qualified
Financing).
11. EVENTS OF DEFAULT; REMEDIES. Should any of the following events occur
(any such event being referred to as an "Event of Default"): (i) Default by
Borrower in the payment of any obligation of Borrower under this Agreement or
any of the other Loan Documents; (ii) default by Borrower of any agreement,
promise or covenant of Borrower under Section 10.a(iii) or (vi) or 10.b; (iii)
default by Borrower in the due performance or observance of any of the
agreements, promises or covenants of Borrower under any of the Loan Documents,
other than any such agreements, promises or covenants described in clause (i) or
(ii) above, which default shall continue unremedied for ten or more days
following written notice thereof from Bank to Borrower; (iv) any default or
event of default by Borrower under any Ancillary Document; (v) any material
representation or warranty of Borrower set forth in any of the Loan Documents,
or in any certificate, instrument or statement delivered to Bank pursuant to any
Loan Documents, shall be untrue or incorrect in any material respect when made;
(vi) Borrower shall default in the payment when due (whether at stated maturity,
by acceleration or otherwise) of $50,000 or more of any Indebtedness for
Borrowed Money; (vii) Borrower shall default in the observance or performance of
any term, covenant or agreement contained in any instrument governing or
evidencing any Indebtedness for Borrowed Money, and such default shall permit
the holders of such Indebtedness for Borrower Money to declare immediately due
and payable or otherwise accelerate Indebtedness for Borrowed Money in an
aggregate amount exceeding $50,000; (viii) any Change of Control shall occur;
(ix) Borrower shall become insolvent or make an assignment for the benefit of
creditors; (x) Borrower shall apply for or consent to or shall permit or suffer
to exist the voluntary or involuntary appointment of a trustee, receiver,
custodian, or liquidator of all or any material part of its or his property; or
(xi) Borrower shall have commenced against it, or shall voluntarily commence,
any bankruptcy, reorganization or other similar proceeding under bankruptcy or
insolvency laws or any dissolution, winding up or liquidation proceeding, which,
in the case of any such involuntary proceeding, shall have been consented to by
Borrower, as applicable, shall have resulted in entry of an order for relief
against Borrower, as applicable, or shall have remained undismissed,
undischarged or unbonded for a period of more than 60 days; then, in any such
----
event, Bank may, at its option and without demand first made and without further
notice to Borrower, do any one or more of the following: (a) terminate its
obligation to make loans (including, without limitation, any Equipment Loans) to
Borrower; (b) declare all obligations of Borrower to Bank under this Agreement
and the other Loan Documents immediately due and payable; and (c) proceed to
enforce all or any of its rights under any of the Loan Documents or available at
law or in equity. In the event Bank sells or disposes of any Collateral, and a
sufficient sum is not realized from any such sale or disposition to pay all
obligations of Borrower to Bank under this Agreement, any of the other Loan
Documents or otherwise, Borrower shall be liable to Bank for any deficiency.
12. ATTACHMENT, ETC. If any writ of attachment, garnishment, execution or
other legal process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property,
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<PAGE>
is made by any Federal or State government or any department thereof relating to
an amount unpaid or in dispute in excess of $50,000 and is not withdrawn or
discharged within ten days following knowledge thereof by Borrower, the
commitment of Bank to make loans (including, without limitation, any Equipment
Loans) to Borrower hereunder shall immediately terminate and all obligations
hereunder or under any of the Loan Documents shall immediately become due and
payable without demand, presentment or notice of any kind.
13. SETOFF. Regardless of the adequacy of any Collateral, during the
continuance of any Event of Default, any deposits or other sums credited by or
due from Bank to Borrower, and any securities or other investments or property
of Borrower in the possession of Bank, may be applied to or set off against any
obligations of Borrower to Bank under this Agreement or any other Loan Document.
14. FEES. Borrower shall pay to Bank on the date of the first Equipment
Loan hereunder, a non-refundable arrangement fee in an amount equal to $2000.
15. REIMBURSEMENT OBLIGATIONS. Reimburse Bank upon demand for any and all
legal costs, including reasonable attorneys' fees, and other expenses incurred
in connection with the enforcement of any term or provision of this Agreement,
any of the other Loan Documents and the consideration and/or conduct of any
proposed or actual "workout" of any of the obligations of Borrower under this
Agreement or any of the other Loan Documents, and the structuring, preparation,
negotiation, review, execution, or delivery of this Agreement, any of the other
Loan Documents or amendments or waivers hereunder or thereunder, or any related
documents (whether or not any of the same become effective). ALL SUCH COSTS AND
EXPENSES ACCRUED UNDER THIS AGREEMENT, THE OTHER LOAN DOCUMENTS THROUGH THE DATE
OF THIS AGREEMENT SHALL BE PAID BY BORROWER UPON AND IN CONNECTION WITH BANK'S
EXECUTION AND DELIVERY OF THIS AGREEMENT.
16. INDEMNIFICATION. Indemnify and hold free and harmless Bank and each
of its shareholders, officers, directors, employees, agents, subsidiaries and
affiliates ("Indemnified Parties"), upon demand, from and against any and all
actions, causes of action, suits, losses, costs, liabilities, damages and
expenses (collectively, "Claims") actually incurred in connection with any of
the financing transactions contemplated by any of the Loan Documents
(irrespective of whether such Indemnified Party is a party to the action for
which indemnification is sought), including all reasonable fees and
disbursements of counsel, all amounts paid in settlement (provided that Borrower
will not be responsible for any such amounts paid in any settlement that was not
consented to by Borrower in advance) and all court costs incurred from time to
time by the Indemnified Parties or any of them, and all liabilities and expenses
that may arise under any environmental laws in respect of the Borrower's
properties or operations, provided that Borrower shall not be responsible
--------
hereunder for any Claims arising out of the gross negligence or willful
misconduct of any Indemnified Party.
17. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank, in the exercise of any power, right or privilege hereunder or under any
Loan Document, shall operate as a waiver thereof, nor shall any single or
partial exercise thereof or of any other right, power or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, not exclusive of,
any other rights or remedies provided in any of the Loan Documents or at law or
in equity.
18. CHOICE OF LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT AND EACH OF THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA. BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT
IN THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING THEREIN,
AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS AND TO SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER IN ANY MANNER PERMITTED BY
CALIFORNIA LAW. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.
19. AMENDMENT AND WAIVER. This Agreement is subject to modification only
by a writing signed by Bank and Borrower. Bank shall not be deemed to have
waived any right hereunder unless such waiver shall be in writing and signed by
Bank. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion.
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<PAGE>
20. DATE OF AGREEMENT. This Agreement is executed by and on behalf of the
parties as of June 19, 1998.
ROWECOM INC. IMPERIAL BANK
"BORROWER" "BANK"
By:_______________________________ By:_______________________________
Title:____________________________ Title:____________________________
By:_______________________________
Title:____________________________
Page 10
<PAGE>
AMENDMENT NO. 1 TO LOAN AGREEMENT
---------------------------------
AMENDMENT NO. 1, dated as of September 23, 1998, to the Loan
Agreement, dated as of June 19, 1998 (the "Loan Agreement"), between (i)
--------------
ROWECOM, INC., a Delaware corporation, ("Borrower"), and (ii) IMPERIAL BANK, a
--------
bank organized under the laws of the State of California ("Bank").
----
RECITALS
--------
The Borrower and the Bank have agreed to amend certain of the
provisions contained in the Loan Agreement, all as set forth in this Amendment
No. 1 ("this Agreement").
--------------
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. DEFINITIONS. Unless otherwise defined herein, terms defined
-----------
in the Loan Agreement are used herein as therein defined.
ARTICLE II
AMENDMENTS
-----------
Effective on and as of September 23, 1998 ("Effective Date"), subject
--------------
always to the provisions of Article III, the Loan Agreement is hereby amended in
-----------
each of the following respects:
SECTION 2.1. REVOLVING LOANS. The following new Section 1A is hereby
--------------- ----------
inserted in the Loan Agreement immediately following Section 1 thereof:
---------
1A. REVOLVING LOANS.
a. COMMITMENT TO MAKE REVOLVING LOANS. Bank hereby commits,
subject to all the terms and conditions of this Agreement, and prior to the
termination of Bank's commitment to make Revolving Loans hereunder as
hereinafter provided, to make loans to Borrower from time to time
("Revolving Loans") in such amounts up to, but not exceeding in the
aggregate unpaid principal balance at any time, the Commitment Amount at
such time. Bank's commitment to make Revolving Loans
<PAGE>
-2-
hereunder shall terminate on September 23, 1999, and Bank shall have no
obligation hereunder to make any Revolving Loans to Borrower after that
date. Bank's commitment to make Revolving Loans hereunder may terminate
prior to September 23, 1999 in accordance with Section 11 or 12 hereof.
Bank's commitment to make Revolving Loans hereunder shall also terminate on
the date on which any mandatory prepayment shall be required pursuant to
Section 2 hereof.
---------
b. REQUESTS FOR REVOLVING LOANS. Each request for a Revolving
Loan hereunder shall be in writing duly executed by Borrower in a form
satisfactory to Bank and shall contain a certification (i) setting forth,
in reasonable detail, a list of the Eligible Accounts that will be financed
with the proceeds of such Revolving Loan, and evidence based on the
definition of Eligible Accounts and the Borrowing Base establishing to the
reasonable satisfaction of Bank that Borrower is entitled to the amount of
such Revolving Loan based solely on the listed Eligible Accounts, (ii) that
on the date of such Revolving Loan, and before and after giving effect to
such Revolving Loan, all representations and warranties of Borrower set
forth herein and in the other Loan Documents will be true and correct, and
(iii) that no Default or Event of Default shall be continuing on the date
of such Revolving Loan, either before or after giving effect to such
Revolving Loan or the application by Borrower of the proceeds thereof.
Anything herein to the contrary notwithstanding, Bank shall not be
obligated to make any Revolving Loan to Borrower while any Default or Event
of Default shall be continuing, or if any Default or Event of Default would
arise from the making of such Revolving Loan or the application of the
proceeds thereof. All proceeds of Revolving Loans shall be used by Borrower
for working capital purposes.
c. REPAYMENT OF REVOLVING LOANS. Borrower promises to pay to
Bank the aggregate outstanding principal of each Revolving Loan on the
earliest to occur of (i) the 85/th/ day after the date of such Revolving
Loan, (ii) September 23, 1999, or (iii) such earlier date on which the
outstanding principal of the Revolving Loans shall be declared to be or
shall otherwise become due and payable pursuant to Section 11, 12 or 2
---------- -- -
hereof (September 23, 1999 or such earlier date described in clause (iii)
being called the "Revolving Loan Maturity Date"). The outstanding principal
amount of the Revolving Loans may be prepaid by Borrower at any time.
If the outstanding principal of Revolving Loans at any time exceeds
the Borrowing Base (based on the most recently furnished list of Eligible
Accounts), Borrower will immediately prepay the outstanding Revolving Loans
by the amount of such excess. Borrower and Bank acknowledge that in order
to comply with the provisions of this paragraph, the Borrower will
<PAGE>
-3-
be required to pay to Bank approximately eighty percent (80%) of the
proceeds of each Eligible Account, upon receipt thereof by Borrower.
d. REVOLVING NOTE. The obligations of Borrower in respect of
the Revolving Loans and any interest accrued thereon shall be evidenced by
a Promissory Note executed and delivered to Bank on the effective date of
Amendment No. 1, in the face amount of $4,000,000 ("Revolving Note").
Borrower hereby irrevocably authorizes Bank to make appropriate notations
on any Schedule attached to the Revolving Note, which notations, if made,
shall evidence the date of, the outstanding principal of, and payments on
the Revolving Loans evidenced thereby. Bank's notations on any Schedule
attached to the Revolving Note shall constitute rebuttable presumptive
evidence of the aggregate principal amount of the Revolving Loans
outstanding, but any failure to record any information on any such Schedule
shall not limit or affect the obligations of Borrower hereunder or under
the Revolving Note to make payments of principal or interest on the
Revolving Loans when due."
SECTION 2.2. INTEREST. Section 3 of the Loan Agreement is hereby
-------- ---------
amended in each of the following respects:
(a) by adding the following new sentence immediately after the second
sentence of such Section 3:
---------
"Borrower promises to pay to Bank interest on the outstanding
principal amount of each Revolving Loan at the rate of one-half
percent (.5%) per annum in excess of the Prime Rate."; and
(b) by adding the following phrase immediately after the term
"Equipment Loans" in the last sentence of such Section 3:
"and on the outstanding principal of Revolving Loans"
SECTION 2.3. DEFAULT INTEREST. Section 4 of the Loan Agreement is hereby
---------------- ---------
amended by adding the following phrase immediately after the term "Equipment
Loans", in each case where such term is used in Section 4: ", the entire
---------
outstanding principal amount of Revolving Loans".
SECTION 2.4. PARTIAL PAYMENTS. Section 5 of the Loan Agreement is hereby
---------------- ---------
amended by adding the following phrase to the end of the last sentence of such
Section 5: "and the unpaid principal of the Revolving Loans, in such order as
- ---------
Bank shall determine."
SECTION 2.5. DEFINED TERMS. Section 7 of the Loan Agreement is hereby
------------- ---------
amended in each of the following respects:
<PAGE>
-4-
(a) NEW DEFINED TERMS. The following new defined terms are hereby
-----------------
added to such Section 7 in appropriate alphabetical order:
---------
"Accounts" means any right to payment for goods sold or leased,
or to be sold or to be leased, or for services rendered or to be rendered,
no matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts, acceptances,
general intangibles and other forms of obligations and receivables.
"Amendment No. 1" means Amendment No. 1 to the Loan Agreement,
dated as of September 23, 1998.
"Borrowing Base" means, at any time, 80% Eligible Accounts at
such time.
"Commitment Amount" means an amount equal to the lesser of the
Maximum Revolving Credit Commitment or the Borrowing Base.
"Eligible Accounts" means all of Borrower's Accounts that (A) are
approved by Bank, and (B) do not include (i) Account balances over seventy-
five (75) days from invoice date, (ii) all Accounts against which the
account debtor or any other person obligated to make payment thereon shall
have asserted any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account (but only to the extent of
such claim, defense or offset), (iii) fifty percent (50%) of otherwise
Eligible Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrower are more than 90 days
from invoice date, (iv) for Accounts representing more than 25% of
Borrower's total Accounts, the balance in excess of the 25%, (v) Accounts
with respect to international transactions, unless Bank shall have given
its written consent, in each case, or unless such Account is insured by an
insurance company acceptable to Bank or covered by letters of credit issued
or confirmed by a bank acceptable to Bank, (vi) Accounts with respect to
which the account debtor is an officer, director, shareholder, employee,
subsidiary or affiliate of Borrower, (vii) Accounts where the account
debtor is a seller to Borrower, whereby a potential offset (contra) exists,
(viii) Accounts for consignment or guaranteed sales, (ix) bill and hold
Accounts, (x) collection Accounts, (xi) distributor sample Accounts,
whereby accounts are offset by commissions payable, (xii) government
receivables, unless formally assigned to Bank in accordance with the
Federal Assignment of Claims Act or applicable state law, (xiii) Accounts
for pre-billings, and (xiv) any Accounts if the account debtor or any other
person liable in connection therewith is insolvent, subject to bankruptcy
or receivership proceedings or has made an assignment for the benefit of
creditors. Eligible Accounts will be designated by Bank and Borrower each
month promptly upon releasing of the Account information
<PAGE>
-5-
required by this Agreement, and verified or updated at the time of each
request for Revolving Loans with respect to the Accounts that will be
financed with the proceeds of such Revolving Loan."
"Maximum Revolving Credit Commitment" means $4,000,000.
(b) LOAN DOCUMENTS. The term "Loan Documents" shall include the
--------------
Revolving Note and Amendment No. 1.
SECTION 2.6. ACCOUNTS RECEIVABLE. The first sentence of Section
------------------- -------
10.a.ii.(A) is hereby amended to read in its entirety as follows:
- -----------
"(A) Within two business days after the end of each week, deliver to
Bank an aging of Borrower's Eligible Accounts, itemized for each Eligible
Account financed hereunder; and within 30 days after each month-end,
deliver to Bank an accounts receivable aging reconciled to the general
ledger of Borrower, and a detailed accounts payable aging reconciled to
Borrower's general ledger.
SECTION 2.7. INSPECTION. The following new Section 10.a.x is hereby
---------- --------------
added to the Loan Agreement immediately after Section 10.a.ix:
----------------
"x. INSPECTION. Permit, and cause each of its subsidiaries to
----------
permit, Bank or any of its representatives, at reasonable times and
intervals during ordinary business hours and with reasonable advance
notice, to visit any of its offices and properties, discuss financial
matters relating to Borrower or any of its subsidiaries with its officers
and independent public accountants (and the Borrower hereby authorizes its
independent public accountants to discuss its financial matters with Bank
or any of its representatives), and examine and make abstracts or
photocopies from any of its books or other corporate records, all at the
expense of Borrower for any charges imposed by such accountants or for
making such abstracts or photocopies. In furtherance of the foregoing, from
time to time at Bank's request (and as often as the occasion may arise),
Borrower will deliver to its independent public accountants written
authorization and instruction to discuss the financial affairs of Borrower
and its subsidiaries with Bank or any of its representatives."
ARTICLE III
CONDITIONS PRECEDENT
---------------------
Each of the amendments and waivers under the Loan Agreement set forth in
Article II of this Agreement shall be effective and in full force and effect
- ----------
from and after the Effective Date, provided that each of the following
--------
conditions precedent shall first be satisfied:
<PAGE>
-6-
SECTION 3.1. PROMISSORY NOTE. The Bank shall have received a Promissory
---------------
Note, in the form attached hereto as Exhibit A (the "Revolving Note"), duly
------- - ---------
executed by the Borrower.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES. Each of the representations
------------------------------
and warranties made by the Borrower in or pursuant to this Agreement or any of
the other Amendment Documents (as defined below) shall be true and correct in
all material respects on and as of the Effective Date with the same full force
and effect as if made and repeated on and as of such date.
SECTION 3.3. AMENDMENT FEE. The Bank shall have received an amendment fee
-------------
in the amount of $3,000.
SECTION 3.4. CONSENTS AND WAIVERS. The Bank shall have received consents
--------------------
from the holders of subordinated indebtedness to permit the transactions and
arrangements contemplated by this Agreement and the other Amendment Documents,
and an acknowledgement that all Indebtedness under the Loan Document constitutes
Senior Indebtedness under all applicable subordination agreements.
SECTION 3.5. COSTS AND EXPENSES. Borrower shall have paid directly to
------------------
Bingham Dana LLP, in accordance with the Loan Agreement, the legal fees and
expenses incurred by the Bank in connection with the preparation, negotiation
and execution and delivery of this Agreement and the other Amendment Documents,
and the implementation of the transactions contemplated hereby and thereby.
The term "AMENDMENT DOCUMENTS," as used herein, shall mean this Agreement, and
-------------------
the Revolving Note.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
The Borrower represents and warrants to and covenants with the Bank as
follows:
SECTION 4.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the
---------------------------------
representations and warranties made by or on behalf of the Borrower to the Bank
in the Loan Documents was true and correct in all material respects when made
and is true and correct in all material respects on and as of the date hereof,
except (a) as affected by the consummation of the transactions contemplated by
the Loan Documents (including this Agreement) and (b) to the extent that any
such representation or warranty relates by its express terms solely to a prior
date.
<PAGE>
-7-
SECTION 4.2. CORPORATE AUTHORITY, ETC. The execution and delivery by the
-------------------------
Borrower of this Agreement and the other Amendment Documents and the performance
by the Borrower of its agreements and obligations under this Agreement and the
other Amendment Documents have been duly and properly authorized by all
necessary action on the part of the Borrower, and do not and will not conflict
with, result in any violation of, or constitute any default under (a) any
provision of any governing document of the Borrower, (b) any contractual
obligation of the Borrower, or (c) any applicable law. The Borrower has
delivered to the Bank true and complete copies of resolutions of its Board of
Directors and all necessary consents of stockholders with respect to the
transactions contemplated by the Amendment Documents.
SECTION 4.3. VALIDITY, ETC. This Agreement and each of the other
-------------
Amendment Documents has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, moratorium or other similar laws at the
time in effect affecting the enforceability of the rights of creditors generally
and to general equitable principles. The Borrower hereby ratifies and confirms
all of its obligations to the Bank in all respects.
SECTION 4.4. NO DEFAULTS. After giving effect to this Agreement, no
-----------
Defaults or Events of Default are or will be continuing under the Loan
Agreement.
ARTICLE V
PROVISIONS OF GENERAL APPLICATION
---------------------------------
Except as otherwise expressly provided by this Agreement, all of the terms,
conditions and provisions of the Loan Agreement and each of the other Loan
Documents, and all rights and remedies of the Bank under the Loan Agreement and
the other Loan Documents, shall remain unaltered. This Agreement is a Loan
Document for all purposes of the Loan Agreement. This Agreement and the rights
and obligations hereunder of each of the parties hereto shall in all respects be
construed in accordance with and governed by the internal laws of the State of
California. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, but all of such counterparts
shall together constitute but one and the same agreement. In making proof of
this Agreement, it shall not be necessary to produce or account for more than
one counterpart hereof signed by each of the parties hereto.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO.
1 to be executed by their respective authorized officers as of the date first
above written.
THE BORROWER:
------------
ROWECOM, INC.
By:____________________________
Name:
Title:
THE BANK:
--------
IMPERIAL BANK
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.14
IMPERIAL BANK
Member FDIC
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This Agreement is executed on June 19, 1998, by ROWECOM INC. (hereinafter called
"Obligor") and IMPERIAL BANK (hereinafter called 'Bank'), pursuant to the Loan
Agreement, dated as of the date hereof ("Loan Agreement"), between Obligor and
Bank. Capitalized terms used but not defined herein that are defined in the Loan
Agreement shall have the meanings given to such terms the Loan Agreement. Terms
defined in the Massachusetts Uniform Commercial Code, and not otherwise defined
herein or in the Loan Agreement, shall have the meanings given to such terms in
the Massachusetts Uniform Commercial Code.
GRANT OF SECURITY INTEREST. In consideration of financial accommodations
provided by Bank to Obligor under the Loan Agreement and the other Loan
Documents, Obligor grants to Bank, as security for the payment by Obligor of all
of its obligations under the Loan Agreement and the other Loan Documents,
whether now existing or hereafter arising, and whether absolute or contingent
(collectively "Debt"), a security interest in (a) all property (i) delivered to
Bank by Obligor, (ii) which shall be in Bank's possession or control in any
manner or for any purpose, or (iii) described under the heading "Collateral"
below, whether now owned or hereafter acquired by Obligor; and (b) all proceeds,
income and products of such property, and all accessions thereto (all such
property described in clauses (a) and (b) above being collectively referred to
herein as the "Collateral").
Collateral:
All personal property, whether presently existing or hereafter created or
acquired, and all proceeds and products thereof, including but not limited to:
all furniture, fixtures, equipment, inventory, or other goods, accounts,
contract rights, rights to the payment of money, insurance refund claims and all
other insurance claims and proceeds, tort claims, chattel paper, documents,
instruments, securities and other investment property. deposit accounts and all
general intangibles including, without limitation, returns, repossessions, books
and records relating thereto, equipment containing said books and records, all
tax refund claims, license fees, trade names, computer programs, computer
software, engineering drawings, customer lists, goodwill, and all licenses,
permits, agreements of any kind or nature pursuant to which
<PAGE>
-2-
Obligor possesses, uses or has authority to possess or use property (whether
tangible or intangible) of other or others possess, use or have authority to
possess or use property (whether tangible or intangible) of Obligor, and all
recorded data of any kind or nature. regardless of the medium of recording
including, without limitation, all software, writings, plans, specifications and
schematics. COLLATERAL SHALL NOT INCLUDE ANY PATENTS, REGISTERED TRADEMARKS,
SERVICE MARKS OR COPYRIGHTS.
Obligor represents, warrants and agrees:
1. Obligor will immediately pay on demand (a) Bank's costs incurred in
connection with the enforcement of any of its rights under this Agreement or
with respect to the Collateral, or in protecting, insuring or realizing on
Collateral, including reasonable attorneys' fees and expenses, and (b) any
deficiency after realization of any Collateral. Any amounts that may be payable
by Obligor or Bank pursuant to clause (a) above that shall not be paid when due
shall, to the extent permitted by applicable law, and in addition to any other
costs or charges that may be payable pursuant to the Loan Documents, accrue
interest, at the annual rate equal to the rate applicable to the Debt in
accordance with the Loan Agreement during the continuance of an Event of
Default, until such amounts are paid in full.
2. As to all Collateral in Obligor's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have possession of the Collateral at the location disclosed to
Bank and will not remove the Collateral from such location
except in the ordinary course of business.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair
it if necessary, clean, feed, shelter, water, medicate,
fertilize, cultivate, irrigate, prune and otherwise deal with
the Collateral in all such ways as are considered good
practice by owner of like property, use it lawfully and only
as permitted by insurance policies, and permit Bank to inspect
the Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral), even though Bank
has a security interest in proceeds of such Collateral.
3. As to Collateral which is inventory or Accounts, Obligor:
(a) May, until notice from Bank while any Default or Event of
Default is continuing, sell, lease or otherwise dispose
inventory in the ordinary course of business, and collect the
cash proceeds thereof.
<PAGE>
-3-
(b) Will, upon and during the continuance of any Default or Event
of Default and upon receipt of notice from Bank, deposit all
cash proceeds as received in a demand deposit account with
Bank, and deliver statements identifying units of inventory
disposed of, Accounts which gave rise to proceeds, and all
acquisitions and returns of inventory, as required by Bank.
(c) Will, upon and during the continuance of any Default or Event
of Default and upon receipt of notice from Bank, receive
trust, schedule on forms satisfactory to Bank and deliver to
Bank all non-cash proceeds other than inventory received
trade.
4. As to Collateral which are Accounts, chattel paper, general intangibles
and proceeds described in 3(c) above, Obligor warrant
(a) All such Collateral is genuine, enforceable in accordance with
its terms, free from default, prepayment, defense and
conditions precedent (except as disclosed to and accepted by
Bank in writing). Obligor will supply Bank with duplicate
invoices or other evidence of Obligor's rights on Bank's
request.
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract.
(c) All chattel paper is in compliance with law as to form,
content and manner of preparation and execution and has been
properly registered. recorded, and/or filed to protect
Obligor's interest thereunder.
(d) If an account debtor shall also be indebted to Obligor on
another obligation, any payment made by him not specifically
designated to be applied on any particular obligation shall be
considered to be a payment on the Account in which Bank has a
security interest.
(e) While any Default or Event of Default shall be continuing,
Obligor agrees not to compromise, settle or adjust any Account
or renew or extend the time of payment thereof without Bank's
prior written consent.
5. Obligor owns all Collateral absolutely, and no other person has or
claims any interest in any Collateral, except as disclosed to and accepted by
Bank in writing. Obligor will defend any proceeding which may affect title to or
Bank's security interest in any Collateral, and will indemnify and hold Bank
free and harmless from all costs and expenses of Bank's defense.
6. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, any
realty owned by Obligor on which the Collateral is located, except to the
<PAGE>
-4-
extent and so long as (a) the same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any material adverse
effect upon its financial condition or the loss of any right of redemption from
any sale thereunder; and (b) Obligor shall have set aside on its books reserves
segregated (to the extent required by generally accepted accounting practice)
and adequate with respect thereto.
7. Obligor will insure the Collateral with Bank as loss payee or
additional insured, as appropriate, in form and amounts with companies, and
against risks and liability satisfactory to Bank, to cancel the insurance on
Obligor's default, and to receive payment of and endorse any instrument in
payment of any loss or return premium. If Obligor should fail to deliver the
required policy or policies to Bank, Bank may, at Obligor's cost and expense,
without any duty to do so, get and pay for insurance naming as the insured, at
Bank's option, either both Obligor and Bank, or only Bank, and the cost thereof
shall constitute reimbursable expenses under Paragraph 1 above.
8. Obligor will promptly notify Bank of any change of Obligor's chief
executive office, mailing address or location of Collateral.
9. Bank is irrevocably appointed Obligor's attorney-in-fact, while any
Default or Event of Default is continuing, to do any act which Obligor is
obligated hereby to do, to exercise such rights as Obligor may exercise, to use
such equipment as Obligor might use, to enter Obligor's premises to give notice
of Bank's security interest, and to collect Collateral and proceeds and to
execute and file in Obligor's name any financing statements and amendments
thereto required to perfect Bank's security interest hereunder, all to protect
and preserve the Collateral and Bank's rights hereunder. In such capacity, while
any Default or Event of Default is continuing, Bank may:
(a) endorse, collect and receive delivery or payment of
instruments and documents constituting Collateral;
(b) make extension agreements with respect to or affecting
Collateral, exchange it for other Collateral, release persons
liable thereon or take security for the payment thereof, and
compromise disputes in connection therewith; and
(c) use or operate Collateral for the purpose of preserving
Collateral or its value and for preserving or liquidating
Collateral.
10. Upon and during the continuance of any Event of Default, Bank may
exercise all rights and remedies available to Bank under this Agreement, under
any of the other Loan Documents or available to secured parties under the
Massachusetts Uniform Commercial Code, all without presentment, protest, notice
of protest, demand and notice of nonpayment, notice of sale
<PAGE>
-5-
and advertisement of sale. except to the extent required by applicable law.
While any Event of Default is continuing, without limiting in any way any of
Bank's other rights under the Loan Documents or applicable law, Bank may sell,
in one or more sales, Collateral in any county where Bank has an office; Bank
may purchase at any such sale, effect sales for cash or on credit to a
wholesaler, retailer or user of the Collateral, or at public or private auction,
all of which shall be considered commercially reasonable; and Bank may require
Obligor to assemble the Collateral and make it available to Bank at the entrance
to the location of the Collateral, or at such other location designated by Bank.
11. Bank's acceptance of partial or delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation of Obligor or
right of Bank to modify this Agreement, or waive any other similar default.
12. On transfer of all or any part of the Debt, Bank may transfer all or any
part of the Collateral. Bank may deliver all or any part of the Collateral to
any Obligor at any time. Any such transfer or delivery shall discharge Bank from
all liability and responsibility with respect to such Collateral transferred or
delivered. This Agreement benefits Bank's successors and assigns and binds
Obligor's successors and assigns. Obligor agrees not to assert against any
assignee of Bank any claim or defense that may exist against Bank. Time is of
the essence. The Loan Agreement, this Agreement, the other security agreements
supplemental hereto, and the other Loan Documents contain the entire security
agreement between Bank and Obligor. Obligor will execute any additional
agreements, assignments or documents reasonably required by Bank to carry this
Agreement into effect.
13. THIS AGREEMENT, AND EACH OF THE OTHER LOAN DOCUMENTS, ARE INTENDED TO TAKE
EFFECT AS SEALED INSTRUMENTS AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. OBLIGOR NVAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS AGREEMENT, OR ANY OF THE OTHER LOAN DOCUMENTS, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF ANY SUCH
RIGHTS OR OBLIGATIONS.
<PAGE>
-6-
14. This Agreement is subject to modification only by a writing signed by Bank
and Obligor. No party shall be deemed to have waived any right hereunder unless
such waiver shall be in writing and signed by such party. A waiver on any one
occasion shall not be Construed as a bar to or waiver of any right on any future
occasion.
ROWECOM INC. IMPERIAL BANK
"Obligor" "Bank"
By: LOUIS HERNANDEZ By:____________________________
--------------------------
Title: EXECUTIVE VICE PRESIDENT Title: SENIOR VICE PRESIDENT
-------------------------- ---------------------
CHIEF FINANCIAL OFFICER
--------------------------
<PAGE>
EXHIBIT 10.15
FORM OF
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement"), dated as of July 10,
1998, is between ,an individual ("Employee"), and Rowe.com Inc., a
Delaware corporation (the "Company").
PRELIMINARY STATEMENTS:
A. The Company and its affiliates are in the business of electronic
commerce transactions involving the sale of periodicals, research
reports and subscriptions of such materials (the "Business");
B. The Company is issuing shares of its Class B Preferred Shares, $. par
value, at a price of $ per share to certain investors (the
"Investors") pursuant to a stock Purchase Agreement dated as of May 4,
1998 (the " Stock Purchase Agreement").
C. Employee is an employee of the Company, owning ____% of the Company's
capital stock prior to the Investors' investment in the Company on a
fully- diluted basis.
D. One of the conditions to the investment by the Investor is the
execution of this Agreement by Employee.
NOW, THEREFORE, in consideration and as a condition of Employee's employment by
the company, the investment by the Investors under the Stock Purchase Agreement,
and the mutual covenants and agreement contained herein, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, parties hereto agree as follows:
1) DEFINITIONS. The following terms, when capitalized, shall have the meanings
set forth below:
BOARD- shall mean the Board of Directors of the Company.
BUSINESS- shall have the meaning provided in the Recitals to this
Agreement.
CAUSE- shall mean (I) any act or acts by Employee resulting directly or
indirectly in, or intended to result directly or indirectly in, material
gain or personal enrichment to Employee or any third party at the expense
of the Company; (ii) the willful, wanton or reckless failure by Employee to
properly perform his duties with the Company (other than any such failure
resulting from incapacity due to mental or physical illness); (iii)
Employee's indictment for a felony or (iv) Employee's breach of Section 5
or Section 6 of this Agreement. Employee's employment shall in no event be
considered to have been terminated by the Company for cause if such
termination took place as the result of bad judgement or ordinary
negligence.
CONFIDENTIAL INFORMATION- shall mean information that, although not a Trade
Secret, is not generally known and includes, but is not limited to, sales
and marketing information, customer account records, training and
operations materials and memoranda, personnel records, pricing and
financial information relating to the business, accounts, customers,
employees and affairs of the Company or of its affiliates; any information
marked "Confidential" by the Company or by its affiliates; and any other
similar information that is not a Trade Secret.
GOOD REASON- shall mean Employee's duties are Negatively Altered.
NEGATIVELY ALTERED- shall mean if any of the following shall occur without
Employee's express written consent: (i) the assignment to Employee of any
duties materially inconsistent with Employee's position, duties,
responsibilities and status with the Company (other than promotions) or a
material adverse change
1
<PAGE>
in Employee to move his residence more than 100 miles; or (iii) the failure
by the Company to continue to provide Employee with employee benefits that
are comparable to employees of a similar status.
NONCOMPETITION PERIOD- shall mean the period of time consisting of the term
of Employee's employment with the Company and a period of twelve (12)
months following the termination of Employee's employment hereunder for any
reason by the Company or by Employee.
SERVICES- shall have the meaning described in Section 2.
TERRITORY- shall mean the United States, Canada and in any other country
where the Company has generated revenue.
TRADE SECRET- shall mean (i) any scientific or technical information,
program, software, design, process, procedure, formula, invention or
improvement that is secret and of value and (ii) information including, but
not limited to, technical or nontechnical data, formula patterns,
compilations, programs, software, devices, methods, techniques, drawings,
processes, financial data and lists of actual or potential customers which
the Company or its affiliates takes reasonable efforts to protect from
disclosure.
2) EMPLOYMENT AT WILL. Employee shall continue to be employed by the Company on
an " at will" basis and Employee's employment shall continue for such time as
the Company is in need of, or desirous of, the services of Employee. It is
expressly understood and agreed between the Company and Employee that the
duration of Employee's employment is unspecified and results in the sole
discretion of the Company.
3) DUTIES. Employee shall devote his full business time and efforts solely to
the business and interest of the Company. During the term of this Agreement,
Employee shall not engage in any activity which would be inconsistent with
such duties or with the objectives and business of the Company and shall
diligently perform his obligations and discharge his duties under this
Agreement. Employee shall adhere to all ethical practices and other rules and
regulations established by the Company.
4) SEVERANCE.
(A) If (i) the Company terminates Employee's employment with the
Company for any reason other than Cause or (ii) Employee voluntarily
terminates his employment with the Company for Good Reason, the
Company shall pay Employee during each month of the Noncompetition
Period and amount equal to two-thirds of Employee's monthly salary in
effect at the time of such termination; provided, however, that the
Company may elect not to make severance payments to Employee or to
cease making such severance payments at any time during the
Noncompetition Period, in which event Employee's obligations under
Section 5 shall terminate. If employee is employed by a third party
after the termination of his employment with the Company and prior to
the end of the Noncompetition Period, the Company shall be entitled to
deduct from Employee's monthly severance payments an amount equal to
Employee's monthly salary (including all other cash compensation)
received from such third party employer.
(B) If (i) the Company terminates Employee's employment with the
Company for Cause or (ii) Employee voluntarily terminates his
employment with the Company other than for Goof Reason, the Company
shall not be obligated to make any severance payments to Employee and
Employee shall only be entitled to receive his salary earned, pro
rata, up to and including the date of any such termination.
5) NONCOMPETITION & PROPRIETARY INFORMATION.
(A) During the Noncompetition Period, Employee shall not, directly or
indirectly, either individually, in partnership, jointly, or in
conjunction with any person, firm, partnership, limited liability
company, corporation, or unincorporated association of any kind,
whether as principal, agent, shareholder, employee, or in any other
capacity whatsoever:
(I) engage in any business in the Territory which competes
with the Business;
(II) solicit or contact potential customers on behalf of,
invest in, obtain any interest, in, advise, lend money to,
or guarantee the debts or obligations of any person, firm,
partnership,
<PAGE>
limited liability company, corporation, or unincorporated
association of any kind, which is engaged in the Territory
in any business which competes with the Business;
(III) solicit or accept business from any of the Company's or
its affiliates customers or actively sought prospective
customers, for the purposes of providing products or
services in the Territory which are the same as or
substantially similar to those provided by the Company in
connection with its conduct of the Business; or
(IV) persuade or attempt to persuade any employee of the
Company or its affiliates to terminate his or her service
with the Company or with such affiliates.
(B) During Employee's employment with the Company and thereafter, Employee
shall not use, reveal or divulge any Trade Secrets or Confidential
Information relating to the Business. Notwithstanding the foregoing,
Employee shall not be subject to the restrictions set forth in this
Section 5 with respect to information which:
(I) becomes generally available to the public other than as a
result of disclosure by Employee or his agents or
representatives;
(II) becomes available to Employee on a non-confidential basis
from a source other than the Company or its agents,
provided that such source lawfully obtained such
information and is not bound by a confidentiality
obligation not to disclosure such information; or
(III) is required to be disclosed by law.
6) ASSIGNMENT OF INVENTIONS & RETURN OF COMPANY DOCUMENTS.
(A) Employee shall promptly make full written disclosure to the Company,
shall hold in trust for the sole right and benefit of the Company, and
hereby assigns to the Company, or its designee, all of Employee's
right, title and interest in and to any and all inventions,, original
works of authorship, developments, concepts, improvements, designs,
discoveries, ideas, trademarks or trade secrets, whether or not
patentable or registrable under copyright or similar laws which
Employee may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived or developed or reduce to practice,
within the scope and during the period of time of Employee's
employment with the Company ( collectively referred to as
"Inventions"). Employee hereby also assigns to the Company, or its
designee, all of Employee's rights, title and interest and to any and
all Inventions, which Employee solely or jointly conceived or
developed or reduced to practice, or caused to be developed or reduced
to practice, within the scope and during Employee's employment with
the Company prior to the date of this Agreement. Employee further
acknowledges that all original works of authorship which are made or
were made by Employee (solely or jointly with others) within the scope
of and during the period of Employee's employment with the Company
prior to and after the date of this Agreement and which are
protectable by copyright are "works made for hire," as that term is
defined in the United States Copyright Act. Employee understands and
agrees that the decision whether or not to commercialize or market any
invention developed by Employee solely or jointly with others is
within the Company's sole discretion and for the Company's sole
benefit and that no royalty shall be due to Employee as a result of
the Company's efforts to commercialize or market any such invention.
(B) Employee shall keep and maintain adequate and current written records
of all Inventions made by Employee (solely or jointly with others)
during the term of his employment with the Company. Employee shall
keep such records in the form of notes, sketches, drawings, and any
other format that may be specified by the Company. The Records shall
be available to and remain the sole property of the Company at all
times.
(C) Employee shall assist the Company, or its designee, at the Company's
expense, in every proper way reasonably necessary to secure the
Company's rights in the Inventions and any copyrights, patents or
other intellectual property rights relating thereto in any and all
countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments and all other
instruments which the Company shall deem necessary in order to apply
for and obtain such rights and in order to assign and convey to the
Company, its
<PAGE>
successors, assigns, and nominees the sole and exclusive rights, title
and interest in to such Inventions, and any copyrights, patents or
other intellectual property rights relating thereto. Employee further
agrees that such obligations to executed or cause to be executed, when
it is in Employee's power to do so, any such instrument or papers at
the Company's expense shall continue after the termination of this
Agreement. If the Company is unable because of the mental or physical
incapacity of Employee's signature to apply for or to pursue any
application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship
assigned to the Company pursuant to this Agreement, then Employee
hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as Employee's agent and attorney in
fact to act for and in Employee's behalf and stead to execute and file
such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if
executed by Employee.
(D) Upon termination of Employee's employment with the Company, Employee
shall deliver to the Company ( and shall not keep in his possession,
recreate or deliver to anyone else ) any and all devices, records
data, notes, reports, proposals, lists, correspondence, specification,
drawings, blueprints, sketches, materials, equipment, other documents
or property, or reproductions of any aforementioned items developed by
Employee pursuant to Employee's employment with the Company or
otherwise belonging to the Company, its successors or assigns
7) REMEDIES. Employee acknowledges and agrees that the Company would suffer
irreparable harm from a breach by Employee of the restrictive covenants set
forth in Section 5 or 6. Therefore, in the event of the actual or threatened
breach by Employee under Section 5 or 6, the Company any, in additional and
supplementary to any other rights and remedies existing in its favor
(including, without limitation, its right to terminate Employee's
employment), apply to any court of law or equity of competent jurisdiction
for specific performance or injunctive or other relief in order to enforce
or prevent any violation of the provisions of Section 5 or 6. Employee
agrees not to raise the defense of an adequate remedy at law in any such
proceeding. Employee agrees that the existence of any claim or cause of
action by Employee against the company, whether predicated upon this
Agreement or any other contact, shall not constitute a defense to the
enforcement by the Company of the provisions of Section 5 or 6.
8) NOTICE. All notices and other communications required under this Agreement
shall be deemed to have been duly given and made if in writing and if served
either by personal delivery to the party for whom intended ( which shall
include delivery by Federal Express or similar service) or three (3)
business days after being deposited, postage prepaid, certified or
registered mail, return receipt requested, in the United States mail bearing
the address shown in this Agreement for, or such other address as may be
designated in writing hereafter by, such party:
If to Employee: [Name and Address of
Employee]
If to the Company: RoweCom Inc.
725 Concord Avenue
Cambridge, Massachusetts 02138
USA
9) REFORMATION & SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is finally
determined by a court of competent jurisdiction to be unenforceable or
invalid under applicable law, such provisions shall be effective only to the
extent of this enforceability or validity, without affecting the
enforceability or validity of the remainder of this Agreement, and such
court shall have jurisdiction to reform this Agreement to the maximum extent
permitted by law. In the event that any such provision of this Agreement
cannot be reformed, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
10) Binding Effect & Waiver. The terms and provisions of this Agreement shall
be binding on and inure to the benefit of Employee, his heirs, executors,
administrators, and other legal representatives and shall be binding on and
inure to the benefit of the Company, its affiliates, successors or assigns.
The failure of the Company at any
4
<PAGE>
time or from time to time to require performance of any of Employee's
obligations under this Agreement shall in no manner affect the Company's
right to enforce any provision of this Agreement at a subsequent time, and
the waiver of any rights arising out of any subsequent or prior breach.
11) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between Employee and the Company with respect to the subject
matter hereof, and supersedes all prior agreements and understandings
relating to the subject matter hereof.
12) AMENDMENT. No amendment, modification, or waiver of any provision of this
Agreement, or consent to any departure by Employee therefrom, shall be
effective unless the same shall be in writing and signed by the parties
hereto.
13) ASSIGNMENT. This Agreement is for personal services to be performed by
Employee and may not be assigned or transferred by Employee, or the
obligations of Employee performed by any other party. All of the rights and
obligations of the Company under this Agreement are fully assignable and
transferable by the Company.
14) COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one
and the same instrument.
15) HEADINGS. The various headings of this Agreement are inserted for
convenience only and shall not affect the meaning of interpretation of this
Agreement or provisions hereof.
16) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
EMPLOYEE:
___________________________________
Employee Signature and Date
COMPANY:
Rowe.com Inc., a Delaware Corporation
Witnessed by:
Signature:_________________________________ Title:_____________________________
Print Name:________________________________
5
<PAGE>
EXHIBIT 10.16
ELECTRONIC COMMERCE REFERRAL AND
REVENUE SHARING AGREEMENT
This Electronic Commerce Referral And Revenue Sharing Agreement (the
"Agreement") is made as of this 24th Day of August, 1998 (the "Effective Date")
--------- --------------
by and between INTELISYS ELECTRONIC COMMERCE LLC ("Intelisys") and RoweCom,
---------
("RoweCom") (Intelisys and RoweCom each a "Party" and, collectively, the
------- -----
"Parties").
-------
WHEREAS, Intelisys is engaged in the business of providing software
(the "Intelisys Software") and services ("Intelisys Services") to entities
------------------ ------------------
("Intelisys Licensees") engaged in the business of buying and selling goods and
-------------------
services via the Internet;
WHEREAS, RoweCom is engaged in the business of providing business-to-
business electronic commerce services to businesses and not-for-profit
institutions interested in purchasing subscriptions, books and other knowledge
products and services of a professional nature (the "Knowledge Products") and,
------------------
in connection therewith, RoweCom collaborates with such entities to enhance
existing intranet networks to enable such entities to purchase the Knowledge
Products via their intranets (the "RoweCom Services"); and
----------------
NOW, THEREFORE, for and in consideration of the agreements of the
Parties set forth below, Intelisys and RoweCom agree as follows:
ARTICLE 1. OBLIGATIONS OF THE PARTIES
- ---------- --------------------------
1.01 Intelisys Referrals. Within 30 days after the Effective Date and from
-------------------
time to time during the term of this Agreement, Intelisys shall provide RoweCom
Literature to Qualified Intelisys Licensees. "Qualified Intelisys Licensee"
----------------------------
means any Intelisys customer that, to the knowledge of Intelisys, has or may
have a need or desire to purchase Knowledge Products and could use RoweCom
Services in order to enhance their use of Intelisys Software to purchase such
Knowledge Products; provided that Intelisys customers that are already RoweCom
-------------
customers at the time of the referral shall not be considered Qualified
Intelisys Licensees. "RoweCom Literature" means brochures, specifications, sales
------- ----------
materials and form contracts provided by RoweCom.
1.02 RoweCom Referrals. Within 30 days after the Effective Date and from time
-----------------
to time during the term of this Agreement, RoweCom shall provide Intelisys
Literature to Qualified RoweCom Licensees. "Qualified RoweCom Licensee" means
--------------------------
any RoweCom customer that, to the knowledge of RoweCom, could use Intelisys
Software or Intelisys Services in order to enhance their use of RoweCom
Services; provided that RoweCom customers that are already Intelisys customers
at the time of the referral shall not be considered Qualified RoweCom Licensees.
"Intelisys Literature" means brochures, specifications, sales materials and form
--------------------
contracts provided by Intelisys.
1.03 Implementation Plan. As soon as is practicable, but no later than ninety
-------------------
(90) days after the Effective Date:
(a) Intelisys agrees to (i) list RoweCom as a partner on its web site and, as it
deems appropriate, in its
<PAGE>
advertising and promotional materials; (ii) provide, as part of the Intelisys
Software and Intelisys Services, a hyperlink to the web site or web sites
designated by RoweCom; (iii) advise Intelisys Licensees that RoweCom is the
preferred provider of Knowledge Products for the Intelisys Services and list
RoweCom as the default supplier for Knowledge Products in Intelisys Licensees'
directories; (iv) train its sales force regarding the features and benefits of
the Knowledge Products and the RoweCom Services, and represent the Knowledge
Products and the RoweCom Services to Intelisys' clients and prospects as
Intelisys deems appropriate; and (v) facilitate introductions and accompany
RoweCom sales people on sales calls to Intelisys customers as Intelisys deems
appropriate.
(b) RoweCom agrees to (i) list Intelisys as a partner on its web site and, as
RoweCom deems appropriate, in its advertising and promotional materials; and
(ii) provide a hyperlink on such web site to the web site or web sites
designated by Intelisys; and (iii) to train its sales force regarding the
features and benefits of the Intelisys Services, and represent the Intelisys
Services to RoweCom's clients and prospects as RoweCom deems appropriate; and
(iv) facilitate introductions and accompany Intelisys sales people on sales
calls to RoweCom customers as RoweCom deems appropriate.
Any purchases of Knowledge Products made by Qualified Intelisys Licensees
through RoweCom hyperlinks installed in Intelisys Software, Intelisys Services
or Intelisys' web site will qualify for revenue sharing, as described in
Section 2.01. Any Qualified RoweCom Licensee referral generated by the RoweCom
direct sales force will be eligible for revenue sharing as described in
Section 2.01 (a referral from the sales force must include the company name,
contact name and phone number).
1.04 Promotional and Advertising Materials. Each party shall submit to the
-------------------------------------
other for its written approval all advertising and promotional copy prepared
by or on behalf of either party pursuant to Section 1.03 hereof, via overnight
delivery not less than ten (10) days prior to release for use or distribution.
Any submission in response to which the reviewing party shall have delivered
notice of disapproval to the submitting party within such ten (10) day period
shall be deemed disapproved, and the submitting party shall not release such
materials for use or distribution but shall be permitted to resubmit such
samples and/or advertising and promotional materials for approval as necessary
1.05 Service Agreements. RoweCom and Intelisys shall use their best efforts to
------------------
commence negotiations with and enter into an agreement to provide their
respective Services to each of their respective Licensees that requests those
services.
1.06 Development Plan. Intelisys agrees to provide to RoweCom, a description
----------------
of how the Intelisys system integrates with suppliers and a description of the
workflow, along with all documentation necessary for RoweCom to become compliant
with the Intelisys Services. As soon as practicable, but no later than ninety
(90) days after the Effective Date, the parties agree to develop a formula for
metering web site click-through traffic for the purposes of determining Revenue
Sharing Fees (as defined herein) and such formula shall be initialed by both
parties and attached hereto as Exhibit C and shall form part of this Agreement.
------- -
1.07 Software License. Intelisys grants to RoweCom, at no extra charge and
----------------
subject to the terms set forth in the Intelisys Software License Agreement
attached hereto as Exhibit A, a non-exclusive, royalty-free right and license to
------- -
use the Intelisys tool kit software (the "Tool Kit Software"), for the purpose
of modifying the RoweCom Services as required to make such services compliant
with the
-2-
<PAGE>
Intelisys Services. RoweCom will be responsible for its own development costs in
implementing links to the Intelisys Services but may request assistance from
Intelisys if, in RoweCom's reasonable judgment, such assistance is required.
Intelisys shall not charge RoweCom for such assistance but shall be reimbursed
for out of pocket expenses incurred in delivering such assistance.
ARTICLE 2. REVENUE SHARING AND PAYMENTS
- ---------- ----------------------------
2.01 Revenue Sharing.
---------------
(a) RoweCom shall pay to Intelisys, revenue sharing fees in accordance with
Section 2.03 (the "Revenue Sharing Fees") in respect of purchases and
--------------------
licenses of products from, and on-line access or transaction charges for,
services provided by RoweCom that are placed by Qualified Intelisys
Licensees pursuant to RoweCom customer agreements.
(b) Intelisys shall pay to RoweCom, Revenue Sharing Fees in respect of
purchases and license of products from, and on-line access or transaction
charges for services provided by, Intelisys that are placed by Qualified
RoweCom Licensees pursuant to Intelisys customer agreements.
2.02 Quarterly Statements. Within 15 days after the end of each calendar
--------------------
quarter after the Effective Date and for as long as any amounts are due in
accordance with this Article, each Party shall submit to the other a detailed
statement ("Quarterly Statement") that sets forth:
-------------------
(1) In the case of RoweCom as reporting party, each Qualified Intelisys
Licensee that executes a RoweCom customer agreement and, in the case of
Intelisys as reporting party, each Qualified RoweCom Licensee that signs
an Intelisys customer agreement (in each case, a "Customer Agreement");
and
(2) The payments received by such Party during such quarter under all of its
Customer Agreements, irrespective of whether such Customer Agreements were
executed during such quarter.
2.03 Payment. During the Initial Term and any Renewal Term:
-------
(1) RoweCom shall pay Intelisys, upon delivery of each Quarterly Statement, a
Revenue Sharing Fee equal to ***/1/ shown on the Quarterly Statement
delivered by Intelisys. The Fee Revenue used for calculating such payments
shall be determined as set forth on Exhibit B.
------- -
(2) Intelisys shall pay RoweCom, upon delivery of each Quarterly Statement, a
Revenue Sharing Fee equal to ***/2/ shown on the Quarterly Statement
delivered by RoweCom. The Fee Revenue used for calculating such payments
shall be determined as set forth on Exhibit B.
------- -
- --------------------
/1/ Confidential treatment has been requested for this potion of this exhibit.
A complete copy of this exhibit, including the redacted potion, has been
file with the Securities and Exchange Commission separately.
/2/ Confidential treatment has been requested for this potion of this exhibit.
A complete copy of this exhibit, including the redacted potion, has been
file with the Securities and Exchange Commission separately.
-3-
<PAGE>
2.04 Taxes. The amounts payable pursuant to this Article are exclusive of any
-----
tariffs, duties or taxes, however designated, levied or based on this Agreement,
including, without limitation, any sales and use taxes and any state and local
privilege or excise taxes based on either Party's gross revenue. Each party
agrees to pay and be responsible for all sales, use or excise taxes and levies
that pertain to it with respect to this Agreement.
