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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
- - OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.)
15 SOUTHWEST PARK, WESTWOOD, MA 02090 (Address of principal executive office)
(617) 497-5800
(Registrant's telephone number, including area code)
725 CONCORD AVENUE, CAMBRIDGE, MA 02138
(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
--- ---
and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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ROWECOM INC.
INDEX
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RoweCom Inc.
------------
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998............................ 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 (unaudited) and
September 30, 1998 (unaudited)............................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 (unaudited) and September 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..................................... 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 16
Item 5. Other Information............................................. 16
Item 6. Exhibits and Reports on Form 8-K.............................. 17
Signatures.................................................... 18
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RoweCom Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1999 1998
------- -------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 47,150 $ 16,051
Accounts receivable (net of allowance for doubtful accounts of $127,000 and
$60,000) 3,809 1,982
Restricted cash 1,665 923
Other current assets 546 604
--------- ----------
Total current assets 53,170 19,560
Goodwill, net 7,996 -
Equipment and furnishings, net 1,507 632
Deferred tax asset 138 76
Other assets, net 104 16
--------- ----------
Total assets $ 62,915 $ 20,284
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable 953 366
Accrued expenses 3,430 629
Accrued compensation 1,882 538
Customer advances 1,665 923
Loans payable 214 1,657
--------- ----------
Total current liabilities 8,144 4,113
Deferred revenue 122 -
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,
10,142,128 and 1,526,180 shares issued and outstanding, respectively 101 15
Additional paid-in capital 82,380 1,710
Treasury stock, at cost (53) (53)
Accumulated deficit (27,724) (13,901)
Accumulated other comprehensive loss (55) (22)
--------- ----------
Total stockholders' equity (deficit) 54,649 (12,251)
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Total liabilities and stockholders' equity (deficit) $ 62,915 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 9,479 $ 1,413 $ 13,159 $ 3,585
Cost of revenues 8,930 1,391 12,325 3,494
--------------- --------------- --------------- ---------------
Gross profit 549 22 834 91
Operating expenses:
Sales and marketing 3,525 1,425 8,072 3,343
Research and development 882 279 2,725 749
General and administrative 1,643 382 3,541 980
Stock based compensation 656 - 656 -
Goodwill amortization 699 - 903 -
--------------- --------------- --------------- ---------------
Total operating expenses 7,405 2,086 15,897 5,072
--------------- --------------- --------------- ---------------
Loss from operations (6,856) (2,064) (15,063) (4,981)
Interest and other income, net 605 58 1,673 104
--------------- --------------- --------------- ---------------
Loss before income taxes (6,251) (2,006) (13,390) (4,877)
Provision for income taxes 7 31 63 87
--------------- --------------- --------------- ---------------
Net loss $ (6,258) $ (2,037) $ (13,453) $ (4,964)
=============== =============== =============== ===============
Basic and Diluted net loss per share
Net loss applicable to common
stockholders $ (6,258) $ (2,248) $ (13,822) $ (5,408)
Basic and diluted weighted average
shares outstanding 10,116 1,526 7,964 1,534
Basic and diluted loss per share $ (.62) $ (1.47) $ (1.74) $ (3.53)
Pro forma Basic and Diluted net loss
per share
Pro forma net loss applicable to common
stockholders $ (6,258) $ (2,037) $ (13,453) $ (4,964)
Basic and diluted weighted average
shares outstanding 10,116 4,379 9,209 3,377
Basic and diluted pro forma loss per
share $ (.62) $ (.47) $ (1.46) $ (1.47)
</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>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (13,453) $ (4,964)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,329 139
Loss on sale of marketable securities (76) -
Stock based compensation 656 -
Changes in operating assets and liabilities, net of assets and liabilities
acquired:
Accounts receivable (1,563) 74
Other current and long term assets 160 129
Accounts payable 489 368
Income taxes payable - (106)
Accrued expenses and accrued compensation 1,498 (200)
Deferred revenue (36) 4
-------------- -------------
Net cash used in operating activities (10,996) (4,556)
Cash flows from investing activities:
Purchase of equipment and furnishings (1,095) (484)
Purchase of intangible assets (2) -
Cash paid to acquire business, net of cash acquired (7,288) -
-------------- -------------
Net cash used in investing activities (8,385) (484)
Cash flows from financing activities:
Net proceeds from the issuance of capital stock 51,964 7,832
Loan repayments (1,444) (850)
Loan proceeds - 1,063
Purchase of treasury stock - (53)
-------------- -------------
Net cash provided by financing activities 50,520 7,992
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Effect of exchange rates on cash (40) (65)
Net increase in cash and cash equivalents 31,099 2,887
Cash and cash equivalents, beginning of period 16,051 691
-------------- -------------
Cash and cash equivalents, end of period $ 47,150 $ 3,578
============== =============
SUPPLEMENTARY INFORMATION:
Accretion of preferred stock $ 369 $ 443
Issuance of common stock in connection with a purchase acquisition $ 250 $ -
Cash paid for interest $ 45 $ 14
Cash paid for taxes $ 111 $ 85
</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 Rowe Communications, Ltd. 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 subsidiaries. All significant intercompany
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accounts and transactions between RoweCom and its subsidiaries, 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 September 30, 1999,
the Consolidated Statement of Operations for the three and nine months ended
September 30, 1999, and the Consolidated Statement of Cash Flows for the nine
months ended September 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
---
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 $51.6 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 and its subsidiary Rowe
-----------------
Communications, Ltd. ("RCL"), were converted into 4,996,290 shares of RoweCom's
common stock.
4. EARNINGS PER SHARE
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 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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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
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- --------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Historical
Basic and diluted:
Net loss to common stockholders $ (6,258) $ (2,248) $ (13,822) $ (5,408)
Weighted average number of common shares 10,116 1,526 7,964 1,534
Net loss per common share--basic and diluted (.62) (1.47) (1.74) (3.53)
Pro forma
Basic and diluted:
Net loss $ (6,258) $ (2,037) $ (13,453) $ (4,964)
Weighted average number of common shares 10,116 1,526 7,964 1,534
Weighted average assumed number of shares upon the - 2,853 1,245 1,843
conversion of preferred stock and the
net exercise of all outstanding stock purchase
warrants
Total weighted average number of shares used 10,116 4,379 9,209 3,377
in computing pro forma net loss per share
Basic and diluted pro forma net loss per $ (.62) $ (.47) $ (1.46) $ (1.47)
common share
</TABLE>
Options to purchase shares of RoweCom's common stock totaling 1,030,807 and
458,843 at September 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 NINE MONTHS ENDED
----------------------------------- ---------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (6,258) $ (2,037) $ (13,453) $ (4,964)
Other comprehensive loss:
Foreign currency (14) (29) (33) (51)
translation adjustment
--------- --------- ---------- ---------
Comprehensive loss $ (6,272) $ (2,066) $ (13,486) $ (5,015)
========= ========= ========== =========
</TABLE>
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6. ACQUISITIONS
CORPORATE SUBSCRIPTION SERVICES, INC. ("CSS")
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 acquisition
costs of $226,704, which related to legal and accounting fees. The terms of the
Agreement were determined in arm's 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):
<TABLE>
<S> <C>
Cash $ 233
Other assets 269
Equipment and furnishings, net 43
Liabilities (1,688)
Goodwill 7,346
-------
$ 6,203
=======
</TABLE>
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 financial information has been included on Form 8-K/A,
filed August 19, 1999.
INTERNATIONAL SUBSCRIPTION AGENCIES PTY LTD. ("ISA")
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of International Subscription Agencies Pty Ltd., ("ISA"), an Australian
Corporation, in a transaction accounted for using the purchase method of
accounting.
The total consideration of $1,686,872 consisted of $1,486,596 in cash (subject
to certain post-closing adjustments as provided in the Agreement) and $200,276
in other assets. The total purchase price of $1,723,367 included the
consideration as well as acquisition costs of $36,495 which related to legal and
accounting fees. The terms of the Agreement were determined in arm's length
negotiations between RoweCom and the shareholders of ISA. The cash 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):
<TABLE>
<S> <C>
Cash $ 383
Other assets 912
Equipment and furnishings, net 72
Liabilities (1,197)
Goodwill 1,553
-------
$ 1,723
=======
</TABLE>
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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.
The following Unaudited Pro Forma Information for the nine months ended
September 30, 1998 gives effect to the acquisition of ISA as if it ocurred on
January 1, 1998 and is based on the historical results of operations of RoweCom
and ISA for the nine months ended September 30, 1998. The Unaudited Pro Forma
Information for the nine months ended September 30, 1999 gives effect to the
acquisition of ISA as if it ocurred on January 1, 1999 and is based on the
historical results of operations of RoweCom and ISA for the nine months ended
September 30, 1999.
The Unaudited Pro Forma Information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated company after the acquisition of ISA
that would have actually occurred had the acquisition of ISA being effective for
the periods presented.
RoweCom Inc.
Unaudited Pro Forma Information
for the nine months ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ROWECOM INC. ISA ADJUSTMENTS TOTAL
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,585 $2,585 $ - $ 6,170
Net Loss $ (4,964) $ 1 $ (387)(a) $ (5,350)
=========== ====== ======= ========
Basic and diluted Net Loss per share
Basic and diluted weighted
average shares outstanding 3,377 - - 3,377
Basic and diluted loss per share $ (1.47) - - $ (1.58)
for the nine months ended September 30, 1999
(in thousands, except per share data)
<CAPTION>
PRO FORMA PRO FORMA
ROWECOM INC. ISA ADJUSTMENTS TOTAL
------------ ------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 13,159 $3,871 $ - $ 17,030
Net Loss $(13,453) $ (40) $ (387)(a) $ (13,880)
=========== ====== ======= =========
Basic and diluted Net Loss per share
Basic and diluted weighted
average shares outstanding 9,209 - - 9,209
Basic and diluted loss per share $ (1.46) - - $ (1.51)
</TABLE>
- ------------------
(a) Adjustment to reflect the amortization of goodwill of approximately $1.6
million resulting from the acquisition of ISA, over a three year period,
the expected period of benefit.
7. SUBSEQUENT EVENTS
Acquisition of Dawson Information Services Group
On October 5, 1999, RoweCom acquired all the issued and outstanding capital
stock of Dawson Information Services Group ("ISG"), an international
corporation, in a transaction accounted for using the purchase method of
accounting.
