<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 March 31, 1999
OR
Transition report pursuant to Section 13 or 15 (d) of the Securities
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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 No X
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ROWECOM INC.
INDEX
Item Page
Number Number
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RoweCom Inc.
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Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998...................................... 3
Consolidated Statements of Operations for the
three months ended March 31, 1999 (unaudited) and March 31,
1998 (unaudited)........................................... 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 (unaudited) and March 31,
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 3. Changes in Securities and Use of Proceeds................... 10
Item 4. Submission of Matters to a vote of Security Holders......... 10
Item 5. Other Information........................................... 10
Item 6. Exhibits and Reports on Form 8-K............................ 10
Signatures.................................................. 11
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<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RoweCom Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 64,894 $ 16,051
Accounts receivable (net of allowance for doubtful accounts of
$100,000 as of March 31, 1999 and $60,000 as of December 31, 1998) 840 1,982
Restricted cash 491 923
Other current assets 49 604
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Total current assets 66,274 19,560
Equipment and furnishings, net 784 632
Deferred tax asset 76 76
Other assets, net 16 16
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Total assets $ 67,150 $ 20,284
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable 298 366
Accrued expenses 642 811
Accrued compensation 341 356
Customer advances 491 923
Loans payable 278 1,657
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Total current liabilities 2,050 4,113
Deferred revenue 16 -
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, 10,087,470 and 1,526,180 shares issued and
outstanding, respectively 101 15
Additional paid-in capital 82,344 1,710
Treasury stock, at cost (53) (53)
Accumulated deficit (17,285) (13,901)
Cumulative translation adjustment (23) (22)
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Total stockholders' equity (deficit) 65,084 (12,251)
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Total liabilities and stockholders' equity (deficit) $ 67,150 $ 20,284
============== =============
</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 Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
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March 31, 1999 March 31, 1998
----------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 1,699 $ 1,307
Cost of revenues 1,527 1,284
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Gross profit 172 23
Operating expenses:
Sales and marketing 1,894 607
Research and development 818 209
General and administrative 725 316
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Total operating expenses 3,437 1,132
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Loss from operations (3,265) (1,109)
Interest and other income, net 251 28
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Net loss $(3,014) $(1,081)
============= =============
Basic and Diluted per common share
Net loss applicable to common stockholders $(3,383) $(1,151)
Basic and diluted weighted average shares
outstanding 3,619 1,544
Basic and diluted loss per share $ (.93) $ (.75)
Pro forma Basic and Diluted per common share
Pro forma net loss applicable to common stockholders $(3,014) $(1,081)
Basic and diluted weighted average shares
outstanding 7,394 2,190
Basic and diluted pro forma loss per share $ (.41) $ (.49)
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these statements.
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<PAGE>
RoweCom Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31, 1999 March 31, 1998
---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,014) $(1,081)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 83 28
Changes in operating assets and liabilities:
Accounts receivable 1,146 81
Other current assets 564 146
Accounts payable (68) 255
Income taxes payable - (76)
Accrued expenses and accrued compensation (196) (258)
Deferred revenue 16 -
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Net cash used in operating activities (1,469) (905)
Cash flows from investing activities:
Purchase of equipment and furnishings (233) (43)
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Net cash used in investing activities (233) (43)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 51,927 -
Loan repayments (1,380) -
Loan proceeds - 850
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Net cash provided by financing activities 50,547 850
Effect of exchange rates on cash (2) (3)
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Net increase (decrease) in cash and cash equivalents 48,843 (101)
Cash and cash equivalents, beginning of period 16,051 691
---------------- ----------------
Cash and cash equivalents, end of period $64,894 $ 590
================ ================
Supplementary information:
Accretion of preferred stock $ 369 $ 70
</TABLE>
There was no cash paid for interest or taxes during the three months ended
March 31, 1999 and 1998.
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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<PAGE>
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 March 31, 1999 and
the Consolidated Statement of Operations and Consolidated Statement of Cash
Flows for the three months ended March 31, 1999 are not necessarily indicative
of the results to be expected for the full year.
The preparation of 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
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.
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
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 $51.9 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
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into 4,996,290 shares of RoweCom's common stock.