2.05 Retention of Records and Audit Rights.
-------------------------------------
(1) For a period of not less than two years after the termination of this
Agreement, each Party shall maintain, at its own cost, all material data,
files and records pertaining to such Party's performance under this
Agreement and to charges and costs paid or payable by either Party under
this Agreement.
(2) Upon reasonable notice from either Party, the other party shall provide
access to such financial records and supporting documentation as may be
reasonably requested by to audit the Quarterly Statements and any amounts
payable pursuant to Article 2 to verify compliance with the terms of this
---------
Agreement. If, as a result of such audit, either party determines that any
amounts are due, then the auditing Party shall notify the other Party of
such amount and the other Party shall promptly pay such amount, plus
interest at the rate of one half percent per month, but in no event to
exceed the highest lawful rate of interest, calculated from the date of
receipt of such notice. In the event any such audit reveals that either
Party owes an amount in excess of five percent of the actual Revenue
Sharing Fees due, that Party shall reimburse the other Party for the cost
of such audit.
2.06 Late Payments. Payments made after they are due in accordance with
-------------
Section 2.03 shall be subject to an interest equal to one half of one percent
- ------------
per month in respect of the outstanding amount.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
- ---------- ------------------------------
3.01 By Intelisys. Intelisys represents and warrants to RoweCom that:
------------
(1) it is a limited liability company duly organized and validly existing
under the laws of the State of Delaware.
(2) it has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement;
(3) it is financially solvent, able to pay its debts as they mature and
possessed of sufficient working capital to perform all of its duties and
obligations under this Agreement;
(4) it is duly licensed, authorized or qualified to do business and is in good
standing in every jurisdiction in which a license, authorization or
qualification is required for the ownership or leasing of its assets or
the transaction of business of the character transacted by it, except
where the failure to be so licensed, authorized or qualified would not
have a material adverse effect on Intelisys' ability to fulfill its
obligations under this Agreement; and
-4-
<PAGE>
(5) there is no outstanding litigation, arbitrated matter or other dispute to
which Intelisys is a party which would be reasonably expected to have a
potential or actual material adverse effect on Intelisys' or RoweCom's
ability to fulfill its respective obligations under this Agreement.
3.02 By RoweCom. RoweCom represents and warrants to Intelisys that:
----------
(1) it is a corporation duly organized and validly existing under the laws of
the State of Delaware;
(2) it has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement;
(3) it is financially solvent, able to pay its debts as they mature and
possessed of sufficient working capital to perform all of its duties and
obligations under this Agreement;
(4) it is duly licensed, authorized or qualified to do business and is in good
standing in every jurisdiction in which a license, authorization or
qualification is required for the ownership or leasing of its assets or
the transaction of business of the character transacted by it, except
where the failure to be so licensed, authorized or qualified would not
have a material adverse effect on RoweCom's ability to fulfill its
obligations under this Agreement; and
(5) there is no outstanding litigation, arbitrated matter or other dispute to
which RoweCom is a party which would be reasonably expected to have a
potential or actual material adverse effect on RoweCom or Intelisys's
ability to fulfill its respective obligations under this Agreement.
ARTICLE 4. TRADEMARK LICENSE
- --------- -----------------
(1) RoweCom grants to Intelisys a royalty-fee, non-exclusive license to use
and display the logos trademarks and trade names associated with the
RoweCom Services (the "RoweCom Trademarks") solely in connection with the
transactions contemplated by this Agreement. Intelisys shall not use the
RoweCom Trademarks without RoweCom's prior written consent to each such
use. Intelisys acknowledges that the provisions of this Section 4 do not
convey to Intelisys any right, title or ownership interest in the RoweCom
Trademarks.
(2) Intelisys grants to RoweCom a royalty-fee, non-exclusive license to use
and display the logos trademarks and trade names associated with the
Intelisys Software and the Intelisys Services (the "Intelisys Trademarks")
solely in connection with the transactions contemplated by this Agreement.
RoweCom shall not use the Intelisys Trademarks without Intelisys' prior
written consent to each such use. RoweCom acknowledges that the provisions
of this Section 4 do not convey to RoweCom any right, title or ownership
interest in the Intelisys Trademarks.
ARTICLE 5. COVENANTS
- ---------- ---------
5.01 By Intelisys. Intelisys covenants that it shall comply with all federal,
------------
state and local laws and regulations applicable to Intelisys and shall obtain
and maintain all applicable permits and licenses
-5-
<PAGE>
required of Intelisys in connection with its obligations under this Agreement.
5.02 By RoweCom. RoweCom covenants that it shall comply with all federal,
----------
state and local laws and regulations applicable to RoweCom and shall obtain and
maintain all applicable permits and licenses required of RoweCom in connection
with its obligations under this Agreement.
ARTICLE 6. INDEMNITIES
- ---------- -----------
6.01 By Intelisys. Intelisys shall indemnify RoweCom and its officers,
------------
directors, members and employees (the "RoweCom Indemnitees"), from and shall
-------------------
defend the RoweCom Indemnitees against, any damage, liability, loss or expense
(including attorneys' fees and expenses) (collectively, "Damages") relating to
-------
or arising out of any claim:
(1) Relating to the inaccuracy or untruthfulness of any representation or
warranty made by Intelisys under this Agreement.
(2) Relating to any duties or obligations of Intelisys, its employees or
agents accruing after the Effective Date with respect to a third party.
(3) Relating to personal injury or tangible property damage arising out of the
performance of Intelisys under this Agreement, to the extent caused by
Intelisys or its agents.
(4) Any misrepresentation of the Knowledge Products or RoweCom Services to the
extent caused by Intelisys or its agents.
(5) Relating to its violation of any applicable laws or regulations in
performing its obligations hereunder.
(6) Relating to any amounts, including taxes, interest and penalties, assessed
against RoweCom which are the obligation of Intelisys pursuant to
Section 2.06.
------------
Intelisys shall indemnify the RoweCom Indemnitees from any costs and expenses
incurred in connection with the enforcement of this Section.
6.02 By RoweCom. RoweCom shall indemnify Intelisys, and its officers,
----------
directors, employees and members (the "Intelisys Indemnitees"), from, and shall
---------------------
defend the Intelisys Indemnitees against, any Damages relating to or arising out
of any claim:
(1) Relating to the inaccuracy or untruthfulness of any representation or
warranty made by RoweCom under this Agreement.
(2) Relating to any duties or obligations of RoweCom, its employees or agents
accruing after the Effective Date with respect to a third party.
(3) Relating to personal injury or tangible property damage arising out of the
performance of RoweCom under this Agreement, to the extent caused by
RoweCom or its agents.
-6-
<PAGE>
(4) Any misrepresentation of the Intelisys Software or the Intelisys Services
to the extent caused by RoweCom or its agents.
(5) Relating to its violation of any applicable laws or regulations in
performing its obligations hereunder.
(6) Relating to any amounts, including taxes, interest and penalties, assessed
against Intelisys which are the obligation of RoweCom pursuant to
Section 2.05.
------------
RoweCom shall indemnify the Intelisys Indemnitees from any costs and expenses
incurred in connection with the enforcement of this Section.
6.03 Indemnification Procedures.
--------------------------
(1) If any third party makes a claim against a RoweCom Indemnitee or Intelisys
Indemnitee (each, an "Indemnitee"), with respect to which the Indemnitee
----------
intends to seek indemnification under Section 6.01 or Section 6.02, the
------------ ------------
Indemnitee shall give prompt notice of such claim to the other Party
(each, an "Indemnifying Party"), including a brief description of the
------------------
amount and basis therefor, if known.
(2) Upon receipt of notice from the Indemnitee, the Indemnifying Party shall
defend Indemnitee against such claim, and the Indemnitee shall cooperate
fully with, and assist, the Indemnifying Party in its defense of such
claim.
(3) The Indemnifying Party shall keep the Indemnitee fully apprised at all
times as to the status of the defense.
(4) The Indemnitee shall have the right to employ its own separate counsel in
any such action, but the fees and expenses of such counsel shall be at the
expense of the Indemnitee; provided that if (a) the Parties agree that it
is advantageous to the defense for the Indemnitee to employ its own
counsel or (b) the Indemnitee reasonably concludes that there may be a
conflict of interest between the Indemnifying Party and the Indemnitee in
the conduct of the defense of such claim (in which case, the Indemnifying
Party shall not have the right to direct or participate in the defense of
such claim on behalf of the Indemnitee), then, in each such instance, the
reasonable fees and expenses of counsel for the Indemnitee shall be
equally shared by the Parties. Neither the Indemnifying Party nor the
Indemnitee shall be liable for any settlement of any action or claim
effected without its consent.
(5) Until (a) the Indemnitee receives notice from the Indemnifying Party that
it will defend and (b) the Indemnifying Party assumes such defense, the
Indemnitee may, at any time after 10 days from the date of the notice to
the Indemnifying Party of the claim, resist the claim or, after
consultation with and the consent of the Indemnifying Party, settle or
otherwise compromise or pay the claim. The Indemnifying Party shall pay
all costs of the Indemnitee arising out of or relating to such defense and
any such approved settlement, compromise or payment. The Indemnitee shall
keep the Indemnifying Party fully apprised at all times as to the status
of the defense. Following indemnification, the Indemnifying Party shall be
-7-
<PAGE>
subrogated to all rights of the Indemnitee with respect to the matters for
which indemnification has been made. Notwithstanding the foregoing, the
Indemnitee shall retain, assume or reassume sole control over, and all
expenses relating to, every aspect of the defense that it believes is not
the subject of such indemnification.
ARTICLE 7. TERM AND TERMINATION
- ---------- --------------------
7.01 Initial Term. The term of this Agreement shall commence on the Effective
------------
Date and continue until 11:59 p.m. (Eastern Standard Time) 24 months thereafter,
unless terminated earlier pursuant to Section 7.03 or Section 7.04 (the "Initial
------------ ------------ -------
Term").
- ----
7.02 Expiration and Renewal. This Agreement will automatically renew for
----------------------
additional 24 month periods (each, a "Renewal Term"), in accordance with the
------------
terms of this Section, upon the expiration of the Initial Term or any Renewal
Term. Either Party shall notify the other party 90 days prior to the expiration
of the Initial Term or any Renewal Term if such Party wishes to cancel this
Agreement. If (a) either Party provides the other Party with notice pursuant to
this Section that such Party desires to renew this Agreement and (b) Intelisys
and RoweCom have not agreed upon the applicable terms and conditions in respect
of the renewal of this Agreement prior to the expiration of the Initial Term or
the Renewal Term then in effect, this Agreement may be extended by either Party
upon notice to the other Party for up to six additional months, from the date of
expiration of the Initial Term or the Renewal Term then in effect (the
"Extension Period"), at the fees, terms and conditions set forth in this
----------------
Agreement. If, during the Extension Period, Intelisys and RoweCom are unable to
reach agreement on the terms and conditions that will apply for the next Renewal
Term, this Agreement shall expire at the end of the Extension Period.
7.03 Termination for Cause. If a Party defaults in the performance of any of
---------------------
its material obligations under this Agreement, the non-defaulting Party may give
the defaulting Party written notice of such failure. Within 30 days of receipt
of such notice, the defaulting Party shall remedy the default specified in the
notice. In the event that the defaulting Party fails to remedy such default
within such 30-day period, the non-defaulting Party may terminate this Agreement
upon written notice to the defaulting Party.
7.04 Effect of Termination. Except as otherwise provided in this Agreement,
---------------------
upon termination or expiration of this Agreement each Party's rights and
obligations hereunder shall terminate provided that each of RoweCom and
Intelisys shall pay to each other any Revenue Sharing Fees owing to the other
Party for Fees collected post-termination in respect of Customer Agreements
entered into through the date of termination.
ARTICLE 8. CONFIDENTIALITY
- ---------- ---------------
All confidential or proprietary information relating to a Party (the
"Confidential Information") shall be held in confidence by the other Party.
------------------------
Neither Party shall disclose, publish, release, transfer, or otherwise make
available Confidential Information of the other Party in any form to, or for the
use or benefit of, any person or entity without the other Party's approval.
Each Party
-8-
<PAGE>
shall, however, be permitted to disclose relevant aspects of the other Party's
Confidential Information to its officers, employees and professional advisors,
to the extent that such disclosure is reasonably necessary for the performance
of their duties and obligations under this Agreement; provided that such Party
shall take all reasonable measures to ensure that the Confidential Information
of the other Party is not disclosed or duplicated in contravention of the
provisions of this Agreement by such officers, employees or professional
advisors. The obligations in this Article 8 shall not restrict any disclosure by
either Party pursuant to any applicable law or by order of any court or
government agency and shall not apply with respect to information that is
independently developed by the other Party, becomes part of the public domain
(other than through unauthorized disclosure); or of which either Party gained
knowledge or possession free of any obligation of confidentiality to the
disclosing party. For the purposes of this Agreement, all pricing, fee or
customer information and contacts shall be deemed Confidential Information and
the Parties agree that the title to any customer information, including but not
limited to the name, address, and e-mail address of the customer shall be owned
solely by the Party disclosing such information.
ARTICLE 9. LIMITATIONS ON DAMAGES
- ---------- ----------------------
9.01 Direct Damages. Each Party shall be liable to the other Party for any
--------------
direct damages arising out of relating to its performance or failure to perform
under this Agreement provided that the liability of either Party to the other
Party shall not exceed the aggregate Revenue Sharing Fees received by such Party
under this Agreement at the time such liability is finally determined.
9.02 Consequential Damages. Neither Party shall be liable for, nor shall the
---------------------
measure of damages include, any indirect, incidental, special or consequential
damages or amounts for loss of income, profits or savings arising out of or
relating to its performance or failure to perform under this Agreement, whether
based on an action or claim in contract, equity, negligence, tort or otherwise.
9.03 Exclusions. The limitations or exculpations of liability set forth in
----------
Section 9.01 and Section 9.02 are not applicable to (1) breaches of Article 8,
- ------------ ------------ ---------
(2) liability resulting from the gross negligence or other intentional acts of a
Party or (3) indemnification claims set forth in Section 6.01 and Section 6.02.
------------ ------------
ARTICLE 10. MISCELLANEOUS PROVISIONS
- ----------- ------------------------
10.01 Representatives. Each of the Parties shall designate one or more
---------------
representatives to act on its behalf in dealings with the other Party on matters
relating to this Agreement (each, a "Designated Representative"). Either Party
-------------------------
may at any time change its Designated Representative by giving the other Party
notice of a change of Designated Representative. The name of each Designated
Representative as of the Effective Date is:
For RoweCom:
Louis Hernandez, Jr.
Executive Vice President and Chief Financial Officer
RoweCom, Inc.
725 Concord Avenue
Cambridge, MA 02138
-9-
<PAGE>
For Intelisys:
Robert Kramer
Chief Financial Officer
Intelisys Electronic Commerce
55 Water Street, Room 600
New York, NY 10041
10.02 Survival. The terms of Section 2.02, Section 2.04, Section 2.05,
-------- ------------ ------------ ------------
Section 2.06, Article 3, Article 6, Article 8, Article 9, this Section, Section
- ------------ --------- --------- --------- --------- -------
10.08 and Section 10.13 shall survive any termination of this Agreement.
- ----- -------------
10.03 Assignment. Neither Party shall, without the consent of the other Party,
----------
assign this Agreement, except that either Party may assign this Agreement
pursuant to a merger or corporate reorganization of such Party without such
consent. The consent of a Party to any assignment of this Agreement shall not
constitute such Party's consent to further assignment. This Agreement shall be
binding on the Parties and their respective successors and permitted assigns.
Any assignment in contravention of this Section shall be void.
10.04 No Waivers. No failure or delay on the part of either Party to exercise
----------
and no delay in exercising any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by a Party of any right
or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right.
10.05 Partial Invalidity. In the event that any of the provisions of this
------------------
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby.
10.06 Notices. All notices, designations, approvals, consents, requests,
-------
acceptances, rejections or other communications required or permitted by this
Agreement shall be in writing and shall be delivered or sent to the Parties at
their respective addresses as follows:
If to RoweCom:
-------------
RoweCom, Inc.
725 Concord Avenue
Cambridge, MA 02138
Attn: Louis Hernandez, Jr.
Chief Financial Officer
Fax No.: 617-497-6825
-10-
<PAGE>
If to Intelisys:
---------------
Intelisys Electronic Commerce LLC
55 Water Street, Room 600
New York, NY 10041
Att.: Robert Kramer
Chief Financial Officer
Fax No.: 212-638-8478
Either Party may at any time, by notice to the other Party delivered or mailed
in such manner, change the address to which communications to it are to be sent.
10.07 Relationship. The performance by each Party of its duties and obligations
------------
under this Agreement shall be that of an independent contractor and nothing
contained in this Agreement shall create or imply an agency relationship between
Intelisys and RoweCom. This Agreement shall not be deemed to constitute a joint
venture or partnership between the Parties.
10.08 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
10.09 Covenant of Further Assurances. The Parties covenant and agree that,
------------------------------
subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the Parties shall execute and deliver any
further legal instruments and perform any acts which are or may become necessary
to effectuate the purposes of this Agreement.
10.10 Entire Understanding. This Agreement and the Exhibits to this Agreement
--------------------
represents the entire understanding of the Parties with respect to its subject
matter and supersedes all previous writings, correspondence and memoranda with
respect thereto between the Parties, and no representations, warranties,
agreements or covenants, express or implied, of any kind or character whatsoever
with respect to such subject matter have been made by either Party to the other,
except as expressly set forth in this Agreement.
10.11 Amendments. This Agreement may be modified or amended only by a document
----------
duly executed on behalf of each Party.
10.12 Third Party Beneficiaries. Each Party intends that this Agreement shall
-------------------------
not benefit or create any right or cause of action in or on behalf of any person
or entity other than RoweCom and Intelisys.
10.13 Publicity. Each Party shall (1) submit to the other all advertising,
---------
written sales promotions, press releases and other publicity matters relating to
this Agreement in which the other Party's name or mark is mentioned or which
contains language from which the connection of said name or mark may be inferred
or implied and (2) not publish or use such advertising, sales promotions, press
releases or publicity matters without the other Party's consent, which consent
will not be unreasonably withheld; provided that, notwithstanding any other
-------------
provision of this Agreement, no consent shall be required in the event that
either Party is engaged in an initial public offering or other
-11-
<PAGE>
transaction that requires, in the reasonable judgment of that Party, the
provision of such information to third parties, including without limitation,
disclosing the relationship between the Parties, or the transactions
contemplated by this Agreement or the filing of a copy of this Agreement as part
of its registration statement.
10.14 Force Majeure. Neither Party shall be liable, or be deemed to be in
-------------
default, to the other Party hereunder by reason or account of any delay or
omission caused by epidemic, action of the elements, strikes, lockouts, sabotage
(except as caused by a Party's employees or agents), labor disputes,
governmental law, regulations, ordinances, order of a court of competent
jurisdiction, executive decree or order, act of God or public enemy, war, riot,
civil commotion, earthquake, flood, explosion, casualty, embargo or any other
similar cause beyond the control of such Party (each, a "Force Majeure Event").
-------------------
The time of performance of each Party's obligations under this Agreement shall
be extended for so long as such Force Majeure Event continues; provided that in
the event such period of extended delay exceeds 30 days in respect of a Party,
the other Party may terminate this Agreement upon notice to such Party.
-12-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representative as of the date first written
above.
INTELISYS ELECTRONIC COMMERCE LLC ROWECOM, INC.
By: __________________________________ By: ___________________________________
Name:_________________________________ Name:__________________________________
Title:________________________________ Title:_________________________________
Date:_________________________________ Date:__________________________________
-13-
<PAGE>
EXHIBIT A
INTELISYS SOFTWARE LICENSE AGREEMENT
-14-
<PAGE>
EXHIBIT B
FEES
FEE REVENUE
(a) For purposes of calculating payments due Intelisys under Section 2.03, Fee
Revenue means amounts billed by RoweCom to customers that purchase Knowledge
Products as a result of Intelisys' referrals (as documented by a Customer
Agreement) in respect of RoweCom Services, ***/3/
(b) For purposes of calculating payments due RoweCom under Section 2.03, Fee
Revenue means license fees billed by Intelisys to customers that purchase
Intelisys Software or Intelisys Services as a result of RoweCom's referrals (as
documented by a Customer Agreement), ***/4/.
- -------------------------------------
/3/ Confidential treatment has been requested for this potion of this exhibit. A
complete copy of this exhibit, including the redacted potion, has been file with
the Securities and Exchange Commission separately.
/4/ Confidential treatment has been requested for this potion of this exhibit. A
complete copy of this exhibit, including the redacted potion, has been file with
the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT C
WEB SITE METERING FORMULA
2
<PAGE>
EXHIBIT 10.17
MARKETING AND INTEGRATION AGREEMENT BETWEEN
ROWECOM INC. AND BARNESANDNOBLE.COM INC.
<PAGE>
MARKETING AND INTEGRATION AGREEMENT
-----------------------------------
This MARKETING AND INTEGRATION AGREEMENT dated as of August 20, 1998,
between RoweCom Inc., a Delaware corporation ("RCI"), and barnesandnoble.com
---
inc., a Delaware corporation ("BN").
--
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature (the "RCI Products") and, in connection therewith, RCI collaborates with
------------
such entities to enhance existing intranet networks (each, a "RCI Intranet") to
------------
enable such entities to purchase Subscriptions, books and other knowledge
products and services via their intranets (the "RCI Service"); and
-----------
WHEREAS, each RCI Intranet contains a home page created by RCI (the "RCI
---
Service Home Page"); and
- -----------------
WHEREAS, RCI operates a web site on the World Wide Web having the URL,
www.rowe.com," which describes RCI's business and the products and services it
offers to the public (the "RCI Site"); and
--------
WHEREAS, BN, among other things, has implemented a Business Solutions
Program (the "Business Solutions Program") pursuant to which BN has created a
--------------------------
unique web site (the "Business Solutions Site") (the RCI Site and the Business
-------------------------
Solutions Site, each individually a "Site") which is accessible solely by the
intranets of Business Solutions Program participants (the "BN Intranets" and,
------------
together with the RCI Intranets, the "Intranets") and such Business Solutions
Site, among other things, sells and provides information regarding books,
software and Subscriptions (the "BN Products") to users of BN Intranets; and
-----------
WHEREAS, the parties hereto desire to join their efforts with respect to
the offering of products in the Intranets via the Business Solutions Site and
the RCI Service and, at RCI's option, via the RCI Site, by, among other things,
creating links between the Business Solutions Site and the RCI Service,
exchanging product databases, and, if the parties hereto so agree, ultimately,
launching a single fully integrated service for all of the business-to-business
services of both parties, including any related web sites (the "Integrated
----------
Service"), all on the terms and conditions set forth herein.
- -------
<PAGE>
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS For purposes of this Agreement, the following terms have the
-----------
respective meanings set forth below:
AGGREGATE REVENUE shall mean the total payment made by one party to the
other with respect to the revenue sharing terms and conditions of this
Agreement.
BN AFFILIATES PROGRAM shall mean the BN program whereby links are
established from the web sites of certain third parties to the BN Site in
connection with the sale of books and other BN Products.
BNSITE shall mean the web site on the World Wide Web operated by BN and
having the URL, "www.bamesandnoble.com."
BUSINESS SUBSCRIPTION shall mean a Subscription which is a business to
business or professional Subscription, or personal subscription purchased
at a business location, whether or not such Subscription is currently
offered by RCI.
CONSUMER SUBSCRIPTION shall mean a Subscription which is not a business to
business or professional Subscription.
CURRENT CUSTOMERS shall mean customers of BN and RCI who are customers of
BN or RCI, as the case may be, as of the date hereof.
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and BN
regarding the provision of the Integrated Service as described in Section
3(b)(v) hereof.
E-NEWS shall mean Electronic Newsstand, Inc., a Delaware company.
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Schedule 1.
LEVELS refers to the initial services provided by BN and RCI that are
described in Section 2 of this Agreement.
NET SALES PRICE shall mean the price of a book sold to a customer
<PAGE>
by BN less any amounts added for ***1.
-
NEW CUSTOMERS shall mean any customers of BN or RCI who become customers of
BN or RCI, as the case may be, after the date hereof
PHASES shall mean the three stages of development, promotion, cross-
branding, and integration of Sites as more fully described in Section 4
hereof
SUBSCRIPTION means any magazines, serials, or other publications, embodied
in paper or digital media.
TRADEMARK means names, trademarks, service marks, trade names, labels,
logos, designs or other designations.
Each of the following terms have the meanings ascribed to it in the section
set forth opposite such term:
BN Preamble
BN Business Solutions Site Preamble
BN Database Section 4(b)(i)(1)
BN Intranets Preamble
BN Products Preamble
BN Trademarks Section 3(a)(i)
Business Solutions Program Preamble
Change of Control Section 8(c)
E-News Subscriptions Section 3(b)(iii)(1)
Integrated Service Preamble
Intranets Preamble
Level One Service Section 2(b)
Level Two Service Section 2(c)
RCI Preamble
RCIDatabase Section 4(b)(i)(2)
RCI Intranet Preamble
RCI Products Preamble
RCI Service Preamble
RCI Service Home Page Preamble
RCI Site Preamble
RCI Trademarks Section 3(a)(ii)
____________________
1 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
Site Preamble
2. DESCRIPTION OF SERVICES
a. GENERAL DESCRIPTION The services that are covered by this Agreement
include services which are currently provided by one of the parties
and services which may be jointly developed by the parties as a result
of this and subsequent agreements between them. Current services
include Level One and Level Two. Future services may include if the
parties so agree, the Integrated Service.
b. LEVEL ONE SERVICE. Level One service is currently provided by BN for
its business to business clients. This service is marketed as the BN
Business Solutions Program. It includes the ability to order and pay
for books, magazine subscriptions and software through the BN Business
Solutions Site (and may include any other consumer oriented products
or services which may become available to users of the BN Site at any
time after the date hereof, including, without limitation, article and
document search and delivery services, customized recommendations and
related value added services). Through this service BN shall continue
its practice of utilizing (i) a number of payment options for its
participants which shall include credit cards, debit cards, purchasing
cards, purchase orders and letters of credit for foreign purchasers,
and (ii) tracking and reporting systems which provide users the
ability to understand and manage their purchases. Level One service
will be enhanced under this Agreement to include a comprehensive
catalog of subscription titles provided by RCI. The Level One service
will be offered by both BN and RCI, but shall be implemented solely by
BN. BN shall not create any solely business-to-business enhancements
on the Level One service without the prior written consent of RCI.
c. LEVEL TWO SERVICE. Level Two service is currently provided by RCI for
its business to business clients. This service is marketed as the
RCI's kStore service. It includes comprehensive catalogs of
Subscriptions, books, and other knowledge products, and enables users
to order and pay for these items using RCI's kStore web site. Level
Two service will be enhanced under this Agreement to include catalogs
of books and software titles provided by BN. Participants of this
service shall receive all of the benefits of Level One
<PAGE>
service participants and will have the option of receiving the
additional benefits of Level Two services offered by RCI which shall
include enhanced management and payment controls with respect to such
clients' intranet users. The Level Two service will be offered by both
BN and RCI, but shall be implemented solely by RCI.
d. INTEGRATED SERVICE. The Integrated Service may be implemented by
mutual agreement of the parties hereto. If implemented, the Integrated
Service will integrate the Level One and Level Two services into a
family of services offered in a joint integrated site supported by
both parties. The anticipated structure and characteristics of the
Integrated Service are described in Section 4(c) hereof.
e. COMPETITION BETWEEN SERVICES. Level One and Level Two services are
designed to be complementary in nature, responding to different client
preferences and requirements. Both services will be offered by both
parties to this Agreement with revenue from both services shared as
provided in Schedule 1 attached hereto. It is anticipated that,
ultimately, subject to subsequent agreement between the parties, these
two services will be fully integrated into the Integrated Service
which will be jointly developed and offered by both parties. Until
such time BN will refrain from enhancing the Level One service to
include any control mechanism whereby a corporate participant can
state authorization levels or any permission requirement matrix.