The aggregate consideration paid by RoweCom to ISG consisted of approximately
$56 million in cash and shares of RoweCom's Common Stock (each subject to
certain post-closing adjustments as provided in the Agreement). The terms of the
Agreement were determined in arms length negotiations between RoweCom and the
shareholders of ISG. The cash portion of the purchase price came from the
proceeds of RoweCom's initial public offering, which closed on March 12, 1999.
Issuance of Convertible Debt
In October 1999, the Company received proceeds of approximately $20,000,000 in
connection with the issuance of convertible notes ("the Notes") in a private
placement. The $20,000,000 face amount of the Notes is due January 2001. The
Notes bear interest at the rate of 11% per annum and are convertible, at any
time at the option of the holder, into shares of the Company's common stock at a
price equal to 93% of the weighted average price of the Company's common stock
on the day of conversion. The Company has the option to convert the notes into
shares of common stock or to redeem the Notes at 100% of par value during the
first six months after issuance and at 107% of par thereafter. The Notes contain
a beneficial conversion feature related to the ability to convert at less than
fair market value and therefore, a portion of the proceeds from the issuance of
the convertible debt equal to the intrinsic value of the beneficial conversion
feature of approximately $1.5 million, has been allocated to additional paid-in
capital.
In conjunction with the issuance of the Notes, the Company also issued warrants
for the purchase of up to a total of 224,000 shares of the Company's common
stock at an exercise price equal to 110% of the price of the Company's common
stock ten days prior to the issuance of the Notes. The warrants vest immediately
and expire four years from issuance. The Company allocated approximately $2.1
million to additional paid-in capital for the fair value of the warrants on the
issuance date.
The Notes are carried net of discount related to the conversion feature and
warrants of approximately $3.6 million. Amortization of the discount, which is
recorded as interest expense, is expected to be approximately $1.9 million
during the fourth quarter of 1999 and approximately $420,000 per quarter
thereafter.
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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
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.
. Risks relating to RoweCom's ability to manage the recent acquisitions.
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 clients. As a result of our efforts,
purchases by corporate clients during the three and nine months ended September
30, 1999
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<PAGE>
have increased more rapidly than purchases by academic clients during the three
and nine months ended September 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 have increased 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 $5,726,000 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 during the three and nine months ended September 30, 1999
were revenue of $3,662,000 and 4,515,000, cost of revenue of $3,397,000 and
4,216,000 and transaction volume of 19,000 and 25,000, respectively. CSS added
over 159 corporate accounts to RoweCom's client base.
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of ISA for $1,486,596 in cash. Attributable to ISA was revenue of $1,467,000,
cost of revenue of $1,269,000 and transaction volume of 13,000 during the three
and nine months ended September 30, 1999. ISA added over 1,000 international
accounts to RoweCom's client base.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1999 (the "1999 Three Month
Period") with the Three Months Ended September 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 $9.5 million as compared to $1.4
million for the 1998 Three Month Period, an increase of $8.1 million or 571%.
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 75% of overall revenue for the 1999 Three Month Period
versus 37% for the 1998 Three Month Period. Transaction volumes for the 1999
Three Month Period also increased significantly by 917% from the 1998 Three
Month Period from 4,000 to 41,000 transactions, primarily due to volume
increases in corporate and corporate desktop purchases.
The average selling price per transaction for the 1999 Three Month Period was
$228 as compared to $346 during the 1998 Three Month Period. The decrease in
the average selling price was a result of the increased corporate and 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 $8.9 million as compared to $1.4 million during the 1998
Three Month Period, an increase of $7.5 million or 542%. As a percentage of
revenues, cost of revenues decreased to 94% 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
corporate and corporate desktop. Installation revenue was $24,000 during the
1999 Three Month Period and $6,500 during the 1998 Three Month Period.
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 $3.5 million during the 1999 Three Month Period from $1.4 million
in the 1998 Three Month Period, an increase of $2.1 million or 147%.
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<PAGE>
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 $2.2 million in the 1999 Three Month Period
from $899,000 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 $882,000 in
the 1999 Three Month Period from $279,000 in the 1998 Three Month Period, an
increase of $603,000 or 216%, 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. Personnel expenses increased to
approximately $576,000 in the 1999 Three Month Period from $211,000 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 $1.6 million in the 1999 Three
Month Period compared to $382,000 in the 1998 Three Month Period, an increase of
$1.3 million or 330%. This increase can be primarily attributed to growth in
average headcount in the 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 $208,000.
Stock based compensation. Stock based compensation was $656,000 in the 1999
Three Month Period. Under an agreement among certain of RoweCom's shareholders,
Working Ventures' Canadian Fund, Inc. ("Working Ventures") must transfer
----------------
310,371 shares of common stock to certain other shareholders and option holders
of RoweCom if Working Ventures' initial investment increases by 45% or more (on
an annually compounded basis) and they are not legally restricted from selling
such shares. As a result of the expiration of the IPO lock up period on
September 5, 1999, RoweCom was required to record a compensation charge equal
to the aggregate fair market value of the common stock transferred to the
RoweCom option and warrant holders who are eligible to receive such shares as
described above.
Goodwill amortization. Goodwill amortization was $699,000 in the 1999 Three
Month Period. As a result of the acquisitions of CSS and ISA, approximately
$8.9 million in goodwill was recorded, which is being amortized over a thirty-
six month period.
Comparison of the Nine Months Ended September 30, 1999 (the "1999 Nine Month
Period") with the Nine Months Ended September 30, 1998 (the "1998 Nine Month
Period").
Revenues. Revenues for the 1999 Nine Month Period were $13.2 million as
compared to $3.6 million for the 1998 Nine Month Period, an increase of $9.6
million or 267%. This increase resulted primarily from increased sales per
client and growth in our client base, particularly in the corporate sector where
corporate revenue represented 79% of overall revenue for the 1999 Nine Month
Period versus 57% for the 1998 Nine Month Period. Transaction volumes for the
1999 Nine Month Period also increased significantly by 455% from the 1998 Nine
Month Period from 13,000 to 71,000 transactions, primarily due to volume
increases in corporate and corporate desktop purchases. The average selling
price per transaction for the 1999 Nine Month Period was $182 as compared to
$276 during the 1998 Nine Month Period.
Cost of Revenues. Cost of revenues in the 1999 Nine Month Period was $12.3
million as compared to $3.5 million during the 1998 Nine Month Period, an
increase of $8.8 million or 253%. As a percentage of revenues, cost of revenues
decreased to 94% during the 1999 Nine Month Period as compared to 97% in the
1998 Nine Month Period. This improvement was primarily due to an increase in the
number of transactions executed through corporate and corporate desktop.
Installation revenue was $157,000 during the 1999 Nine Month Period and $36,500
during the 1998 Nine Month Period.
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Sales and marketing. Sales and marketing expenses increased to $8.1 million
during the 1999 Nine Month Period from $3.3 million in the 1998 Nine Month
Period, an increase of $4.7 million or 141%. 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 $4.9 million in the 1999 Nine Month Period from $2.0 million in
the 1998 Nine Month Period. In addition, during the 1999 Nine 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 $2.7
million in the 1999 Nine Month Period from $749,000 in the 1998 Nine Month
Period, an increase of $2.0 million or 264%, 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 to $417,000 during the 1999
Nine Month Period from $32,000 in the 1998 Nine Month Period.
General and administrative. General and administrative expenses increased to
$3.5 million in the 1999 Nine Month Period compared to $980,000 in the 1998 Nine
Month Period, an increase of $2.6 million or 261%. This increase can be
primarily attributed to growth in average headcount in the administrative,
finance and human resources departments. RoweCom has 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 $437,000.
Stock based compensation. Stock based compensation was $656,000 in the 1999
Nine Month Period. Under an agreement among certain of RoweCom's shareholders,
Working Ventures' Canadian Fund, Inc. ("Working Ventures") must transfer
----------------
310,371 shares of common stock to certain other shareholders and option holders
of RoweCom if Working Ventures' initial investment increases by 45% or more (on
an annually compounded basis) and they are not legally restricted from selling
such shares. As a result of the expiration of the IPO lock up period on
September 5, 1999, RoweCom was required to record a compensation charge equal
to the aggregate fair market value of the common stock transferred to the
RoweCom option and warrant holders who are eligible to receive such shares as
described above.
Goodwill amortization. Goodwill amortization was $903,000 in the 1999 Nine Month
Period. As a result of the acquisitions of CSS and ISA, approximately $8.9
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 $11.0 million for the 1999 Nine Month
Period as compared to $4.6 million in the 1998 Nine Month Period. Cash used in
the 1999 Nine Month Period resulted primarily from a net loss of $13.5 million
and an increase in accounts receivable of $1.6 million. This was partially
offset by a $1.5 increase in accrued expenses and accrued liabilities, $656,000
increase in stock based compensation, and $1.3 million in depreciation and
amortization expense. Cash used in operating activities in the 1998 Nine Month
Period was primarily attributable to a net loss of $5.0 million and a decrease
ind accrued compensation of $200,000. This was partially offset by a $368,000
increase in accounts payable.
Net cash used in investing activities in the 1999 Nine Month Period was $8.4
million, as compared to $484,000 in the 1998 Nine Month Period. Cash used for
the acquisitions of CSS and ISA, net of cash acquired, was $7.3 million in the
1999 Nine Month Period. Substantially all cash used in investing activities
during the 1998 Nine Month Period was for the purchase of equipment and
furnishings.
Net cash provided by financing activities was $50.5 million in the 1999 Nine
Month Period, as compared to $8.0 million in the 1998 Nine Month Period.
Proceeds from the IPO, net of underwriting discounts and offering costs, were
$51.6 million, of which $1.4 million was used to pay down existing credit
facilities. During the 1998 Nine Month Period, $7.8 million in cash provided by
financing activities was from the sale of 4,586,599 shares of class B,
Redeemable Convertible Preferred Stock. Prior to the IPO, RoweCom financed its
operations primarily through sales
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<PAGE>
of its equity securities in private placements. At September 30, 1999, RoweCom
had cash and cash equivalents of $47.1 million, working capital of $45.0
million, debt of $214,000 and stockholders' equity of $54.6 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 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
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.