4. Net Loss 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.
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<PAGE>
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 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
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
Three Months Ended
--------------------------------------------
March 31, 1999 March 31, 1998
-------------------- --------------------
<S> <C> <C>
Historical
Basic and diluted:
Net loss to common stockholders $ (3,383) $ (1,151)
Weighted average number of common shares 3,619 1,544
Net loss per common share--basic and diluted (.93) (.75)
Pro forma
Basic and diluted:
Net loss $ (3,014) $ (1,081)
Weighted average number of common shares 3,619 1,544
Weighted average assumed number of shares
upon conversion of preferred stock and
the net exercise of all outstanding
stock purchase warrants 3,775 646
Total weighted average number of shares used
in computing pro forma net loss per share 7,394 2,190
Basic and diluted pro forma net loss per
common share $ (.41) $ (.49)
</TABLE>
Options to purchase shares of RoweCom's common stock totaling 740,122 and
206,899 at March 31, 1999 and 1998, respectively, and warrants to purchase
common stock totaling 120,967 at December 31, 1998 were outstanding but not
included in the computations of diluted earnings per share as the inclusion of
these shares would have been anti-dilutive.
5. Comprehensive Loss
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
March 31, 1999 March 31, 1998
-------------------- --------------------
<S> <C> <C>
Net loss $(3,014) $(1,081)
Other comprehensive loss:
Foreign currency translation adjustment (1) (3)
Comprehensive loss $(3,015) $(1,084)
======= =======
</TABLE>
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<PAGE>
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 partnership with NewsEdge Corp.; (iii) the
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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 product -- the kStore.
. 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 we 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/").
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 in the 1999 Three Month Period have increased
more rapidly than purchases by academic clients during the 1998 Three Month
Period. 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 1/st/. 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.
Results of Operations
Comparison of the Three Months Ended March 31, 1999 (the "1999 Three Month
----------------
Period") with the Three Months Ended March 31, 1998 (the "1998 Three Month
- ------ ----------------
Period").
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Revenues. Revenues consist almost entirely of sales of knowledge resources.
Revenues for the 1999 Three Month Period were $1.7 million as compared to $1.3
million for the 1998 Three Month Period, an increase of $392,000 or 30%. 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 Three Month Period versus 66%
for the 1998 Three Month Period. Transaction volumes for the 1999 Three Month
Period also increased significantly by 95% from the 1998 Three Month Period from
4,506 to 8,770 transactions, primarily due to volume increases in corporate
desktop purchases from the kStore.
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<PAGE>
The average selling price per transaction for the 1999 Three Month Period was
$180 as compared to $290 during the 1998 Three Month Period. The decrease in the
average selling price was a result of 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 $1.5 million as compared to $1.3 million during the 1998
Three Month Period, an increase of $243,000 or 19%. As a percentage of revenues,
cost of revenues decreased to 90% during the 1999 Three Month Period as compared
to 98% in the 1998 Three Month Period. This improvement was primarily due to an
increase in the number of transactions executed through the kStore as well as
high-margin new client installation revenue. As a result of strong direct
selling and business development efforts, installation fees charged to new
clients for the customization of the kStore increased significantly.
Installation revenue was $114,000 during the 1999 Three Month Period and there
was no installation revenue earned during the 1998 Three Month Period. Cost of
revenue as a percentage of revenues (exclusive of installation revenues) was 96%
for the 1999 Three Month Period as compared to 98% for the 1998 Three Month
Period, an improvement of 2%.
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
$1.9 million during the 1999 Three Month Period from $607,000 in the 1998 Three
Month Period, an increase of $1.3 million or 212%. This growth is primarily due
to an increase in personnel and the associated expenses of recruiting, hiring,
and training the additional personnel. Personnel expenses increased to
approximately $1.1 million in the 1999 Three Month Period from $404,000 in the
1998 Three Month Period. In addition, during the 1999 Three Month Period,
RoweCom incurred a one-time license fee of $160,000 for linking the kStore to
certain high traffic news and information Web pages.
Research and development. Research and development expenses consist principally
of compensation and related expenses, including consulting fees, and other
expenses related to the development and maintenance of our service and
production systems. Research and development expenses increased to $818,000 in
the 1999 Three Month Period from $209,000 in the 1998 Three Month Period, an
increase of $609,000 or 291%, 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 1,213% to $197,000 during the 1999 Three Month
Period from $15,000 in the 1998 Three 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 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 $725,000 in the 1999 Three
Month Period compared to $316,000 in the 1998 Three Month Period, an increase of
$409,000 or 129%. 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 $79,000.
Liquidity and Capital Resources
Net cash used in operating activities was $1.5 million for the 1999 Three Month
Period as compared to $905,000 in the 1998 Three Month Period. Cash used
in the 1999 Three Month Period resulted primarily from a net loss of $3.0
million. This was partially offset by a $1.1 million decrease in accounts
receivable and a $566,000 decrease in other current assets. Cash used in
operating activities in the 1998 Three Month Period was primarily attributable
to a net loss of $1.1 million, and a decrease in accrued expenses and accrued
compensation of $258,000. This was partially offset by a $255,000 increase in
accounts payable and a $146,000 decrease in other current assets.
