<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
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of 1934 for the quarterly period ended June 30, 1999
OR
- -- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-21379
ROWECOM INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3370008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
725 Concord Avenue, Cambridge, MA 02138
(Address of principal executive office)
(617) 497-5800
(registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
Yes X No
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and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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ROWECOM INC.
INDEX
<TABLE>
<CAPTION>
Item Page
Number Number
- ------ ------
<S> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements
RoweCom Inc.
------------
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 ................................................................. 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1999 (unaudited) and June 30, 1998 (unaudited)............................. 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1999
(unaudited) and June 30, 1998 (unaudited)........................................... 5
Notes to Consolidated Financial Statements (unaudited).................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 8
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds............................................... 14
Item 5. Other Information....................................................................... 14
Item 6. Exhibits and Reports on Form 8-K........................................................ 14
Signatures.............................................................................. 15
</TABLE>
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PART I -- Financial Information
Item 1. Consolidated Financial Statements
RoweCom Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
At June 30, At December 31,
1999 1998
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(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 42,021 $ 16,051
Marketable securities 8,424 -
Accounts receivable (net of allowance for doubtful accounts
of $170,000 and $60,000) 613 1,982
Restricted cash 2,833 923
Other current assets 170 604
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Total current assets 54,061 19,560
Goodwill, net 7,142 -
Marketable securities, long term 4,063 -
Equipment and furnishings, net 1,297 632
Deferred tax asset 76 76
Other assets, net 94 16
=========== ==========
Total assets $ 66,733 $ 20,284
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable 740 366
Accrued expenses 1,199 629
Accrued compensation 825 538
Customer advances 2,833 923
Loans payable 246 1,657
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Total current liabilities 5,843 4,113
Commitments
Class A Redeemable, Convertible Preferred stock, $.01 par value,
5,000,000 shares authorized, 0 and 1,772,857 shares issued and
outstanding, respectively - 4,636
Class B Redeemable, Convertible Preferred stock, $.01 par value,
8,000,000 shares authorized, 0 and 6,326,610 shares issued and
outstanding, respectively - 8,198
Class C Redeemable, Convertible Preferred stock, $.01 par value,
5,000,000 shares authorized, 0 and 4,586,599 shares issued and
outstanding, respectively - 15,588
Stockholders' equity (deficit):
Common stock, $.01 par value per share, 34,000,000 shares
authorized, 10,107,945 and 1,526,180 shares issued and
outstanding, respectively 101 15
Additional paid-in capital 82,347 1,710
Treasury stock, at cost (53) (53)
Accumulated deficit (21,465) (13,901)
Accumulated other comprehensive loss (40) (22)
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Total stockholders' equity (deficit) 60,890 (12,251)
=========== ==========
Total liabilities and stockholders' equity (deficit) $ 66,733 $ 20,284
=========== ==========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are
an integral part of these statements.
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<TABLE>
<CAPTION>
RoweCom Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,981 $ 865 $ 3,680 $ 2,172
Cost of revenues 1,868 819 3,395 2,103
---------- --------- ----------- ---------
Gross profit 113 46 285 69
Operating expenses:
Sales and marketing 2,653 1,311 4,547 1,918
Research and development 1,027 261 1,844 470
General and administrative 1,172 310 1,898 598
Goodwill amortization 204 - 204 -
---------- --------- ----------- ---------
Total operating expenses 5,056 1,882 8,493 2,986
---------- --------- ----------- ---------
Loss from operations (4,943) (1,836) (8,208) (2,917)
Interest and other income, net 817 18 1,068 46
---------- --------- ----------- ---------
Loss before income taxes (4,126) (1,818) (7,140) (2,871)
Provision for income taxes 55 28 55 56
---------- --------- ----------- ---------
Net loss $ (4,181) $ (1,846) $ (7,195) $ (2,927)
========== ========= =========== =========
Basic and Diluted net loss per share
Net loss applicable to common $ (4,181) $ (2,009) $ (7,564) $ (3,159)
stockholders
Basic and diluted weighted average
shares outstanding 10,090 1,532 6,873 1,538
Basic and diluted loss per share $ (.41) $ (1.31) $ (1.10) $ (2.05)
Pro forma Basic and Diluted net loss
per share
Pro forma net loss applicable to $ (4,181) $ (1,846) $ (7,195) $ (2,927)
common stockholders
Basic and diluted weighted average
shares outstanding 10,090 3,561 8,750 2,879
Basic and diluted pro forma loss per $ (.41) $ (.52) $ (.82) $ (1.02)
share
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these statements.
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RoweCom Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
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June 30, 1999 June 30, 1998
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(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,195) $ (2,927)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 412 58
Changes in operating assets and liabilities, net of assets and
liabilities acquired:
Accounts receivable 1,374 83
Other current and long term assets 562 158
Accounts payable 301 295
Income taxes payable - (115)
Accrued expenses and accrued compensation (782) (360)
Deferred revenue - 4
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Net cash used in operating activities (5,328) (2,804)
Cash flows from investing activities:
Purchase of equipment and furnishings (826) (240)
Purchase of marketable securities (12,487) -
Purchase of intangible assets (2) (1)
Cash paid to acquire business, net of cash acquired (5,620) -
----------- ---------
Net cash used in investing activities (18,935) (241)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 51,681 7,909
Loan repayments (1,412) (850)
Loan proceeds - 850
Purchase of treasury stock - (53)
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Net cash provided by financing activities 50,269 7,856
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Effect of exchange rates on cash (36) (22)
Net increase in cash and cash equivalents 25,970 4,789
Cash and cash equivalents, beginning of period 16,051 691
=========== =========
Cash and cash equivalents, end of period $ 42,021 $ 5,480
=========== =========
Supplementary information:
Accretion of preferred stock $ 369 $ 232
Issuance of common stock in connection with a purchase acquisition $ 250 $ -
Cash paid for interest $ 30 $ 11
Cash paid for taxes $ 99 $ 55
</TABLE>
Supplemental disclosure of non-cash transactions:
During the three months ended March 31, 1999, RoweCom converted all of the
shares of Class A Redeemable Convertible Preferred Stock, Class B
Redeemable Convertible Preferred Stock, Class C Redeemable Convertible
Preferred Stock, and the stock purchase warrants of RoweCom Canada and
RoweCom, into 4,996,290 shares of the RoweCom's common stock.
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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RoweCom Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. The Company
The consolidated financial statements include the accounts of RoweCom Inc.
("RoweCom") and its wholly owned subsidiary, Rowe Communications, Ltd., a
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Canadian company ("RoweCom Canada"). All significant intercompany accounts and
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transactions between RoweCom and its sole subsidiary, RoweCom Canada, included
in the accompanying consolidated financial statements have been eliminated.
2. Interim Results
As permitted by the rules of the Securities and Exchange Commission applicable
to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain
all the disclosures required by generally accepted accounting principles.
Reference should be made to the consolidated financial statements and related
notes included in the Company's Registration Statement on Form S-1 for the year
ended December 31, 1998, as filed with the Securities and Exchange Commission on
March 8, 1999.