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<PAGE>
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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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 $51.6 million.
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 arm's 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.
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of International Subscription Agencies PTY LTD, ("ISA"), an Australian
Corporation, in a transaction accounted for using the purchase method of
accounting. The total consideration of $1,686,872 consisted of $1,486,596 in
cash (subject to certain post-closing adjustments as provided in the Agreement)
and $200,276 in other assets. The total purchase price of $1,723,367 included
the consideration as well as acquisition costs of $36,495, which related to
legal and accounting fees. The terms of the Agreement were determined in arm's
length negotiations between RoweCom and the shareholders of ISA. The cash 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.
289,500 options were granted to purchase common stock under the Company's,
Amended and Restated 1998 Stock Incentive Plan 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 there under. 45,192 stock options were exercised during the
1999 Three Month Period.
ITEM 5. OTHER INFORMATION
Issuance of Convertible Debt
On October 14, 1999, the Company received proceeds of approximately $20,000,000
in connection with the issuance of convertible notes ("the Notes") in a private
placement. The $20,000,000 face amount of the Notes is due January, 2001. The
Notes bear interest at the rate of 11% per annum and are convertible, at any
time at the option of the holder, into shares of the Company's common stock at a
price equal to 93% of the weighted average price of the Company's common stock
on the day of conversion. The company has the option to convert the notes into
shares of common stock or to redeem the Notes at 100% of par value during the
first six months after issuance and at 107% of par thereafter. The Notes contain
a beneficial conversion feature related to the ability to convert at less than
fair market value and therefore, a portion of the proceeds from the issuance of
the convertible debt equal to the intrinsic value of the beneficial conversion
feature of approximately $1.5 million, has been allocated to additional paid-in
capital.
In conjunction with the issuance of the Notes, the Company also issued warrants
for the purchase of up to a total of 224,000 shares of the Company's common
stock at an exercise price equal to 110% of the price of the Company's common
stock ten days prior to the issuance of the Notes. The warrants vest immediately
and expire four years from issuance. The Company allocated approximately $2.1
million to additional paid-in capital for the fair value of the warrants on the
issuance date.
The Notes are carried net of discount related to the conversion feature and
warrants of approximately $3.6 million. Amortization of the discount, which is
recorded as interest expense, is expected to be approximately $1.9 million
during the fourth quarter of 1999 and approximately $420,000 per quarter
thereafter.
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Acquisition of Dawson Information Services Group
On October 5, 1999, RoweCom acquired all the issued and outstanding capital
stock of Dawson Information Services Group ("ISG"), an international
corporation, in a transaction accounted for using the purchase method of
accounting.
The aggregate consideration paid by RoweCom to ISG consisted of approximately
$56 million in cash and shares of RoweCom's Common Stock (each subject to
certain post-closing adjustments as provided in the Agreement). The terms of the
Agreement were determined in arms length negotiations between RoweCom and the
shareholders of ISG. The cash portion of the purchase price came from the
proceeds of RoweCom's initial public offering, which closed on March 12, 1999.
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 -- Strategic Alliance and Marketing Agreement between RoweCom
and Office.Com Inc. dated September 27, 1999.**
10.2 -- Stock Purchase Agreement dated August 18, 1999.
11 -- Computation of Loss Per Share.***
27 -- Financial Data Schedule
(b) Reports on Form 8-K
On August 19, 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.
On October 13, 1999, the Company filed a report on Form 8-K in
connection with the issuance of convertible debt.
On October 18, 1999, the Company filed a report on Form 8-K in
connection with its acquisition of Dawson Information Services
Group.
_________________
(*) 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.
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<PAGE>
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.
November 15, 1999 By:
----------------------------------
Dr. Richard R. Rowe
President and Chief Executive Officer
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<PAGE>
STRATEGIC ALLIANCE AND MARKETING AGREEMENT
This Strategic Alliance and Marketing Agreement (the "Agreement") is made
as of this 27th day of September, 1999 (the "Effective Date") by and between
OFFICE.COM INC., a Delaware corporation ("Office.com") and ROWECOM INC., a
Delaware corporation ("RoweCom").
WHEREAS, Office.com is developing a destination web site for small to medium-
sized businesses (together with any successor sites, the "Office.com Site" as
further defined below); such site is to provide online news, easy-to-use tools,
and other services on the Internet;
WHEREAS, RoweCom provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
subscriptions, books and other knowledge products and services of a professional
nature and, in connection therewith, RoweCom collaborates with such entities to
enhance existing intranet networks to enable such entities to purchase
subscriptions, books and other knowledge products and services via their
intranets; and
NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which the
parties hereby acknowledge, Office.com and RoweCom agree as follows:
1. DEFINITIONS
1.1. DEFINED TERMS. For purposes of this Agreement, the following terms have
the respective meanings set forth below:
a. GROSS MARGIN means the aggregate amount received by RoweCom on an
Initial Order or a Renewal Order, less: (i) payments to third-party
----
publishers or strategic partners in generating such Order, (ii) credits,
refunds and allowances separately and actually credited to customers in
connection with such Order for defective, damaged, outdated, and
returned or cancelled RoweCom Titles; (iii) offered and taken trade and
cash discounts, rebates, trade commissions and distribution fees in
amounts customary to the trade and as required to do business in the
country in which they are made; and (iv) sales, excise, use, turnover,
inventory, value-added and similar taxes and duties, not including net
income tax. Gross Margin shall not include special outbound packing,
transportation, insurance, and handling charges, separately billed to
the customer or prepaid.
B. HTML means hypertext mark-up language.
C. INITIAL ORDER means an initial order for a RoweCom Title placed by an
Office.com Customer through the RoweCom kStore.
D. KNOWLEDGE PRODUCTS means any magazines, books, journals, subscriptions,
serials, market research reports, or other publications, embodied in
paper or electronic media.
E. LAUNCH DATE means the date on which the RoweCom kStore is substantially
complete and functional in all material respects for Office.com
Customers or
<PAGE>
potential Office.com Customers, and in no event shall be later than
the date of the Office.com Site Launch, scheduled for one (1) month
after the Effective Date of this Agreement. RoweCom will assist
Office.com in the launch of the RoweCom kStore, integrated with
Office.com's SPIM, at the time of such Office.com Site Launch.
F. OFFICE.COM CHANNEL means all marketing and distribution channels
including but not limited to the Office.com Site, affinity group web
sites created by Office.com during the Term hereof, and direct marketing
and other marketing and distribution channels related to the Office.com
Site and utilized by Office.com.
G. OFFICE.COM CONTENT means any materials provided by Office.com to RoweCom
in connection with this Agreement, including any Office.com logos or
images, the SPIM, and related materials.
H. OFFICE.COM CUSTOMER means any person or entity that orders at least one
(1) RoweCom Title through the RoweCom kStore.
I. OFFICE.COM SITE means (1) the web site and pages that a user's web
browser will generate as a result of requesting URLs in the "office.com"
Internet domain, other than such pages intended for testing,
development, or other internal purposes; and (2) any web pages or sites
that are replacements for such web pages or site.
J. OFFICE.COM SITE LAUNCH means the point in time when the Office.com Site
is first made available for use by the general public via the public
Internet.
K. INTELLECTUAL PROPERTY means the respective patents, trade secrets,
copyrights, trademarks, industrial designs and other intellectual
property of the parties, including without limitation the RoweCom
Trademarks, the Office.com Trademarks, related sales collateral, RoweCom
Content, and any such Intellectual Property contained in the RoweCom
kStore, Office.com Content, and/or the Office.com Site.
L. RENEWAL ORDER means the renewal of an Initial Order.
M. ROWECOM CONTENT means the list of all RoweCom Titles provided through
the RoweCom kStore, as updated by RoweCom from time to time, but
excluding any Office.com Content. Subject to Section 3.2(g) below,
RoweCom shall have and retain sole editorial discretion over RoweCom
Content.
N. ROWECOM KSTORE means a customized, co-branded Office.com/RoweCom web
site prepared by RoweCom and subject to the joint approval of Office.com
and RoweCom. The RoweCom kStore will contain a catalog of RoweCom
Titles, order processing, and other features, and will have a URL
address determined by RoweCom.
O. ROWECOM TITLE means any Knowledge Product that RoweCom is authorized by
a publisher to sell and that is listed in the RoweCom kStore, as updated
from time to time.
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P. TERM means the period beginning on the Effective Date and ending upon
expiration or termination of this Agreement, as set forth in Section 7
hereto.
Q. TRADEMARK means names, trademarks, services marks, trade names, labels,
logos, designs or other designations and all goodwill associated
therewith. The RoweCom Trademarks are set forth in Exhibit B (hereby
---------
incorporated by reference), as may be updated by RoweCom from time to
time. The Office.com Trademarks are set forth in Exhibit C (hereby
---------
incorporated by reference), as may be updated by Office.com from time to
time.
R. URL means uniform resource locator.
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
AUDITED PARTY Section 4.3
AUDITING PARTY Section 4.3
BUY BOXES Section 2.1
CONFIDENTIAL
INFORMATION Section 6.1
DHTML Section 2.1
DISCLOSING PARTY Section 6.1
EFFECTIVE DATE Preamble
INDEMNITOR Section 8.3(a)
INDEMNITEES Section 8.3(a)
INITIAL TERM Section 7.1
LOSSES Section 8.3(a)
OFFICE.COM Preamble
OFFICE.COM LINK
FILE Section 2.2
OFFICE.COM DIRECT
COMPETITOR Section 3.5 and Exhibit D (hereby incorporated
---------
by reference)
QUARTERLY
STATEMENT Section 4.2
ROWECOM Preamble
ROWECOM DIRECT
COMPETITOR Section 3.5 and Exhibit D
---------
3
<PAGE>
ROWECOM LINK FILE Section 2.1
RECIPIENT Section 6.1
VERTICAL
NAVIGATION BAR Section 2.1
2. LINKAGE
2.1. SITE LINKS TO THE ROWECOM KSTORE. Subject to the terms of this Agreement
but in no event later than December 15, 1999, provided that the RoweCom
kStore is completed and functional in all material respects for the
Office.com Site Launch, Office.com will place a hypertext link to a page
within the RoweCom kStore within the second sub-level of the hierarchical
dynamic HTML ("DHTML") site navigation display appearing on the upper left
corner of each page (the "Vertical Navigation Bar") of the Office.com Site.