Net cash used in investing activities in the 1999 Three Month Period was
$235,000, substantially all of which was used to purchase fixed assets, as
compared to $43,000 in the 1998 Three Month Period.
Net cash provided by financing activities was $50.5 million in the 1999 Three
Month Period, as compared to $850,000 in the 1998 Three Month Period. Net
proceeds from the IPO, net of underwriting discounts and offering costs, were
$51.9 million, of which $1.4 million was used to pay down existing credit
facilities. During the 1998 Three 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 March 31, 1999, RoweCom had cash and cash equivalents of
$64.9 million, working capital of $64.2 million, debt of $278,000 and
stockholders' equity of $65.1 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.
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, 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 embedded 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 20 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 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.
-9-
<PAGE>
PART II -- OTHER INFORMATION
Item 3. Changes in Securities and Use of Proceeds
On March 8, 1999, in connection with 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
RoweCom's Common Stock were offered and sold at a price of $16.00 per share,
generating gross offering proceeds of $57,040,000. 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 $1.1 million
in other related expenses, the net proceeds to RoweCom were approximately $51.9
million. The proceeds have been invested in short-term, interest bearing
accounts.
RoweCom intends to use 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 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. However, RoweCom has no present
understandings, commitments or agreements with respect to any material
acquisition. The use of proceeds set forth above does not represent a material
change in the use of proceeds described in the Registration Statement.
During the period between January 1, 1999 and March 8, 1999, the Company granted
options to purchase an aggregate of 217,928 shares of common stock under the
Company's Amended and Restated 1998 Stock Incentive Plan and the 1999 Non-
Employee Director Stock Option Plan. There were no exercises of stock options
during the 1999 Three Month Period. The 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.
--------------
In March, 1999, the Company issued 18,761 shares of common stock to Philippe
Villers, a director of RoweCom, and members of Mr. Villers' immediate family or
trusts of such persons, upon the exercise of Mr. Villers' stock purchase
warrants. Also in March, 1999, the Company issued 7,824 shares of common stock
to Jerome Rubin, a director of RoweCom, upon the exercise of his stock purchase
warrant. These exercises of stock purchase warrants were made in reliance on the
exemptions from registration under the Securities Act provided by thereunder.
Item 4. Submission of Matters to A Vote of Security Holders
By written consent dated February 5, 1999, the holders of a majority of
outstanding shares of each class and series of the Company's outstanding capital
stock approved, among other things, effective upon the consummation of the
Company's initial public offering (i) an amendment and restatement of the
Company's Certificate of Incorporation effecting, among other things, a 0.34905-
for-one reverse stock split of the Company's common stock; (ii) the amendment
and restatement of the Company's By-laws; (iii) the Company's issuance of up to
3,565,000 shares of Common Stock in its initial public offering; and (iv) the
adoption of the Company's 1999 Non-Employee Director Stock Option Plan, 1999
Employee Stock Purchase Plan, and the amendment and restatement of the Company's
1998 Stock Incentive Plan.
Item 5. Other Information
RoweCom recently announced an alliance with NewsEdge Corporation ("NewsEdge")
--------
under which NewsEdge customers would be able to order and manage magazines,
journals, newspapers and books through RoweCom's kStore service. NewsEdge, which
provides news and information to the corporate desktop, will promote and provide
links to a customized RoweCom kStore on its NewsPage Web site.
Item 6. Exhibits and Reports on Form 8-K
-10-
<PAGE>
(a) Exhibits
3.1 -- Certificate of Incorporation of RoweCom./*/
3.2 -- By-laws of RoweCom./*/
10.1 -- Agreement between RoweCom and NewsEdge Corp. dated March 31,
1999.**
11 -- Computation of Loss Per Share./+/
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 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.
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.
May 11, 1999 By: /s/ Louis Hernandez, Jr.
- --------------- ------------------------
Louis Hernandez, Jr.,
Executive Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Finance and Accounting Officer)
-11-
<PAGE>
Exhibit 10.1
STRATEGIC ALLIANCE AND MARKETING AGREEMENT
This Web Linking and Marketing Agreement (the "Agreement") is made as
---------
of this 31st day of March 1999 (the "Effective Date") by and between NEWSEDGE
--------------
CORPORATION, a Delaware corporation ("NEC") and ROWECOM INC., a Delaware
---
corporation ("RoweCom").