3. LICENSE & MARKETING ARRANGEMENTS
--------------------------------
a. License
i Subject to the terms and conditions of this Agreement, including,
but not limited to, the provisions of Section 9 hereof, BN hereby
grants to RCI a non-exclusive, non-transferable, royalty-free
right and license (excluding the right to sublicense) (i) to use,
copy, distribute, display and allow third parties to access the
BN Database and the BN books search engine and Business Solutions
software solely to market and promote books and the BN Products
to business-to-business clients as described more fully in this
Agreement, and (ii) to reproduce and display all Trademarks
relating to BN (the "BN Trademarks")
<PAGE>
solely for the purposes described herein; provided, however, that
in performing hereunder RCI shall not make any specific use of
any BN Trademark without first submitting a sample of the same to
BN and obtaining BN's prior consent, which consent shall not be
unreasonably withheld or delayed. Such license shall terminate
upon the effective date of the expiration or termination of this
Agreement.
(ii) Subject to the terms and conditions of this Agreement, including,
but not limited to, the provisions of Section 9 hereof, RCI
hereby grants to BN a non-exclusive, non-transferable, royalty-
free right and license (excluding the right to sublicense) (i) to
use, copy, distribute, display, allow third parties to access the
RCI Database and the RCI Subscription search engine and related
transaction software solely to market and promote RCI Products,
RCI services, and Subscriptions to business-to-business clients
as described more fully in this Agreement, and (ii) to reproduce
and display all Trademarks relating to RCI (the "RCI Trademarks")
solely for the purposes described herein; provided, however, that
in performing hereunder BN shall not make any specific use of any
RCI Trademark without first submitting a sample of the same to
RCI and obtaining RCI's prior consent, which consent shall not be
unreasonably withheld or delayed. Such license shall terminate
upon the effective date of the expiration or termination of this
Agreement.
b. MARKETING ARRANGEMENTS
i. Marketing Arrangements. The parties hereby agree to implement the
----------------------
marketing, promotion, and sales efforts described below in accordance
with the Development Plan described in Section 3(b)(v) hereof.
ii Exclusivity of BN. During the Term, RCI agrees that it will not in any
-----------------
area of the Integrated Service, the RCI Service, the RCI Site, or the
RCI Service Home Page (or any similar customized home pages of RCI
Intranets) or the RCI Products promote or link to the web site of any
third party booksellers, nor will it permit any other person or entity
to sell books online in any area of the Integrated Service, the
<PAGE>
RCI Service, the RCI Site, or the RCI Service Home Page, provided that
the parties understand and agree that the customer owning such
intranet cannot be restricted in any way from having relationships
with or links to the web sites of third party booksellers. RCI shall
notify BN if it intends to enter into any market where it would offer
non-English language books, and if BN either offers such non English
language books or agrees to carry such non-English language books then
the parties shall work together in good faith to enter into an
agreement covering such non-English language books. If BN does not
then offer such non-English language books and does not agree to carry
such non-English language books, RCI may enter into an agreement with
a third party vendor to provide such non-English language books.
iii Exclusivity of RCI Except as set forth in clause (2) below, during
------------------
the Term, BN agrees that it will not in any area of the Integrated
Service, the BN Site, the BN Business Solutions Site (or any BN
customized home pages of BN Intranets), or the BN Products promote or
link to the web site of any third party Subscription providers, nor
will it permit any other person or entity to sell Subscriptions online
in any area of the BN Site, the BN Business Solutions Site (or any BN
customized home pages of BN Intranets), or the BN Products, provided
that the parties understand and agree that (A) the customer owning
such intranet cannot be restricted in any way from having
relationships with or links to the web sites of third party
Subscription providers; and (B) BN currently has an agreement to buy
and to offer to its Current Customers certain Consumer Subscriptions
(the "E-News Subscriptions") through the BN Site, which Subscriptions
shall not be subject to the terms of this Agreement for the duration
of BN's agreement with E-News. All Subscriptions other than the E-
News Subscriptions shall be subject to the exclusive marketing
arrangement set forth in this Section 3(b)(iii)(1). BN shall notify
RCI if it intends to enter into any market where it would offer non-
English language Subscriptions, and if RCI either offers such non-
English language Subscriptions or agrees to carry such non-English
language Subscriptions then the parties shall work together in good
faith to enter into an agreement covering such non-English language
Subscriptions. If RCI does not then offer such non-English language
Subscriptions and does not agree to carry such non-English language
<PAGE>
Subscriptions, BN may enter into an agreement with a third party
vendor to provide such non-English language Subscriptions.
iv. Future Sales Activities of the Parties. To the extent that BN enetrs
------------------------------
into any new third party relationships with respect to the sale or
promotion of its services in geographic locations not yet undertaken
by BN, BN agrees that during the Term BN will, in good faith, use its
best efforts to include the RCI Products as part of such undertaking.
In addition, to the extent that RCI enters into any new third party
relationships with respect to the sale or promotion of RCI Services in
geographic locations not yet undertaken by RCI, RCI agrees that during
the Term RCI will, in good faith, use its best efforts to include the
BN Products as part of such undertaking.
v. Development Plan - No later than November 1, 1998, RCI and BN, shall
----------------
agree upon a Development Plan that will include a technology and sales
strategy and budget for the balance of 1998 and the full calendar year
1999. The Development Plan will include a specific process and
timetable within the calendar year 1999 for the parties to decide
whether or not to develop jointly the Integrated Service. The parties
shall determine whether to proceed with Phase Three within
approximately twelve months following the date hereof or at such other
time as the parties shall otherwise agree.
c. During the 60 day period following the date of this Agreement the parties
agree to work together in good faith to enter into another agreement with
respect to the consumer market which agreement will cover the parties
relationship with respect to the BN Site and the RCI Site. Until such
agreement is reached, neither party shall be precluded from working with
third party vendors of books and/or Subscriptions on the BN Site or the RCI
Site, as the case may be.
4. PHASES OF DEVELOPMENT, MARKETING & INTEGRATION
----------------------------------------------
A. PHASE ONE - LINKING AND PROMOTIONS
i Internet Links to Other Party's Home Page
-----------------------------------------
(1) knowledgeStore and knowledgeLibrary Link to
-------------------------------------------
<PAGE>
the Business Solutions Program. As promptly as practicable
------------------------------
after the date hereof, RCI will place a hyperlink from the
knowledgeStore and knowledgeLibrary sections of the RCI Site
to the home page of the BN Business Solutions Site. Such
link shall contain a reference to the Business Solutions
Program and shall otherwise contain text and be in a format
agreed upon by the parties hereto.
(2) RCI Banner Advertisement on the Business Solutions Home
-------------------------------------------------------
Page. As promptly as practicable after the date hereof, BN
----
will place a banner advertisement (which shall include a
hyperlink) on the home page of the BN Business Solutions
Site that shall link to the knowledgeStore area of the RCI
Site. Such link shall contain a reference to RCI services
and shall otherwise contain text and be in a format mutually
agreed upon by the parties hereto.
ii. Joint Sales Efforts.
-------------------
(1) As promptly as practicable after the date hereof, each of BN
and RCI will begin coordinating their marketing and selling
efforts (as described below) with respect to the services of
both parties. The officers of each party (whose primary
responsibilities involve marketing and sales) will be
responsible for active coordination by both parties in order
to maximize the combined revenue of both parties. The
parties' respective responsibilities will be as follows:
(A) Enterprise Sales. RCI and BN shall be responsible for
----------------
managing the process of soliciting business from
prospective and existing clients who may be interested
in implementing on their respective Intranets the Level
One or Level Two services (such services are described
in Section 2 hereof).
(B) Third Party Sales. BN and RCI shall approach
-----------------
publishers, authors, web site owners and operators and
other third
<PAGE>
parties with whom RCI and BN have existing business
relationships to generate customer leads in order to
gain participation in both of their services.
(C) Sales Support. Every Level One and Level Two Account
-------------
will be assigned an account team made up of BN and RCI
personnel. BN will be responsible for merchandising
support for book sales, and RCI will be responsible for
merchandising support for Subscription sales. The BN
representative will head the account team for Level One
accounts and the RCI representative will head the
account team for Level Two accounts.
(D) Sales Channels. In the event that any third party
--------------
sales channel (e.g., Intellysis) facilitates the
participation of any Level One or Level Two service
corporate client, then the parties agree to renegotiate
(and equitably adjust) the terms of consideration set
forth in Schedule I hereto to take into consideration
any commission payment which may be due to such third
party sales channel.
b. PHASE TWO - EXCHANGE OF DATABASES. As promptly as practicable after
the parties shall have commenced Phase One, the parties will perform
the following obligations:
i Delivery of Respective Databases.
--------------------------------
(1) BN will deliver to RCI, in a format to be mutually agreed
upon by the parties, BN's then existing database of books.
At such time, BN will use its commercially reasonable best
efforts to increase its book inventory to include additional
products which pertain to the areas of Health Services,
Financial Services, Professional Services, Academia and High
Technology, devoting particular attention to obtaining
scientific, technical and medical books. Thereafter, no
later than the first day of each week, BN shall
<PAGE>
deliver to RCI any updates to such database. (The database
described in this clause (1) and all updates thereto are
hereinafter referred to as the "BN Database".) BN agrees to
consider all customer requests for books not included in the
BN Database and to obtain such books to the extent
practicable; provided, that inclusion of such book does not
violate any BN internal policy. Notwithstanding Section
3(b)(ii) hereof, if BN is unable to supply a requested book
in a timely manner, RCI may, at its option and upon prompt
advance notice to BN, obtain the book from a third party.
(2) RCI will deliver to BN, in a format to be agreed upon by the
parties, RCI's then existing database of Subscriptions.
Thereafter, no later than the first day of each week, RCI
shall deliver to BN any updates to such database. (The
database described in this clause (2) and all updates
thereto are hereinafter referred to as the "RCI Database.")
RCI agrees to consider all customer requests for
Subscriptions not included in the RCI Database and to obtain
such Subscriptions to the extent practicable; provided, that
inclusion of such Subscriptions does not violate any RCI
internal policy. RCI further agrees to actively assist BN in
identifying new book titles in connection with BN's
obligations described in clause (1) above. Notwithstanding
Section 3(b)(iii) hereof, if RCI is unable to supply a
requested Subscription in a timely manner, BN may, at its
option and upon prompt advance notice to RCI, obtain the
Subscription from a third party.
ii. BN Business Solutions Site Link to the Magazine Area. BN will
----------------------------------------------------
continue its current practice of placing a link on the home page
of the BN Business Solutions Site accessing the area of the BN
Business Solutions Site where Subscriptions can be purchased.
iii. RCI Link to the Book Area. RCI shall place a link on the RCI
-------------------------
Service Home Page accessing the area of the RCI Service where
books can be purchased.
<PAGE>
iv. Joint Sales Efforts. The parties shall continue to perform their
-------------------
selling obligations as described in Section 4(a)(ii) hereof.
v. Orders and Product Fulfillment. All products purchased through
------------------------------
the BN Business Solutions Site other than Subscriptions shall be
processed and fulfilled by BN. All products purchased through the
RCI Service other than books shall be processed and fulfilled by
RCL Book orders purchased through the RCI Service shall be
transmitted to BN by RCI and shall include all payment and
customer information related thereto. BN shall then process such
orders and ship the products to the customer. Subscription orders
purchased through the BN Business Solutions Site shall be
transmitted to RCI by BN and shall include all payment and
customer information related thereto. RCI shall then process such
orders and cause the products to be shipped to the customer.
c. PHASE THREE - IMPLEMENTATION OF THE INTEGRATED SERVICE. In accordance
with the timetable set forth in the Development Plan, the parties
shall determine whether to proceed with Phase Three. If they so agree
explicitly and in writing (pursuant to an amendment to this Agreement
or otherwise), then, as promptly as practicable thereafter, the
parties will merge their heretofore parallel sites into a single
Integrated Service provided through a single web site all on the terms
and conditions as the parties shall mutually agree.
5. FEES AND PAYMENTS
-----------------
a. FEE STRUCTURE. No later than fifteen (15) days after the end of each
calendar month, each party shall remit to the other party an amount
equal to such party's payment as specified in the Fee Schedule
attached hereto as Schedule I.
b. DISCOUNTS. From time to time, the parties acknowledge that BN may
offer a ***2 discount to Business Solutions Program customers in
-
accordance with the terms and conditions of
- -----------------------
2 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted
portion, has been filed with the Securities and Exchange Commission
separately.
<PAGE>
the Business Solutions Program. In the event that BN does not offer
such standard discount to Business Solutions Program customers, then
with respect to book purchases, ***3 as specified in the Fee Schedule.
-
c. RCI STANDARD FEE. In the event that RCI increases or decreases the
***4 per Subscription fee that RCI currently charges its Subscription
-
customers, then the fees due to BN for Subscription purchases as
specified in the Fee Schedule shall be increased or decreased in
proportion to the increase or decrease in the Subscription customers
fee.
d. SALES OF ADDITIONAL PRODUCTS. In the event that (i) BN offers for
sale products other than the BN Products, or (ii) RCI offers for sale
products other than the RCI Products, then the parties shall at such
time determine amounts, if any, to be shared between them with respect
to revenues received in connection therewith. Nothing herein shall be
deemed to obligate either party to participate in any such future
revenue sharing.
e. RENEGOTIATION OF THE TERMS OF CONSIDERATION. The parties hereby agree
that on or about ***5 after the date hereof and, thereafter, on or
-
about each ***6 of the date hereof, the parties will review the fee
-
structure set forth in this Section 5 and the Fee Schedule and will,
in good faith, renegotiate the terms of consideration hereunder to the
extent necessary, if at all, to create a more equitable financial
relationship between the parties. In connection therewith, the
parties will execute an amendment to this Agreement substantially in
the form attached hereto as Schedule 2. Except as expressly modified
therein, the terms of consideration herein shall remain in full
force and effect.
- -----------------------
3 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
4 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
5 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
6 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
in the form attached hereto as Schedule 2. Except as expressly
modified therein, the terms of consideration herein shall remain in
full force and effect.
f. PURCHASES MADE VIA THE RCI SITE. In the event that after the date
hereof RCI enhances the RCI Site so that customers can purchase books
and/or Subscriptions directly from the RCI Site, then RCI may become a
member of BN's Affiliates Program pursuant to which ***7 on the BN
-
Site pursuant to a link from the RCI Site to the BN Site.
6. REPRESENTATIONS AND WARRANTIES
------------------------------
A. AUTHORIZATION, ETC. Each party hereby represents and warrants to the
other that: (i) it has the requisite power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby; and (ii) this Agreement has been duly authorized,
executed and delivered by such party, constitutes the legal, valid and
binding obligation of such party and is enforceable against such party
in accordance with its terms, except to the extent such enforceability
may be limited by bankruptcy, reorganization, insolvency or similar
laws of general applicability governing the enforcement of the rights
of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
B. PROPRIETARY INFORMATION. Each party hereby represents and warrants to
the other party that: (a) the provision by such party of proprietary
information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly
inform the other party in the event that such party becomes aware that
any third party has filed or threatened to file any suit based on any
alleged violation of any such proprietary or intellectual property
rights of such party; and (c) each party holds title or license rights
sufficient to permit it to grant the licenses granted under Section 3
hereof.
C. THIRD PARTY RIGHTS. Each party represents and warrants to
- -----------------------
7 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
the other party that: (a) it is not bound by any agreement or
obligation (and will not enter into any agreement or obligation) that
could materially interfere with the performance of its obligations
under this Agreement; and (b) no approval, authorization or consent of
any governmental or regulatory authority is required to be obtained or
made by it in order for it to enter into and perform its obligations
under this Agreement.
7. POLICIES AND CUSTOMER INFORMATION
---------------------------------
a. All customers will be deemed to be customers of the party that accepts
and processes the product order. Accordingly, all of such party's
rules, policies and operating procedures concerning customer orders,
customer service and book sales will apply to those customers. Each
party may change its policies and operating procedures at any time;
provided that, to the extent practicable, it promptly notifies the
other party of such changes. The parties hereto hereby agree that
title to any customer information, including but not limited to the
name, address, and e-mail address of the customer, shall be owned
solely by the party accepting and processing the applicable customer
order; it being understood that overlaps may exist with respect to
customer information to the extent that customers purchase products
from BN and/or RCI through more than one method (i.e., via the
Internet and Intranets) or purchase products from one party which are
then processed by the other party.
b. CURRENT CUSTOMER LISTS. Upon execution of this Agreement, each party
is delivering to the other party A list setting forth such party's
intranet Current Customers as of the date hereof. The list of Current
BN Customers is attached hereto as Schedule 3 and the list of Current
RCI Customers is attached hereto as Schedule 4. This information shall
be considered confidential and shall be subject to Section 10 hereof.
BN and RCI each agree not to market or sell to each other's current
customers.
c. BOOKS AND RECORDS. Each party will maintain true and correct books of
account containing a record of all information necessary to calculate
Net Sales for a period of one (1) year following the date of each
transaction subject to this Agreement. Subject to Section 10 hereof,
each party or each party's agent shall be entitled to review, at such
party's
<PAGE>
cost, during the other party's regular business hours and upon not
less than three business days notice, such books and records for the
purpose of verifying the accuracy of such calculation and the amount
of payments due hereunder. Any such review will be made not more than
once each year during the term of this Agreement. If any such review
indicates that during the period reviewed the other party has
underpaid amounts to the reviewing party by more than ten percent
(10%) of the amounts actually paid during the period reviewed, then
such party shall reimburse the reviewing party for all costs and
expenses incurred by the reviewing party in performing the review.
8. TERM, TERMINATION
-----------------
a. The term of this Agreement shall commence on the date hereof and shall
continue for a period of five years, unless earlier terminated by
either party as hereinafter provided (the "Term"). Thereafter, this
Agreement shall be automatically renewable for successive one year
periods until either party notifies the other party of its intention
to terminate this Agreement at least ninety (90) days prior to the
expiration of the then current term.
b. Either party shall have the right to terminate this Agreement by
delivery of written notice of termination to the other party hereto in
the event such other party materially breaches any representation,
warranty, covenant or agreement made by it hereunder or otherwise
fails to perform any of its material obligations hereunder and such
breach or failure is not cured within fifteen (15) days after delivery
of such notice; provided, however, that each party shall be entitled
to terminate this Agreement effective upon delivery of notice in the
event of a breach by the other party of the provisions of Sections 10
or 11 hereof. Failure to reach agreement upon a Development Plan by
November 1, 1998, or failure to implement the Development Plan in good
faith and in a timely manner will be considered a material breach.
c. Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided, that the party subject to such Change of Control notifies
the other party of such event no later than the effective date
thereof. Change of Control
<PAGE>
shall mean a merger or consolidation of the company with or into
another entity (other than a merger or reorganization involving only a
change in the state of the incorporation of the company, or the
acquisition by the company of other businesses where the company
survives as a going concern), the sale of all or substantially all of
a party's assets to any other person, or the issuance of shares of
capital stock of the company in a transaction or series of related
transactions in which the persons acquiring such shares acquire more
than 50% voting control of the company. Notwithstanding the foregoing,
an initial public offering shall not be deemed to be a Change of
Control.
d. Effective on the basis of the first quarter of 1999 and all subsequent
calendar year quarters, ***8
-
e. Except as otherwise provided in this Agreement, upon such effective
date of termination, each party's rights and obligations hereunder
shall terminate; provided, however, that the rights and obligations of
the parties hereto under Section 9 through 14 hereof shall survive
such expiration and termination.
9. TRADEMARKS
----------
Each party hereby covenants and agrees that the Trademarks of the other
party are and shall remain the sole and exclusive property of that party
and neither party shall hold itself out as having any ownership rights with
respect thereto or except as specifically granted hereunder, any other
rights therein. Any and all goodwill associated with any such rights shall
inure directly and exclusively to the benefit of the owner thereof. Each
party agrees to use the Trademarks of the other party in the manner
requested by the owner of such marks and shall include all legends, symbols
or other identifying matter as the owner of such Trademark may reasonably
request from time to time.
10. CONFIDENTIALITY
---------------
Except as otherwise provided in this Agreement or with the
- -----------------------
8 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
consent of the other party hereto, each of RCI and BN agrees that all
information including, without limitation, the terms of this Agreement,
business and financial information, customer and vendor lists and pricing
and sales information, concerning BN or RCI, respectively, or any of its
affiliates provided by or on behalf of any of them shall remain strictly
confidential and secret and shall not be utilized, directly or indirectly,
by such party for its own business purposes or for any other purpose except
and solely to the extent that any such information is generally known or
available to the public through a source or sources other than such party
hereto or its affiliates. Notwithstanding the foregoing, each party is
hereby authorized to deliver and file a copy of any such information (a) to
any person pursuant to a subpoena issued by any court or administrative
agency, (b) to its accountants, attorneys or other agents on a confidential
basis and (c) otherwise as required by applicable law, rule, regulation or
legal process including, without limitation, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
11. PUBLICITY
---------
a. Notwithstanding the provisions of Section 10 hereof, promptly after
the execution of this Agreement, the parties shall jointly create and
approve a press release and communications strategy describing the
terms of the relationship between the parties that has been
established by this Agreement.
b. Subject to Section 10 hereof and clause (a) above, neither party shall
(i) create, publish, distribute or permit any written material which
makes reference to the other party hereto without first submitting
such material to the other party and receiving the prior written
consent of such party, which consent shall not be unreasonably
withheld or delayed, nor (ii) disclose to the public or any third
party the relationship between them or the transactions contemplated
by this Agreement without receiving the prior written consent of the
other party, which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, no consent shall be required
in the event that either party is engaged in an initial public
offering or other transaction which, in the reasonable opinion of such
party after consultation with their counsel, requires the provision
<PAGE>
of such information to third parties; provided, that such party must
still give the other party prior notice of such disclosure.
12. INDEMNIFICATION
---------------
a. Each party (the "Indemnifying Party") hereby agrees to indemnify and
hold harmless the other party and its subsidiaries and affiliates, and
their respective directors, officers, employees, agents, shareholders,
partners, members and other owners, against any and all claims,
actions, demands, liabilities, losses, damages, judgments,
settlements, costs and expenses (including reasonable attorneys' fees)
(any or all of the foregoing hereinafter referred to as "Losses")
insofar as such Losses (or actions in respect thereof arise out of or
are based on any representation or warranty made by the Indemnifying
Party being untrue or any breach by the Indemnifying Party of any
covenant or agreement made by it herein
b. Except to the extent that either party provides or otherwise licenses
materials to the other party as required hereunder, each party will
indemnify and hold the other party harmless from all Losses relating
to the development, operation, maintenance and Content (as defined
below) of the Indemnifying Party's Site or Intranet program, as the
case may be.
c. For purposes herein, "Content" shall mean BN Content or RCI Content,
as the case may be, as defined below.
i. "BN Content" shall mean proprietary content of BN contained on
----------
the BN Business Solutions or BN Site and shall include only that
content created by BN, its employees or other persons
contractually bound to BN to create such content. In no event
shall the term BN Content be deemed to include any content
created or transmitted by users of the BN Business Solutions
Site, BN Site or BN Intranets.
ii. "RCI Content" shall mean proprietary content of RCI contained on
-----------
RCI Sites and RCI Service Home Pages and shall include only that
content created by RCI, its employees or other persons
contractually bound to RCI to create such content. In no event
shall the term RCI
<PAGE>
Content be deemed to include any content created or transmitted
by users of the RCI Site or RCI Intranets.
13. LIMITATION OF LIABILITY
-----------------------
a. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES,
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF REVENUE OR LOST
PROFITS, ARISING FROM ANY PROVISION OF THIS AGREEMENT, EVEN IF SUCH
PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
b. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
14. MISCELLANEOUS
-------------
a. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the
conflict of law principles thereof.
b. This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes any and all
prior agreement, written and oral, with respect thereto. No change,
amendment or modification of any provision of this Agreement shall be
valid unless set forth in a written agreement signed in counterparts
or otherwise by both parties.
c. Any and all notices and other communications to either party hereunder
shall be in writing and deemed delivered (i) upon receipt if by hand,
overnight courier or telecopy (provided that in the event of a
telecopy, concurrently therewith a copy is mailed in accordance with
clause (ii) hereof) and (ii) three days after mailing by first class,
certified mail, postage prepaid, return receipt requested (1) if to
RCI to 725 Concord Ave., Cambridge, Ma 02138, attention: Louis
Hernandez; telecopier number: 617-497-
<PAGE>
6800, and (2) if to BN to 76 Ninth Avenue, New York, New York 10011,
attention: Vice President, New Business Development, telecopier no.:
212-414-6120, or to such other address for a party as shall be
specified by like notice.
d. This Agreement does not constitute either party an agent, legal
representative, joint venturer, partner or employee of the other
for any purpose whatsoever and neither party is in any way authorized
to make any contract, agreement, warranty or representation or to
create any obligation, express or implied, on behalf of the other
party hereto.
e. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and together which shall constitute
one and the same instrument.
f. This Agreement and the provisions hereof shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and
their permitted assigns. Neither party may assign its rights or
obligations under this Agreement without the consent of the other
party (which consent shall not be unreasonably withheld or delayed),
except to the extent permitted under Section 8(c) hereof.
g. Each provision of this Agreement shall be considered severable and if,
for any reason, any provision hereof is determined to be invalid and
contrary to, or in conflict with, any existing or future law or
regulation of any court or agency having valid jurisdiction, such
shall not impair the operation or affect the remaining provisions of
this Agreement; and the latter shall continue to be given full force
and effect and bind the parties hereto and such invalid provisions
shall be deemed not to be a part of this Agreement.
h. Neither party shall be liable to fulfill its obligations hereunder, or
for delays in performance, due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions
of civil or military authority, fires, strikes, floods, epidemics,
riots or acts of war.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ROWECOM,
By: /s/ Louis Hernandez
----------------------------------
Louis Hernandez
Executive Vice President
Chief Financial Officer
BARNESANDNOBLE.COM
By: /s/ Carl Rosendorf
--------------------------------
Carl Rosendorf
Vice President Marketing, Sales
Business Development
<PAGE>
Schedule I
----------
Fee Schedule
------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
New Customers Accessing Current RCI Customer Current BN
the BN or RCI Service Orders Customer
Orders
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOOKS BN PROVIDES BOOK TO CUSTOMER BN provides book to Current BN provides book to
Customer Current Customer
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
BN pays ***/9/ of Net Sales BN pays ***/10/ of Net ***/11/
- -- --
Price to RCI Sales Price to RCI,
pursuant to Section 5B
- ---------------------------------------------------------------------------------------------------
CONSUMER RCI PROVIDES SUBSCRIPTION TO RCI PROVIDES RCI PROVIDES
SUBSCRIPTIONS CUSTOMER SUBSCRIPTION TO SUBSCRIPTION TO
CURRENT CUSTOMER CURRENT CUSTOMER
RCI pays ***/12/ of RCI Net
--
Sales Price per Subscription RCI retains ***/13/ of all RCI pays ***/14/ of
-- --
to BN* revenue from sales RCI Net Sales Price per
Subscription to BN*
- ---------------------------------------------------------------------------------------------------
BUSINESS RCI PROVIDES SUBSCRIPTION RCI PROVIDES SUBSCRIPTION RCI PROVIDES
SUBSCRIPTIONS TO CUSTOMER TO CURRENT SUBSCRIPTION TO
- ---------------------------------------------------------------------------------------------------
</TABLE>
/9/ Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/10/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/11/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/13/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/14/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CUSTOMER CURRENT CUSTOMER
RCI pays ***/15/ of RCI retains ***/16/ RCI pays ***/17/ per
-- -- --
per Subscription to BN of all revenue sales Subscription to BN
- ----------------------------------------------------------------------------------------------------
</TABLE>
* In the event that RCI sources these titles directly from the publisher, and
their margins change significantly, RCI will adjust its payment to BN
proportionately
______________
/15/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/16/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/17/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
SCHEDULE 2
----------
FORM OF AMENDMENT
AMENDMENT NO. _____
This Amendment No. ______ is entered into between RoweCom Inc., a Delaware
corporation ("RCI"), and barnesandnoble.com inc., a Delaware corporation ("BN")
---
pursuant to the terms of Section 5(d) of that certain Marketing and Integration
Agreement dated as of August ___, 1998 between RCI and BN (the "Marketing
---------
Agreement"). This Amendment No. ______ is intended to supplement the Marketing
- ---------
Agreement by specifying the percentage of the Net Sales Price or per
Subscription payment applicable to the sales of books or Subscriptions, as
applicable. Capitalized terms used in this Amendment No. ____ and not otherwise
defined herein are used with the meanings ascribed to them in the Marketing
Agreement.