Office.com shall have the right to change the appearance and/or
functionality of the Vertical Navigation Bar, as is more fully set forth in
Section 3.12, provided that, during the Term hereof, Office.com shall
provide a hypertext link of equivalent prominence (in Office.com's
reasonable determination) to a page within the RoweCom kStore. In addition
and not in lieu of the foregoing, the RoweCom kStore may also be accessible
through links from purchasing and online transaction opportunities for
contextually relevant items in selected product categories ("Buy Boxes"),
located on the Office.com Site, the size, number and placement of which
shall be within Office.com's sole discretion. RoweCom shall provide the
textual and/or graphic content, when applicable, of these links to
Office.com as one or more computer-readable files in an Internet standard
file format (such files being, collectively, the "RoweCom Link File").
2.2. SITE LINKS TO THE OFFICE.COM SITE. Subject to the terms of this Agreement
but in no event later than the Launch Date, RoweCom will place a hypertext
link to the Office.com Site, with a URL address determined by Office.com,
from each page of the RoweCom kStore, the location, size and placement of
which link shall be mutually agreed to by the parties. Office.com will
provide the textual and/or graphic content, when applicable, of these links
to RoweCom as one or more computer-readable files in an Internet standard
file format (such files being, collectively, the "Office.com Link File").
2.3. EXPENSES. Each party shall be responsible for its own expenses in
performing its obligations under this Agreement.
3. OBLIGATIONS OF THE PARTIES.
3.1. Office.com Obligations. Subject to the terms of this Agreement, Office.com
shall:
a. Assign an account executive for RoweCom kStore implementation, and to
act as an Office.com contact for the daily operations of the RoweCom
kStore;
b. Provide one or more hypertext links from the Office.com Site to the
RoweCom kStore as set forth in Section 2.1 of this Agreement;
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<PAGE>
C. List RoweCom as a partner on the Office.com Site in the same manner as
Office.com lists its other partners on the Office.com Site, and, upon
mutual agreement by both parties, in advertising, promotional, and/or
publicity materials;
D. Make payments to RoweCom, and provide Quarterly Statements, in
accordance with Section 4 hereof for all advertising within the
RoweCom kStore.
E. Market and sell advertising on the RoweCom kStore, and collect
revenues for such advertising.
3.2. ROWECOM OBLIGATIONS. Subject to the terms of this Agreement, RoweCom shall:
a. At RoweCom's expense, develop, host, maintain, and integrate
Office.com's SPIM into, the RoweCom kStore, subject to the approval of
the parties;
B. Assign an account executive for RoweCom kStore implementation, and to
act as Office.com's primary contact for the daily operations of the
RoweCom kStore;
C. Provide hypertext links from the RoweCom kStore to the Office.com Site
as set forth in Section 2.2 of this Agreement;
D. Process Initial Orders and Renewal Orders received from Office.com
Customers, collect amounts from such Office.com Customers, comply with
all applicable laws and regulations, fulfill Initial Orders and
Renewal Orders, process address changes for Office.com Customers, and
provide customer service on Initial Orders and Renewal Orders
consistent with the terms set forth in Exhibit E (hereby incorporated
---------
by reference), including but not limited to assigning a customer
service representative to provide customer support and respond to
claims from Office.com Customers;
E. Provide, to the extent permitted by applicable laws and regulations,
information to Office.com regarding Office.com Customers, Initial
Orders and Renewal Orders in accordance with the terms of this
Agreement, including but not limited to names, addresses, telephone
numbers, email addresses, and product purchase information;
F. Honor the policy regarding cancellations and refunds provided by the
publisher of the applicable RoweCom Title, provided that RoweCom
reserves its right to change its policy regarding refunds and
cancellations and will promptly and conspicuously post on the RoweCom
kStore, and promptly provide written notice to Office.com of, any such
change(s);
g. Perform title searches for additions to RoweCom Content and use its
best efforts to add to RoweCom Content a particular Knowledge Product
requested by Office.com or an Office.com Customer or potential
Office.com Customer within three (3) business days of such request.
From time to time during the Term, RoweCom may, at its sole
discretion, make corrections, enhancements, revisions, updates,
upgrades and other changes to RoweCom Content unrelated to any
requests by Office.com or Office.com Customers. In the event that (1)
RoweCom cannot or will not add requested materials to the RoweCom
Content within the time specified above, or (2) RoweCom ceases to
offer a particular RoweCom Title, Office.com shall be
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<PAGE>
entitled to contract directly with the publisher or any other provider
of such Knowledge Product for the right to offer such titles on or
through the Office.com Site, provided that, Office.com shall provide
at least seven (7) days advance written notice of such intent to seek
such Knowledge Product from a publisher or other third party provider.
H. No later than the launch of version 4.0 of the RoweCom kStore (which
RoweCom intends to enable by December 15, 1999, and shall in any event
enable no later than January 15, 2000), provide discounts on all
Knowledge Products (other than market research reports and RoweCom's
800 most popular titles) ordered by Office.com Customers in accordance
with RoweCom's then-current pricing and discounts, including, as
applicable, providing the lowest price available on all large
circulation and general interest magazines sold through the RoweCom
kStore;
I. Provide technical support to Office.com in connection with the
installation, operation, and maintenance of the RoweCom kStore; and
j. Make payments, and provide Quarterly Statements, to Office.com in
accordance with Section 4 hereof for all Initial Orders and Renewal
Orders.
3.3. DEVELOPMENT: RoweCom and Office.com shall cooperate in good faith with
regard to (a) implementation of the RoweCom kStore, (b) linking the RoweCom
kStore to the Office.com Site, (c) conformance of the RoweCom kStore with
Office.com's proprietary SPIM, (d) the development of a RoweCom kStore 4.0
design, and (e) such other matters as the parties agree to address jointly.
3.4. LICENSES.
a. LICENSES TO OFFICE.COM. Subject to the terms set forth herein, RoweCom
hereby grants to Office.com:
(1) a limited, world-wide, non-exclusive, non-transferable, non-
assignable (except as set forth in Section 9.3), royalty-free
right and license (excluding the right to sublicense) to store,
copy, distribute, transmit, adapt, and display the RoweCom
kStore, RoweCom Content, and the RoweCom Link File as delivered
under Section 2.1 solely to (i) market, promote, and offer
RoweCom Content to Office.com Customers or potential Office.com
Customers through Office.com Channels, (ii) to market and promote
the Office.com Site generally, subject to the terms of this
Agreement and particularly Section 3.6 hereof, and (iii) comply
with Office.com's obligations under Section 3.1 of this
Agreement;
(2) a limited, world-wide, non-exclusive, non-assignable (except as
set forth in Section 9.3), royalty-free right and license
(excluding the right to sublicense) to use the RoweCom Trademarks
solely to promote and market the RoweCom kStore and RoweCom
Content in accordance with the terms of this Agreement. Upon
reasonable notice from RoweCom, Office.com shall permit RoweCom
to visit all locations on the Internet where Office.com delivers
services using the RoweCom Trademarks to ensure that (a) such
services are delivered in a manner consistent with the
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service standards employed by RoweCom and (b) the RoweCom
Trademarks used in connection with such services are in
compliance with the specifications provided to Office.com from
time to time. It is understood that, under certain circumstances,
Office.com may need third party consents to effectuate the
visitation by RoweCom. In such circumstances, Office.com will
work with RoweCom to facilitate the review of the usage of the
RoweCom Trademarks.
B. LICENSE TO ROWECOM. Subject to the terms set forth herein, Office.com
hereby grants to RoweCom a limited, world-wide, non-exclusive, non-
assignable (except as set forth in Section 9.3), royalty-free right and
license (excluding the right to sublicense) to use the Office.com
Trademarks and Office.com Content (excluding the SPIM) solely to (i)
promote and market the RoweCom kStore and the RoweCom Content in
accordance with the terms of this Agreement, and (ii) to comply with its
obligations under Section 3.2 of this Agreement. RoweCom agrees that,
upon reasonable notice from Office.com, RoweCom shall permit Office.com
to visit all locations on the Internet where RoweCom delivers services
using the Office.com Trademarks to ensure that (1) such services are
delivered in a manner consistent with the service standards employed by
Office.com and (2) the Office.com 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 Office.com. In such circumstances, RoweCom will work with
Office.com to facilitate the review of the usage of the Office.com
Trademarks.
C. RESTRICTION ON USE OF CONFIDENTIAL INFORMATION Nothing in this Section
3.4 shall allow either party to use the other party's Confidential
Information beyond the limitations on such use set forth in Section 6
below.
3.5. EXCLUSIVITY. Subject to Section 7.2(d), 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 (and hereby
---------
incorporated by reference) under the caption "Knowledge Products Provided
by RoweCom and Subject to Exclusivity", and a non-exclusive provider of all
other Knowledge Products for the Office.com Site. Subject to the terms of
Section 3.2(g), during the Term of this Agreement, Office.com agrees not to
enter into a similar arrangement or agreement for linking, co-branding,
development and integration of the Office.com Site with any RoweCom Direct
Competitors (as defined in Exhibit D) for the provision of those Knowledge
---------
Products set forth on Exhibit A, through the Office.com Site, provided
---------
however that nothing in this Agreement shall prevent Office.com from (a)
accepting banners, sponsorships and advertising from any third party on the
Office.com Site, including a RoweCom Direct Competitor, so long as such
banners, sponsorships, and advertising do not specifically reference those
Knowledge Products subject to the exclusivity provisions as set forth on
Exhibit A, and (b) offering, selling, promoting, and/or marketing
---------
discounted or trial subscriptions to Office.com Customers or potential
Office.com Customers for all Knowledge Products published by up to twenty
(20) publishers per one (1) year period that this Agreement is in effect.
Nothing herein shall be deemed to similarly limit RoweCom from selling,
promoting, marketing, or otherwise distributing Knowledge Products through
other vendors or channels, provided, however, that during the first three
(3) months of the
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<PAGE>
Term of this Agreement, RoweCom shall not make available any web site or
other service that is linked, co-branded, developed, or integrated with any
Office.com Direct Competitor (as defined in Exhibit D).