-------
WHEREAS, NEC is engaged in the business of providing online news and
current awareness services through its NewsPage and Business Journal web pages
on the Internet;
WHEREAS, RoweCom provides business-to-business electronic commerce
services to businesses and not-for-profit institutions interested in purchasing
subscriptions, magazines, journals, and books, certain market reports, and other
knowledge products and services available in electronic and hard copy format,
("Knowledge Products"); and
------------------
NOW, THEREFORE, for and in consideration of the agreements of the
Parties set forth below, NEC and RoweCom 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:
Gross Margin means the aggregate amount retained by RoweCom on a RoweCom Order
under this Agreement ***1.
Initial Order means an initial order for a RoweCom Title placed by an NEC
Customer by means of hypertext links from the NEC Web Pages to RoweCom's kStore.
Launch Date means the date on which the technological integration of the
RoweCom kStore with the NEC Web Pages is substantially complete and functional
in all material respects for NEC Customers.
NEC Content means any content provided in electronic form on the NEC Web
Pages, but shall not include RoweCom Content. NEC Content shall not include
Confidential Information. NEC Content may include content from a third party,
subject to the provisions of this Agreement. NEC shall have and retain the sole
editorial discretion over NEC Content.
NEC Customer means any NEC customer that orders by means of hypertext links
from the NEC Web Pages to RoweCom's kStore.
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>
NEC Look and Feel means the appearance and functionalities of the NEC Web
pages including but not limited to NEC's branded features, logos, frames,
toolbars, navigational devices, trademarks, and service marks. NEC reserves the
right in its sole discretion to alter NEC's Look and Feel at any time subject to
the provisions of this Agreement.
NEC Web Pages means (i) the NewsPage web site which is the page that any
user's web browser will generate as the result of requesting the URL address
www.newspage.com, (ii) the NetCenter Business Journal Web Page, (iii) any web
pages that are replacements for such web pages, and (iv) any affiliated web
pages of NEC which may link to RoweCom's kStore from time to time, upon mutual
agreement of the parties.
NetCenter Business Journal Web Page means the page that any user's web browser
will generate as the result of requesting the URL address
http://businessjournal.Netscape.com, and any other URL addresses which
supplement this URL address.
Netscape means AOL/Netscape, a Delaware corporation and its subsidiaries and
affiliates.
Proprietary Information means all patents, trade secrets, copyrights,
trademarks, industrial designs and other intellectual property of each party,
including without limitation the RoweCom Content, the kStore, and NEC's Web
Pages.
Renewal Order means the renewal of an Initial Order by a NEC Customer by means
of hypertext links from the NEC Web Pages to RoweCom's kStore.
RoweCom Content means any Titles provided by the RoweCom kStore, as updated by
RoweCom from time to time. RCI shall have and retain the sole editorial
discretion over the RoweCom Content.
RoweCom kStore mean a customized, co-branded NEC/RoweCom kStore Web site
prepared for NEC Customers that contains a catalog of RoweCom Titles, order
processing, and other features having a URL address determined by RoweCom. The
RoweCom kStore shall be co-branded with the look and feel to be mutually agreed
upon by both parties. The RoweCom kStore will contain hypertext links to return
NEC Customers to NEC Web Pages.
RoweCom Order means an Initial Order or a Renewal Order.
RoweCom Title means any Title provided through the RoweCom kStore, as updated
from time to time.
Term means the period beginning on the Launch Date and ending upon termination
of this Agreement.
Territory means the United States of America.
2
<PAGE>
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 of each
party.
URL means the Uniform Resource Locator for all web addresses on the Internet.
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 3.6
Audited Party Section 3.6
CPR Section 8.2
Change of Control Section 7.2(c)
Claimant Section 8.2(b)
Confidential Information Section 5.1
Discloser Section 5.1
Effective Date Preamble
HTML Section 2.1
Image Section 2.1
Indemnitor Section 8.2(a)
Indemnitees Section 8.2(a)
Initial Term Section 7.1
Knowledge Products Preamble
Losses Section 8.2(a)
NEC Preamble
Quarterly Statement Section 4.2
RoweCom Preamble
Recipient Section 5.1
2.0 LINKAGE
2.1 Site Links. Subject to the terms of this Agreement, NEC will place a
hypertext link to the RoweCom kStore in a prominent position on the entry
page of the NEC Web Pages. The textual and graphic content, when
applicable, of these links will meet current NEC standards and will be
provided to NEC by RoweCom as a computer readable file in a compatible
Hypertext Markup Language ("HTML") file format (such file is the "Image").
---- -----
2.2. Location. The textual link and Image shall appear on the Home Page and
all topic pages or default result page ("Home Page") of the NEC Web Pages,
---------
or any new URL with which NEC or Netscape replaces the above-stated URL.