In consideration of the mutual promises and covenants contained in the
Marketing Agreement, the parties hereby agree that the Marketing Agreement is
amended as follows:
1. The Fee Schedule attached to the Marketing Agreement as Schedule I is
hereby amended in its entirety as follows:
[TO BE SUPPLIED]
Except as expressly modified by this Amendment No. ____ all terms and
conditions of the Marketing Agreement shall remain in full force and effect.
This Amendment No. ____ is subject to all of the terms and conditions set forth
in the Marketing Agreement.
IN WITNESS WHEREOF the parties have caused this Amendment to be
executed by their authorized representatives as an instrument under seal as of
ROWECOM, INC. BARNESANDNOBLE.COM INC.
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
<PAGE>
SCHEDULE 3
----------
CURRENT BN CUSTOMERS
***/18/
--
_______________________
/18/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
SCHEDULE 4
----------
CURRENT RCI CUSTOMERS
***/19/
--
- ------------
/19/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT 10.18
CONTENT AND CO-MARKETING AGREEMENT
THIS AGREEMENT (AGREEMENT) is dated as of the 28th day of September 1998
(the EFFECTIVE DATE), by and between ROWECOM INC. ("RCI"), a Delaware
---
corporation, and NEWSUB SERVICES, INC. ("NSS"), a Connecticut corporation.
---
PREAMBLE
--------
WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature and, in connection therewith, RCI collaborates with such entities to
enhance existing intranet networks to enable such entities to purchase
Subscriptions, books and other knowledge products and services via their
intranets; and
WHEREAS, NSS markets and sells magazines and other services to consumer-
based affinity groups; and
WHEREAS, RCI and NSS desire to develop, market and sell publications and
services through the other party's distribution channels.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1.0 DEFINITIONS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms have the
respective meanings set forth below:
AUTOMATED RENEWAL ORDER means an order placed by a customer for a second
year of uninterrupted service on an RCI Title using RCI's automated renewal
feature.
CONTINUOUS SERVICE ORDER means an order received by NSS whereby the client
agrees in advance to be billed on a continuous basis for such Title.
<PAGE>
-2-
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and NSS
regarding the provision of an integrated electronic service and payment process,
as described in Section 2.6 below.
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Exhibits A and B.
-------- - -
GROSS FEE means the aggregate billed gross fee received by any party
pursuant to an RCI Title Order or an NSS Title Order under this Agreement***/1/.
---
GUARANTEED LOWEST PRICE shall mean ***/2/
---
HANDLING CHARGE means the fee charged by RCI to its customers, as adjusted
from time to time, but shall exclude any fees payable by RCI to merchants or
credit card companies in connection with the sale of Titles to customers.
MERCHANT FEE means the fee charged by a credit card company or other
merchant (other than the Handling Charge) in connection with the sale of Titles
to a customer.
NSS CATALOG means the list of NSS Titles, as updated from time to time,
attached hereto as Exhibit C.
------- -
NSS CHANNEL means all distribution channels for NSS Titles, including the
NSS Online Channel(s), as agreed to by the parties from time to time.
NSS ONLINE CHANNEL means any electronic distribution channel for NSS Titles
(including America On-Line's internet web site, and NSS' internet web site)
customarily utilized by NSS as of the date
- -----------------------------
/1/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/2/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-3-
hereof, as well as such additional electronic distribution channels that are
utilized by NSS at any time during the Term.
NSS TITLE means any Title authorized for sale through NSS Online Channels
by a publisher, and listed on the NSS Catalog, as updated from time, but
excluding any Titles listed on the RCI Catalog.
NSS TITLE ORDER means any order received by RCI for NSS titles which is not
a Continuous Service Order.
PROPRIETARY INFORMATION means all patents, trade secrets, copyrights,
trademarks, industrial designs and other intellectual property specified or
supplied by each party to market, sell or use the RCI Catalog or NSS Catalog.
RENEWAL FEE means the aggregate billed gross fee received by any party
pursuant to any Automated Renewal Order or Continuous Service Order under this
Agreement ***./3/
---
RCI CATALOG means the list of RCI Titles, as updated from time to time, and
attached hereto as Exhibit D.
------- -
RCI CHANNEL means all distribution channels for RCI Titles, including the
RCI Intranet Channel(s), as agreed to by the parties from time to time.
RCI INTRANET CHANNEL means any intranet distribution channel for RCI Titles
(including knowledgeStore(TM) and knowledgeLibrary(TM)) customarily utilized by
RCI as of the date hereof, as well as such additional intranet distribution
channels that are utilized by RCI at any time during the Term.
RCI TITLE means any Title authorized for sale through RCI Intranet Channels
by a publisher, and listed in the RCI Catalog, as updated from time to time, but
excluding any Titles listed on the NSS Catalog.
- -----------------------------
/3/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-4-
RCI TITLE ORDER means any order received by NSS for an RCI title which is
not a Automated Renewal Order.
TERM means the period beginning on the Effective Date and ending upon
termination of this Agreement.
TERRITORY means the United States of America and military bases overseas.
TITLES means any magazines, subscriptions, serials, books, or other
publications, embodied in paper or magnetic media.
TRADEMARK means names, trademarks, services marks, trade names, labels,
logos, designs or other designations and all goodwill associated therewith.
1.2 OTHER DEFINED TERMS. Each of the following terms have the meanings ascribed
to it in the section set forth opposite such term:
AGREEMENT Preamble
AUDITING PARTY Section 4.4
AUDITED PARTY Section 4.4
CHANGE OF CONTROL Section 7.2(c)
CLAIMANT Section 8.2(b)
CONFIDENTIAL INFORMATION Section 6.1
CONTINUOUS SERVICE Section 4.1(b)
DISCLOSER Section 6.1
EFFECTIVE DATE Preamble
NSS Preamble
INDEMNITOR Section 8.2(a)
INDEMNITEES Section 8.2(a)
INITIAL TERM Section 7.1
LOSSES Section 8.2(a)
RCI Preamble
RECIPIENT Section 6.1
2.0 MARKETING, DEVELOPMENT, AND DISTRIBUTION
2.1 NSS PROMOTION OF RCI TITLES.
(a) APPOINTMENT. During the Term hereof and subject to the terms of this
Agreement, RCI hereby retains and authorizes NSS to market, promote,
and sell any RCI Title to NSS customers through NSS Online Channels
in the
<PAGE>
-5-
Territory. Subject to the terms of this Agreement, NSS will purchase
RCI Titles exclusively from RCI,***/4/.
---
(b) LIMITED AGENCY. NSS' authority to act on behalf of RCI shall be
limited to the activities and services set forth in this Section 2.1.
(c) LICENSE. Subject to the terms set forth herein, RCI hereby grants to
NSS a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the RCI Catalog in the
Territory to (i) offer RCI Titles to NSS customers through NSS Online
Channels; (ii) take orders from NSS customers for RCI Titles; (iii)
maintain the database containing information regarding such customer
orders; (iv) bill and collect from such customers the amount of the
order; and (v) fulfill the order by remitting to the publisher the
amount due for such order. NSS may use the RCI Catalog and the
information contained therein only in connection with the marketing
and promoting of RCI Titles as described in this Section 2.1. In
addition, RCI hereby grants to NSS a non-exclusive, non-assignable,
royalty-free right and license (excluding the right to sublicense) to
use the RCI Trademarks in the Territory to promote and market the RCI
Titles solely in accordance with the terms of this Agreement. NSS
agrees that, upon reasonable notice from RCI, NSS shall permit RCI to
visit all locations where NSS delivers services using the RCI
Trademarks to ensure that (i) such services are delivered in a manner
consistent with the service standards employed by RCI and (ii) the
RCI Trademarks used in connection with such services are in
compliance with the specifications provided to NSS from time to time.
It is understood that, under certain circumstances, NSS may need
third party consents to effectuate the visitation by RCI. In such
circumstances,
- -----------------------------
/4/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-6-
RCI will work with NSS to facilitate the review of the usage of the
NSS Trademarks.
(d) MARKETING SERVICES PROVIDED BY NSS. Subject to the terms set forth
herein, NSS hereby agrees ***/5/ to (1) market, promote, and sell RCI
---
Titles in the Territory through NSS Online Channels; (2) market and
promote the RCI Trademarks in the Territory through all NSS Online
Channels; (3) provide NSS Titles to RCI customers at the Guaranteed
Lowest Price; (4) provide to RCI, upon mutual agreement by the
parties, without charge, an introduction to any then current NSS
customer for the purpose of promoting and marketing RCI Titles. NSS
shall inform RCI if NSS is unable to provide the Guaranteed Lowest
Price on any NSS Title pursuant to Section 2.1(d)(2) hereof. Upon
such notification, RCI may purchase such NSS Title from a third party
vendor if available from such third party vendor at a lower price,
provided that, RCI has provided NSS with 30 days prior written notice
-------- ----
thereof, and NSS is unable to offer such Title at such lower price
within 30 days of notification by RCI thereof.
It is understood and agreed that NSS operates direct mail marketing
and other non-electronic marketing channels but that NSS believes
that such non-electronic channels may not be appropriate for certain
RCI Titles. Accordingly, NSS is not obligated to market, promote or
sell RCI Titles in the Territory except through the NSS Online
Channels. The parties shall, however, from time to time review the
appropriateness of marketing, promoting and selling of selling RCI
Titles on such NSS non-electronic channels, and if they mutually
agree that certain of such NSS non-electronic channels are
appropriate for certain RCI Titles, they shall amend this Agreement
to include such NSS non-electronic channels
- -----------------------------
/5/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-7-
as NSS Online Channels and such added channel(s) shall be subject to the
provisions of this Agreement.
2.2 RCI PROMOTION OF NSS TITLES.
(a) APPOINTMENT. During the Term hereof, subject to the terms of this
Agreement, NSS hereby retains and authorizes RCI to exclusively
market, promote, and sell any NSS Title to RCI customers through RCI
Intranet Channels in the Territory. Subject to the terms of this
Agreement, RCI will purchase NSS Titles exclusively from NSS, ***/6/
---
(b) LIMITED AGENCY. RCI's authority to act on behalf of NSS shall be
limited to the activities and services set forth in this Section 2.2.
(c) LICENSE. Subject to the terms set forth herein, NSS hereby grants to
RCI the non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) during the Term of this Agreement
to use the NSS Catalog in the Territory to (i) offer NSS Titles to
RCI customers through RCI Intranet Channels; (ii) take orders from
RCI customers for NSS Titles; (iii) maintain the database containing
information regarding such customer order; (iv) bill and collect from
such customers the amount of the order; and (v) fulfill the order by
remitting to the publisher the amount due for such order. RCI may use
the NSS Catalog and the information contained therein only in
connection with the marketing and promoting of NSS Titles as
described in this Section 2.2. In addition, NSS hereby grants to RCI
a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the NSS Trademarks in the
Territory to promote and market the NSS Titles solely in accordance
with the terms of this Agreement. RCI agrees, that upon
- -----------------------------
/6/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-8-
reasonable notice from NSS, RCI shall permit NSS to visit all
locations where RCI delivers services using the NSS Trademarks and to
ensure that (i) such services are delivered in a manner consistent
with the service standards employed by NSS and (ii) the NSS
Trademarks used in connection with such services are in compliance
with the specifications provided to RCI from time to time. It is
understood that, under certain circumstances, NSS may need third
party consents to effectuate the visitation by RCI. In such
circumstances, RCI will work with NSS to facilitate the review of the
usage of the NSS Trademarks.
(d) MARKETING SERVICES PROVIDED BY RCI. Subject to the terms set forth
herein, RCI hereby agrees to use best reasonable efforts to (1)
market, promote, and sell NSS Titles in the Territory through RCI
Intranet Channels; (2) market and promote the NSS Trademarks in the
Territory through all RCI Intranet Channels; and (3) market and
promote NSS Titles as the Guaranteed Lowest Price on such Titles
provided however, that NSS shall provide to RCI customers NSS Titles
-------- -------
at the Guaranteed Lowest Price.
It is understood and agreed that RCI may operate other marketing
channels and that such other channels may not be appropriate for
certain NSS Titles. Accordingly, RCI will not be obligated to market,
promote or sell NSS Titles in the Territory except through the RCI
Intranet Channel. The parties shall, however, from time to time
review the appropriateness of marketing, promoting and selling NSS
Titles on such other RCI Channels, and if they mutually agree that
certain of such other RCI Channels are appropriate for certain NSS
Titles, they shall amend this Agreement to include such other RCI
Channels as a RCI Intranet Channel and such added channel(s) shall be
subject to the provisions of this Agreement.
2.3 UPDATES ON CATALOGS. From time to time during the Term, each party shall
promptly notify in writing the other party of any corrections,
enhancements, revisions, updates, upgrades and similar changes in each
party's catalog. Upon such notification, the other party shall have 5 days
in which to object in writing to the inclusion of such Title. If such party
does not object to the inclusion of such Title within 5 days, such title
shall be included
<PAGE>
-9-
in the notifying party's catalog and made available to the other party
under this Agreement.
2.4 PUBLICITY; USE OF NAMES.
(a) Neither party shall originate or allow to be issued any publicity or
news release or otherwise make any public announcement or statements,
written or oral, with respect to this Agreement or the terms hereof
or the transactions contemplated hereby unless mutually agreed by the
parties in writing, which release shall not be unreasonably withheld,
except as required under securities laws or other applicable laws
(including in connection with an initial public offering). Neither
party shall use the name of the other party or any adaptation thereof
or any of such other party's Trademarks in any advertising,
promotional or sales literature, or in any other form of publicity
without prior written consent (which consent will not be unreasonably
withheld or delayed) obtained from the other party in each case.
(b) Each party agrees to protect from disclosures to any third party any
and all information received from the other party that identifies an
individual customer, including but not limited to names, telephone
numbers, e-mail addresses, postal addresses, and user names. Each
party agrees to remove, upon request by the other party, from its
databases and all other records, electronic or otherwise, such
customer identifying information, subject to each party's ability to
maintain a copy of such customer information for purposes of
complying with such party's obligations under this Agreement.
2.5 INTELLECTUAL PROPERTY. Subject to the terms hereof, each party shall take
such actions as are reasonably required to maintain their respective
Trademarks in effect, and shall inform the other party of any changes in or
additions to the Trademarks. Each party shall use commercially reasonable
efforts to correctly reference the other party's Trademarks and other
proprietary rights in any marketing, advertising, promotional materials,
sales literature or other publicity, as required by law or as reasonably
requested by the other party. Each party's Trademarks and other proprietary
rights shall remain the sole and exclusive property of such party and the
other party shall
<PAGE>
-10-
have no rights thereto, except as otherwise provided herein, and the
goodwill associated therewith shall inure to the benefit of the owner of
such Trademark. Upon any expiration or termination of this Agreement, the
license to use the Trademarks shall terminate. Except as otherwise provided
herein, nothing contained in this Agreement shall be deemed to transfer
ownership of copyrightable material from one party to the other.
2.6 DEVELOPMENT PLAN. No later than January 1, 1999, RCI and NSS, shall, in
accordance with the Development Plan and implementation schedule, jointly
develop an integrated electronic system for processing customer orders
received by NSS or RCI and effecting payments in respect of the same,
including a seamless catalog accessible from the internet. Each party shall
bear its own costs related to such development efforts, as set forth in the
Development Plan. ***/7/
---
2.7. SALES COLLATERAL. Each party shall furnish at no cost to the other party
reasonable quantities of promotional materials, such as sales literature
and similar promotional material relating to the RCI Catalog and the NSS
Catalog, including such information as is necessary or appropriate for each
party to formulate any marketing materials used in connection with
marketing activities under Sections 2.1 and 2.2 respectively. Each party
hereby grants to the other party a license to reproduce and use such
promotional materials, provided that, neither party shall edit, modify or
-------- ----
otherwise alter the form or content of such promotional materials; and
provided, further, that each party may convert such promotional materials
--------
into analog or digital format as required to make use of them.
- -----------------------------
/7/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-11-
3.0 SALES AND CUSTOMER SERVICE.
3.1 SALES AND CUSTOMER SERVICE PROCEDURES. Sales of Titles to customers shall
be made as follows:
(a) If the Title is distributed through an RCI Channel, RCI will
(i) sell the Title to the customer and initiate the order;
(ii) RCI will maintain the database containing information
regarding the publisher and customer's order;
(iii) RCI will close the sale for the Title ordered by the customer
and bill the customer the Gross Fee or Renewal Fee, as
applicable (such fee may include the Handling Charge and/or
Merchant Fee). For NSS Titles, RCI will electronically
transmit the customer's order to NSS for fulfillment by NSS.
The NSS Catalog shall include a price list for each NSS Title.
RCI may determine any additional fees that may be charged to
RCI customers for NSS Titles provided however that, RCI shall
--------
(1) clearly identify to RCI customers a list of any additional
fees or charges for its services imposed by RCI above and
beyond the NSS authorized list price for such NSS Title
contained in the NSS Catalog; and (2) provide upon request by
NSS, a reasonable justification for any additional fees or
charges imposed by RCI for its services above and beyond the
NSS authorized list price contained in the NSS catalog.
(iv) RCI or NSS (as the case may be) shall fulfill the order once
received by such party by collecting all amounts due from the
customer and remitting electronically to the publisher and the
other party the amount due to such party pursuant to the terms
of the Fee Schedule no more than ten (10) days upon receipt of
any payments from the customer;
(v) RCI shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has
<PAGE>
-12-
been placed through an RCI Channel. Once received, all
customer questions, complaints, and requests pertaining to NSS
Titles shall be promptly transmitted electronically to NSS for
resolution. RCI shall bear no further responsibility for
customer questions, complaints, and requests pertaining to NSS
Titles. Customer questions, complaints, and requests
pertaining to RCI Titles are the responsibility of RCI. Each
party shall bear its own expenses in resolving any such
customer inquiries; and
(vi) RCI shall provide to NSS information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to NSS
electronically at the address specified in Section 9.4 hereof
(b) If the Title is distributed through an NSS Online Channel, NSS will
(i) sell the Title to the customer and initiate the order;
(ii) NSS will maintain the database containing information
regarding the customer's order;
(iii) NSS will close the sale for the Title ordered by the customer
and bill the customer a Gross Fee or Renewal Fee, as
applicable. The NSS Catalog shall include a price list for
each NSS Title. NSS may, upon reasonable approval by RCI,
determine any additional fees that may be charged to NSS
customers for RCI Titles provided however that, NSS shall (1)
--------
provide to NSS customers a list of any additional fees or
charges imposed by NSS above and beyond the RCI authorized
list price contained in the RCI Catalog; and (2) provide, upon
request by RCI, a reasonable justification for any additional
fees or charges imposed by NSS above and beyond the RCI
authorized list price contained in the RCI catalog. For RCI
Titles, NSS will electronically transmit the customer's order
to RCI for fulfillment by RCI;
<PAGE>
-13-
(iv) RCI or NSS (as the case may be) shall fulfill the order by
collecting all amounts due from the customer and remitting
electronically to the publisher and the other party the amount
due to such party pursuant to the terms of the Fee Schedule no
more than ten (10) days upon receipt of any payments from the
customer;
(v) NSS shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has been placed through an NSS Online
Channel. Once received, all customer questions, complaints,
and requests pertaining to RCI Titles shall be promptly
transmitted electronically to RCI for resolution. NSS shall
bear no further responsibility for customer questions,
complaints, and requests pertaining to RCI Titles. Customer
questions, complaints, and requests pertaining to NSS Titles
are the responsibility of NSS. Each party shall bear its own
expenses in resolving any such customer inquiries; and
(vi) NSS shall provide to RCI information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to RCI
electronically at the address specified in Section 9.4 hereof.
3.2 CONTACT PERSONS. Each party shall designate a contact person to coordinate
the transfer of information between RCI and NSS and to be available to respond
to inquiries during the normal business hours of such party.
3.3 CHANGE IN SERVICES The parties agree and acknowledge that (a) the sales and
customer service procedures set forth in Section 3.1 hereof reflect the complete
understanding of the parties as to sales, order fulfillment, billing, and
customer service; and (b) any changes to the provisions, if reasonable,
regarding order processing, fulfillment, or customer service set forth in
Section 3.1 shall be negotiated in good faith by both parties with a
corresponding change in the Fee Schedule.
<PAGE>
-14-
3.4. REFUNDS AND CANCELLATIONS NSS guarantees to RCI that it will provide a
refund to the consumer of the Gross Fee on any cancellation of any NSS Titles in
accordance with NSS' then current policy. RCI guarantees to NSS that RCI will
honor the policy regarding cancellations and refunds provided by the publisher
of the applicable RCI Title. Each party shall inform the other party within a
reasonable time of any changes to such party's internal refund policy or to a
publisher's refund policy (upon notification by such publisher), as applicable.
4.0 PAYMENT & AUDITS
4.1 PAYMENTS PURSUANT TO THE FEE SCHEDULE.
(a) Within ten (10) days of receipt of any payments by a customer for RCI Title
Orders or NSS Title Orders, each party shall make payments to the other
party in an amount equal to the percentage of Gross Fee or Handling Charge
(as applicable) as set forth on the Fee Schedule attached hereto as Exhibit
-------
A. Within ten (10) days of receipt of any payments by a customer for
-
Automated Renewal Orders and Continuous Service Orders, each party shall
make payments to the other party in an amount equal to the percentage of
Renewal Fee or Handling Charge (as applicable) as set forth on the Fee
Schedule attached hereto as Exhibit B, provided however, that all payments
------- - --------
for Continuous Service Orders and for Automated Renewal Orders for the
first year of service of such order shall be subject to the Fee Schedule
set forth in Exhibit A. Each party shall make payments required pursuant
------- -
to this Agreement electronically and in immediately-available funds
delivered to the other party at the address set forth in Section 9.5.
(b) It is acknowledged by the parties that RCI currently charges certain RCI
customers less than the Handling Charge of ***/8/ set
---
- -----------------------------
/8/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-15-
forth on Exhibits A and B hereto. It is understood and agreed by the
-------- - -
parties that RCI may at its sole discretion charge less than the current
Handling Charge of ***/9/ to current RCI customers, certain non-profit
---
organization, and libraries.
(c) In the event that NSS and RCI mutually agree to offer RCI clients special
promotions to purchase NSS Titles, ***/10/. If gross revenue (less any
----
amounts refunded to customers less any applicable taxes assessed thereon)
collected for NSS titles that are the subject of such special promotion
falls between ***/11/, commission due to RCI shall be ***/12/ of the gross
---- ----
fee. If gross revenue collected for NSS titles falls below ***/13/, the
----
commission due to RCI shall be ***/14/. The parties shall negotiate in
----
good faith the procedure by which the amounts due to the other party
pursuant to this Section 4.1(c) shall be collected and remitted.
4.2 LATE PAYMENTS. In the event that any payment due to a party under this
Agreement is not made when due, the amount due shall
- -----------------------------
/9/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/10/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/11/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/13/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/14/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-16-
accrue interest at a rate of one-and-a-half percent (1.5%) per month from the
due date until the entire amount, including interest, shall be paid. Interest,
including payment and acceptance of interest, shall not negate or waive the
right of a party to any other remedy, legal or equitable, to which it may be
entitled because of the delinquency of any payment.
4.3 RECORDS. Each party shall keep and maintain, during the term of this
Agreement and for a period of at least two (2) years following any termination
or expiration thereof, records (prepared in accordance with generally accepted
accounting principles, consistently applied) sufficient to determine the amounts
of revenue and payments due under this Agreement. Within thirty (30) days
following each March 31, June 30, September 30 and December 31 during which
payments are due under this Agreement, commencing December 31, 1998, each party
shall provide the other party with a report including at least (a) the number
and names of the other party's Titles sold to customers through such party's
distribution channel during the immediately preceding quarter; (b) the monetary
amount collected with respect to such Titles; (c) the name of the party
fulfilling the order for each such Title; and (d) the calculation of the
payments due to such other party in respect of each sale. A report shall be
submitted to the other party whether or not any Title have been sold to
customers during such period.
4.4 AUDITS. Each party (for purposes of this Section 4.4 only, the "Auditing
--------
Party") shall have the right, not more than once in any twelve (12)-month
- -----
period, to have the relevant books and records of the other party (the "Audited
-------
Party") audited by an independent certified public accountant of the Auditing
- -----
Party's choosing, to ascertain the accuracy of the Audited Party's reports under
this Agreement. Such audits shall be scheduled within thirty (30) days following
delivery of a notice by the Auditing Party to the Audited Party, and conducted
during normal business hours, in a manner that does not unreasonably interfere
with the Audited Party's normal business activities. In the event that any audit
determines that the reported payments paid to the Auditing Party under this
Agreement was less than the amount due to the Auditing Party, the Audited Party
shall pay the Auditing Party the amount of such underpayment and all accrued
interest thereon from the date that such payment was due. In addition, if any
audit determines that the reported payments paid to the Auditing Party under
this Agreement was less than ninety percent (90%) of the actual amount due to
the Auditing Party for the
<PAGE>
-17-
period in question, the actual out-of-pocket cost of such audit shall be borne
by the Audited Party; otherwise, the cost of the audit shall be borne by the
Auditing Party.