3.6. PUBLICITY. Neither party shall originate or cause 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 (not be unreasonably withheld or delayed),
provided that, each party may provide information to the extent required
-------- ----
under securities laws or other applicable laws or regulations, or
governmental or court order. Neither party shall use the name of the other
party or any adaptation thereof or any of such other party's Trademarks in
any advertising, promotional or sales literature, or in any other form of
publicity without prior written consent (which consent will not be
unreasonably withheld or delayed) obtained from the other party in each
case. Notwithstanding the foregoing, a party shall not be in breach of this
Section 3.6 as a result of the incidental appearance of the other party's
web site, Content, Link File, or Trademarks in any public demonstration of
such party's web site or services generally.
3.7. OWNERSHIP AND USE OF OFFICE.COM CUSTOMER INFORMATION.
A. RoweCom will tag each Office.com Customer or potential Office.com
Customer who visits the RoweCom kStore in its customer database as an
Office.com Customer. RoweCom will, at the end of each month of the
Term, forward all data relating to Office.com Customers or potential
Office.com Customers collected through the RoweCom kStore to
Office.com.
B. RoweCom will not proactively market to an Office.com Customer with any
marketing message meant to drive the customer directly to the RoweCom
kStore or any other web Site owned or operated by RoweCom or any third
party; provided that this restriction will not apply to those
Office.com Customers who have purchased a Knowledge Product from
RoweCom through a channel other than the RoweCom kStore within the two
(2) years prior to any such marketing activities conducted by RoweCom.
C. RoweCom shall use commercially reasonable efforts to respect and
maintain the privacy of Office.com Customers and potential Office.com
Customers, shall keep information regarding Office.com Customers
confidential, and shall not market, sell or otherwise provide access
to a third party to any personally identifiable user data whatsoever.
Each party is responsible for complying with applicable laws governing
its use of such data.
3.8. INTELLECTUAL PROPERTY. Subject to the terms hereof, each party shall inform
the other party of any changes in or additions to the informing party's
Trademarks, and shall amend either Exhibit B or Exhibit C accordingly. 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 publicity permitted
hereunder, as required by law or as reasonably requested by the other
party. Each party's Trademarks and Confidential Information (as defined
below) shall remain the sole and exclusive property of such party and the
other party shall have no
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<PAGE>
rights thereto, except as otherwise expressly 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
expressly provided herein, nothing contained in this Agreement shall be
deemed to transfer ownership of copyrightable material from one party to
the other.
3.9. CONTACT PERSONS. Each party shall designate a Partner Relations Manager
whose name is set forth on the signature page to this Agreement to
implement the obligations of each such party hereunder and to be available
to respond to inquiries during the normal business hours of such party.
3.10. SALES COLLATERAL. Each party shall furnish at no cost to the other party
reasonable quantities of promotional materials, such as sales literature
and similar promotional material, relating to RoweCom Content, RoweCom
Trademarks, and the Office.com Site, including such information as is
necessary or appropriate for each party to formulate any marketing
materials used in connection with marketing activities under this
Agreement. Each party hereby grants to the other party a license during
the Term to use such promotional materials solely for purposes of
promoting the granting party, provided that, neither party shall edit,
modify or otherwise alter the form or content of such promotional
materials except as necessary to convert such promotional materials into
analog or digital format.
3.11. SPIM LICENSING. Beginning no earlier than October 15, 1999 and continuing
for a period no longer than six (6) months thereafter (unless otherwise
agreed to in writing by the parties), the parties shall negotiate in good
faith regarding RoweCom's possible use of Office.com's SPIM technology for
integration with third parties who are not competitors of Office.com. The
subject matter of such negotiations shall include, without limitation,
discussion of (a) liability issues related to such licensing, and (b)
issues related to support of the SPIM with respect to RoweCom and such
third parties, if any. Notwithstanding the foregoing or any other
provision of this Agreement, neither party shall be under any obligation
to enter into any agreement with the other party regarding such use by
RoweCom of the SPIM technology.
3.12. OPERATION OF THE OFFICE.COM SITE. Except as may be expressly provided
otherwise in this Agreement, Office.com shall have sole and absolute
discretion to determine all matters relating to the Office.com site
including, without limitation, all technical, operational, financial,
organizational, promotional, content, naming, appearance, availability,
and business matters.
4. PAYMENTS AND AUDITS
4.1. PAYMENTS.
A. PAYMENTS BY ROWECOM. Subject to the terms of this Agreement, RoweCom
shall pay to Office.com, no later than fifteen (15) business days
after the end of every alternate calendar month, an amount equal to
that percentage of the Gross Margin
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<PAGE>
set forth in the table below corresponding to the number of RoweCom
Titles sold to Office.com Customers for the preceding two-month
period:
----------------------------------------------------------------------
NUMBER OF ROWECOM TITLES SOLD Percentage of Gross Margin
payable by RoweCom to
Office.com
----------------------------------------------------------------------
1 to 100,000 10%
----------------------------------------------------------------------
100,001 to 200,000 15%
----------------------------------------------------------------------
200,001 to 400,000 20%
----------------------------------------------------------------------
400,001 or greater 25%
----------------------------------------------------------------------
All amounts paid by RoweCom pursuant to this Section 4.1(a) shall be
cumulative. For example, if during any two-month calendar period,
Office.com generated sales of 400,002 RoweCom Titles, then it would be
entitled to receive a commission equal to: 10% of the Gross Margin on
the first 100,000 RoweCom Titles sold, 15% of the Gross Margin on the
next 100,000 RoweCom Titles sold, 20% of the Gross Margin on the next
200,000 RoweCom Titles sold, and 25% on the additional 2 RoweCom
Titles sold.
B. PAYMENTS BY OFFICE.COM. Subject to the terms of this Agreement,
Office.com shall pay to RoweCom, no later than thirty (30) days after
the end of each calendar month, an amount equal to twenty-four and one-
half percent (24.5%) of all advertising revenue received by Office.com
during the Term for the preceding calendar month for advertisements on
the kStore, minus applicable expenses incurred in generating such
advertising revenues including, but not limited to, standard agency
commission fees, and sales, use, withholding or other taxes, quantity
and cash discounts, bad debts, and collection fees. Such advertising
revenues shall not include non-cash revenue arising from bartered
advertising and house advertisements; provided that if Office.com
barters advertising on the RoweCom kStore with a third party, RoweCom
shall receive a credit for the equivalent value of such advertising, as
reasonably determined by Office.com, that RoweCom may apply toward
advertising on the Office.com Site, which advertising will link to the
RoweCom kStore.
4.2. QUARTERLY STATEMENTS. Within fifteen (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, each party shall submit to the
other party (a) a detailed statement ("Quarterly Statement") that sets
-------------------
forth, with respect to the Quarterly Statement prepared by RoweCom, each
Office.com Customer who placed an Initial Order or a Renewal Order for a
RoweCom Title and the Gross Margin received by RoweCom on such order during
such quarter then ended, and (b) with respect to the Quarterly Statement
prepared by Office.com, the total amount of advertising revenue received by
Office.com for the applicable period and the calculation of the amounts
payable to RoweCom pursuant to Section 4.1(b).
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4.3. AUDITS. During the Term of this Agreement and for ninety (90) days
thereafter, 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 the relevant books and records of the other
party (the "Audited Party") for the other party's immediately preceding
--------------
financial year audited by an independent certified public accountant chosen
by the Auditing Party, for the sole purpose of ascertaining the accuracy of
the Audited Party's reports under this Agreement, including without
limitation RoweCom's customer information reports to Office.com. Each party
shall maintain accurate books and records relating to such matters. 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. The Auditing Party
shall require the auditor to execute a confidentiality agreement,
acceptable to the Audited Party, which shall prohibit the auditor from
disclosing any information ascertained from the audit to any party,
including the Auditing Party, for any purpose other than to confirm the
accuracy of the Audited Party's reports or to advise the Auditing Party of
any discrepancies discovered through the audit. 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 promptly 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 RoweCom Titles
pursuant to this Agreement shall be paid by the party assessed such taxes
or charges.
5. 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. NON-INFRINGEMENT. Each party hereby represents and warrants that (i) the
provision by such party of Intellectual Property to the other party
hereunder does not infringe upon or violate the intellectual property
rights or any other rights of any third party or violate any applicable law
or regulation; (ii) neither party has been charged or threatened with
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<PAGE>
infringement or violation of any intellectual property right or any other
rights of any person or entity in connection with the Intellectual Property
provided by such party to the other party hereunder; (iii) the Intellectual
Property and other information provided by each party (including without
limitation, the RoweCom Content, the RoweCom kStore, the RoweCom Link File,
the Office.com Link File, the RoweCom Trademarks, and Office.com Content)
to the other party hereunder will not contain any defects, viruses, worms,
date bombs, time bombs, or other code that is designed to damage,
interrupt, or interfere with any software or data of the other party; and
(iv) the RoweCom kStore and services provided to Office.com Customers
therewith shall be conducted in a professional, timely and diligent manner,
and shall comply with all applicable laws and regulations. In addition,
RoweCom represents and warrants that the Intellectual Property and other
information that is provided by RoweCom (including without limitation, the
RoweCom Content, the RoweCom kStore, the RoweCom Link File, and the RoweCom
Trademarks) to Office.com hereunder shall be year 2000 ready as set forth
in RoweCom's Year 2000 Readiness Disclosure, which is attached as Exhibit F
---------
(hereby incorporated by reference), and Office.com represents and warrants
that the Intellectual Property and other information that is provided by
Office.com (including without limitation the Office.com Link File and the
Office.com Content) to RoweCom hereunder shall be year 2000 compliant.
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 5, EACH
PARTY DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE PRODUCTS AND SERVICES
CONTEMPLATED UNDER THIS AGREEMENT, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
6. CONFIDENTIALITY
6.1. CONFIDENTIAL INFORMATION. "Confidential Information" means all financial,
business, marketing, operations, technical, and economic information,
whether tangible or intangible, that is disclosed by either party (the
"Disclosing Party") or any of Disclosing Party'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 "proprietary" information; (ii) orally or
visually, provided that, such oral or visual disclosure is followed by
written confirmation by the Disclosing Party within three (3) business 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 Disclosing Party; (3) is or becomes
generally known in the trade or to the public without violation of this
Agreement by the Recipient; (4) is independently developed by the Recipient
or Recipient's employees, agents, or
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<PAGE>
contractors to whom the Disclosing Party's information was not disclosed;
or (5) is approved in writing by the Disclosing Party for release; and (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 Disclosing Party except to the extent that such summaries
and other materials qualify for exclusion under this Section.