In the opinion of the management of RoweCom, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting primarily
of normal recurring accruals) considered necessary for a fair statement of the
results for the interim period.
The results disclosed in the Consolidated Balance Sheet at June 30, 1999, the
Consolidated Statement of Operations for the three and six months ended June 30,
1999, and the Consolidated Statement of Cash Flows for the six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the full year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of the 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.
3. Initial Public Offering
RoweCom completed an initial public offering of its common stock on March 8,
1999 (the "IPO"). A total of 3,565,000 shares of common stock were sold by
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RoweCom to the public at a price of $16.00 per share. The underwriting discount
was $1.12 per share. The net proceeds after the underwriting discount and other
IPO expenses were $51.7 million. Concurrent with the IPO, all of the shares of
Class A Redeemable Convertible Preferred Stock, Class A-1 Redeemable Convertible
Preferred Stock, Class B Redeemable Convertible Preferred Stock, Class C
Redeemable Convertible Preferred Stock, and all outstanding stock purchase
warrants (the "Convertible Stock") of RoweCom Canada and RoweCom, were converted
-----------------
into 4,996,290 shares of RoweCom's common stock.
4. Earnings Per Share
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings per Share." In accordance with this pronouncement,
the net loss applicable to common stockholders includes the accretion of
dividends on the redeemable convertible preferred stock through the date of
conversion to common stock. Weighted average shares outstanding includes the
common stock resulting from the conversion of the Convertible Stock from the
date of conversion through the end of the period.
Pro forma net loss per share has been computed under FAS 128, except that it
reflects the conversion of the Convertible Stock as of the beginning of the
earliest period presented or date of issuance, whichever is later. Therefore,
the pro forma net loss per share does not include the accretion of dividends on
the redeemable convertible preferred stock. The pro forma weighted average
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shares outstanding includes the common stock resulting from the conversion of
the Convertible Stock as of the beginning of the earliest period presented or
the date of issuance, whichever is later.
The following is a calculation of net loss per share
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June, 30 1998
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Historical
Basic and diluted:
Net loss to common stockholders $(4,181) $(2,009) $(7,564) $(3,159)
Weighted average number of common shares 10,090 1,532 6,873 1,538
Net loss per common share--basic and diluted (.41) (1.31) (1.10) (2.05)
Pro forma
Basic and diluted:
Net loss $(4,181) $(1,846) $(7,195) $(2,927)
Weighted average number of common shares 10,090 1,532 6,873 1,538
Weighted average assumed number of shares upon the - 2,029 1,877 1,341
conversion of preferred stock and the
net exercise of all outstanding stock purchase
warrants
Total weighted average number of shares used 10,090 3,561 8,750 2,879
in computing pro forma net loss per share
Basic and diluted pro forma net loss per $ (.41) $ (.52) $ (.82) $ (1.02)
common share
</TABLE>
Options to purchase shares of RoweCom's common stock totaling 750,367 and
392,125 at June 30, 1999 and 1998, respectively, were outstanding but not
included in the computation of diluted earnings per share as the inclusion of
these shares would have been anti-dilutive.
5. Comprehensive Loss
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (4,181) $ (1,846) $ (7,195) $ (2,927)
Other comprehensive loss:
Foreign currency translation
adjustment (16) (19) (17) (22)
------------- ------------ ------------- --------------
Comprehensive loss $ (4,197) $ (1,865) $ (7,212) $ (2,949)
============= ============ ============= ==============
</TABLE>
6. Acquisition of Corporate Subscription Services, Inc.
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of Corporate Subscription Services, Inc., ("CSS"), a New Jersey Corporation, in
a transaction accounted for using purchase method of accounting.
The total consideration of $5,976,493 consisted of $5,726,493 in cash (subject
to certain post-closing adjustments as provided in the Agreement), and 16,260
shares of RoweCom's common stock, which were valued at $250,000. The
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total purchase price of $6,203,197 includes the consideration as well as
acquisition costs of $226,704, which related to legal and accounting fees. The
terms of the Agreement were determined in arms length negotiations between
RoweCom and the shareholders of CSS. The cash portion of the purchase price came
from the proceeds of RoweCom's initial public offering, which closed on March
12, 1999.
The purchase price was allocated to the acquired assets and assumed liabilities
as follows (in thousands):
Cash $233
Other assets 269
Equipment and furnishings, net 43
Liabilities (1,688)
Goodwill 7,346
------------------
$ 6,203
==================
A final allocation of purchase price will be determined during 1999 and changes,
if any, will result in a change to the amount of goodwill recorded in connection
with the acquisition. Goodwill is being amortized on a straight-line basis over
3 years. Pro forma financials statements will be included on Form 8-K/A.
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Cautionary Note
This quarterly report on Form 10-Q may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities and Exchange Act of 1934, as amended, including, but not limited to,
(i) statements about the possibility of higher transaction volume or revenues
from new or existing clients; (ii) the impact on financial condition of RoweCom
Inc. ("RoweCom") of its strategic partnerships; and (iii) the amount and
sufficiency of RoweCom's planned expenditures to address the year 2000 dating
problem; (iv) statements about the sufficiency of the proceeds from RoweCom's
IPO and cash balances to meet currently planned working capital and capital
expenditure requirements; and (v) certain other statements identified or
qualified by words such as "likely," "will," "suggests," "may," "would,"
"could," "should," "expects," "anticipates," "estimates," "plans," "projects,"
"believes," or similar expressions (and variants of such words or expressions).
Investors are cautioned that forward-looking statements are inherently
uncertain. These forward-looking statements represent the best judgment of
RoweCom as of the date of this Quarterly Report on Form 10-Q, and RoweCom
cautions readers not to place undue reliance on such statements. Actual
performance and results of operations may differ materially from those projected
or suggested in the forward-looking statements due to certain risks and
uncertainties, including, but not limited to, the risks and uncertainties
described or discussed in the section "Risk Factors" in the Prospectus dated
March 8, 1999 of RoweCom. These risks include, among others, the following:
. Risks relating to RoweCom's limited operating history.
. Risks pertaining to RoweCom's reliance on a single service.
. Risks that uncertainty in RoweCom's ability to maintain existing strategic
alliances and enter into new alliances may negatively impact RoweCom's
operating results.
. Risks of increased competition in the knowledge resource sales market.
. Risks relating to reliance on a small number of clients and industries for
substantially all of our revenues.
. Risks that RoweCom will be unable to expand internationally.
Description of Business
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. RoweCom's principal product is the knowledgeStore (the "kStore/tm/").
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Through the kStore RoweCom's clients have access to the largest catalog of
magazines, newspapers, journals, books and other knowledge resources on the
Internet. RoweCom's service allows employees of our clients 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.