4.5 TAXES. All taxes and charges that may be imposed by any governmental taxing
authority on any sales of Titles pursuant to this Agreement shall be paid by the
party assessed such taxes or charges.
5.0 REPRESENTATIONS AND WARRANTIES
5.1 AUTHORIZATION, ETC. Each party hereby represents and warrants to the other
that: (a) it has the requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby;
(b) this Agreement has been duly authorized, executed and delivered by such
party, constitutes the legal, valid and binding obligation of such party and is
enforceable against such party in accordance with its terms, except to the
extent such enforceability may be limited by bankruptcy, reorganization,
insolvency or similar laws of general applicability governing the enforcement of
the rights of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity); and (c) to the best of
its knowledge, it has provided the other party with the information known to it
that materially affects the other party's ability to perform the other party's
obligations under this Agreement;.
5.2 PROPRIETARY INFORMATION. Each party hereby represents and warrants to the
other party that: (a) the provision by such party of Proprietary
Information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly inform the
other party in the event that any third party files or threatens any suit
based on any alleged violation of any such proprietary or intellectual
property rights of such party in respect of the Proprietary Information;
and (c) each party holds title or license rights to the Proprietary
Information sufficient to permit it to grant the license granted under
Section 2 hereof.
5.3 THIRD PARTY RIGHTS. Each party represents and warrants to the other party
that: (a) it is not bound by any agreement or obligation (and will not
enter into any agreement or obligation) that could materially interfere
with the performance of its obligations under this Agreement; and (b) no
approval, authorization or consent of any governmental or regulatory
<PAGE>
-18-
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement;
5.4 DISCLAIMER. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 5, EACH
PARTY DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE PRODUCTS AND SERVICES
CONTEMPLATED UNDER THIS AGREEMENT, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
6.0 CONFIDENTIALITY
6.1 DEFINITION. CONFIDENTIAL INFORMATION means all financial, business,
marketing, operations, technical, and economic information, whether
tangible or intangible, that is disclosed by either party (the DISCLOSER)
or any of Discloser's suppliers, employees, contractors or customers to the
other party (the RECIPIENT), if such information is disclosed (i) in
writing or by way of any other media that is marked as confidential or (ii)
orally or visually, provided that, such oral or visual disclosure is
-------- ----
followed by written confirmation by the Discloser within 3 days of such
disclosure; provided that (A) Confidential Information excludes any
--------
information or portion thereof that (1) was known to the Recipient before
receipt thereof under this Agreement; (2) is disclosed to the Recipient by
a third person who has a right to make such disclosure without any
obligation of confidentiality to the Discloser; (3) is or becomes generally
known in the trade without violation of this Agreement by the Recipient;
(4) is independently developed by the Recipient or Recipient's employees to
whom the Discloser's information was not disclosed; or (5) is approved in
writing by the Discloser for release; (B) only the specific information
that meets the exclusions shall be excluded, and not any other information
that happens to appear in proximity to such excluded portions (for example,
a portion of a document may be excluded without affecting the confidential
nature of those portions that do not themselves qualify for exclusion) and
(C) Confidential Information includes summaries and other materials
prepared by or on behalf of a Recipient that restate, summarize or
otherwise use any Confidential Information of a Discloser. Notwithstanding
anything to the contrary, Confidential Information shall specifically
include the RCI Catalog, the NSS
<PAGE>
-19-
Catalog, and information supplied by a party regarding RCI Channels and NSS
Channels.
6.2 NONDISCLOSURE & LIMITATIONS ON USE. Each Recipient agrees (a) to keep
secret and maintain the Confidential Information as confidential and to
hold the Confidential Information in trust for the exclusive benefit of the
Discloser; (b) to use or copy the Confidential Information solely to
perform its obligations under this Agreement; (c) to segregate the
Confidential Information from the Recipient's other information and from
that of third parties; (d) not to copy the Confidential Information unless
necessary to perform services under this Agreement; (e) to notify promptly
the Discloser upon learning about any court order or other legal
requirement that purports to compel disclosure of any Confidential
Information and to cooperate with the Discloser in the exercise of the
Discloser's right to protect the confidentiality of the Confidential
Information before any tribunal or governmental agency; (f) not to disclose
the Confidential Information to any person or entity not a party to this
Agreement other than such of Recipient's contractors, agents or employees
who (i) have a need to know the Confidential Information for a purpose
permitted hereunder; and (ii) are apprised of the confidential nature of
the Confidential Information; and (g) to return promptly to the Discloser
at any time upon the Discloser's request, any and all materials pertaining
to or containing any Information. Each party shall (1) promptly notify the
other party of any actual or suspected unauthorized use or disclosure of
the other party's Confidential Information of which it has knowledge and
will cooperate in the investigation of such unauthorized use or disclosure;
(2) be liable for breaches of confidentiality by its employees, contractors
or agents; and (3) include the other party's reasonable proprietary rights
notices on any media or products embodying the other party's Confidential
Information, including partial copies thereof. Nothing contained herein
shall prevent a Recipient from disclosing Confidential Information to any
tribunal or governmental agency, so long as the notice in this Section 6.2
is promptly given; provided that such disclosure shall not alter the status
of such information hereunder for all other purposes as Confidential
Information unless and until such information is actually made public by
the tribunal or agency.
<PAGE>
-20-
7.0 TERM AND TERMINATION
7.1 TERM. This Agreement shall commence upon the Effective Date and, subject to
early termination pursuant to Section 7.2, shall continue in effect until the
second anniversary of the Effective Date (the INITIAL TERM) and shall be
automatically renewed for successive one (1) year periods after the expiration
of the Initial Term unless either party provides the other party with written
notice of its intent not to renew this Agreement at least ninety (90) days prior
to the expiration of the then current term.
7.2 TERMINATION.
(A) BREACH. Either party may terminate this Agreement upon thirty (30)
days' written notice to the other party if the other party breaches
any of its material obligations under this Agreement and such breach
remains uncured for a period of 30-days after receipt of such notice.
For purposes of this Section 7.2(a), NSS' material obligations shall
mean its material obligations under Sections 2, 3.1(b), 3.2, 3.3, 3.4,
4, 5, 6, 7.3, and 8, and RCI's material obligations shall mean its
material obligations under Sections 2, 3.1(a), 3.2, 3.3, 3.4, 4, 5, 6,
7.3 and 8.
(B) ***/15/
----
(C) Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided, that the party subject to such Change of Control notifies
the other party of such event no later than the effective date
thereof. Change of Control shall mean a merger or consolidation of
the Company with or into another entity (other than a merger or
reorganization involving only a change in the state of the
incorporation of the company, or the
- -----------------------------
/15/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-21-
acquisition by the company of other businesses where the company
survives as a going concern), the sale of all or substantially all of
a party's assets to any other person, or the issuance of shares of
capital stock of the company in a transaction or series of related
transactions in which the persons acquiring such shares acquire more
than 50% voting control of the company. Notwithstanding the foregoing,
an initial public offering shall not be deemed to be a Change of
Control.
(D) Any notice given pursuant to this Section 7.2(a) must set forth with
specifically the alleged material obligations breached by the other
party.
7.3. EFFECT OF TERMINATION.
(A) THEN CURRENT ORDERS. Upon termination of this Agreement, the
provisions of Section 2.1 and 2.2 regarding the obligations of each
party shall terminate, provided however, that the parties will
-------- -------
continue to perform all obligations on pending orders for the purchase
of Titles and customer services on such Titles in accordance with the
terms of this Agreement.
(B) CONFIDENTIAL INFORMATION. Promptly after all obligations to existing
customers are performed pursuant to clause (a) hereof, each party
shall return to the other party or certify in writing to the other
party that it has destroyed all documents and other tangible items it
or its employees or agents have received or created pertaining,
referring or relating to the Confidential Information of the other
party.
(C) OTHER OBLIGATIONS. The provisions of Section 6 (Confidentiality),
Section 7 (Termination), Section 8 (Risk Allocation) and Section 9
(Miscellaneous) shall survive any expiration or termination of this
Agreement.
7.4 TERMINATION/NONRENEWAL RIGHTS ABSOLUTE. It is expressly understood and
agreed that the rights of termination and nonrenewal set forth in this
Section 7 are absolute, and that the parties have considered the
possibility of such termination or nonrenewal and the possibility of loss
and damage resulting therefrom, in making expenditures pursuant to the
performance of this Agreement. It is the express intent and agreement of
the
<PAGE>
-22-
parties that neither shall be liable to the other for damages or otherwise
by reason of the termination of this Agreement as hereinabove provided. The
parties expressly agree that the notice periods in this Agreement are
reasonable under the contemplated circumstances.
8.0 RISK ALLOCATION
8.1 LIMITATION OF LIABILITY. EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE
OBLIGATIONS UNDER SECTION 6 (CONFIDENTIALITY), IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR SIMILAR DAMAGES OF ANY KIND, WHETHER SUCH LIABILITY IS
PREDICATED ON CONTRACT, STRICT LIABILITY, STATUTE, REGULATION, OR ANY OTHER
THEORY.
8.2 INDEMNIFICATION.
(A) OBLIGATION. Subject to the provisions of this Section 8.2 each party (each
an INDEMNITOR) hereby agrees to indemnify, defend and hold the other party
and its affiliates, directors, officers, employees, contractors and agents
(each an INDEMNITEE) harmless, from, against and in respect of any and all
assessments, damages, deficiencies, judgments, losses, obligations and
liabilities, including costs of collection and reasonable attorneys' fees
and expenses (collectively, LOSSES) incurred by the Indemnitee(s) arising
from or directly related to any breach by Indemnitor under this Agreement.
(B) DEFENSE OF CLAIMS. Indemnitor may assume the defense of any claim for
Losses. If Indemnitor assumes the defense of any claim for Losses, then,
at Indemnitor's expense, the Indemnitee and its counsel shall cooperate
fully in the defense against, or compromise of, at Indemnitor's option,
such asserted liability. The Indemnitee shall have the right to employ
separate counsel in any such action or claim, but the fees and expenses of
such counsel shall not be an expense of Indemnitor unless employment of
such counsel has been specifically authorized by Indemnitor. If there is a
final judgment in any such action, or if there is a settlement of any such
action effected with the consent of Indemnitor, Indemnitor shall indemnify
and hold harmless the Indemnitee from and against any loss or liability by
reason of such judgment or settlement.
<PAGE>
-23-
8.3 INSURANCE COVERAGE. No later than November 30, 1998, Each party shall have
and maintain at all times during the term of this Agreement, at its sole
cost and expense, insurance under general liability and errors and
omissions policies in the amount of $2,000,000 per claim and $5,000,000 in
the aggregate. Each such policy shall be consistent in form, content and
coverage with industry standards for the activities contemplated by this
Agreement, including such party's indemnification obligations under Section
8.2. It is understood that such insurance shall not be construed to create
a limit of such party's liability with respect to its indemnification
obligations under Section 8.2. Each party shall provide the other party
with written evidence of such insurance upon request. Each party shall
provide the other party with written notice at least fifteen (15) days
prior to the cancellation, non-renewal or material change in such
insurance. If such party does not obtain replacement insurance or take
other measures that allow it to provide comparable coverage within such
fifteen (15) day period, the other party shall have the right to terminate
this Agreement effective at the end of such fifteen (15) day period upon
without notice or any additional waiting periods or to pay the premium and
be reimbursed hereunder.
8.4 DISPUTE RESOLUTION
(A) MEDIATION. Any dispute among or between the parties or any of them arising
under or in connection with this Agreement and the transactions and
relationship between the parties contemplated hereby will first be mediated
by a telephone conference or meeting, in which counsel for the respective
parties will attempt to aid the parties in negotiating a mutually
acceptable resolution.
(B) ARBITRATION. If mediation pursuant to the foregoing paragraph fails to
resolve any dispute arising or in connection with this Agreement and the
transactions and relationship between the parties contemplated hereby,
either party may provide 30 days prior written notification to the other
party of such failure to resolve the dispute. Upon such notification, the
parties shall enter into arbitration pursuant to this Section 8.3(b). Such
dispute will be finally settled by a single arbitrator, having at least
five years of experience as an arbitrator and otherwise mutually acceptable
to the parties to such dispute, in arbitration administered by American
Arbitration Association in
<PAGE>
-24-
accordance with its commercial arbitration rules then in effect and the
internal laws of the State of New York. Any demand for arbitration
hereunder must be made before the running of the legal statute of
limitations applicable to the claim at issue. Any such arbitration will
take place in New York, New York, unless otherwise agreed by the parties.
The arbitrator will not have any right, power, or authority to award any
punitive or exemplary damages or other damages in excess of purely
compensatory damages. Each of the disputing parties will be responsible for
an equal portion of the fees and expenses of the arbitrator, and all of
such party's own costs and expenses, in connection with any such
arbitration. Judgment upon any award rendered by the arbitrator, if such
award is in accordance with applicable law and the terms of this Agreement,
may be entered in any court of competent jurisdiction.
9.0 MISCELLANEOUS
9.1 INDEPENDENT CONTRACTORS. For all purposes of this Agreement, each party
shall be and act as an independent contractor or and not as partners, joint
venturers, employees or agents of the other. No franchise is created hereby.
Neither party shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other party or to bind
the other party to any other contract, agreement or undertaking with any third
party except as specifically provided for herein.
9.2 FORCE MAJEURE. Neither party shall be liable or responsible in any manner
for failure or delay in performance of any obligation under this Agreement when
such failure or delay is due to the result, in whole or in substantial part, to
any cause beyond the reasonable control of the party whose performance is
delayed or rendered impossible thereby if reasonable steps are taken to resolve
the reason for such failure or delay and the reason for such failure or delay is
promptly transmitted to the other party. If the delay exceeds one hundred twenty
(120) days from the initial occurrence each party shall have the right to
terminate this agreement upon 30 days prior written notice to the other party.
9.3 ASSIGNMENT. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
successors and assigns. Neither party may assign, transfer, or sublicense its
- --------------
rights or obligations under this
<PAGE>
-25-
Agreement without the prior written consent of the other party (which consent
shall not be unreasonably withheld or delayed.
9.4 NOTICES. Any notices, waivers and other communications required or
permitted hereunder shall be in writing and shall be deemed to be fully given
when delivered by hand or dispatched (with reasonable evidence of receipt) by
telex, telegraph or other means of facsimile transmission, or twenty-four (24)
hours after being dispatched by recognized overnight courier or mail service,
addressed to the party to whom the notice is intended to be given at the
following or such other address as either party may designate by like notice:
RCI: RoweCom, Inc.
725 Concord Ave.
Cambridge, MA 02138
Attention: Louis Hernandez
Fax: 617-497-6825
NSS: NewSub Service, Inc.
Four High Ridge Park
Stamford, CT
Attention: Michael Loeb
Fax: 203-595-8252
9.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with substantive laws of the State of New York, without regard for
any choice or conflict of law rule or principle that would result in the
application of the substantive law of any other jurisdiction.
9.6 SEVERABILITY. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provisions to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected, and each term and provision
of this Agreement shall be valid and be enforced to the fullest extent permitted
by law.
9.7 NO THIRD-PARTY BENEFICIARIES. No person(s) not a party to this Agreement is
an intended beneficiary of this Agreement, and no person(s) not a party to this
Agreement shall have any right to enforce any term of this Agreement.
<PAGE>
-26-
9.8 WAIVER. No provision of this Agreement shall be deemed to have been waived
unless such waiver is in writing signed by the waiving party. No failure by any
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right to remedy consequent upon a breach thereof, shall
constitute a waiver of any other provision of this Agreement or a waiver of such
provision with respect to any subsequent breach, unless expressly provided in
writing.
9.9 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
the parties relating to the subject matter hereof and supersedes all prior or
contemporaneous oral or written agreements on the same subject matter. This
Agreement may not be amended, supplemented, or otherwise modified except by an
agreement in writing signed by both parties.
9.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
9.11 FURTHER ASSURANCES. Each of the party's covenants and agrees that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, it will execute and deliver any further legal
instruments and perform any acts which are or may become reasonably necessary to
effectuate the purposes of this Agreement.
9.12 CAPTIONS. Titles and headings in this Agreement are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
<PAGE>
-27-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
ROWECOM, INC. NEWSUB SERVICES, INC.
By: By:
--------------------------------- --------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------ -----------------------------
<PAGE>
EXHIBIT A
---------
FEE SCHEDULE
------------
RCI TITLE ORDERS AND NSS TITLE ORDERS
-------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- -------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI NSS
---------- -------- ------- --- ---
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. RCI RCI RCI RCI RCI RCI RCI ***/16/ ***/17/
-- --
- -----------------------------------------------------------------------------------------------
2. RCI NSS RCI RCI RCI NSS RCI ***/18/ ***/19/
-- --
- -----------------------------------------------------------------------------------------------
3. NSS RCI NSS NSS NSS RCI NSS ***/20/ ***/21/
-- --
- -----------------------------------------------------------------------------------------------
4. NSS NSS NSS NSS NSS NSS NSS ***/22/ ***/23/
-- --
- -----------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
/16/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/17/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/18/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/19/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/20/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/21/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/22/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-29-
* Represents ***/24/
----
(A) Includes ***/25/
----
- ------------------------------
(footnote continued from previous page)
/23/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/24/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/25/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission [_][_][_] separately.
<PAGE>
EXHIBIT B
---------
FEE SCHEDULE
------------
AUTOMATED RENEWAL AND CONTINUOUS SERVICE ORDERS
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- -------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI NSS
---------- ----- ------- --- ---
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. RCI RCI RCI RCI RCI RCI RCI ***/26/ ***/27/
-- --
- -------------------------------------------------------------------------------------------------
2. RCI NSS RCI RCI RCI NSS RCI ***/28/ ***/29/
-- --
- -------------------------------------------------------------------------------------------------
3. NSS RCI NSS NSS NSS RCI NSS ***/30/ ***/31/
-- --
- -------------------------------------------------------------------------------------------------
4. NSS NSS NSS NSS NSS NSS NSS ***/32/ ***/33/
-- --
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
/26/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/27/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/28/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/29/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/30/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/31/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/32/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-31-
Represents ***/34/ Charge
----
(A) Includes ***/35/
---
- -----------------------
(footnote continued from previous page)
/33/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/34/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/35/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-32-
<PAGE>
EXHIBIT C
---------
NSS CATALOG
-----------
Provided electronically to RCI.
<PAGE>
EXHIBIT D
---------
RCI CATALOG
-----------
Provided electronically to NSS
<PAGE>
EXHIBIT 10.19
CONTENT AND CO-MARKETING AGREEMENT
THIS AGREEMENT (AGREEMENT) is dated as of the 23rd day of October 1998 (the
EFFECTIVE DATE), by and between ROWECOM INC. ("RCI"), a Delaware corporation,
---
and PUBLICATIONS RESOURCE GROUP, INC. ("PRG"), a Massachusetts corporation.
---
PREAMBLE
--------
WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature and, in connection therewith, RCI collaborates with such entities to
enhance existing intranet networks to enable such entities to purchase
Subscriptions, books and other knowledge products and services via their
intranets; and
WHEREAS, PRG markets and sells market research reports, newsletters and
other services to consumer-based affinity groups; and
WHEREAS, RCI and PRG desire to develop, market and sell publications and
services through the other party's distribution channels, including through the
Internet.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1.0 DEFINITIONS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms have the
respective meanings set forth below:
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and PRG
regarding the provision of an integrated electronic service and payment process,
as described in Section 2.6 below.
<PAGE>
-2-
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Exhibit A.
------- -
GROSS FEE means the ***/1/
---
HANDLING CHARGE means the fee charged by RCI to its customers, as adjusted
from time to time, but shall exclude any fees payable by RCI to merchants or
credit card companies in connection with the sale of Titles to customers.
MERCHANT FEE means the fee charged by a credit card company or other
merchant (other than the Handling Charge) in connection with the sale of Titles
to a customer.
PRG CATALOG means the list of PRG Titles and list prices, as updated from
time to time, attached hereto as Exhibit B.
------- -
PRG CHANNEL means all distribution channels for PRG Titles, including but
not limited to PRG online web site(s), (including but not limited to the hyper
link to the RoweCom web page) direct marketing channels, and catalogs, as agreed
to by the parties from time to time.
PRG TITLE means any Title authorized for sale through PRG Channels by a
publisher, and listed on the PRG Catalog, as updated from time, but excluding
any Titles listed on the RCI Catalog.
PRG TITLE ORDER means any order received by RCI for PRG Titles.
PROPRIETARY INFORMATION means all patents, trade secrets, copyrights,
trademarks, industrial designs and other intellectual property specified or
supplied by each party to market, sell or use the RCI Catalog or PRG Catalog.
RCI CATALOG means the list of RCI Titles, as updated from time to time, and
attached hereto as Exhibit C.
------- -
- --------------------------------
/1/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-3-
RCI CHANNEL means all distribution channels for RCI Titles, including but
not limited to the internet and intranet distribution channels for RCI Titles,
as agreed to by the parties from time to time.
RCI TITLE means any Title authorized for sale through RCI Channels by a
publisher, and listed in the RCI Catalog, as updated from time to time, but
excluding any Titles listed on the PRG Catalog.
RCI TITLE ORDER means any order received by PRG for RCI Titles.
TERM means the period beginning on the Effective Date and ending upon
termination of this Agreement.
TERRITORY means the United States of America.
TITLES means any magazines, subscriptions, serials, books, or other
publications, embodied in paper or magnetic media.
TRADEMARK means names, trademarks, services marks, trade names, labels,
logos, designs or other designations and all goodwill associated therewith.
1.2 OTHER DEFINED TERMS. Each of the following terms have the meanings ascribed
to it in the section set forth opposite such term:
AGREEMENT Preamble
AUDITING PARTY Section 5.4
AUDITED PARTY Section 5.4
CHANGE OF CONTROL Section 8.2(c)
CLAIMANT Section 9.2(b)
CONFIDENTIAL INFORMATION Section 7.1
CONTINUOUS SERVICE Section 5.1(b)
DISCLOSER Section 7.1
EFFECTIVE DATE Preamble
HOME PAGE Section 3.2
IMAGE Section 3.1
PRG Preamble
PRG KSTORE Section 3.1
INDEMNITOR Section 9.2(a)
INDEMNITEES Section 9.2(a)
INITIAL TERM Section 8.1
LOSSES Section 9.2(a)
RCI Preamble
<PAGE>
-4-
RECIPIENT Section 7.1
URL Section 3.2
2.0 MARKETING, DEVELOPMENT, AND DISTRIBUTION
2.1 PRG PROMOTION OF RCI TITLES.
(a) APPOINTMENT. During the Term hereof and subject to the terms of this
Agreement, RCI hereby retains and authorizes PRG to market, promote,
and sell any RCI Title to PRG customers through PRG Channels in the
Territory.***/2/
---
(b) LIMITED AGENCY. PRG's authority to act on behalf of RCI shall be
limited to the activities and services set forth in this Section 2.1.
(c) LICENSE. Subject to the terms set forth herein, RCI hereby grants to
PRG a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the RCI Catalog in the
Territory to (i) offer RCI Titles to PRG customers through PRG
Channels; (ii) take orders from PRG customers for RCI Titles; (iii)
maintain the database containing information regarding such customer
orders; (iv) bill and collect from such customers the amount of the
order; and (v) fulfill the order by remitting to RCI the amount due
for such order. PRG may use the RCI Catalog and the information
contained therein only in connection with the marketing and promoting
of RCI Titles as described in this Section 2.1. In addition, RCI
hereby grants to PRG a non-exclusive, non-assignable, royalty-free
right and license (excluding the right to sublicense) to use the RCI
Trademarks in the Territory to promote and market the RCI Titles
solely in accordance with the terms of this Agreement. PRG agrees
that, upon reasonable notice from RCI, PRG shall permit RCI to visit
all locations
- ------------------------------
/2/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-5-
where PRG delivers services using the RCI Trademarks to
ensure that (i) such services are delivered in a manner consistent
with the service standards employed by RCI and (ii) the RCI Trademarks
used in connection with such services are in compliance with the
specifications provided to PRG from time to time. It is understood
that, under certain circumstances, PRG may need third party consents
to effectuate the visitation by RCI. In such circumstances, RCI will
work with PRG to facilitate the review of the usage of the PRG
Trademarks.
(d) MARKETING SERVICES PROVIDED BY PRG. Subject to the terms set forth
herein, PRG hereby agrees to ***/3/ to (1) market, promote, and sell
---
RCI Titles in the Territory through PRG Channels; (2) market and
promote the RCI Trademarks in the Territory through all PRG Channels;
(3) provide to RCI, upon mutual agreement by the parties, without
charge, an introduction to any then current PRG customer for the
purpose of promoting and marketing RCI Titles.
2.2 RCI PROMOTION OF PRG TITLES.
(a) APPOINTMENT. During the Term hereof, subject to the terms of this
Agreement, PRG hereby retains and authorizes RCI to exclusively
market, promote, and sell any PRG Title to RCI customers through RCI
Channels in the Territory. It is understood and agreed by the parties
that RCI may purchase PRG Titles from a third party from time to time.
(b) LIMITED AGENCY. RCI's authority to act on behalf of PRG shall be
limited to the activities and services set forth in this Section 2.2
- ------------------------------
/3/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-6-
(c) LICENSE. Subject to the terms set forth herein, PRG hereby grants to
RCI the non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) during the Term of this Agreement
to use the PRG Catalog in the Territory to (i) offer PRG Titles to RCI
customers through RCI Channels; (ii) take orders from RCI customers
for PRG Titles; (iii) maintain the database containing information
regarding such customer order; (iv) bill and collect from such
customers the amount of the order; and (v) fulfill the order by
remitting to PRG the amount due for such order. RCI may use the PRG
Catalog and the information contained therein only in connection with
the marketing and promoting of PRG Titles as described in this Section
2.2. In addition, PRG hereby grants to RCI a non-exclusive, non-
assignable, royalty-free right and license (excluding the right to
sublicense) to use the PRG Trademarks in the Territory to promote and
market the PRG Titles solely in accordance with the terms of this
Agreement. RCI agrees, that upon reasonable notice from PRG, RCI
shall permit PRG to visit all locations where RCI delivers services
using the PRG Trademarks and to ensure that (i) such services are
delivered in a manner consistent with the service standards employed
by PRG and (ii) the PRG Trademarks used in connection with such
services are in compliance with the specifications provided to RCI
from time to time. It is understood that, under certain circumstances,
PRG may need third party consents to effectuate the visitation by RCI.
In such circumstances, RCI will work with PRG to facilitate the review
of the usage of the PRG Trademarks.
(d) MARKETING SERVICES PROVIDED BY RCI. Subject to the terms set forth
herein, RCI hereby agrees to use best reasonable efforts to (1)
market, promote, and sell PRG Titles in the Territory through RCI
Channels; (2) market and promote the PRG Trademarks in the Territory
through all RCI Channels.