6.2. NONDISCLOSURE AND 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
Disclosing Party; (b) to use or copy the Confidential Information solely to
perform its obligations under this Agreement; (c) to segregate the
Confidential Information from the Recipient's other information and from
that of third parties; (d) not to copy the Confidential Information unless
necessary to perform services under this Agreement; (e) to notify promptly
the Disclosing Party upon learning about any court order or other legal
requirement that purports to compel disclosure of any Confidential
Information and to cooperate with the Disclosing Party in the exercise of
the Disclosing Party'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) subject to Section 7.3b, to
return promptly to the Disclosing Party or to destroy, at the option of the
Disclosing Party and at any time upon the Disclosing Party's request, any
and all materials containing Confidential 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
the Disclosing Party's 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.
6.3. Notwithstanding anything to the contrary herein, the RoweCom Content shall
be considered Confidential Information of RoweCom, and data relating to
Office.com Customers or potential Office.com Customers shall be considered
Confidential Information of Office.com. RoweCom further acknowledges that
the SPIM and the Standard Partner Registration Interface Model ("SPRIM"),
and all SPIM- or SPRIM-related materials, are Confidential Information of
Office.com; that such materials, as well as the Office.com Site are and
shall remain the sole property of Office.com; and
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<PAGE>
that RoweCom does not have nor will it acquire any rights therein by virtue
of this Agreement. RoweCom shall not disclose any Confidential Information
relating to the SPIM or SPRIM to any third party during the term hereof
(except to subcontractors as necessary to fulfill its obligations
hereunder, and in such event RoweCom shall require any such third party to
execute a confidentiality agreement containing disclosure restrictions at
least as strict as set forth this Section 6) or at any time thereafter.
7. 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.
Any notice given pursuant to this Section 7.2 must set forth with
specificity the alleged material obligations breached by the other
party.
B. Either party may terminate this Agreement pursuant to Section 9.2.
C. This Agreement shall terminate automatically, with no further action
by either party, if (i) a receiver is appointed for either party or
its property, (ii) either party makes an assignment for the benefit of
its creditors, (iii) any proceedings are commenced by, for or against
either party under any bankruptcy, insolvency or debtor's relief law
for the purpose of seeking a reorganization of such party's debts, and
such proceeding is not dismissed within ninety (90) calendar days of
its commencement, or (iv) either party is liquidated or dissolved.
D. Either party (the "Terminating Party") may terminate this Agreement if
the other party completes a sale of all or substantially all of such
other party's assets, or any other transaction in which greater than
fifty percent (50%) of such other party's voting securities are
transferred, (a "Change of Control Transaction") to a Direct
Competitor (as defined in Exhibit D) of the Terminating Party, by
---------
giving such other party ninety (90) days advance written notice of
intent to terminate within the forty-five (45) day period immediately
following the earlier of either the effective date or the public
announcement of the Change of Control Transaction.
E. Notwithstanding any other provision of this Agreement, Office.com may,
at any time following six (6) months after the Effective Date of this
Agreement, initiate good faith discussions with RoweCom regarding the
exclusive nature of this Agreement, by providing written notice to
RoweCom stating Office.com's purposes for initiating such discussions,
which purposes may include without limitation competitive and product-
related issues. RoweCom shall, within thirty (30) days of receipt of
such notification, provide to Office.com a written response setting
forth
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<PAGE>
the manner in which RoweCom intends to address Office.com's concerns.
If the parties are unable to reach an agreement on the concerns raised
by Office.com through good faith negotiations within forty-five (45)
after the receipt by Office.com of RoweCom's written response, either
party may amend this Agreement to a non-exclusive Agreement for the
remainder of the then-current term.
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 (a) the parties
-------- -------
will continue to perform all obligations relating to pending Initial
Orders or Renewal Orders in accordance with a schedule to be mutually
agreed upon by the parties no later than thirty (30) days after the
date of termination, and (b) RoweCom shall provide ongoing customer
service to Office.com Customers at no less a level of service than it
provides to other RoweCom customers.
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 from the Disclosing Party
which constitute Confidential Information of the other party;
provided, however, that for twelve (12) months following termination
of this Agreement RoweCom may retain information regarding Office.com
Customers, solely for the purposes of fulfilling RoweCom's customer
support obligations set forth herein.
C. OTHER OBLIGATIONS. The provisions of Sections 4.1 (Payments) and 4.2
(Quarterly Statements) (solely with respect to payment obligations
accrued prior to termination); Section 4.3 (Audit Rights), Section 5
(Representations and Warranties), 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 solely by reason of the termination of this Agreement in
accordance with Section 7.1 or 7.2 above. The parties expressly agree that
the notice periods in this Agreement are reasonable under the contemplated
circumstances.
8. RISK ALLOCATION
8.1. Limitation of Liability. EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE
OBLIGATIONS UNDER SECTION 6 (CONFIDENTIALITY) AND CLAIMS ARISING UNDER
SECTION 8.3 OF THIS AGREEMENT (INDEMNIFICATION), IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR SIMILAR DAMAGES
15
<PAGE>
OF ANY KIND (INCLUDING WITHOUT LIMITATION LOST PROFITS OR LOST REVENUES),
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
TOTAL LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR DIRECT DAMAGES
SHALL, EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE OBLIGATIONS UNDER
SECTION 6 (CONFIDENTIALITY) AND CLAIMS ARISING UNDER SECTION 8.3 OF THIS
AGREEMENT (INDEMNIFICATION), BE LIMITED IN THE AGGREGATE TO THE AMOUNT PAID
AND/OR PAYABLE BY ROWECOM TO OFFICE.COM UNDER THIS AGREEMENT AT THE TIME
SUCH LIABILITY IS FINALLY DETERMINED OR FIVE HUNDRED THOUSAND DOLLARS
($500,000.00), WHICHEVER IS GREATER.
8.2. INJUNCTIVE RELIEF. The parties agree that the remedy at law for any breach
of the provisions of Sections 3.4, 5, and/or 6 of this Agreement shall be
inadequate and the non-breaching party shall be entitled to injunctive
relief in addition to any other remedies that may be available to the
non-breaching party.
8.3. INDEMNIFICATION.
A. OBLIGATION. Subject to the provisions of Section 8.3(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 the Indemnitor's breach of its
obligations, representations and warranties under this Agreement.
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, provided, that the Indemnitor may not settle
--------
such claim or suit without the consent of the Indemnitee, which
consent shall not be unreasonably withheld. The Indemnitee shall have
the right to participate at its own expense in the claim or suit and
in selecting its own counsel therefor, provided that Indemnitee and
Indemnitee's counsel shall reasonably cooperate with Indemnitor in
defending such 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.
9. 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 a partner,
joint venturer, employee or agent 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
16
<PAGE>
undertaking with any third party except as specifically provided for
herein. The parties' use of the term "partner" or its equivalent is for
marketing purposes only, and shall have no effect on the legal relationship
between the parties hereto.
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 ninety (90) days from the initial occurrence each party
shall have the right to terminate this agreement upon thirty (30) days
prior written notice to the other party.
9.3. ASSIGNMENT. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and
their successors and assigns. RoweCom may not assign, transfer, or
sublicense its rights or obligations under this Agreement without prior
written consent of Office.com. Notwithstanding the foregoing or any other
provision of this agreement, (a) RoweCom shall have the right to assign
this agreement and any rights hereunder, without Office.com's consent, (i)
in connection with any merger, consolidation, any sale of all or
substantially all of RoweCom's assets or any other transaction in which
more than fifty percent (50%) of RoweCom's voting securities are
transferred, or (ii) to any subsidiary or affiliate of RoweCom (provided
that RoweCom shall provide written notice to Office.com identifying such
subsidiary or affiliate); and (b) Office.com shall have the right to assign
this agreement and any rights hereunder, without RoweCom's consent, (i) in
connection with any merger, consolidation, any sale of all or substantially
all of Office.com's assets or any other transaction in which more than
fifty percent (50%) of Office.com's voting securities are transferred, or
(ii) to any subsidiary or affiliate of Office.com (provided that Office.com
shall provide written notice to RoweCom identifying such subsidiary or
affiliate), or (iii) to the entity that either owns or manages the
Office.com Site or its successors.
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 confirmed facsimile transmission, or the next business day
after being dispatched by nationally-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
17
<PAGE>
Office.com: Copy to:
Office.com Inc. William C. Schneck, Esq.
300 Park Avenue South, 15th Fl. Office.com Inc.
New York, NY 10010 300 Park Avenue South, 15th Fl.
Attention: Jeffrey S. Cutler New York, NY 10010
Fax: 212-995-7781 Fax: 212-995-7781
9.5. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with substantive laws of the State of New York, without regard
for any choice or conflict of law rule or principle that would result in
the application of the substantive law of any other jurisdiction. Any
dispute relating to or arising out of this Agreement shall be resolved by
a federal or state court located in the County of New York in the City of
New York, and each party hereby submits to the exclusive jurisdiction of
such court and explicitly waives any venue and inconvenient forum
objections thereto. The prevailing party shall be entitled to recover its
costs and expenses (including reasonable attorneys' fees) from the other
party.
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 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.
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.
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<PAGE>
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
19
<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.
OFFICE.COM INC. ROWECOM INC.
By: ________________________________ By: ____________________________
Name:_______________________________ Name:___________________________
Title:______________________________ Title:__________________________
Partner Relations Manager:__________ Partner Relations Manager:______
20
<PAGE>
EXHIBIT A
---------
KNOWLEDGE PRODUCTS PROVIDED BY ROWECOM AND SUBJECT TO EXCLUSIVITY
Subscriptions to serially published material in hard-copy format, such materials
to include only print subscriptions, magazines and journals, but excluding
research reports.