RoweCom's services initially focused on academic libraries and centralized
purchasing groups, which tended to purchase or renew subscriptions in the fourth
quarter of the year. Beginning in 1998, we have increasingly focused our sales
and marketing efforts on corporate clients and on desktop purchases by
individuals rather than centralized purchasing groups. We believe that an
increase in the number of desktop purchasers at a client will increase the
amount of revenue generated by such client. As a result of our efforts,
purchases by corporate clients during the three and six months ended June 30,
1999 have increased more rapidly than purchases by academic clients during the
three and six months ended June 30, 1998. Although there can be no assurance
that this trend will continue, we believe that increased desktop purchases will
result in a lower average selling price and a higher gross margin to RoweCom.
To date, a substantial majority of our 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. As desktop purchases by individual employees increase as a percentage of
total revenues, the seasonality described above has begun to decrease because
desktop purchases are generally made as required, and thus are more evenly
distributed throughout the year.
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of CSS for $5,726,493 in cash (subject to certain post-closing adjustments as
provided in the Agreement) and 16,260 shares of RoweCom"s common stock.
Attributable to CSS was revenue of $853,000, cost of revenue of $818,000 and
transaction volume of 5,736 during the three and six months ended June 30, 1999.
CSS added 138 corporations to RoweCom's client base.
Results of Operations
Comparison of the Three Months Ended June 30, 1999 (the "1999 Three Month
"Period") with the Three Months Ended June 30, 1998 (the "1998 Three Month
Period").
Revenues. Revenues consist almost entirely of sales of knowledge resources.
Revenues for the 1999 Three Month Period were $2.0 million as compared to
$865,000 for the 1998 Three Month Period, an increase of $1.1 million or 129%.
This increase resulted primarily from increased sales on a per client basis and
growth in our client base, particularly in the corporate sector where corporate
revenue represented 94% of overall revenue for the 1999 Three Month Period
versus 87% for the 1998 Three Month Period. Transaction volumes for the 1999
Three Month Period also increased significantly by 261% from the 1998 Three
Month Period from 4,272 to 15,406 transactions, primarily due to volume
increases in corporate desktop purchases.
The average selling price per transaction for the 1999 Three Month Period was
$127 as compared to $195 during the 1998 Three Month Period. The decrease in the
average selling price was a result of the increased corporate desktop orders.
Due to the product mix of purchases made from the desktop, the average selling
price per transaction is typically lower for desktop orders than that of
centralized procurement or library orders. This decrease in average selling
price has a positive effect on overall gross margins as discussed below under
cost of revenues.
Cost of Revenues. Cost of revenues consists almost entirely of the cost of
acquiring the knowledge resources sold to clients. Cost of revenues in the 1999
Three Month Period was $1.9 million as compared to $819,000 during the 1998
Three Month Period, an increase of $1.0 million or 128%. As a percentage of
revenues, cost of revenues decreased to 94% during the 1999 Three Month Period
as compared to 95% in the 1998 Three Month Period. This improvement was
primarily due to an increase in the number of transactions executed through the
corporate desktop. Installation revenue was $19,000 during the 1999 Three Month
Period and $30,000 during the 1998 Three Month Period. Cost of revenue as a
percentage of revenues (exclusive of installation revenues) was 95% for the 1999
Three Month Period as compared to 98% for the 1998 Three Month Period, an
improvement of 3%.
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Sales and marketing. Sales and marketing expenses consist primarily of salaries,
commissions paid to RoweCom's direct sales force, account managers and client
service representatives, travel expenses, and expenses relating to marketing
materials and fulfillment activities. Sales and marketing expenses increased to
$2.6 million during the 1999 Three Month Period from $1.3 million in the 1998
Three Month Period, an increase of $1.3 million or 101%. This growth is
primarily due to an increase of personnel and the associated expenses of
recruiting, hiring, and training the additional personnel. Personnel expenses
increased to approximately $1.6 million in the 1999 Three Month Period from
$729,000 in the 1998 Three Month Period.
Research and development. Research and development expenses consist principally
of compensation and related expenses, including consulting fees, and other
expenses relating to the development and maintenance of our service and
production systems. Research and development expenses increased to $1.0 million
in the 1999 Three Month Period from $261,000 in the 1998 Three Month Period, an
increase of $766,000 or 293%, primarily as a result of increased staffing and
associated costs incurred in an effort to integrate new content into our
catalog, to enhance the user interface and functionality of the kStore, and to
develop the transaction processing systems. Consulting fees in connection with
these improvements increased 1911% to $191,000 during the 1999 Three Month
Period from $9,500 in the 1998 Three Month Period.
General and administrative. General and administrative expenses consist
primarily of salaries and related costs for RoweCom's executive, administrative,
finance and human resources departments as well as professional service fees.
General and administrative expenses increased to $1.2 million in the 1999 Three
Month Period compared to $310,000 in the 1998 Three Month Period, an increase of
$862,000 or 278%. This increase can be primarily attributed to growth in average
headcount in the executive, administrative, finance and human resources
departments. RoweCom also incurred certain additional costs in its operation as
a newly public company, including insurance, investor relations and accounting
fees that resulted in an overall increase in expenses of $150,000.
Goodwill amortization. Goodwill amortization was $204,000 in the 1999 Three
Month Period. As a result of the acquisition of CSS, approximately $7.3 million
in goodwill was recorded, which is being amortized over a thirty-six month
period.
Comparison of the Six Months Ended June 30, 1999 (the "1999 Six Month Period")
with the Six Months Ended June 30, 1998 (the "1998 Six Month Period").
Revenues. Revenues for the 1999 Six Month Period were $3.7 million as compared
to $2.2 million for the 1998 Six Month Period, an increase of $1.5 million or
69%. This increase resulted primarily from increased sales per client and growth
in our client base, particularly in the corporate sector where corporate revenue
represented 93% of overall revenue for the 1999 Six Month Period versus 74% for
the 1998 Six Month Period. Transaction volumes for the 1999 Six Month Period
also increased significantly by 241% from the 1998 Six Month Period from 8,778
to 29,920 transactions, primarily due to volume increases in corporate desktop
purchases. The average selling price per transaction for the 1999 Six Month
Period was $119 as compared to $244 during the 1998 Six Month Period.
Cost of Revenues. Cost of revenues in the 1999 Six Month Period was $3.4 million
as compared to $2.1 million during the 1998 Six Month Period, an increase of
$1.3 million or 61%. As a percentage of revenues, cost of revenues decreased to
92% during the 1999 Six Month Period as compared to 97% in the 1998 Six Month
Period. Installation revenue was $133,000 during the 1999 Six Month Period and
$30,000 during the 1998 Six Month Period. Cost of revenue as a percentage of
revenues (exclusive of installation revenues) was 96% for the 1999 Six Month
Period as compared to 98% for the 1998 Six Month Period, an improvement of 2%.
Sales and marketing. Sales and marketing expenses increased to $4.5 million
during the 1999 Six Month Period from $1.9 million in the 1998 Six Month Period,
an increase of $2.6 million or 137%. This growth is primarily due to an increase
of personnel and the associated expenses of recruiting, hiring, and training the
additional personnel. Personnel expenses increased to approximately $2.7 million
in the 1999 Six Month Period from $1.1 million in the 1998 Six Month Period.