Placement of the links, whether textual or graphical, shall be consistent
and shall appear on all pages of NEC Web Pages so as to direct NEC users to
the RoweCom kStore. The type and
3
<PAGE>
placement of each link will be dependant upon the context of the NEC topic
or channel and shall be agreed upon by both parties
2.3. Appearance. RoweCom's Image shall appear on the user's result page in an
area that fosters a high rate of click throughs to the RoweCom kStore..
2.4. Size. The Image(s) provided by RoweCom shall conform to current NEC
creative specifications. Subject to the terms of this Agreement, RoweCom
hereby grants NEC a non-exclusive, non-transferable, royalty-free license
to use the Image as embodied in the HTML file delivered under Section 2.1
for the purposes and subject to the conditions set forth below.
2.5. Web Site Changes. NEC shall notify RoweCom in writing of any significant
changes to the structure of NEC's Web Pages within five (5) days following
such change, including without limitation a change in the location, sizing,
or placement of the RoweCom logo on the NEC Web Page or a change in the URL
address of such NEC Web Pages. RoweCom may terminate this Agreement with
fifteen (15) days prior notice to the NEC following any such change in the
event that RoweCom reasonably believes that the change is adverse to its
interests or reputation.
3.0 OBLIGATIONS OF THE PARTIES
3.1 NEC's Promotion of RoweCom.
(a) Marketing Services provided by NEC. Subject to the terms set forth
herein, NEC hereby agrees to: (1) market, promote, and sell RoweCom
Content through the NEC Web Pages as the exclusive supplier for
certain Knowledge Products and as the non-exclusive supplier of
distance learning and software products, each as set forth on Exhibit
-------
A attached hereto, and as amended from time to time upon mutual
-
agreement by both parties, for all NEC Customers; (2) market and
promote the RoweCom Trademarks in the Territory through the NEC Web
Pages; (3) provide to RoweCom, upon mutual agreement by the parties,
***2, an introduction to any then current NEC customer, any affiliates
of NEC or of the NEC Web Pages for the purpose of promoting and
marketing RoweCom Titles; (4) list RoweCom as a partner on NEC's web
site and, upon mutual agreement by the parties, in its advertising and
promotional materials; (5) make payments to RoweCom for all fees and
expenses in accordance with Section 4 hereof; and (6) obtain, ***3,
all necessary consents and approvals from all third parties who may
currently or in the future link to the RoweCom kStore, including
without limitation Netscape with regard to the installation of a
hypertext link on the NetCenter Business Journal Web Page, and whose
consent may be required in order for NEC to perform any or all of its
obligations pursuant to this Agreement.
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.
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.
4
<PAGE>
(b) Licenses to NEC. Subject to the terms set forth herein, RoweCom
hereby grants to NEC:
(1) a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use RoweCom Content in the
Territory to (i) offer RoweCom Titles to NEC Customers through
NEC Web Pages; and (ii) conduct the marketing and promotion
efforts described in Section 3.1(a) hereof. NEC may use RoweCom
Content and the information contained therein only in connection
with the marketing and promoting of RoweCom Titles as described
in this Section 3.1.
(2) a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the RoweCom Trademarks
in the Territory to promote and market the RoweCom Titles solely
in accordance with the terms of this Agreement. NEC agrees that,
upon reasonable notice from RoweCom, NEC shall permit RoweCom to
visit all locations where NEC delivers services using the RoweCom
Trademarks to ensure that (i) such services are delivered in a
manner consistent with the service standards employed by RoweCom
and (ii) the RoweCom Trademarks used in connection with such
services are in compliance with the specifications provided to
NEC from time to time. It is understood that, under certain
circumstances, NEC may need third party consents to effectuate
the visitation by RoweCom. In such circumstances, RoweCom will
work with NEC to facilitate the review of the usage of the
RoweCom Trademarks.
3.2 Exclusivity. It is hereby understood and agreed by the parties that
RoweCom shall be the exclusive provider of those Knowledge Products set forth on
Exhibit A attached hereto under the caption "Knowledge Products Provided by
- ---------
RoweCom and Subject to Exclusivity", and the non-exclusive provider of those
Knowledge Products set forth on Exhibit A attached hereto under the caption
---------
"Knowledge Products Provided by RoweCom and Not Subject to Exclusivity", for the
NEC Web Pages. During the Term, NEC agrees not to enter into a similar
agreement for linking, co-branding, development and integration of NEC Web Pages
with any Direct Competitors of RoweCom, ***4. Nothing herein shall be deemed to
similarly limit RoweCom from selling, promoting, marketing, or otherwise
distributing Knowledge Products through other vendors. For purposes of this
Agreement, Direct Competitors are defined as entities or persons who provide
Knowledge Products to customers.