2.3 UPDATES ON CATALOGS. From time to time during the Term, PRG shall promptly
notify RCI in writing of any corrections, enhancements, revisions, updates,
upgrades and similar changes PRG's catalog. Upon such notification, RCI,
may at its sole discretion, include any such newly added PRG Titles in RCI
<PAGE>
-7-
Channels. The parties acknowledge and agree that RCI may, at its sole
discretion, make corrections, enhancements, revisions, updates, or other
similar changes to the RCI Catalog, and that such changes shall become a
part of the RCI Catalog as provided to PRG customers from time to time.
2.4 PUBLICITY; USE OF NAMES.
(a) Neither party shall originate or allow to be issued any publicity or
news release or otherwise make any public announcement or statements,
written or oral, with respect to this Agreement or the terms hereof or
the transactions contemplated hereby unless mutually agreed by the
parties in writing, which release shall not be unreasonably withheld,
except as required under securities laws or other applicable laws
(including in connection with an initial public offering). Neither
party shall use the name of the other party or any adaptation thereof
or any of such other party's Trademarks in any advertising,
promotional or sales literature, or in any other form of publicity
without prior written consent (which consent will not be unreasonably
withheld or delayed) obtained from the other party in each case.
(b) Each party agrees to protect from disclosures to any third party any
and all information received from the other party that identifies an
individual customer, including but not limited to names, telephone
numbers, e-mail addresses, postal addresses, and user names. Each
party agrees to remove, upon request by the other party, from its
databases and all other records, electronic or otherwise, such
customer identifying information, subject to each party's ability to
maintain a copy of such customer information for purposes of complying
with such party's obligations under this Agreement.
2.5 INTELLECTUAL PROPERTY. Subject to the terms hereof, each party shall take
such actions as are reasonably required to maintain their respective
Trademarks in effect, and shall inform the other party of any changes in or
additions to the Trademarks. Each party shall use commercially reasonable
efforts to correctly reference the other party's Trademarks and other
proprietary rights in any marketing, advertising, promotional materials,
sales literature or other publicity, as required by law or as
<PAGE>
-8-
reasonably requested by the other party. Each party's Trademarks and other
proprietary rights shall remain the sole and exclusive property of such
party and the other party shall have no rights thereto, except as otherwise
provided herein, and the goodwill associated therewith shall inure to the
benefit of the owner of such Trademark. Upon any expiration or termination
of this Agreement, the license to use the Trademarks shall terminate.
Except as otherwise provided herein, nothing contained in this Agreement
shall be deemed to transfer ownership of copyrightable material from one
party to the other.
2.6 DEVELOPMENT PLAN. No later than December 31, 1998, RCI and PRG, shall, in
accordance with the Development Plan and implementation schedule, jointly
develop an electronic system for processing customer orders received by PRG
or RCI and effecting payments in respect of the same. Each party shall bear
its own costs related to such development efforts, as set forth in the
Development Plan. Either party may terminate this Agreement upon 30 days
written notice if the parties fail to agree upon a Development Plan by
December 31, 1998.
2.7. SALES COLLATERAL. Each party shall furnish at no cost to the other party
reasonable quantities of promotional materials, such as sales literature
and similar promotional material relating to the RCI Catalog and the PRG
Catalog, including such information as is necessary or appropriate for each
party to formulate any marketing materials used in connection with
marketing activities under Sections 2.1 and 2.2 respectively. Each party
hereby grants to the other party a license to reproduce and use such
promotional materials, provided that, neither party shall edit, modify or
-------- ----
otherwise alter the form or content of such promotional materials; and
provided, further, that each party may convert such promotional materials
--------
into analog or digital format as required to make use of them.
3.0 LINKING ARRANGEMENTS.
3.1. SITE LINKS. Subject to the terms of this Agreement, PRG will place a
hypertext link to web page co-branded by both RCI and PRG (the "PRG kStore")in a
----------
prominent position on the Home Page (as defined below) and index page to PRG's
Web Site. Textual and graphic content of these links will be in the form
specified in the Development
<PAGE>
-9-
Plan, and will be provided to RCI by PRG as a computer readable file in a
compatible HTML file format (such file is the "Image").
-----
3.2. LOCATION. The Image shall appear on the home or default result page
("Home Page") of PRG's Web Site, which is the page that any user's web browser
---------
will generate as the result of requesting the following Uniform Resource Locator
("URL"): http//www.prgguide.com or any new URL with which linking party replaces
---
the above-stated URL.
3.3. WEB SITE CHANGES. PRG shall notify RCI of any significant changes to the
content or structure of PRG's Web Site within five (5) days following such
change. RCI may terminate this Agreement within fifteen (15) days prior written
notice to PRG following any such change in the event that RCI reasonable
believes that the change is adverse to its interests or reputation.
3.4. LICENSE. Subject to the terms of this Agreement, RCI hereby grants the PRG
a non-exclusive right and license to establish a link to RCI's web page, as
described more fully in this Section 3 and PRG hereby grants to RCI a
non-exclusive right and license to use in connection with such web link the
intellectual property rights (if any) embodied in the Image file delivered by
the PRG under Section 3.1. Such license is limited to the purposes of
establishing the link described in this Section 3.
3.5. EXPENSES. Each party shall pay its expenses in performing its obligations
under this Agreement and neither party shall be responsible for payment of any
portion of the other party's expenses.
4.0 SALES AND CUSTOMER SERVICE.
4.1 SALES AND CUSTOMER SERVICE PROCEDURES. Sales of Titles to customers shall
be made as follows:
(a) If the Title is distributed through an RCI Channel, RCI will
(i) sell the Title to the customer and initiate the order;
(ii) RCI will maintain the database containing information
regarding the publisher and customer's order;
<PAGE>
-10-
(iii) RCI will close the sale for the Title ordered by the customer
and bill the customer the Gross Fee (such fee may include the
Handling Charge and/or Merchant Fee). For PRG Titles, RCI will
electronically transmit the customer's order to PRG for
fulfillment by PRG. The PRG Catalog shall include a price list
for each PRG Title. RCI may determine any additional fees that
may be charged to RCI customers for PRG Titles, including but
not limited to the Handling Charge and the Merchant Fee,
provided however that, PRG shall pay for all Merchant Fees in
-------- ----
connection with an order placed though an RCI Channel, and
provided further that, such Merchant Fees shall not be
included in the calculation of the Commission payable to RCI
pursuant to Section 4 and Schedule A hereto.
----------
(iv) RCI shall fulfill the order once received by such party by
collecting all amounts due from the customer and remitting
electronically to PRG (in the case of a PRG Title) the amount
due to PRG pursuant to the Fee Schedule, less any amounts
----
attributable to commissions payable to RCI. All amounts due
and payable by RCI pursuant to Section 4 and the Fee Schedule
shall be paid by RCI to PRG on or about the last day of each
calendar month.
(v) RCI shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has been placed through an RCI Channel.
Once received, all customer questions, complaints, and
requests pertaining to PRG Titles shall be promptly
transmitted electronically to PRG for resolution. RCI shall
bear no further responsibility for customer questions,
complaints, and requests pertaining to PRG Titles. Customer
questions, complaints, and requests pertaining to RCI Titles
are the responsibility of RCI. Each party shall bear its own
expenses in resolving any such customer inquiries; and
<PAGE>
-11-
(vi) RCI shall provide to PRG information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to PRG
electronically at the address specified in Section 10.4 hereof
(b) If the Title is distributed through a PRG Channel:
(i) PRG shall sell the Title to the customer and initiate the order;
(ii) PRG shall maintain the database containing information regarding
the customer's order unless such order is placed through the PRG
kStore, in which case the database shall be maintained by RCI);
(iii) on an order placed through a PRG Channel other than the PRG
kStore, PRG shall close the sale for the Title ordered by the
customer and bill the customer a Gross Fee. For RCI Titles, PRG
will electronically transmit the customer's order to RCI for
fulfillment by RCI. PRG shall fulfill the order by collecting all
amounts due from the customer and remitting electronically to RCI
(in the case of an RCI Title) the amount due to such party, less
----
any amount attributable to commissions payable to PRG pursuant to
the Fee Schedule. All amounts due and payable by PRG pursuant to
Section 4 and the Fee Schedule shall be paid by PRG to RCI on or
about the last day of each calendar month;
(iv) on an order placed through the PRG kStore, RCI shall close the
sale for the RCI Title and follow the procedures set forth in
Section 4(a)(iii) and 4(a)(iv) hereto regarding order fulfillment
and remittance;
(v) PRG shall provide the "front-end" (i.e., the initial contact with
a customer) customer service and support, as required, to
customers whose order has been placed through an PRG Channel.
Once received, all customer questions, complaints, and requests
pertaining to RCI Titles shall be promptly
<PAGE>
-12-
transmitted electronically to RCI for resolution. PRG shall bear
no further responsibility for customer questions, complaints, and
requests pertaining to RCI Titles. Customer questions,
complaints, and requests pertaining to PRG Titles are the
responsibility of PRG. Each party shall bear its own expenses in
resolving any such customer inquiries; and
(vi) PRG shall provide to RCI information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to RCI
electronically at the address specified in Section 9.4 hereof.
4.2 CONTACT PERSONS. Each party shall designate a contact person to coordinate
the transfer of information between RCI and PRG and to be available to respond
to inquiries during the normal business hours of such party.
4.3 CHANGE IN SERVICES The parties agree and acknowledge that (a) the sales and
customer service procedures set forth in Section 4.1 hereof reflect the complete
understanding of the parties as to sales, order fulfillment, billing, and
customer service; and (b) any changes to the provisions, if reasonable,
regarding order processing, fulfillment, or customer service set forth in
Section 4.1 shall be negotiated in good faith by both parties with a
corresponding change in the Fee Schedule.
4.4. REFUNDS AND CANCELLATIONS Each party guarantees to the other party that it
will honor the policy regarding cancellations and refunds provided by the
publisher of the applicable Title. Each party shall inform the other party
within a reasonable time of any changes to such party's internal refund policy
or to a publisher's refund policy (upon notification by such publisher), as
applicable.
5.0 PAYMENT & AUDITS
5.1 PAYMENTS PURSUANT TO THE FEE SCHEDULE. On or about the last day of each
calendar month, each party shall make payments to the other party in an amount
equal to the percentage of Gross Fee or Handling Charge (as applicable) as set
forth on the Fee Schedule attached hereto as Exhibit A. Each party shall make
------- -
payments
<PAGE>
-13-
required pursuant to this Agreement electronically and in immediately-available
funds delivered to the other party at the address set forth in Section 10.4.
5.2 LATE PAYMENTS. In the event that any payment due to a party under this
Agreement is not made when due, the amount due shall accrue interest at a rate
of one-and-a-half percent (1.5%) per month from the due date until the entire
amount, including interest, shall be paid. Interest, including payment and
acceptance of interest, shall not negate or waive the right of a party to any
other remedy, legal or equitable, to which it may be entitled because of the
delinquency of any payment.
5.3 RECORDS. Each party shall keep and maintain, during the term of this
Agreement and for a period of at least two (2) years following any termination
or expiration thereof, records (prepared in accordance with generally accepted
accounting principles, consistently applied) sufficient to determine the amounts
of revenue and payments due under this Agreement. Within thirty (30) days
following each March 31, June 30, September 30 and December 31 during which
payments are due under this Agreement, commencing December 31, 1998, each party
shall provide the other party with a report including at least (a) the number
and names of the other party's Titles sold to customers through such party's
distribution channel during the immediately preceding quarter; (b) the monetary
amount collected with respect to such Titles; (c) the name of the party
fulfilling the order for each such Title; and (d) the calculation of the
payments due to such other party in respect of each sale. A report shall be
submitted to the other party whether or not any Title have been sold to
customers during such period.
5.4 AUDITS. Each party (for purposes of this Section 5.4 only, the "Auditing
--------
Party") shall have the right, not more than once in any twelve (12)-month
- -----
period, to have the relevant books and records of the other party (the "Audited
-------
Party") audited by an independent certified public accountant of the Auditing
- -----
Party's choosing, to ascertain the accuracy of the Audited Party's reports under
this Agreement. Such audits shall be scheduled within thirty (30) days following
delivery of a notice by the Auditing Party to the Audited Party, and conducted
during normal business hours, in a manner that does not unreasonably interfere
with the Audited Party's normal business activities. In the event that any audit
determines that the reported payments paid to the Auditing Party under this
Agreement was less than the amount due to the Auditing Party, the Audited Party
shall pay the Auditing Party the amount of such underpayment and all accrued
interest thereon from the date that such payment was due. In addition, if any
audit determines that the reported payments paid to the Auditing Party under
this Agreement
<PAGE>
-14-
was less than ninety five percent (95%) of the actual amount due to the Auditing
Party for the period in question, the actual out-of-pocket cost of such audit
shall be borne by the Audited Party; otherwise, the cost of the audit shall be
borne by the Auditing Party.
5.5 TAXES. All taxes and charges that may be imposed by any governmental taxing
authority on any sales of Titles pursuant to this Agreement shall be paid by the
party assessed such taxes or charges.
6.0 REPRESENTATIONS AND WARRANTIES
6.1 AUTHORIZATION, ETC. Each party hereby represents and warrants to the other
that: (a) it has the requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby;
(b) this Agreement has been duly authorized, executed and delivered by such
party, constitutes the legal, valid and binding obligation of such party and is
enforceable against such party in accordance with its terms, except to the
extent such enforceability may be limited by bankruptcy, reorganization,
insolvency or similar laws of general applicability governing the enforcement of
the rights of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity); and (c) to the best of
its knowledge, it has provided the other party with the information known to it
that materially affects the other party's ability to perform the other party's
obligations under this Agreement;.
6.2 PROPRIETARY INFORMATION. Each party hereby represents and warrants to the
other party that: (a) the provision by such party of Proprietary
Information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly inform the
other party in the event that any third party files or threatens any suit
based on any alleged violation of any such proprietary or intellectual
property rights of such party in respect of the Proprietary Information;
and (c) each party holds title or license rights to the Proprietary
Information sufficient to permit it to grant the license granted under
Section 2 hereof.
<PAGE>
-15-
6.3 THIRD PARTY RIGHTS. Each party represents and warrants to the other party
that: (a) it is not bound by any agreement or obligation (and will not
enter into any agreement or obligation) that could materially interfere
with the performance of its obligations under this Agreement; and (b) no
approval, authorization or consent of any governmental or regulatory
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement;
6.4 DISCLAIMER. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 6, EACH
PARTY DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE PRODUCTS AND SERVICES
CONTEMPLATED UNDER THIS AGREEMENT, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
7.0 CONFIDENTIALITY
7.1 DEFINITION. CONFIDENTIAL INFORMATION means all financial, business,
marketing, operations, technical, and economic information, whether
tangible or intangible, that is disclosed by either party (the DISCLOSER)
or any of Discloser's suppliers, employees, contractors or customers to the
other party (the RECIPIENT), if such information is disclosed (i) in
writing or by way of any other media that is marked as confidential or (ii)
orally or visually, provided that, such oral or visual disclosure is
-------- ----
followed by written confirmation by the Discloser within 3 days of such
disclosure; provided that (A) Confidential Information excludes any
--------
information or portion thereof that (1) was known to the Recipient before
receipt thereof under this Agreement; (2) is disclosed to the Recipient by
a third person who has a right to make such disclosure without any
obligation of confidentiality to the Discloser; (3) is or becomes generally
known in the trade without violation of this Agreement by the Recipient;
(4) is independently developed by the Recipient or Recipient's employees to
whom the Discloser's information was not disclosed; or (5) is approved in
writing by the Discloser for release; (B) only the specific information
that meets the exclusions shall be excluded, and not any other information
that happens to appear in proximity to such excluded portions (for example,
a portion of a document may be excluded without affecting the confidential
nature of those portions that do not themselves qualify for exclusion) and
(C) Confidential Information includes summaries and other materials
prepared
<PAGE>
-16-
by or on behalf of a Recipient that restate, summarize or otherwise use any
Confidential Information of a Discloser. Notwithstanding anything to the
contrary, Confidential Information shall specifically include the RCI
Catalog, the PRG Catalog, and information supplied by a party regarding RCI
Channels and PRG Channels.
7.2 NONDISCLOSURE & LIMITATIONS ON USE. Each Recipient agrees (a) to keep
secret and maintain the Confidential Information as confidential and to
hold the Confidential Information in trust for the exclusive benefit of the
Discloser; (b) to use or copy the Confidential Information solely to
perform its obligations under this Agreement; (c) to segregate the
Confidential Information from the Recipient's other information and from
that of third parties; (d) not to copy the Confidential Information unless
necessary to perform services under this Agreement; (e) to notify promptly
the Discloser upon learning about any court order or other legal
requirement that purports to compel disclosure of any Confidential
Information and to cooperate with the Discloser in the exercise of the
Discloser's right to protect the confidentiality of the Confidential
Information before any tribunal or governmental agency; (f) not to disclose
the Confidential Information to any person or entity not a party to this
Agreement other than such of Recipient's contractors, agents or employees
who (i) have a need to know the Confidential Information for a purpose
permitted hereunder; and (ii) are apprised of the confidential nature of
the Confidential Information; and (g) to return promptly to the Discloser
at any time upon the Discloser's request, any and all materials pertaining
to or containing any Information. Each party shall (1) promptly notify the
other party of any actual or suspected unauthorized use or disclosure of
the other party's Confidential Information of which it has knowledge and
will cooperate in the investigation of such unauthorized use or disclosure;
(2) be liable for breaches of confidentiality by its employees, contractors
or agents; and (3) include the other party's reasonable proprietary rights
notices on any media or products embodying the other party's Confidential
Information, including partial copies thereof. Nothing contained herein
shall prevent a Recipient from disclosing Confidential Information to any
tribunal or governmental agency, so long as the notice in this Section 7.2
is promptly given; provided that such disclosure shall not alter the status
of such information hereunder for all
<PAGE>
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other purposes as Confidential Information unless and until such
information is actually made public by the tribunal or agency.
8.0 TERM AND TERMINATION
8.1 TERM. This Agreement shall commence upon the Effective Date and, subject to
early termination pursuant to Section 8.2, shall continue in effect until the
second anniversary of the Effective Date (the INITIAL TERM) and shall be
automatically renewed for successive one (1) year periods after the expiration
of the Initial Term unless either party provides the other party with written
notice of its intent not to renew this Agreement at least ninety (90) days prior
to the expiration of the then current term.
8.2 TERMINATION.
(A) BREACH. Either party may terminate this Agreement upon thirty (30)
days' written notice to the other party if the other party breaches
any of its material obligations under this Agreement and such breach
remains uncured for a period of 30-days after receipt of such notice.
(B) Either party may terminate this Agreement upon 30 days written notice
if the parties are unable to agree upon a Development Plan as set
forth in Section 2.6 hereto.
(C) Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided that, the party subject to such Change of Control notifies
-------- ----
the other party of such event no later than the effective date
thereof. Change of Control shall mean a merger or consolidation of the
Company with or into another entity (other than a merger or
reorganization involving only a change in the state of the
incorporation of the company, or the acquisition by the company of
other businesses where the company survives as a going concern), the
sale of all or substantially all of a party's assets to any other
person, or the issuance of shares of capital stock of the company in a
transaction or series of related transactions in which the persons
acquiring such shares acquire more than 50% voting control of the
company. Notwithstanding the
<PAGE>
-18-
foregoing, an initial public offering shall not be deemed to be a
Change of Control.
(D) Any notice given pursuant to this Section 8.2(a) must set forth with
specifically the alleged material obligations breached by the other
party.
8.3. EFFECT OF TERMINATION.
(A) THEN CURRENT ORDERS. Upon termination of this Agreement, the
provisions of Section 2.1 and 2.2 regarding the obligations of each
party shall terminate, provided however, that the parties will
-------- -------
continue to perform all obligations on pending orders for the purchase
of Titles and customer services on such Titles in accordance with the
terms of this Agreement.
(B) CONFIDENTIAL INFORMATION. Promptly after all obligations to existing
customers are performed pursuant to clause (a) hereof, each party
shall return to the other party or certify in writing to the other
party that it has destroyed all documents and other tangible items it
or its employees or agents have received or created pertaining,
referring or relating to the Confidential Information of the other
party.
(C) OTHER OBLIGATIONS. The provisions of Section 7 (Confidentiality),
Section 8 (Termination), Section 9 (Risk Allocation) and Section 10
(Miscellaneous) shall survive any expiration or termination of this
Agreement.
8.4 TERMINATION/NONRENEWAL RIGHTS ABSOLUTE. It is expressly understood and
agreed that the rights of termination and nonrenewal set forth in this
Section 8 are absolute, and that the parties have considered the
possibility of such termination or nonrenewal and the possibility of loss
and damage resulting therefrom, in making expenditures pursuant to the
performance of this Agreement. It is the express intent and agreement of
the parties that neither shall be liable to the other for damages or
otherwise by reason of the termination of this Agreement as hereinabove
provided. The parties expressly agree that the notice periods in this
Agreement are reasonable under the contemplated circumstances.
<PAGE>
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9.0 RISK ALLOCATION
9.1 LIMITATION OF LIABILITY. EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE
OBLIGATIONS UNDER SECTION 7 (CONFIDENTIALITY), IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR SIMILAR DAMAGES OF ANY KIND, WHETHER SUCH LIABILITY IS
PREDICATED ON CONTRACT, STRICT LIABILITY, STATUTE, REGULATION, OR ANY OTHER
THEORY.
9.2 INDEMNIFICATION.
(A) OBLIGATION. Subject to the provisions of this Section 9.2 each party (each
an INDEMNITOR) hereby agrees to indemnify, defend and hold the other party
and its affiliates, directors, officers, employees, contractors and agents
(each an INDEMNITEE) harmless, from, against and in respect of any and all
assessments, damages, deficiencies, judgments, losses, obligations and
liabilities, including costs of collection and reasonable attorneys' fees
and expenses (collectively, LOSSES) incurred by the Indemnitee(s) arising
from or directly related to any breach by Indemnitor under this Agreement.
(B) DEFENSE OF CLAIMS. Indemnitor may assume the defense of any claim for
Losses. If Indemnitor assumes the defense of any claim for Losses, then, at
Indemnitor's expense, the Indemnitee and its counsel shall cooperate fully
in the defense against, or compromise of, at Indemnitor's option, such
asserted liability. The Indemnitee shall have the right to employ separate
counsel in any such action or claim, but the fees and expenses of such
counsel shall not be an expense of Indemnitor unless employment of such
counsel has been specifically authorized by Indemnitor. If there is a final
judgment in any such action, or if there is a settlement of any such action
effected with the consent of Indemnitor, Indemnitor shall indemnify and
hold harmless the Indemnitee from and against any loss or liability by
reason of such judgment or settlement.
9.3 DISPUTE RESOLUTION
(A) MEDIATION. Any dispute among or between the parties or any of them arising
under or in connection with this Agreement and the transactions and
relationship between the parties
<PAGE>
-20-
contemplated hereby will first be mediated by a telephone conference or
meeting, in which counsel for the respective parties will attempt to aid
the parties in negotiating a mutually acceptable resolution.
(B) ARBITRATION. If mediation pursuant to the foregoing paragraph fails to
resolve any dispute arising or in connection with this Agreement and the
transactions and relationship between the parties contemplated hereby,
either party may provide 30 days prior written notification to the other
party of such failure to resolve the dispute. Upon such notification, the
parties shall enter into arbitration pursuant to this Section 9.2(b). Such
dispute will be finally settled by a single arbitrator, having at least
five years of experience as an arbitrator and otherwise mutually acceptable
to the parties to such dispute, in arbitration administered by American
Arbitration Association in accordance with its commercial arbitration rules
then in effect and the internal laws of the Commonwealth of Massachusetts.
Any demand for arbitration hereunder must be made before the running of the
legal statute of limitations applicable to the claim at issue. Any such
arbitration will take place in the Commonwealth of Massachusetts, unless
otherwise agreed by the parties. The arbitrator will not have any right,
power, or authority to award any punitive or exemplary damages or other
damages in excess of purely compensatory damages. Each of the disputing
parties will be responsible for an equal portion of the fees and expenses
of the arbitrator, and all of such party's own costs and expenses, in
connection with any such arbitration. Judgment upon any award rendered by
the arbitrator, if such award is in accordance with applicable law and the
terms of this Agreement, may be entered in any court of competent
jurisdiction.
10.0 MISCELLANEOUS
10.1 INDEPENDENT CONTRACTORS. For all purposes of this Agreement, each party
shall be and act as an independent contractor or and not as partners, joint
venturers, employees or agents of the other. No franchise is created hereby.
Neither party shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other party or to bind
the other party to any other contract, agreement or undertaking with any third
party except as specifically provided for herein.
<PAGE>
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10.2 FORCE MAJEURE. Neither party shall be liable or responsible in any manner
for failure or delay in performance of any obligation under this Agreement when
such failure or delay is due to the result, in whole or in substantial part, to
any cause beyond the reasonable control of the party whose performance is
delayed or rendered impossible thereby if reasonable steps are taken to resolve
the reason for such failure or delay and the reason for such failure or delay is
promptly transmitted to the other party. If the delay exceeds one hundred twenty
(120) days from the initial occurrence each party shall have the right to
terminate this agreement upon 30 days prior written notice to the other party.
10.3 ASSIGNMENT. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
successors and assigns. Neither party may assign, transfer, or sublicense its
rights or obligations under this Agreement without the prior written consent of
the other party (which consent shall not be unreasonably withheld or delayed.
10.4 NOTICES. Any notices, waivers and other communications required or
permitted hereunder shall be in writing and shall be deemed to be fully given
when delivered by hand or dispatched (with reasonable evidence of receipt) by
telex, telegraph or other means of facsimile transmission, or twenty-four (24)
hours after being dispatched by recognized overnight courier or mail service,
addressed to the party to whom the notice is intended to be given at the
following or such other address as either party may designate by like notice:
RCI: RoweCom, Inc.
725 Concord Ave.
Cambridge, MA 02138
Attention: Louis Hernandez
Fax: 617-497-6825
PRG: 121 Union Street
North Adams, MA 01247
Attention: Mr. Osmin Alvarez
Fax: (413) 664-9343
10.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with substantive laws of the Commonwealth of Massachusetts, without
regard for any choice or conflict of law rule or principle that would result in
the application of the substantive law of any other jurisdiction.
<PAGE>
-22-
10.6 SEVERABILITY. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provisions to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected, and each term and provision
of this Agreement shall be valid and be enforced to the fullest extent permitted
by law.
10.7 NO THIRD-PARTY BENEFICIARIES. No person(s) not a party to this Agreement is
an intended beneficiary of this Agreement, and no person(s) not a party to this
Agreement shall have any right to enforce any term of this Agreement.
10.8 WAIVER. No provision of this Agreement shall be deemed to have been waived
unless such waiver is in writing signed by the waiving party. No failure by any
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right to remedy consequent upon a breach thereof, shall
constitute a waiver of any other provision of this Agreement or a waiver of such
provision with respect to any subsequent breach, unless expressly provided in
writing.
10.9 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
the parties relating to the subject matter hereof and supersedes all prior or
contemporaneous oral or written agreements on the same subject matter. This
Agreement may not be amended, supplemented, or otherwise modified except by an
agreement in writing signed by both parties.