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In addition, during the 1999 Six Month Period, RoweCom incurred a one-time
licensing fee of $160,000 for linking the kStore to certain high traffic news
and information Web pages.
Research and development. Research and development expenses increased to $1.8
million in the 1999 Six Month Period from $470,000 in the 1998 Six Month Period,
an increase of $1.4 million or 292%, primarily as a result of increased staffing
and associated costs incurred in an effort to integrate new content into our
catalog, to enhance the user interface and functionality of the kStore, and to
develop the transaction processing systems. Consulting fees in connection with
these improvements increased 1,452% to $388,000 during the 1999 Six Month Period
from $25,000 in the 1998 Six Month Period. In addition, RoweCom incurred $76,000
in license fees for the use of certain Microsoft Software products by RoweCom
employees.
General and administrative. General and administrative expenses increased to
$1.9 million in the 1999 Six Month Period compared to $598,000 in the 1998 Six
Month Period, an increase of $1.3 million or 217%. This increase can be
primarily attributed to growth in average headcount in the executive,
administrative, finance and human resources departments. RoweCom also incurred
certain additional costs in its operation as a newly public company, including
insurance, investor relations and accounting fees that resulted in an overall
increase in expenses of $229,000.
Goodwill amortization. Goodwill amortization was $204,000 in the 1999 Six Month
Period. As a result of the acquisition of CSS, approximately $7.3 million in
goodwill was recorded and is being amortized over a thirty-six months period.
Liquidity and Capital Resources
Net cash used in operating activities was $5.3 million for the 1999 Six Month
Period as compared to $2.8 million in the 1998 Six Month Period. Cash used
primarily in the 1999 Six Month Period resulted primarily from a net loss of
$7.2 million. This was partially offset by a $1.4 million decrease in accounts
receivable, a $562,000 decrease in other current assets, $301,000 increase in
accounts payable, and $412,000 in depreciation and amortization expense. Cash
used in operating activities in the 1998 Six Month Period was primarily
attributable to a net loss of $2.9 million and a decrease in accrued expenses
and accrued compensation of $360,000. This was partially offset by a $295,000
increase in accounts payable and a $158,000 decrease in other current assets.
Net cash used in investing activities in the 1999 Six Month Period was $18.9
million, as compared to $241,000 in the 1998 Six Month Period. Cash used to
purchase marketable securities totaled $12.5 million in the 1999 Six Month
Period. RoweCom used a portion of the cash proceeds from the initial public
offering to invest in high grade marketable securities with an investment rating
of A or higher, with maturities of twenty-four months or less. In addition, cash
used for the acquisition of CSS, net of cash acquired, was $5.6 million in the
1999 Six Month Period. Substantially all cash used in investing activities
during the 1998 Six Month Period for was the purchase of equipment and
furnishings.
Net cash provided by financing activities was $50.3 million in the 1999 Six
Month Period, as compared to $7.9 million in the 1998 Six Month Period. Proceeds
from the IPO, net of underwriting discounts and offering costs, were $51.7
million, of which $1.4 million was used to pay down existing credit facilities.
During the 1998 Six Month Period, $850,000 in cash provided by financing
activities was the result of loan proceeds. Prior to the IPO, RoweCom financed
its operations primarily through sales of its equity securities in private
placements. At June 30, 1999, RoweCom had cash and cash equivalents of $42.0
million, working capital of $48.2 million, debt of $246,000 and stockholders
equity of $60.9 million.
RoweCom currently believes that cash balances will be sufficient to meet
anticipated cash requirements through at least 2000. However, there can be no
assurance that additional capital beyond the amounts currently forecasted by
RoweCom 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.
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<PAGE>
Impact of Possible Share Transfer
Under an agreement among certain of RoweCom's shareholders, in the event that
the market value of Working Ventures"Canadian Fund, Inc.'s, a stockholder of
RoweCom ("Working Ventures") initial investment in shares of Class A Preferred
Stock of RoweCom Canada increases by 45% or more (on an annually compounded
basis) and Working Ventures is not legally restricted from selling such Class A
Preferred Shares, or any common shares into which such preferred shares have
been converted, Working Ventures must transfer an aggregate of 310,371 shares of
common stock to certain other shareholders or option holders of RoweCom,
substantially all of whom are directors, or former directors, officers and
employees of RoweCom. RoweCom will be required to record a compensation charge
for the period in which these potential transfers occur with respect to the
shares of common stock which are transferred to the RoweCom option and warrant
holders who are eligible to receive such shares as described above. The amount
of this compensation charge will be equal to the aggregate fair market value of
the common stock transferred on the date such stock is transferred to such
option and warrant holders. Approximately 46,000 shares of RoweCom's common
stock may be transferred to certain option and warrant holders. RoweCom is
currently unable to determine whether or when such a charge will be incurred, or
if incurred, the amount of such charge.
Impact of Year 2000 Issue on Operations and Financial Condition of RoweCom
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 Ready". While RoweCom believes that it has been taking adequate steps
to make sure that its business systems are Year 2000 Ready, and does not believe
that it will incur material costs to prepare for the Year 2000 date change,
achieving complete Year 2000 Readiness 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
RoweCom's future results of operations and financial condition.
RoweCom has been aware of the possible impact of Year 2000 issue on its
operations since inception and has focused on making its business systems Year
2000 Ready since that time. Most of the effort has been focused upon business
systems owned or operated by RoweCom or third parties, the failure of which
would directly and adversely affect RoweCom'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. RoweCom has adopted a Year 2000 Readiness
program for these critical systems that is designed to:
. assess the readiness of our critical systems to deal with the Year 2000
date change;
. remediate any potential failures through modification or replacement of
critical systems that may not be Year 2000 Ready;
. test the existing and improved critical systems for Year 2000 Readiness
prior to actual Year 2000 date change; and
. develop contingency plans to deal with possible failures by our critical
systems to be Year 2000 Ready.
At present, approximately 2 employees of RoweCom are working either on a
full-time or part-time basis on Year 2000 Readiness issues and related issues,
such as back-office processing and integration of RoweCom's catalog with its
strategic partners.
Although RoweCom currently believes the critical systems that it operates will
be Year 2000 Ready, there can be no assurance that all of such systems and the
other critical systems maintained by third parties on behalf of RoweCom will be
Year 2000 Ready by the end of 1999. A reasonably possible worst case scenario
might include one or more of the critical systems maintained by one of our
business partners being not Year 2000 Ready. Any such failure could result in a
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<PAGE>
material disruption of our operations. Specifically, we would experience
interruptions in our ability to process orders with certain publishers, collect
and process receipts from credit cards or direct disbursements accounts,
accurately maintain accounting records and perform adequate customer service. A
failure by any of RoweCom's critical systems, or any other systems deployed by
us prior to the Year 2000 date change, to be Year 2000 Ready could have a
material adverse effect upon our future results of operations and financial
condition.