21
<PAGE>
EXHIBIT B
---------
ROWECOM TRADEMARKS
[ROWECOME LOGO APPEARS HERE]
22
<PAGE>
EXHIBIT C
---------
OFFICE.COM TRADEMARKS
OFFICE.COM - trade name and logo
[OFFICE.COM LOGO APPEARS HERE.]
23
<PAGE>
EXHIBIT D
---------
ROWECOM DIRECT COMPETITORS:
. Amazon.com
. Blackwell Ltd.
. The Electronic Newsstand, Inc.
. Ebsco Industries, Inc.
. FatBrain.com, Inc.
. NewSub Services, Inc.
. W.T. Cox
. Swets and Zeitlinger, Inc.
. Wholly-owned subsidiaries of each of the above
OFFICE.COM DIRECT COMPETITORS:
. DowJones.com
. Bcentral.com
. Allbusiness.com
. VerticalNet
. DigitalWork.com
. Bigstep.com
. Powerize.com
. Works.com
. OnVia.com
. Wholly-owned subsidiaries of each of the above
24
<PAGE>
EXHIBIT E
---------
RoweCom shall be responsible for: (a) providing warranties for Knowledge
Products offered or ordered through the RoweCom kStore equivalent to those it
provides elsewhere and consistent with industry standards, and shall have sole
responsibility for such warranties; (b) providing customer service and support
for users of the RoweCom kStore equivalent to that RoweCom provides to its other
customers and consistent with industry standards; (c) providing customers with
clear customer service contact information on the RoweCom kStore; (d) responding
to customer and Office.com inquiries regarding the RoweCom kStore, Knowledge
Products, and customer purchases through the RoweCom kStore, with Office.com
inquiries to be directed to the RoweCom Support Contact(s) set forth below; (e)
informing Office.com in reasonable detail of the response to and resolution of
any customer or Office.com inquiry within a reasonable time after its receipt;
and (f) cooperating with Office.com in any further integration of RoweCom's
customer support services with those of Office.com.
Without limiting any other provision of this Agreement, RoweCom shall respect
and maintain the privacy of Office.com Customers and potential Office.com
Customers, and shall not disclose information to any third party regarding such
customers without the express consent of such customers. RoweCom shall not make
any use of customer information except as expressly provided herein, or "spam,"
send unsolicited email to, or direct market to such customers, without in each
case the prior written approval of Office.com. Notwithstanding the foregoing,
RoweCom may, without the prior written approval of Office.com, provide RoweCom's
email update service to those Office.com Customers who have expressly elected to
receive such email updates through the RoweCom kStore, provided that RoweCom
shall use best efforts to direct any Office.com Customer or potential Office.com
Customer in such email updates through the Office.com Site.
RoweCom Support Contact(s) -
--------------------------
Name: Tricia Reynolds
Phone: 617-497-5800
Email: [email protected]
25
<PAGE>
EXHIBIT F
---------
RoweCom Year 2000 Readiness Disclosure
RoweCom's overall systems and services are designed to be Year 2000 ready.
In 1998, RoweCom adopted a company-wide readiness program to:
. recognize and understand the Year 2000 requirements
. proactively identify all potentially affected elements of its
e-commerce solution
. plan the design and certification of in-house and third-party software
. assess the readiness of our strategic partners (e.g. banks,
publishers, etc.)
. test and qualify the readiness level of the final implementation
Since that time, approximately 20 RoweCom employees have been working on either
a full-time or part-time basis on Year 2000 readiness issues. This effort
encompasses all components of RoweCom's value chain, including catalog
management, e-commerce/EDI back-end software, distribution, fulfillment,
finance, and accounting.
ROWECOM HAS ASSESSED FOUR DIFFERENT AREAS SENSITIVE TO YEAR 2000:
IN-HOUSE INFORMATION TECHNOLOGY.
RoweCom has successfully tested and implemented a new application that handles
all client operations, including order processing and report generation.
Entirely developed and qualified by the Company's in-house engineering staff,
this application was designed from the start to be Year 2000 ready. All RoweCom
systems and servers have been checked for Year 2000 issues. Other services and
software have been written to be Year 2000 ready.
THIRD PARTY INFORMATION TECHNOLOGY.
In its relationship with third-party technology vendors, RoweCom has tried to
ensure that critical and non-critical software products used by all departments,
including finance and accounting, are Year 2000 ready. As a major step towards
readiness, RoweCom deployed a new release of the Navision accounting software in
the first quarter of 1998.
THIRD PARTY OPERATIONS AND STANDARDS.
An Electronic Data Interchange transaction system, also known in the industry as
"EDI," carries out RoweCom's transactions with publishers. This worldwide
industry standard is currently used by a wide range of very large companies.
RoweCom does not have any means to validate EDI Year 2000 readiness except
through simulation testing and participation in an EDI standard body. Because of
the large number of EDI solutions in the e-commerce world, the company believes
that the EDI system and the credit card processing system it currently uses are
Year 2000 ready. Testing based on credit card expiration dates with years of
2000 and later have not resulted in any Year 2000 errors.
As a RoweCom strategic partner, Banc One participates in RoweCom's integrated
Automated Clearing House (ACH) transaction system. As a member of the Federal
Reserve System, Banc One, is subject to the stringent Year 2000 readiness
requirements mandated by this system.
PUBLISHERS.
RoweCom has already processed numerous subscription orders that expire in the
next millennium and has experienced no difficulty with these processes so far.
The company is currently assessing the Year 2000 readiness of the publishers
from whom it purchases magazines, journals, newspapers and books. RoweCom's
catalog will include only Year 2000 ready entries. RoweCom cannot, however,
specifically qualify the date change impact on the multitude of production
systems used by the more than 15,000 publishers from whom it purchases
materials.
CONTINGENCY PLANS.
RoweCom believes that its services and systems will not experience any material
disruptions as the result of Year 2000 problems. In addition to the above
actions, RoweCom has developed formal contingency plans for all its business-
critical applications (excluding worldwide industry standards such as EDI and
ACH).
This is a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Information and Readiness Disclosure Act, and is subject to the terms of that
act. It is for information purposes only, and not as a form of representation,
26
<PAGE>
warranty, or guarantee of any kind. If you are a RoweCom customer, please refer
to your contract with RoweCom for a complete and exclusive statement of your
rights. (Please also recognize that many of our Y2K-related efforts are
dependent on third parties who are effectively beyond our control.)
If you have any questions on RoweCom's Year 2000 readiness program, send an e-
mail at [email protected] or contact your National Account Manager.
-----------------
27
<PAGE>
--------------------
Dated 18 August 1999
Agreement for Purchase of
Shares
Alfred Jacob Gans
Ashcliff Pty Ltd (ACN 057 727 198)
as trustee for the AJ Gans
Children's Trust
("Vendors")
RoweCom, Inc.
("Purchaser")
Liliane Gans
("Covenantor")
Mallesons Stephen Jaques
Solicitors
Level 30, Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
Tel (07) 3244 8000
Fax (07) 3244 8999
Ref: JSH / MJB
<PAGE>
1
- --------------------------------------------------------------------------------
Contents Agreement for Purchase of Shares
================================================================================
1 Interpretation 1
2 Sale and purchase of Shares 5
3 Purchase Price 5
4 Conditions precedent 6
Due diligence 6
Transfer of Business Premises 6
Termination 6
5 Completion 7
Where and when 7
Payment of Repayable Receivables 7
Vendor's obligations 7
Purchaser's obligations 8
Date of effect 8
6 Payment of the Purchase Price 8
Purchase Price due on Completion 8
Stakeholder to retain the Retention Amount 8
Release to the Vendor 9
Release to Purchaser - post Last Balance Date liabilities 9
Release to the Purchaser - service commitment 9
Release to the Purchaser - Warranties 10
Notice of Purchaser's claim 10
Dispute Resolution 10
Stakeholder may release Retention Amount 10
Stakeholder's obligations 11
Form of Payment 11
7 Conduct of business pending Completion 11
8 Risk and insurance 12
Vendor to insure until Completion 12
Damage to assets 12
9 Access to Records 13
10 Superannuation 14
11 Warranties, representations and indemnities 14
Warranties 14
Reliance 14
Representations 15
Indemnity 15
Right to terminate 15
Winding up of Vendor 15
Release of Covenantor 15
12 Adjustment for Tax liability 15
13 Default by Vendors 20
<PAGE>
2
- --------------------------------------------------------------------------------
14 Restraint 20
15 New Lease 22
Agreement to lease 22
Initial rent 22
16 Costs and stamp duty 23
17 Power of attorney 23
18 Notices 24
19 Assignment 25
20 Miscellaneous 25
Exercise of rights 25
Waiver and variation 25
Approvals and consent 25
Remedies cumulative 25
No merger 25
Survival of indemnities 25
Enforcement of indemnities 25
Further assurances 25
Publicity 26
Time of the essence 26
Entire agreement 26
Execution by facsimile 26
21 Governing law, jurisdiction and service of process 26
22 Redundancy payments for employees 26
Appendix Warranties and Representations 28
Schedule 1 Vendors and Shareholdings 40
Schedule 2 Mortgages and other Encumbrances over the Company 4l
Schedule 3 Bank Accounts and Signatories 42
Schedule 4 Contracts with the Vendors 44
Schedule 5 Not used 45
Schedule 6 Not used 46
Schedule 7 List of Plant and Equipment 47
Schedule 8 Particulars of Equipment Leases 51
Schedule 9 Particulars of Registered and Unregistered
Intellectual Property 52
Schedule 10 Banking Facilities 55
Schedule 11 Contracts of Insurance 56
<PAGE>
- --------------------------------------------------------------------------------
Agreement for Purchase of Shares
Date:
Parties: ASHCLIFF PTY LTD (ACN 057 727 198) as trustee for the AJ
GANS CHILDREN'S TRUST ("Ashcliff") and ALFRED JACOB GANS
(collectively "Vendors" and individually "Vendor")
ROWECOM INC. a company incorporated in the United States
of America having its registered office at 725 Concord
Avenue, Cambridge in the State of Massachusetts in the
United States of America ("Purchaser")
LILIANE GANS of 3 Mozart Place, Mt Ommaney in the State
of Queensland ("Covenantor")
Recitals:
A. International Subscription Agencies Pty Ltd (ACN 009 872
217) is a company incorporated in Queensland and has its
registered office at Level 4, Benson House, 2 Benson
Street, Toowong in the State of Queensland ("Company").