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
<PAGE>
3.3 RoweCom's Promotion of NEC.
(a) Marketing Services provided by RoweCom. Subject to the terms of this
Agreement, RoweCom hereby agrees to: (i) list NEC as a partner on RoweCom's
web site and, upon mutual agreement by both parties, in its advertising and
promotional materials; and (ii) process orders received from NEC Customers,
collect amounts from such NEC Customer, fulfil the order, provide customer
service on such orders, and provide information to NEC regarding such
orders in accordance with the terms of this Agreement; (iii) within ninety
(90) days of the Effective Date of this Agreement, issue a press release
announcing the NEC and RoweCom relationship in accordance with the terms of
this Agreement; (iv) provide discounts on all books and periodicals ordered
by NEC Customers in accordance with RoweCom's then current pricing and
discounts; (v) provide NEC with ***5 of Gross Margin provided by
RoweCom to its then-current distribution partners who do not provide
content for RoweCom in the event that the payments to then current
distribution partners exceed the amounts in Section 4.1 (a) of this
Agreement; and (vi) make payments to NEC in accordance with Section 4
hereof for all RoweCom Orders by NEC Customers.
(b) Licenses to RoweCom. Subject to the terms set forth herein, NEC hereby
grants to RoweCom a non-exclusive, non-assignable, royalty-free right and
license (excluding the right to sublicense) to use the NEC Trademarks in
the Territory to promote and market the NEC Trademarks solely in accordance
with the terms of this Agreement. RoweCom agrees that, upon reasonable
notice from NEC, RoweCom shall permit NEC to visit all locations where
RoweCom delivers services using the NEC Trademarks to ensure that (1) such
services are delivered in a manner consistent with the service standards
employed by NEC and (2) the NEC Trademarks used in connection with such
services are in compliance with the specifications provided to RoweCom from
time to time. It is understood that, under certain circumstances, RoweCom
may need third party consents to effectuate the visitation by NEC. In such
circumstances, RoweCom will work with NEC to facilitate the review of the
usage of the NEC Trademarks.
3.4 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, provided that,
-------- ----
RoweCom may issue a press release in accordance with Section 3.2(a) hereof,
and provided further that, each party may provide information to the extent
-------- ----
required under securities laws or other applicable laws. Neither party
shall use the name of the other party or any adaptation thereof or any of
such
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
<PAGE>
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.
3.5 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 all Proprietary Rights, 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 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.
4.0 PAYMENTS AND AUDITS
4.1 Payments
(a) Payments by RoweCom. Subject to the terms of this Agreement, RoweCom
shall pay to NEC:
(i) within 15 business days after the last day of each month, an
amount equal to ***6 of the Gross Margin received by RoweCom on
an Initial Order placed by a NEC Customer;
(ii) within 15 business days after the last day of each month, an
amount equal to ***7 of the Gross Margin received by RoweCom on
a Renewal Order placed by an NEC Customer;
(iii) as of the Effective Date, a one-time non-refundable license fee
of ***8 for the use of the NEC Web Pages, provided that, in
-------------
the event that NEC fails to procure Netscape's consent to link
RoweCom's kStore to the NetCenter Business Journal Web Page in
accordance
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.
7
<PAGE>
with the terms of this Agreement, NEC shall pay RoweCom an
additional ***9 as payment in accordance with Section 4.1(b);
(iv) within 15 business days after the last day of each month , an
amount equal to ***10 of the installation fee charged by RoweCom
to any NEC customer or a party referred by NEC to RoweCom for
whom RoweCom installs a kStore on such party's intranet or the
Internet; and
(v) for the purpose of advertising on the NEC Web Pages, an aggregate
amount equivalent to RoweCom's annual Maintenance Fee (as defined
below), which Maintenance Fee shall be no greater than ***11 of
the kStore installation fee referenced in Section 4.1(b) hereof.
(b) Payments by NEC. Subject to the terms of this Agreement, NEC shall pay
to RoweCom:
(i) no later than March 31, 1999, a one-time non-refundable fee of
***12 as payment for the installation and customization of the
RoweCom kStore for the NEC Web Pages provided however that, in
-------- ----
the event that NEC fails to procure Netscape's consent to link
RoweCom's kStore to the NetCenter Business Journal Web Page in
accordance with the terms of this Agreement, NEC shall pay an
additional ***13 to RoweCom as payment for installation and
customization of the kStore; and
(ii) an annual maintenance fee (the "Maintenance Fee") in the amount
---------------
of ***14 of the kStore installation fee referenced in Section
4(b)(i) hereof.