RoweCom is not able to assess the Year 2000 Readiness of its clients. In the
event that a significant number of our 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 our clients as a result of
Year 2000 difficulties could have a material adverse effect on RoweCom's future
results of operations and financial condition.
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<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On March 8, 1999, in connection with the RoweCom's initial public offering, a
Registration Statement on Form S-1 Reg. No. 333-68761 was declared effective by
the Securities and Exchange Commission, pursuant to which 3,565,000 shares of
the RoweCom's Common Stock were offered and sold at a price of $16.00 per share,
generating gross offering proceeds of $57.0 million. The managing underwriters
were J.P Morgan & Co., CIBC Oppenheimer, and Volpe Brown Whelan & Company. After
deducting approximately $4.0 million in underwriting discounts and $1.4 million
in other related expenses, the net proceeds to RoweCom were approximately $51.7
million. The proceeds have been invested in short-term, interest bearing
accounts and high grade marketable securities with an investment rating of A or
higher, with maturities of twenty-four months.
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of Corporate Subscription Services, Inc., ("CSS"), a New Jersey Corporation in a
transaction accounted for using the purchase method of accounting.
The total consideration of $5,976,493 consisted of $5,726,493 in cash (subject
to certain post-closing adjustments as provided in the agreement), and 16,260
shares of RoweCom's common stock, which were valued at $250,000. The total
purchase price of $6,203,197 included the consideration as well as assumed
liabilities of $2,467,624 and acquisition costs of $226,704, which related to
legal and accounting fees. The terms of the agreement were determined in arms
length negotiations between RoweCom and the shareholders of CSS. The cash
portion of the purchase price came from the proceeds of RoweCom's initial public
offering, which closed on March 12, 1999.
RoweCom 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 business. RoweCom may also apply a
portion of the net proceeds of the offering to acquire additional businesses,
products and technologies that are complementary to RoweCom's business. From
time to time, in the ordinary course of business, RoweCom expects to evaluate
potential acquisitions of such businesses, products or technologies. The use of
proceeds set forth above does not represent a material change in the use of
proceeds described in the Registration Statement.
An aggregate of 96,400 options were granted to purchase common stock under the
Company's, Amended and Restated 1998 Stock Incentive Plan and the 1999 Non-
Employee Director Stock Option Plan during the 1999 Three Month Period. These
grants of options were made in reliance on the exemptions from registration
under the Securities Act of 1933, as amended (the "Securities Act") provided by
Rule 701 thereunder. A total of 157 stock options were exercised during the 1999
Three Month Period.
Item 5. Other Information
RoweCom recently announced alliances with Internet procurement solution
providers Concur Technologies, Sun-Netscape, Clarus, Commerce One, and
Rightworks. RoweCom's kStore will be integrated into the partner's existing
Internet procurement applications, giving corporate clients access to RoweCom
knowledge resources, such as magazines, newspapers, journals and books.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 -- Certificate of Incorporation RoweCom*.
3.2 -- By-laws of RoweCom*.
10.1 -- Supplier Agreement between RoweCom and Commerce One dated
April 20, 1999**.
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<PAGE>
10.2 -- Stock Purchase Agreement dated June 14, 1999.+
11 -- Computation of Loss Per Share***.
(b) Reports on Form 8-K
On June 22, 1999, the Company filed a report on Form 8-K in
connection with its acquisition of Corporate Subscription
Services, Inc.
On August 13, 1999, the Company filed a report on Form 8-K/A in
connection with the audited financial statements of Corporate
Subscription Services, Inc., a business that the Company
acquired in June 1999.
_________________
* Incorporated by reference to the same numbered exhibit to the
Company's registration statement on Form S-1.
(Reg. No. 333-68761).
** Confidential treatment requested.
*** Statement regarding computation of per share earnings is not
required because the computation can be readily determined from
the material contained in the financial statements included
herein.
+ Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K filed June 22, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROWECOM INC.
August 13, 1999 By: /s/ Louis Hernandez, Jr.,
-----------------------------------------
Louis Hernandez, Jr.,
Executive Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial and Accounting Officer)
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<PAGE>
[COMMERCE ONE LOG APPEARS HERE]
COMMERCE ONE
SUPPLIER AGREEMENT
This Supplier Agreement (this "Agreement") is entered into by and between
Commerce One, Inc. ("Commerce One") with offices at 1600 Riviera Avenue, Walnut
Creek, California 94596, and RoweCom, Inc. ("Supplier") with offices at 725
Concord Avenue, Cambridge, Massachusetts 02138, effective as of the date it is
signed by the last party to sign (the "Effective Date").
Terms and Conditions
1. DEFINITIONS
As used in this Agreement:
A. "BuySite Catalogues" means Commerce One's proprietary electronic
catalogue that delivers content to the Commerce One customers listed in
ATTACHMENT A attached hereto (each, a "Customer"), as ATTACHMENT A may
------------ ------------
be updated in writing by the parties from time to time.
B. "Digitize" and variations thereof, means converting Licensed Content
into digital format such that it can be read, utilized and displayed by
a device, machine, or any other technology capable of utilizing digital
information.
C. "Licensed Content" means Supplier's electronic content specified in
ATTACHMENT A attached hereto (including, but not limited to, all text,
------------
pictures, audio, video, logos and copy contained therein), and any
updates, revisions, and/or corrections thereto provided by Supplier
hereunder.
D. "Marks" means those trademarks, service marks, trade names and logos of
Supplier set forth in ATTACHMENT A.
------------
E. "Knowledge Products" has the meaning set forth in ATTACHMENT A.
------------
2. TERM AND TERMINATION
A. Term, Termination and Survival. This Agreement shall commence on the
------------------------------
Effective Date, and shall continue in full force and effect for a
period of three (3) years unless earlier terminated as set forth
herein. After the initial 3-year term, this Agreement will renew
automatically for additional one (1) year renewal terms, unless either
party gives the other party written notice of non-renewal within ninety
(90) days of the renewal date. Either party may terminate this
Agreement upon thirty (30) days prior written notice. The following
Sections shall survive any termination or expiration of this Agreement:
2, 5, 7, 9, 10, 11 and 12.
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<PAGE>
3. LICENSES
Subject to the terms and conditions of this Agreement, Supplier hereby grants to
Commerce One a non-exclusive, worldwide license to:
i. Digitize, translate into any language, display, market, distribute, and
transmit the Licensed Content solely in connection with and only as
reasonably necessary for operating, demonstrating, or marketing the
BuySite Catalogues or Commerce One's services, as well as the right to
combine the Licensed Content with other content provided by Commerce
One, in each case by any method or means or in any median whether now
known or hereafter devised. The right to distribute shall include the
right of Commerce One to offer to Customers the option of printing all
or any portion of the Licensed Content solely for such Customers'
internal business purposes.
ii. Use the Marks solely in connection with and for the marketing and
promotion of the BuySite Catalogues and the Licensed Content.