10.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
10.11 FURTHER ASSURANCES. Each of the party's covenants and agrees that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, it will execute and deliver any further legal
instruments and perform any acts which are or may become reasonably necessary to
effectuate the purposes of this Agreement.
10.12 CAPTIONS. Titles and headings in this Agreement are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
<PAGE>
-23-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
ROWECOM, INC. PUBLICATION RESOURCE
GROUP, INC.
By: By:
--------------------------- ---------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------ ------------------------
<PAGE>
EXHIBIT A
---------
FEE SCHEDULE
------------
<TABLE>
<CAPTION>
RCI TITLE ORDERS AND PRG TITLE ORDERS
- ---------------------------------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- ------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI PRG
---------- ----- ------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1. RCI RCI RCI RCI RCI RCI RCI ***/4/ ***/5/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
2. RCI PRG RCI RCI RCI RCI RCI ***/6/ ***/7/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
3. PRG RCI PRG PRG PRG RCI PRG ***/8/ ***/9/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
4. PRG PRG PRG PRG PRG PRG PRG -- ***/10/
----
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents ***/11/
----
/4/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/5/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/6/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/7/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/8/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/9/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/10/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-25-
(A) Includes ***/12/
----
- --------------------------
(footnote continued from previous page)
/11/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT B
---------
PRG CATALOG
-----------
<PAGE>
EXHIBIT C
---------
RCI CATALOG
-----------
[PROVIDED ELECTRONICALLY TO PRG]
<PAGE>
EXHIBIT 10.20
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER, SALE, OR
OTHER DISPOSITION OF THIS WARRANT OR ANY SECURITIES ISSUED HEREUNDER MAY BE MADE
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS WARRANT OR SUCH SECURITIES,
AS THE CASE MAY BE, HAS BECOME EFFECTIVE UNDER SAID ACT, OR THE ISSUER HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH REGISTRATION IS NOT REQUIRED.
IN ADDITION, BOTH THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS SET FORTH IN
A UNANIMOUS SHAREHOLDERS' AGREEMENT DATED AS OF APRIL 1, 1997, BY AND AMONG THE
ISSUER OF THIS WARRANT, THE HOLDER HEREOF (OR SUCH HOLDER'S PREDECESSOR-IN-
INTEREST), AND CERTAIN OTHERS, AS SUCH AGREEMENT MAY BE AMENDED AND/OR RESTATED
AND IN EFFECT FROM TIME TO TIME. THE ISSUER WILL FURNISH A COPY OF SUCH
AGREEMENT TO THE REGISTERED HOLDER OF THIS WARRANT UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
STOCK PURCHASE WARRANT
NO. W-1 APRIL 1, 1997
RoweCom Inc. (the "Company"), a Delaware corporation, hereby certifies that
subject to the terms and conditions set forth herein, Philippe Villers is
entitled on any one occasion before 5:00 p.m. (Boston time) on the fifth
anniversary of the date hereof, to purchase from the Company up to 80,645 fully
paid and non-assessable shares of the class of the Company's capital stock
determined in accordance with the following paragraphs A-C, for a purchase price
of $2.48 per share (such purchase price, subject to adjustment as provided
herein, the "Exercise Price").
A. The type and number of shares of capital stock purchasable pursuant to
this Warrant and the Exercise Price payable therefor shall be determined as
follows. Reference is made to the Unanimous Shareholders' Agreement dated as of
April 1, 1997, by and among the Company and the "Shareholder" parties thereto,
as such agreement may be amended and/or restated and in effect from time to time
(the "Shareholders' Agreement"), and capitalized terms used and not otherwise
defined in the following paragraphs B and C have the respective meanings set
forth in the Shareholders' Agreement. For purposes of this Warrant, "Stock"
means the
<PAGE>
-2-
type of stock purchasable hereunder, as determined in accordance with the
following paragraphs B and C.
B. If prior to the time of exercise, WV has not exercised its Exchange
---
Option, then the shares purchasable pursuant to this Warrant will be shares of
the Company's Class A Preferred Stock, $0.01 par value per share.
C. If prior to the time of exercise, WV has exercised its Exchange
---
Option, then the shares purchasable pursuant to this Warrant will be shares of
the Company's Common Stock, $0.01 par value per share.
1. EXERCISE OF WARRANT.
(A) MECHANICS OF EXERCISE. This Warrant may be exercised by the registered
holder hereof by surrender to the Company of this Warrant, with the attached
form of subscription agreement duly executed by such holder, accompanied by
payment, by check payable to the order of the Company or by wire transfer to its
account, in an amount equal to the product of (i) the number of shares of Stock
for which this Warrant is then being exercised (such shares, the "Exercise
Shares") multiplied by (ii) the Exercise Price.
Notwithstanding the foregoing or any other provision hereof, this Warrant
shall be and be deemed to have been exercised in full, automatically and without
further action by the holder hereof, upon the closing of the first public
offering of securities of the Company registered in an effective registration
statement filed under the Securities Act of 1933, as amended; provided, that in
such case, the holder shall pay and be deemed to have paid the aggregate
Exercise Price for the Exercise Shares by surrendering its rights to receive a
portion of the Exercise Shares having a fair market value (determined by
reference to the price at which a share of the Company's Common Stock, $0.01 par
value, is initially offered to the public in such offering, as set forth on the
cover of the final prospectus in connection with such offering; such price, the
"Public Offering Price") equal to such aggregate Exercise Price, and shall
receive upon such exercise the excess of (i) the number of Exercise Shares to
which such holder would otherwise be entitled upon such exercise, minus (ii) the
number of Exercise Shares so surrendered.
(B) WARRANT AGENT. In the event that a bank or trust company is appointed
as trustee for the holder of this Warrant pursuant to Section 3(b) hereof, such
bank or trust company shall have all the powers and duties of a warrant agent
appointed pursuant to Section 8 hereof and shall accept, in its own name for the
account of the Company or such successor entity as
<PAGE>
-3-
may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, upon exercise of this Warrant.
(C) EXPIRATION. This Warrant and the holder's rights hereunder shall
expire as of 5:00 p.m. (Boston time), on the fifth anniversary of the date
hereof.
2. DELIVERY OF STOCK CERTIFICATES; FRACTIONAL SHARES.
(A) DELIVERY OF STOCK CERTIFICATES. As soon as is practicable after any
exercise of this Warrant, the Company, at its own expense shall deliver to the
registered holder hereof a stock certificate representing the shares of Stock,
other securities, cash, and/or property to which such holder is entitled in
respect of such exercise.
(B) FRACTIONAL SHARES. In the event that any exercise of this Warrant
would, but for the provisions of this Section 2(b), result in the issuance of
any fractional share of Stock, then in lieu of such fractional share the
registered holder hereof shall be entitled to cash equal to the fair market
value of such fractional share, as determined in good faith by the Company's
Board of Directors.
3. ADJUSTMENT FOR REORGANIZATIONS, CONSOLIDATIONS, MERGERS, ETC.
(A) CERTAIN ADJUSTMENTS. In case at any time or from time to time prior to
the exercise of this Warrant, the Company shall (i) effect a capital
reorganization, reclassification, or recapitalization, (ii) consolidate with or
merge with or into any other person or entity, or (iii) transfer all or
substantially all of its properties or assets to any other person or entity
under any plan or arrangement contemplating the dissolution of the Company, then
in each such case, the registered holder of this Warrant, upon exercise hereof
at any time after or simultaneously with the consummation of such
reorganization, recapitalization, consolidation, or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the shares of
Stock issuable upon such exercise before such consummation or effective date,
the other securities, cash, and/or property to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment thereafter as provided herein.
(B) APPOINTMENT OF TRUSTEE FOR WARRANT HOLDERS UPON DISSOLUTION. In the
event of any dissolution of the Company, the Company, prior to such dissolution,
shall, at its expense, deliver or cause to be
<PAGE>
-4-
delivered the stock, other securities, property, and/or cash receivable by the
registered holder of this Warrant after the effective date of such dissolution
pursuant to this Section 3 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the registered holder of this
Warrant.
(C) CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger,
or transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of Stock, other securities, cash,
and/or property receivable on the exercise of this Warrant after or
simultaneously with the consummation of such reorganization, consolidation, or
merger or the effective date of dissolution following any such transfer, as the
case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person or entity
acquiring all or substantially all of the properties or assets of the Company,
whether or not such person or entity shall have expressly assumed the terms of
this Warrant as provided in Section 5 hereof.
4. ADJUSTMENTS FOR STOCK SPLITS, ETC. If at any time or from time to time
there shall occur any stock split, stock dividend, reverse stock split, or other
combination or subdivision of the Stock (a "Stock Event"), then the number of
shares of Stock issuable upon exercise hereof shall be appropriately adjusted
such that the proportion of the number of shares issuable hereunder immediately
after such Stock Event to the total number of shares of Stock of the Company
outstanding immediately after such Stock Event is equal to the proportion of the
number of shares of Stock issuable hereunder immediately before such Stock Event
to the total number of shares of Stock of the Company outstanding immediately
before such Stock Event. The Exercise Price shall be proportionately decreased
or increased upon the occurrence of any Stock Event.
5. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but shall at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the registered holder of this
Warrant against dilution. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of stock receivable
on the exercise of this Warrant above the amount payable therefor on such
exercise, (ii) shall take all such action as may be necessary or appropriate in
order that the
<PAGE>
-5-
Company may validly and legally issue fully paid and non-assessable shares of
stock upon exercise of this Warrant from time to time, and (iii) shall not
transfer all or substantially all of its properties and assets to any other
person or entity or consolidate into or merge with or into any other person or
entity (if the Company is not the surviving entity), unless such other person or
entity shall expressly agree in writing (naming the registered holder hereof, as
such, as an intended third-party beneficiary) to assume and be bound by all the
terms of this Warrant applicable to the Company.
6. NOTICES OF RECORD DATE, ETC. In the event from time to time of any
proposed or contemplated:
(a) taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, or any transfer of
all or substantially all the assets of the Company to, or any consolidation
or merger of the Company with or into, any other person or entity; or
(c) voluntary or involuntary dissolution, liquidation, or winding-up
of the Company;
then, and in each such event, the Company shall mail or cause to be mailed to
the registered holder of this Warrant a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution,
or right, and stating the amount and character of such dividend, distribution,
or right, or (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation, or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Stock shall be entitled to exchange their
shares of Stock for securities, cash, and/or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation, or winding-up. Such notice shall be mailed at
least thirty days prior to the earliest date specified in such notice on which
any such action or transaction is to be taken or consummated.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company at
all times and from time to time shall reserve and keep
<PAGE>
-6-
available, solely for issuance and delivery on the exercise of this Warrant, a
number of shares of Stock equal to the aggregate number of shares of Stock from
time to time issuable upon exercise of this Warrant. If at any time the Company
does not have sufficient authorized shares to comply with the foregoing
sentence, the Company promptly shall take all steps necessary to amend its
Certificate of Incorporation to provide a reserved number of shares of Stock
sufficient to effect the exercise in full of this Warrant.
8. WARRANT AGENT. The Company may, by written notice to the registered
holder of this Warrant, appoint an agent having an office in Boston,
Massachusetts for the purpose of issuing Stock upon exercise of this Warrant,
exchanging or replacing this Warrant, or any of the foregoing, and thereafter
any such issuance, exchange, or replacement, as the case may be, shall be made
at such office by such agent.
9. CAPTIONS. The captions of sections or subsections of this Warrant are
for reference only and shall not affect the interpretation or construction of
this Warrant.
10. EQUITABLE RELIEF. The Company hereby acknowledges that any breach by
it of its obligations under this Warrant would cause substantial and irreparable
damage to the registered holder hereof, and that money damages would be an
inadequate remedy therefor, and accordingly, acknowledges and agrees that, in
addition to any other rights and remedies to which the registered holder hereof
may be entitled in respect of any breach of such obligations, such holder shall
be entitled to an injunction, specific performance, and/or other equitable
relief to prevent the breach of such obligations.
11. WAIVERS. No waiver of any breach or default hereunder shall be valid
unless in a writing signed by the registered holder hereof. No failure or other
delay by the registered holder hereof exercising any right, power, or privilege
hereunder shall be or operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege.
12. GOVERNING LAW. This Warrant shall be governed by and interpreted and
construed in accordance with the internal laws of the State of Delaware (without
reference to principles of conflicts or choice of law).
[The rest of this page is intentionally left blank.]
<PAGE>
-7-
IN WITNESS WHEREOF, the Company has executed and delivered this Warrant as
of the date first above written.
ROWECOM INC.
By _________________________
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Stock Purchase Warrant)
TO: ROWECOM INC.
The undersigned, the Holder of the enclosed Stock Purchase Warrant, hereby
irrevocably elects to exercise such Warrant for, and to purchase thereunder
____________ shares of Stock of RoweCom Inc. and herewith makes payment of
$______________ therefor, 1/ and requests that the certificates for such
-
shares be issued in the name of, and delivered to _____________________________,
whose address is __________________________________.
Dated___________________________ ______________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
______________________________
(Address)
_________________________
1/ Appropriate changes to be made in the case of a "cashless" exercise of
-
the Warrant pursuant to Section 1(a) hereof.
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers to
_________________ the "Assignee") the rights represented by the enclosed Stock
Purchase Warrant of RoweCom Inc. (the "Company"), a Delaware corporation, and
appoints ___________ as the undersigned's attorney to transfer such rights on
the books of the Company, with full power of substitution in the premises.
Dated_____________________ ______________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
______________________________
(Address)
<PAGE>
EXHIBIT 10.21
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER, SALE, OR
OTHER DISPOSITION OF THIS WARRANT OR ANY SECURITIES ISSUED HEREUNDER MAY BE MADE
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS WARRANT OR SUCH SECURITIES,
AS THE CASE MAY BE, HAS BECOME EFFECTIVE UNDER SAID ACT, OR THE ISSUER HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH REGISTRATION IS NOT REQUIRED.
IN ADDITION, BOTH THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS SET FORTH IN
A UNANIMOUS SHAREHOLDERS' AGREEMENT DATED AS OF APRIL 1, 1997, BY AND AMONG THE
ISSUER OF THIS WARRANT, THE HOLDER HEREOF (OR SUCH HOLDER'S PREDECESSOR-IN-
INTEREST), AND CERTAIN OTHERS, AS SUCH AGREEMENT MAY BE AMENDED AND/OR RESTATED
AND IN EFFECT FROM TIME TO TIME. THE ISSUER WILL FURNISH A COPY OF SUCH
AGREEMENT TO THE REGISTERED HOLDER OF THIS WARRANT UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
STOCK PURCHASE WARRANT
NO. W-2 APRIL 1, 1997
RoweCom Inc. (the "Company"), a Delaware corporation, hereby certifies that
subject to the terms and conditions set forth herein, Jerome Rubin is entitled
on any one occasion before 5:00 p.m. (Boston time) on the fifth anniversary of
the date hereof, to purchase from the Company up to 40,322 fully paid and non-
assessable shares of the class of the Company's capital stock determined in
accordance with the following paragraphs A-C, for a purchase price of $2.48 per
share (such purchase price, subject to adjustment as provided herein, the
"Exercise Price").
A. The type and number of shares of capital stock purchasable pursuant to
this Warrant and the Exercise Price payable therefor shall be determined as
follows. Reference is made to the Unanimous Shareholders' Agreement dated as of
April 1, 1997, by and among the Company and the "Shareholder" parties thereto,
as such agreement may be amended and/or restated and in effect from time to time
(the "Shareholders' Agreement"), and capitalized terms used and not otherwise
defined in the following paragraphs B and C have the respective meanings set
forth in the Shareholders' Agreement. For purposes of this Warrant, "Stock"
means the
<PAGE>
-2-
type of stock purchasable hereunder, as determined in accordance with the
following paragraphs B and C.
B. If prior to the time of exercise, WV has not exercised its Exchange
---
Option, then the shares purchasable pursuant to this Warrant will be shares of
the Company's Class A Preferred Stock, $0.01 par value per share.
C. If prior to the time of exercise, WV has exercised its Exchange
---
Option, then the shares purchasable pursuant to this Warrant will be shares of
the Company's Common Stock, $0.01 par value per share.
1. EXERCISE OF WARRANT.
(A) MECHANICS OF EXERCISE. This Warrant may be exercised by the registered
holder hereof by surrender to the Company of this Warrant, with the attached
form of subscription agreement duly executed by such holder, accompanied by
payment, by check payable to the order of the Company or by wire transfer to its
account, in an amount equal to the product of (i) the number of shares of Stock
for which this Warrant is then being exercised (such shares, the "Exercise
Shares") multiplied by (ii) the Exercise Price.
Notwithstanding the foregoing or any other provision hereof, this Warrant
shall be and be deemed to have been exercised in full, automatically and without
further action by the holder hereof, upon the closing of the first public
offering of securities of the Company registered in an effective registration
statement filed under the Securities Act of 1933, as amended; provided, that in
such case, the holder shall pay and be deemed to have paid the aggregate
Exercise Price for the Exercise Shares by surrendering its rights to receive a
portion of the Exercise Shares having a fair market value (determined by
reference to the price at which a share of the Company's Common Stock, $0.01 par
value, is initially offered to the public in such offering, as set forth on the
cover of the final prospectus in connection with such offering; such price, the
"Public Offering Price") equal to such aggregate Exercise Price, and shall
receive upon such exercise the excess of (i) the number of Exercise Shares to
which such holder would otherwise be entitled upon such exercise, minus (ii) the
number of Exercise Shares so surrendered.
(B) WARRANT AGENT. In the event that a bank or trust company is appointed
as trustee for the holder of this Warrant pursuant to Section 3(b) hereof, such
bank or trust company shall have all the powers and duties of a warrant agent
appointed pursuant to Section 8 hereof and shall accept, in its own name for the
account of the Company or such successor entity as
<PAGE>
-3-
may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, upon exercise of this Warrant.
(C) EXPIRATION. This Warrant and the holder's rights hereunder shall
expire as of 5:00 p.m. (Boston time), on the fifth anniversary of the date
hereof.
2. DELIVERY OF STOCK CERTIFICATES; FRACTIONAL SHARES.
(A) DELIVERY OF STOCK CERTIFICATES. As soon as is practicable after any
exercise of this Warrant, the Company, at its own expense shall deliver to the
registered holder hereof a stock certificate representing the shares of Stock,
other securities, cash, and/or property to which such holder is entitled in
respect of such exercise.
(B) FRACTIONAL SHARES. In the event that any exercise of this Warrant
would, but for the provisions of this Section 2(b), result in the issuance of
any fractional share of Stock, then in lieu of such fractional share the
registered holder hereof shall be entitled to cash equal to the fair market
value of such fractional share, as determined in good faith by the Company's
Board of Directors.
3. ADJUSTMENT FOR REORGANIZATIONS, CONSOLIDATIONS, MERGERS, ETC.
(A) CERTAIN ADJUSTMENTS. In case at any time or from time to time prior
to the exercise of this Warrant, the Company shall (i) effect a capital
reorganization, reclassification, or recapitalization, (ii) consolidate with or
merge with or into any other person or entity, or (iii) transfer all or
substantially all of its properties or assets to any other person or entity
under any plan or arrangement contemplating the dissolution of the Company, then
in each such case, the registered holder of this Warrant, upon exercise hereof
at any time after or simultaneously with the consummation of such
reorganization, recapitalization, consolidation, or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the shares of
Stock issuable upon such exercise before such consummation or effective date,
the other securities, cash, and/or property to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment thereafter as provided herein.
(B) APPOINTMENT OF TRUSTEE FOR WARRANT HOLDERS UPON DISSOLUTION. In the
event of any dissolution of the Company, the Company, prior to such dissolution,
shall, at its expense, deliver or cause to be
<PAGE>
-4-
delivered the stock, other securities, property, and/or cash receivable by the
registered holder of this Warrant after the effective date of such dissolution
pursuant to this Section 3 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the registered holder of this
Warrant.
(C) CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger, or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Stock, other securities, cash,
and/or property receivable on the exercise of this Warrant after or
simultaneously with the consummation of such reorganization, consolidation, or
merger or the effective date of dissolution following any such transfer, as the
case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person or entity
acquiring all or substantially all of the properties or assets of the Company,
whether or not such person or entity shall have expressly assumed the terms of
this Warrant as provided in Section 5 hereof.
4. ADJUSTMENTS FOR STOCK SPLITS, ETC. If at any time or from time to
time there shall occur any stock split, stock dividend, reverse stock split, or
other combination or subdivision of the Stock (a "Stock Event"), then the number
of shares of Stock issuable upon exercise hereof shall be appropriately adjusted
such that the proportion of the number of shares issuable hereunder immediately
after such Stock Event to the total number of shares of Stock of the Company
outstanding immediately after such Stock Event is equal to the proportion of the
number of shares of Stock issuable hereunder immediately before such Stock Event
to the total number of shares of Stock of the Company outstanding immediately
before such Stock Event. The Exercise Price shall be proportionately decreased
or increased upon the occurrence of any Stock Event.
5. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but shall at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the registered holder of this
Warrant against dilution. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of stock receivable
on the exercise of this Warrant above the amount payable therefor on such
exercise, (ii) shall take all such action as may be necessary or appropriate in
order that the
<PAGE>
-5-
Company may validly and legally issue fully paid and non-assessable shares of
stock upon exercise of this Warrant from time to time, and (iii) shall not
transfer all or substantially all of its properties and assets to any other
person or entity or consolidate into or merge with or into any other person or
entity (if the Company is not the surviving entity), unless such other person or
entity shall expressly agree in writing (naming the registered holder hereof, as
such, as an intended third-party beneficiary) to assume and be bound by all the
terms of this Warrant applicable to the Company.
6. NOTICES OF RECORD DATE, ETC. In the event from time to time of any
proposed or contemplated:
(a) taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, or any transfer of
all or substantially all the assets of the Company to, or any consolidation
or merger of the Company with or into, any other person or entity; or
(c) voluntary or involuntary dissolution, liquidation, or winding-up
of the Company;
then, and in each such event, the Company shall mail or cause to be mailed to
the registered holder of this Warrant a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution,
or right, and stating the amount and character of such dividend, distribution,
or right, or (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation, or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Stock shall be entitled to exchange their
shares of Stock for securities, cash, and/or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation, or winding-up. Such notice shall be mailed at
least thirty days prior to the earliest date specified in such notice on which
any such action or transaction is to be taken or consummated.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company at
all times and from time to time shall reserve and keep
<PAGE>
-6-
available, solely for issuance and delivery on the exercise of this Warrant, a
number of shares of Stock equal to the aggregate number of shares of Stock from
time to time issuable upon exercise of this Warrant. If at any time the Company
does not have sufficient authorized shares to comply with the foregoing
sentence, the Company promptly shall take all steps necessary to amend its
Certificate of Incorporation to provide a reserved number of shares of Stock
sufficient to effect the exercise in full of this Warrant.
8. WARRANT AGENT. The Company may, by written notice to the registered
holder of this Warrant, appoint an agent having an office in Boston,
Massachusetts for the purpose of issuing Stock upon exercise of this Warrant,
exchanging or replacing this Warrant, or any of the foregoing, and thereafter
any such issuance, exchange, or replacement, as the case may be, shall be made
at such office by such agent.
9. CAPTIONS. The captions of sections or subsections of this Warrant are
for reference only and shall not affect the interpretation or construction of
this Warrant.
10. EQUITABLE RELIEF. The Company hereby acknowledges that any breach by
it of its obligations under this Warrant would cause substantial and irreparable
damage to the registered holder hereof, and that money damages would be an
inadequate remedy therefor, and accordingly, acknowledges and agrees that, in
addition to any other rights and remedies to which the registered holder hereof
may be entitled in respect of any breach of such obligations, such holder shall
be entitled to an injunction, specific performance, and/or other equitable
relief to prevent the breach of such obligations.
11. WAIVERS. No waiver of any breach or default hereunder shall be valid
unless in a writing signed by the registered holder hereof. No failure or other
delay by the registered holder hereof exercising any right, power, or privilege
hereunder shall be or operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege.
12. GOVERNING LAW. This Warrant shall be governed by and interpreted and
construed in accordance with the internal laws of the State of Delaware (without
reference to principles of conflicts or choice of law).
[The rest of this page is intentionally left blank.]
<PAGE>
-7-
IN WITNESS WHEREOF, the Company has executed and delivered this Warrant as
of the date first above written.
ROWECOM INC.
By __________________________
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Stock Purchase Warrant)
TO: ROWECOM INC.
The undersigned, the Holder of the enclosed Stock Purchase Warrant, hereby
irrevocably elects to exercise such Warrant for, and to purchase thereunder
____________ shares of Stock of RoweCom Inc. and herewith makes payment of
$______________ therefor,/2/ and requests that the certificates for such shares
--
be issued in the name of, and delivered to _____________________________, whose
address is __________________________________.
Dated ____________________ _____________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
_____________________________________
(Address)
_____________________
/2/ Appropriate changes to be made in the case of a "cashless" exercise of the
- ---
Warrant pursuant to Section 1(a) hereof.
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers to
___________________ the "Assignee") the rights represented by the enclosed Stock
Purchase Warrant of RoweCom Inc. (the "Company"), a Delaware corporation, and
appoints _________________ as the undersigned's attorney to transfer such rights
on the books of the Company, with full power of substitution in the premises.
Dated ________________________ ________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
________________________________
(Address)
<PAGE>
Subsidiary of Registrant
------------------------
EXHIBIT 21.1
------------
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Rowe Communications Ltd. Ontario, Canada
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated April 21, 1998, except for the information presented in Note 14
for which the date is May 4, 1998, on our audits of the consolidated financial
statements of RoweCom Inc. We also consent to the references to our firm under
the captions "Experts" and "Selected Financial Data".
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NINE MONTHS
ENDED 9/30/98 AND CONSOLIDATED BALANCE SHEETS AT 12/31/97
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 3,578,232 691,358
<SECURITIES> 0 0
<RECEIVABLES> 180,647 254,256
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,727,307 1,763,367
<PP&E> 580,063 235,386
<DEPRECIATION> 130,704 56,528
<TOTAL-ASSETS> 6,407,399 2,108,041
<CURRENT-LIABILITIES> 3,113,460 1,578,059
<BONDS> 0 0
12,573,493 4,298,210
0 0
<COMMON> 43,723 44,238
<OTHER-SE> 9,323,277 3,812,466
<TOTAL-LIABILITY-AND-EQUITY> 6,407,399 2,108,041
<SALES> 3,585,426 12,889,988
<TOTAL-REVENUES> 3,585,426 12,889,988
<CGS> 3,493,912 12,701,290
<TOTAL-COSTS> 5,071,872 3,369,519
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 103,915 63,652
<INCOME-PRETAX> (4,876,443) (3,117,169)
<INCOME-TAX> 87,266 136,352
<INCOME-CONTINUING> (4,963,709) (3,253,521)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,963,709) (3,253,521)
<EPS-PRIMARY> (1.25) (.77)
<EPS-DILUTED> (1.25) (.77)
</TABLE>