(c) Place of Payments. 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 9.4.
(d) Payments to Netscape. The parties hereby agree that in no event shall
RoweCom be liable for any payments to Netscape under this Agreement
for any reason whatsoever, including the sale of RoweCom Titles on the
NetCenter Business Journal Web Page, and that NEC shall be responsible
for all payments to Netscape, if any, under the terms of NEC's
agreement with Netscape.
4.2 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 Section 4, RoweCom shall submit to NEC a detailed
statement ("Quarterly Statement") that sets forth each NEC Customer who
-------------------
placed a RoweCom Order and the Gross Margin received by RoweCom on such
RoweCom Order during such quarter then ended.
4.3 Audits. Each party (for purposes of this Section 4.3 only, the
"Auditing Party") shall have the right, not more than once in any twelve
---------------
(12)-month period, to have
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.
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.
13 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.
14 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
<PAGE>
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 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.
4.4 Taxes. All taxes and charges, other than income taxes, 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
Sections 2.4, 3.1(b) and 3.2(b) hereof.
9
<PAGE>
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
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 4, 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 five (5) 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 RoweCom kStore and any catalog or compilation containing
RoweCom Titles.
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
10
<PAGE>
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 for a period of
two years from the date of termination of this Agreement 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.
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 Launch 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), NEC's material obligations shall
mean its material obligations under Sections 2.1, 2.2, 2.3, 2.5, 3.1,
3.2, 3.4, 3.5, 4.1(b), 4.1(c), 4.1(d) 4.3, 4.4, 5, 6, 7.3, 8, and 9,
and RoweCom's material obligations shall mean its material obligations
under Sections 2.1, 2.4, 3.2, 3.3, 3.4, 3.5, 4.1(a),4.1(c), 4.2, 4.3,
4.4, 5, 6, 7.3, 8, and 9.
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<PAGE>
(b) Any notice given pursuant to this Section 7.2(a) must set forth with
specifically the alleged material obligations breached by the other
party.
(c) RoweCom may terminate this Agreement upon fifteen (15) days' written
notice to NEC if NEC breaches its obligations pursuant to Section 2.5.
7.3. Effect of Termination.
(a) Then Current Orders. Upon termination of this Agreement, the
provisions of Section 2, 3.1, and 3.2 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 RoweCom Titles by NEC Customers 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 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) AND CLAIMS ARISING UNDER
SECTION 8.2 OF THIS AGREEMENT, 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. EACH PARTY
SHALL BE LIABLE TO THE OTHER PARTY FOR ANY DIRECT DAMAGES ARISING OUT OF OR
RELATING TO ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT,
PROVIDED THAT THE
12
<PAGE>
TOTAL LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR DIRECT DAMAGES SHALL
BE LIMITED IN THE AGGREGATE TO THE AMOUNT PAID BY ROWECOM TO NEC UNDER THIS
AGREEMENT AT THE TIME SUCH LIABILITY IS FINALLY DETERMINED.
8.2 Indemnification.
(a) Obligation. Subject to the provisions of this Section 8.2(b), 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 and against any third party claim, suit, demand,
liability, loss or expense (including reasonable attorney fees) (collectively,
Losses) arising out of or relating to this Agreement, to the extent finally
determined to have been caused by Indemnitor's negligence or willful misconduct.
(b) Procedure. To receive the benefit of the foregoing indemnities, the
Indemnitee must promptly notify the Indemnitor in writing of a claim or suit and
provide reasonable cooperation (at the Indemnitor's expense) and tender to the
Indemnitor full authority to defend or settle the claim or suit. Neither party
has any obligation to indemnify the other party in connection with any
settlement made without the Indemnitor's written consent. The Indemnitor may not
settle such claim or suit without the consent of the Indemnitee, which consent
shall not be unreasonably withheld. The Indemnitee party has the right to
participate at its own expense in the claim or suit and in selecting counsel
therefor.
8.3 Dispute Resolution
(a) Except in the case of a breach of Section 6, any claim, dispute, or
controversy arising out of or relating to this Agreement will be submitted by
the parties to arbitration under the rules then in effect for the Center for
Public Resources ("CPR"), as modified herein or by agreement of the parties.