4. DELIVERY, INTEGRATION AND PRESENTATION OF CONTENT; CUSTOMERS
A. Delivery. Within thirty (30) business days after the Effective Date,
--------
Supplier shall deliver the Licensed Content to Commerce One via the
means of delivery and in the format set forth in ATTACHMENT A. Such
------------
Licensed Content shall be updated as provided in ATTACHMENT A, and
------------
Supplier shall make ***1 to respond to all requests for support with
respect to the Licensed Content.
B. Integration. Supplier and Commerce One agree to integrate Commerce
-----------
One's MarketSite to Suppliers order entry and inventory applications as
warranted by economic and business considerations. Integration will
occur with in accordance with the Scope of Work. t parties agree to
Within sixty (60) days after the Effective Date, the parties will agree
upon the Scope of Work that allows integration of the Licensed Content
in a way that utilizes the benefits to the Customers of the Commerce
One's Product Sets and the unique requirements for the purchase of
Knowledge Products and other Knowledge Product based services such as
renewals, claims, and change of address.
C. Preferred Relationship. Commerce One shall use ***2 to promote the
----------------------
products and services offered by Supplier in each event where Commerce
One receives an inquiry from BuySite customers relating specifically to
products offered by Supplier; provided however that both parties agree
that such promotion shall be non exclusive. All aspects of the location
display and presentation of Site Links are at the sole control and
discretion of Commerce One.
D. Presentation. Commerce One shall integrate and include the Licensed
------------
Content into the BuySite Catalogues as soon as reasonably possible
after receiving such Licensed Content. Commerce One shall maintain and
continue to include such Licensed Content as part of the BuySite
Catalogues for each Customer unless such Customer
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.
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.
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<PAGE>
requests in writing that the Licensed Content be removed from its
catalog list. In the event that the promotion, distribution,
publication, display, license or availability of the Licensed Content
becomes the subject of an actual or threatened law suit brought by a
third party, or Commerce One reasonably believes the Licensed Content
may violate the rights of a third party, Commerce One shall
immediately, upon written notice to Supplier, be entitled to remove
such Licensed Content from the BuySite Catalogues and cease the
offering of such Licensed Content until such lawsuit or violation is
dismissed, settled or otherwise resolved, without incurring any
liability to Supplier.
5. OWNERSHIP
A. Supplier Rights. Supplier shall retain all right, title and interest in
---------------
(i) the Licensed Content as delivered by Supplier to Commerce One,
including all copyrights, patents, trademarks and other intellectual
property rights therein and (ii) the Marks.
B. Commerce One Rights. Commerce One shall be responsible for the design
-------------------
of the BuySite Catalogues, and retains all of its ownership rights in
and to the BuySite Catalogues including, but not limited to, all
graphical designs, names, icons, interfaces and other design elements
(e.g. the selection and arrangement of materials therein and the "look
and feel" thereof). The BuySite Catalogues remains subject to change by
Commerce One from time to time in its sole discretion. Commerce One
specifically retains all ownership rights in and to any modifications,
enhancements or other contributions made by or on behalf of Commerce
One to the Licensed Content and which are permitted under this
Agreement. Without limiting the foregoing, Commerce One shall have the
worldwide right to use and exploit for all purposes all modifications,
enhancements or other contributions to the Licensed Content permitted
to be made by Commerce One or jointly with others during the term of
this Agreement, but only to the extent that such contributions are
generally applicable and are not specific only to the Licensed Content,
without any obligation to account for profits.
6. MARKETING
A. Mutual Obligations. Supplier and Commerce One will each promote the
------------------
other as an alliance partner on its web sites with links to the other
party's homepage. Supplier will list Commerce One in all marketing
literature where partners are listed. Supplier will provide discounts
(in accordance with Supplier's then current pricing and discounts) on
all titles ordered by Customers. Commerce One will list Supplier as a
preferred strategic alliance partner on its marketing materials. Each
of Supplier and Commerce One agree to cross-train the sales force of
the other party in order to better market the integrated service. The
parties agree to reasonably cooperate on joint sales calls and
tradeshows, where appropriate. Each party agrees to assign a
Partnership Relationship Manager to ensure that the benefits to each
party under this Agreement are fully realized.
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<PAGE>
7. PAYMENTS
A. Payment. The terms and conditions of the fee arrangements, between
-------
Commerce One and Supplier, and between Supplier and Customers, shall be
as set forth in ATTACHMENT B.
------------
B. Audit Rights. With respect to the fees set forth in ATTACHMENT B,
------------ ------------
Supplier shall keep complete and accurate records. These records shall
be retained for a period of two (2) years from the date of payment.
Upon reasonable advance notice, during regular business hours and no
more frequently than once per year, Supplier agrees to permit its
directly related financial records and accounts to be examined by
Commerce One to verify the amount of fees payable to Commerce One under
this Agreement. Commerce One shall promptly provide to Supplier a copy
of the written results of its examination. Supplier shall make prompt
adjustment to Commerce One corresponding to the net amount of any
undisputed underpayment of fees due hereunder. Commerce One shall
promptly refund the full amount of any net overpayment of fees
disclosed by any such audit. If such an examination reveals a net
underpayment of more than ***3 then Supplier shall promptly reimburse
Commerce One for the reasonable out-of-pocket cost of the examination.
8. ADOPTION OF MARKETSITE
Supplier and Commerce One agree to integrate MarketSite, ECN (as defined in
ATTACHMENT B) into Supplier's order entry and fulfillment process pursuant to
- ------------
the terms set forth in ATTACHMENT B as warranted by the demand for Supplier's
------------
products.
9. CONFIDENTIALITY
A. Nondisclosure. Each party acknowledges that by reason of its
-------------
relationship to the other party under this Agreement it will have
access to certain information and materials concerning the other
party's business, plans, customers, technology and products that are
confidential and of substantial value to such party (referred to in
this Section as "Confidential Information"), which value would be
impaired if such Confidential Information were disclosed to third
parties. Each party agrees to maintain all Confidential Information
received from the other, both orally and in writing, in confidence and
agrees not to disclose or otherwise make available such Confidential
Information to any third party without the prior written consent of the
disclosing party. Each party further agrees to use the Confidential
Information only for the purpose of performing this Agreement. No
information shall be deemed to be Confidential Information unless
marked as confidential if given in writing or, if given orally,
identified as confidential orally prior to disclosure, or if disclosed
in any manner and the information by its type or nature should
reasonably be regarded as confidential. Neither party is obligated to
disclose Confidential Information to the other hereunder. Confidential
Information shall not include information shown by the receiving
party's contemporaneous written records to be (a) already in the
possession of the receiving party without an obligation of
confidentiality to the disclosing party, (b) hereafter rightfully
furnished to the receiving party by a third party without a breach of
any
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.
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<PAGE>
separate nondisclosure obligation to the receiving party, (c) publicly
available without breach of this Agreement (i.e., information in the
public domain), (d) furnished by the disclosing party to a third party
without restriction on subsequent disclosure, or (e) independently
developed by the receiving party without reliance on the Confidential
Information. Only the specific information that meets any such
exclusion shall be excluded and not any other information that happens
to appear in proximity to the excluded portion.
B. Required Disclosure. Nothing herein shall prevent a receiving party
-------------------
from disclosing all or part of the Confidential Information as
necessary pursuant to the lawful requirement of a governmental agency
or when disclosure is required by operation of law; provided that prior
--------
to any such disclosure, the receiving party shall use reasonable
efforts to (i) promptly notify the disclosing party in writing of such
requirement to disclose, and (ii) cooperate fully with the disclosing
party in protecting against any such disclosure or obtaining a
protective order.
C. Relief. The parties agree that money damages will not be an adequate
------
remedy if this Section 9 is breached and that any such breach by a
receiving party will cause the disclosing party irreparable injury and
damage. Accordingly, a disclosing party shall be entitled, without
waiving any additional rights or remedies otherwise available at law or
in equity or by statute, and without the necessity of posting any bond
or surety therefor, to injunctive and other equitable relief in the
event of a breach or intended or threatened breach of this Section 9.
10. LIMITED LIABILITY
EXCEPT FOR EITHER PARTY'S BREACH OF ITS OBLIGATIONS UNDER SECTIONS 9, 11 (A) OR
11 (B), IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER OR ANY THIRD PARTY
FOR LOSS OF PROFITS, LOST BUSINESS OPPORTUNITY, LOSS OF DATA, INTERRUPTION OF
BUSINESS, COST OF PROCUREMENT OF SUBSTITUTE GOODS AND SERVICES, OR FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES,
ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED, AND WHETHER ARISING
UNDER CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER THEORY OF LIABILITY,
EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
SHALL EITHER PARTY'S TOTAL LIABILITY IN CONNECTION WITH THIS AGREEMENT EXCEED
THE TOTAL AMOUNTS PAID TO COMMERCE ONE BY SUPPLIER HEREUNDER. THESE LIMITATIONS
ARE INDEPENDENT FROM ALL OTHER PROVISIONS OF THIS AGREEMENT AND SHALL APPLY
NOTWITHSTANDING THE FAILURE OF ANY REMEDY PROVIDED HEREIN.
11. REPRESENTATIONS AND WARRANTIES; INDEMNITY
A. Representations and Warranties of Supplier. Supplier represents and
------------------------------------------
warrants that: (i) it has the full power and authority to enter into
this Agreement and to grant Commerce One the rights granted herein;
(ii) it is the sole owner or a permitted user
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<PAGE>
of the Licensed Content and has secured all necessary licenses,
consents and authorizations with respect to use of the Licensed Content
to the full extent contemplated herein, including, but not limited to,
all text, pictures, audio, video, logos and copy contained therein;
(iii) to its knowledge, no part of the Licensed Content violates or
infringes upon the patent rights, copyrights, trade secrets, trademarks
or other intellectual property rights or other rights of a person or
entity or constitutes defamation, invasion of privacy, or the violation
of any right of publicity or other rights of any person or entity or is
otherwise subject to any claims relating thereto; and (iv) Supplier has
complied and shall continue to comply with all legislation, rules and
regulations regarding the Licensed Content.
B. Representations and Warranties of Commerce One. Commerce One represents
----------------------------------------------
and warrants that it has the full power and authority to enter into
this Agreement and to grant Supplier the rights granted herein.
C. Disclaimers of Warranties. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH
-------------------------
ABOVE, EACH PARTY DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE COMMERCE ONE
SOFIVARE OR THE LICENSED CONTENT, INCLUDING WARRANTIES IN CONNECTION
WITH THE PERFORMANCE OF THE LICENSED CONTENT AND THE COMMERCE ONE
SOFIVARE, INCLUDING WITHOUT LIMITATION ALL IMPLIED WARRANTIES OF TITLE,
NON-INFRINGEMENT, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
SATISFACTORY QUALITY, AND ALL WARRANTIES IMPLIED FROM ANY COURSE OF
DEALING OR USAGE OF TRADE.
D. Indemnity. In respect of third party claims, Supplier shall indemnify,
---------
defend and hold harmless Commerce One and Commerce One's directors,
officers, employees, agents, consultants and distributors from and
against all claims, actions, liabilities, losses, expenses, damages and
costs, including, but not limited to, reasonable attorneys' fees, that
may at any time be incurred by reason of any claim arising out of or
relating to breach or alleged breach of, or any claim that is otherwise
inconsistent with Supplier's representations or warranties contained in
this Agreement; provided that (i) Commerce One shall have promptly
--------
provided Supplier written notice thereof and reasonable cooperation,
information, and assistance in connection therewith, and (ii) Supplier
shall have sole control and authority with respect to the defense,
settlement, or compromise thereof.
E. Indemnity. In respect of third party claims, Commerce One shall
---------
indemnify, defend and hold harmless Supplier and Supplier's directors,
officers, employees, agents, consultants, distributors, licensors and
sublicensees from and against all claims, actions, liabilities, losses,
expenses, damages and costs, including, but not limited to reasonable
attorneys' fees, that may at any time be incurred by reason of any
claim arising out of or relating to breach or alleged breach of, or any
claim that is otherwise inconsistent with Commerce One's
representations or warranties contained in this
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<PAGE>
Agreement; provided that (i) Supplier shall have promptly provided
--------
Commerce One written notice thereof and reasonable cooperation,
information, and assistance in connection therewith, and (ii) Commerce
One shall have sole control and authority with respect to the defense,
settlement, or compromise thereof.
12. GENERAL PROVISIONS
A. Miscellaneous. This Agreement will be interpreted and governed by the
-------------
laws of the State of California, without reference to conflict of laws
principles. For any disputes arising out of or related to this
Agreement the parties consent to the personal jurisdiction of, and
venue in, the state or federal courts within Santa Clara, California.
The relationship of Commerce One and Supplier established by this
Agreement is that of independent contractors, and nothing contained in
this Agreement will be construed to constitute the parties as partners,
joint venturers, co-owners or otherwise as participants in a joint or
common undertaking. No amendment or modification to this Agreement, nor
any waiver of any rights, will be effective unless assented to in
writing by the party to be charged, and the waiver of any breach or
default will not constitute a waiver of any other right hereunder or
any subsequent breach or default. If any provision of this Agreement is
held to be invalid by a court of competent jurisdiction, then the
remaining provisions will nevertheless remain in full force and effect.
The parties agree to renegotiate in good faith any term held invalid
and to be bound by the mutually agreed substitute provision. This
Agreement, including the attachments hereto constitutes the entire and
exclusive Agreement between the parties, and supersedes and cancels all
previous and contemporaneous registrations, agreements, commitments and
writings, with respect to the subject matter. Any item or service
furnished by Commerce One in furtherance of this Agreement, including
but not limited to the adoption of MarketSite, and including items or
services not specifically identified herein, shall nevertheless be
covered by this Agreement unless specifically covered by some other
written agreement executed by Supplier and an authorized representative
of Commerce One.