---
Any such arbitration shall be conducted in Boston by one arbitrator. Each party
irrevocably and unconditionally (i) consents to the jurisdiction of any such
proceeding and waives any objection that it may have to personal jurisdiction or
the laying of venue of any such proceeding; and (ii) knowingly and voluntarily
waives its rights to have disputes tried and adjudicated by a judge and jury
except as otherwise expressly provided herein. The parties will cooperate with
each other in causing the arbitration to be held in as efficient and expeditious
a manner as practicable. The parties will attempt to agree upon a mutually
acceptable arbitrator within thirty (30) days of receipt of the notice of intent
to arbitrate. If the parties are unable to agree upon a single arbitrator
within such 30-day period or any extension of time which is mutually agreed
upon, three (3) arbitrators shall be used, one selected by each party within ten
(10) days after the conclusion of the 30-day period and a third selected by the
first two within ten (10) days thereafter. Unless the parties agree otherwise,
they shall be limited in their discovery to directly relevant documents.
Responses or objections to a document request shall be served twenty (20) days
after receipt of the request. The arbitrator(s) shall resolve any discovery
disputes. It is understood that the parties may (but are not required to)
submit
13
<PAGE>
disputes concerning any breach of Section 6 to arbitration in accordance with
this Section 7.3. Nothing herein shall prevent the parties from settling any
dispute by mutual agreement at any time.
(b) The arbitrator(s) shall apply the substantive laws of The Commonwealth of
Massachusetts without regard for any choice or conflict of laws rule or
principle that would result in the application of the substantive law of any
other jurisdiction. The arbitration shall be of each party's individual claims
only, and no claim of any other party shall be subject to arbitration in such
proceeding. Except as otherwise required by law, the parties and the
arbitrator(s) shall maintain as confidential all information or documents
obtained during the arbitration process, including the resolution of the
dispute.
(c) The arbitrator(s) shall not have the authority to award exemplary or
punitive damages, and the parties expressly waive any claimed right to such
damages. The arbitrator(s) shall have the authority to award actual money
damages (with interest on unpaid amounts from the date due) and may grant
equitable relief as is just and provided by the CPR rules, in each case except
as specifically provided to the contrary herein The costs and expenses of the
arbitration, but not the costs and expenses of the parties, shall be shared
equally by the parties, provided that the non-prevailing party in any
--------
arbitration shall pay the other party's costs and expenses and reimburse such
party for its portion of the arbitration costs. Any award rendered by the
arbitrator(s) shall be final and binding upon the parties. Judgment upon the
award may be entered in any court of competent jurisdiction. If a party fails
to proceed with arbitration, unsuccessfully challenges the arbitration award, or
fails to comply with the arbitration award, the other party is entitled to
costs, including reasonable attorneys' fees, for having to compel arbitration or
defend or enforce the award.
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.
14
<PAGE>
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 Agreement without 30 days prior written
notification to the other party.
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:
RoweCom: RoweCom, Inc.
725 Concord Ave.
Cambridge, MA 02138
Attention: Louis Hernandez, Jr.
Fax: 617-497-6825
NEC: NewsEdge Corporation
80 Blanchard Road
Burlington, MA 01803
Attention: John Zahner
Fax: 781-273-6060
9.5 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.
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.
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
15
<PAGE>
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
including but not limited to, the Client sServices Agreement executed February
26, 1999 between RoweCom and NEC. 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.
9.13 Amendments. This Agreement may be modified or amended only by a
document duly executed on behalf of each Party.
Signature Page Follows
16
<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.
NewsEdge Corporation ROWECOM, INC.
By: /s/ John Zahner By: /s/ Louis Hernandez, Jr.
Name: John Zahner Name: Louis Hernandez, Jr.
Title: Vice President & Publisher, Title: Executive Vice President
Internet Services and Chief Financial Officer
17
<PAGE>
EXHIBIT A
Knowledge Products Provided by RoweCom and Subject to Exclusivity
***15
Knowledge Products Provided by RoweCom and Not Subject to Exclusivity
***16
15 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.
16 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.
18
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 64,894 16,051
<SECURITIES> 0 0
<RECEIVABLES> 940 2,042
<ALLOWANCES> 100 60
<INVENTORY> 0 0
<CURRENT-ASSETS> 49 604
<PP&E> 784 632
<DEPRECIATION> 83 28
<TOTAL-ASSETS> 67,150 20,284
<CURRENT-LIABILITIES> 2,050 4,113
<BONDS> 0 0
0 0
0 28,422
<COMMON> 101 15
<OTHER-SE> 64,983 (12,266)
<TOTAL-LIABILITY-AND-EQUITY> 67,150 20,284
<SALES> 1,699 1,307
<TOTAL-REVENUES> 1,699 1,307
<CGS> (1,527) (1,284)
<TOTAL-COSTS> (1,527) (1,284)
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 251 28
<INCOME-PRETAX> 0 0
<INCOME-TAX> (3,014) (1,081)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,014) (1,081)
<EPS-PRIMARY> (.93) (.75)
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