B. Force Majeure. Neither party will be liable for any failure or delay in
-------------
its performance under this Agreement, due to causes which are beyond
its reasonable control, including, but not limited to, an act of God,
act of civil or military authority, fire, epidemic, flood, earthquake,
riot, war, failure of equipment, failure of telecommunications lines,
lack of Internet access, sabotage, and governmental action; provided
that the delayed party: (i) gives the other party written notice of
such cause promptly; and (ii) uses its reasonable efforts to correct
such failure or delay in its performance.
C. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of
which together shall constitute one instrument.
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<PAGE>
D. Assignment. Neither party may assign or delegate this Agreement or any
----------
of its licenses, rights or duties under this Agreement, whether by
operation of law or otherwise, without the prior written consent of the
other party, except to a person or entity into which it has merged or
which has otherwise succeeded to all or substantially all of its
business and assets to which this Agreement pertains, by merger,
reorganization or otherwise, and which has assumed in writing or by
operation of law its obligations under this Agreement.
E. Notices. All notices required or permitted under this Agreement will be
-------
in writing and will be deemed given when: (i) delivered personally;
(ii) sent by confirmed telex or facsimile; (iii) five (5) days after
having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) day after deposit with a
commercial overnight carrier specifying next day delivery, with written
verification of receipt. All communications will be sent to the
respective addresses first set forth above or to such other address as
may be designated by a party by giving written notice to the other
party pursuant to this Section. If the communication is from Supplier
to Commerce One, it shall be addressed to "Attn.: Chief Financial
Officer."
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Each party has read, understands and agrees to the terms and conditions
of this Agreement and the undersigned is duly authorized to sign this Agreement.
COMMERCE ONE, INCORPORATED ROWECOM, INC.
BY: /S/ BRYAN V. DANIELS BY: /S/ LOUIS HERNANDEZ
-------------------------------- --------------------------
NAME: BRYAN V. DANIELS NAME: LOUIS HERNANDEZ
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TITLE: VICE PRESIDENT SUPPLIER ADOPTION TITLE: EVP & CFO
-------------------------------- --------------------------
DATE: 4/20/99 DATE: 4/20/99
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<PAGE>
ATTACHMENT A
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MARKETSITE CONTENT
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CUSTOMERS
1.
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2.
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3.
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4.
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5.
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6.
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SERVICES FEE
***4 Content load and update fees will defined in the Scope of Work.
ADDITIONAL TERMS AND CONDITIONS
LICENSED CONTENT DESCRIPTION
Licensed Content shall include Supplier's catalog list of magazines, newspapers,
journals, books and other printed sources of commercial, scientific and general
interest information and analysis (collectively, the "Knowledge Products") to be
included in the BuySite Catalogue, related scripts, and similar information
collected and owned by Supplier, including, without limitation, all text,
pictures, audio, video contained therein and any updates, revisions and
corrections provided by Supplier hereunder.
For more information on the content requirements, please contact the Customer
Service Center at 925-941-5985 or e-mail [email protected].
DELIVERY OF LICENSED CONTENT
Supplier will provide Commerce One the base Licensed Content in one of the
following electronic formats: comma delimited format, fixed field format,
Microsoft Access files, Microsoft Excel files, SQL databases, or other format
agreed by the parties.
SUPPLIER TRADEMARKS
Only the following Supplier trademarks, service marks, trade names and logos
shall be licensed pursuant to Section 2 of the Agreement:
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.
Page 10
<PAGE>
RoweCom(R)
R/RoweCom(R) (old design)
WebSubscribe(R)
RoweCom(TM) (new design)
Knowledge for Your Business Needs(TM) (new design)
The Knowledge Store(TM)
kStore(TM)
Knowledge Library(TM)
kLibrary(TM)
Rowe.Com(TM)
Knowledge World(TM)
kWorld(TM)
Cybermediation(TM)
Acquirenet(TM)
Invoicenet(TM) (stylized)
Knowledge Acquisition Manager(TM)
Knowledge Acquisition Reporter(TM)
FREQUENCY OF CONTENT DELIVERY
One time data load only, catalog updates require MarketSite adoption.
COMPANY: RoweCom Inc.
ACCEPTED BY: /s/ Louis Hernandez
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<PAGE>
ATTACHMENT B
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MarketSite Interoperability
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SET UP LIST PRICE
COMMERCE ONE
MarketSite setup, registration,
configuration/connectivity
& CBT training for Supplier ***5
SUPPLIER
Setup for Customer ***6
INTEGRATION OPTIONS (please choose one)
SupplyOrder [ ] ***7
Initial
[X]
Optional Integration Services ***8
Initial
[ ]
Commerce One provides both (1) initial assessment to define integration effort,
and (2) API documentation and tools for the supplier's integration efforts to
their systems.
UPDATES
Price and availability updates ***9
SUPPORT
COMMERCE ONE
Support provided to Supplier, ***10
10 hours-a-day, 5 days a week. ***11
Support may be elected at any time.
Supplier's initial support election:
[ ] Accept
[X] Decline
Page 12
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.
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.
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.
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.
<PAGE>
SUPPLIER
Support provided to Customers, ***12
24 hours a day, 7 days a week
REVENUE SHARING
Quarterly in arrears, Supplier will pay Commerce One the indicated commissions
on the following revenue actually received by Supplier. Commerce One retains all
rights to the commissions from the revenue generated by visitors reaching the
Supplier through Commerce One Products. Commerce One and Supplier will use
reasonable efforts to define in the Scope of Work a transaction revenue model
that is reasonably expectable to both parties:
Customer Transactions: ***13 of Gross Margin on initial orders; ***14
of Gross Margin on renewals.
Installations: ***15 of each Customer's one-time set-up fee.
Support: ***16 of each Customer's annual maintenance fee.
"Gross Margin" means the aggregate amount retained by Supplier on a Customer's
order to Supplier under this Agreement, less any and all: ***17
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.
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.
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<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-77891) of RoweCom Inc. of our report dated
July 1, 1999 relating to the financial statements of Corporate Subscription
Services, Inc., which appears in the Current Report on Form 8-K/A of RoweCom
Inc. dated August 13, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 13, 1999
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 42,021 16,057
<SECURITIES> 12,487 0
<RECEIVABLES> 783 2,042
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<PP&E> 1,297 632
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<TOTAL-ASSETS> 66,733 20,284
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<BONDS> 0 0
0 0
0 28,422
<COMMON> 101 15
<OTHER-SE> 60,789 (122,667)
<TOTAL-LIABILITY-AND-EQUITY> 66,733 20,284
<SALES> 3,680 2,172
<TOTAL-REVENUES> 3,680 2,172
<CGS> (3,395) (2,103)
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,068 46
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<INCOME-TAX> 55 56
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<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,195) (2,927)
<EPS-BASIC> (1.10) (2.05)
<EPS-DILUTED> (1.10) (2.05)
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