B. The Company has an issued capital of 1 x "A" class share
fully paid, 1 x "B" class share fully paid, 1 x "C"
class share fully paid, 1 x "D" class share fully paid,
4,000 ordinary shares fully paid and 210,000 x class
redeemable preference shares fully paid.
C. The Vendors are the registered holders and beneficial
owners of all the issued shares in the capital of the
Company ("Shares") as set out in Schedule 1 opposite the
name of each Vendor.
D. The Vendors have agreed to sell and the Purchaser has
agreed to purchase the Shares on the following terms.
E. The Covenantor is a director of the Company and Ashcliff
and acknowledges giving the warranties and undertakings
in this agreement in consideration for the Purchaser
entering into this agreement.
Operative provisions:
1 Interpretation
================================================================================
1.1 The following words have these meanings in this
agreement unless the contrary intention appears.
Accounting Standards means the Australian Accounting
Standards from time to time and if and to the extent
that any matter is not covered by Australian Accounting
Standards means generally accepted accounting principles
applied from time to time in Australia for a company
similar to the Company.
Business Day means a day on which trading banks are open
for general business in Brisbane.
<PAGE>
2
- --------------------------------------------------------------------------------
Business Premises means the Level 2 Premises and the
Level 4 Premises.
Company means International Subscription Agencies Pty
Ltd ACN 009 872 217.
Completion means settlement of the sale and purchase of
the Shares in accordance with clause 5 and Complete has
a corresponding meaning.
Completion Date means the day following the date of
execution of this agreement or any other date agreed by
the Vendors and the Purchaser.
Confidential Information means all trade secrets and all
financial, marketing and technical information, ideas,
concepts, know-how, technology, processes and knowledge
which is confidential or of a sensitive nature, but
excludes that which is in the public domain.
Contaminant means a solid, liquid, gas, odour, heat,
sound, vibration, radiation or substance which makes or
may make the Business Premises or the surrounding
Environment:
(a) unsafe or unfit for habitation or occupation by
persons or animals;
(b) degraded in its capacity to support plant life;
or
(c) otherwise environmentally degraded.
Dollars, AUD, A$ and $ means the lawful currency of
Australia
Environment means the physical factors of the
surroundings of persons including the land, waters,
atmosphere, climate, sound, odours, taste, the
biological factors of animals and plants and the social
factor of aesthetics.
Environmental Law means a law regulating or otherwise
relating to the Environment, including but not limited
to any law relating to land use planning, pollution of
air or water, soil or ground water contamination,
chemicals, waste, use of dangerous goods or to any other
aspect of protection of the environment or person or
property.
Equipment Leases means leases of, and agreements to
hire, equipment (including motor vehicles) to the
Company.
Intellectual Property Licences means all agreements
under which the Company obtains the right to use, but no
ownership of, any of the Intellectual Property Rights
referred to in paragraphs (a) to (d) of the definition
of that term.
Intellectual Property Rights means:
(a) the business names owned or used at any time by
the Company;
(b) all trade marks owned or used at any time by the
Company;
<PAGE>
3
- --------------------------------------------------------------------------------
(c) all Confidential Information owned or used at
any time by the Company;
(d) all patents, patent applications, discoveries,
inventions, registered and unregistered designs,
copyright and similar rights owned or used at
any time by the Company; and
(e) the Intellectual Property Licences.
Last Accounts means the unaudited balance sheet of the
Company as at the Last Balance Date and the unaudited
profit and loss account of the Company for the year
ending on the Last Balance Date copies of which are
attached as annexure A.
Last Balance Date means 30 June 1999.
Leased Plant and Equipment means the subject matter of
the Equipment Leases.
Level 2 Lease means any existing agreement or
arrangement for the occupancy of the Level 2 Premises.
Level 2 Premises means the Company's place of business
at Level 2, 41 Sherwood Road, Toowong in the State of
Queensland, more particularly described as Lot 6 in BUP
10844, County Stanley, Parish Enoggera
Level 4 Lease means the Company's lease of the Level 4
Premises.
Level 4 Premises means the Company's place of business
at Level 4, 41 Sherwood Road, Toowong in the State of
Queensland, more particularly described as Lot 12 in BUP
12846, County Stanley, Parish Enoggera.
New Lease means the lease of the Level 2 Premises to the
Company in the form set out at Schedule 12, completed in
accordance with clause 15.
Plant and Equipment means all plant, equipment, motor
vehicles, machinery, furniture, fixtures and fittings
owned and used by the Company on hand on the Completion
Date.
Purchase Price means the aggregate consideration payable
for the Shares calculated in accordance with clause 3.
Purchase Price due on Completion means that part of the
Purchase Price to be paid on Completion, and consists of
AUD$1,832,652.00
Repayable Receivables means those receivables (with an
aggregate value of $634,765 as at 30 June 1999) being
the items described in Note 2 to the Last Accounts, and
more particularly, comprising the following items:
(b) AJ Gans Children's Trust pre 4/12/97;
(c) AJ Gans pre 4/12/97; and
<PAGE>
4
- --------------------------------------------------------------------------------
(d) AJ Gans post 4/12/97.
Retention Amount means an amount equal to the total
consideration specified in clause 3 reduced by the
Purchase Price due on Completion (excluding the effect,
if any, of clause 6.2).
Records means originals and copies, in machine readable
or printed form, of all books, files, reports, records,
correspondence, documents and other material of or
relating to or used in connection with the Company
including:
(a) minute books, statutory books and registers,
books of account and copies of taxation returns;
(b) sales literature, market research reports,
brochures and other promotional material
(including printing blocks, negatives, sound
tracks and associated material);
(c) all sales and purchasing records;
(d) all trading and financial records; and
(e) lists of all regular suppliers and customers.
Related Body Corporate of a body corporate means another
body corporate which is related to the first within the
meaning of section 50 of the Corporations Law.
Shares means the issued shares in the capital of the
Company agreed to be sold under this agreement and Share
means any one of those shares.
Stakeholder means Mallesons Stephen Jaques.
Warranties means the warranties, representations and
indemnities in this agreement, including clause 11.
Westlake Property means the residential property located
at Lefroy Close, Westlake more particularly described as
Lot 6285 on RP 143752 in the Parish of Oxley, County of
Stanley.
1.2 In this agreement unless the contrary intention appears:
(a) a reference to a clause, schedule, annexure or
appendix is a reference to a clause of or
schedule, annexure or appendix to this agreement
and references to this agreement include any
recital, schedule, annexure or appendix;
(b) a reference to this agreement or another
instrument includes any variation or replacement
of either of them:
(c) a reference to a statute, ordinance, code or
other law includes regulations and other
instruments under it and consolidations,
amendments, re-enactments or replacements of any
of them;
(d) the singular includes the plural and vice versa;
<PAGE>
5
- --------------------------------------------------------------------------------
(e) the word person includes a firm, a body
corporate, an unincorporated association or an
authority;
(f) a reference to a person includes a reference to
the person's executors, administrators,
successors, substitutes (including, but not
limited to, persons taking by novation) and
assigns;
(g) an agreement, representation or warranty in
favour of two or more persons is for the benefit
of them jointly and severally;
(h) an agreement, representation or warranty on the
part of two or more persons binds them jointly
and severally;
(i) if a period of time is specified and dates from
a given day or the day of an act or event, it is
to be calculated exclusive of that day; and
(j) a reference to a day is to be interpreted as the
period of time commencing at midnight and ending
24 hours later.
1.3 Headings are inserted for convenience and do not affect
the interpretation of this agreement.
2 Sale and purchase of Shares
================================================================================
2.1 Each Vendor agrees to sell and transfer to the Purchaser
and the Purchaser agrees to purchase from that Vendor,
on the terms and conditions of this agreement, the
number of the Shares held by that Vendor set out in
column 2 of Schedule 1.
2.2 The Shares must be transferred free from any mortgage,
charge, lien, pledge or other encumbrance and with all
rights, including dividend rights, attached or accruing
to them on and from the date of this agreement.
2.3 The Purchaser is not obliged to Complete unless each
Vendor is ready, willing and able to Complete
simultaneously.
2.4 Each Vendor waives in favour of the Purchaser any
pre-emptive or other rights which that Vendor has now or
might otherwise have in respect of any of the Shares
held by each other Vendor.
3 Purchase Price
================================================================================
3.1 The total consideration payable for all of the Shares in
the Company is AUD$2,293,836.00, comprising:
(a) the Purchase Price due on Completion; and
(b) the Retention Amount.
3.2 The consideration payable is to be apportioned as
follows:
(a) $1.00 for each:
<PAGE>
6
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(i) "Z" class redeemable preference share;
and
(ii) "A", "B", "C" and "D" class share; and
(b) the balance equally between all other shares.
4 Conditions precedent
================================================================================
Due diligence
4.1 Intentionally deleted.
Transfer of Business Premises
4.2 Completion of this agreement is also conditional upon:
(a) the lessor of the Level 4 Premises consenting to
the change of control of the Company; and
(b) deed of appointment of new trustee for the ISA
Superannuation Fund; and
(c) any mortgagee of the Level 2 Premises located at
41 Sherwood Road, Toowong consenting to the New
Lease.
The Vendor must use its best endeavours to procure
fulfilment of these conditions as soon as possible and
the Purchaser agrees to do all things which may
reasonably be required by the Vendor to obtain those
consents and the releases of the personal guarantees
given by the Covenantor and Alfred Jacob Gans of the
obligations of the Company under the Level 4 Lease.
4.3 The Purchaser may terminate this agreement by written
notice to the Vendor if any of the conditions in clause
4.2 are not fulfilled by the Completion Date.
Termination
4.4 If this agreement is terminated under clause 4.3, then,
in addition to any other rights, powers or remedies
provided by law:
(a) each party is released from its obligations to
further perform the agreement except those
imposing on it obligations of confidentiality;
(b) each party retains the rights it has against any
other party in respect of any past breach; and
(c) the Purchaser must return to the Vendors any
Records given to it under clause 9.
4.5 Clauses 4.1. 4.2 and 4.3 are inserted for the benefit of
the Purchaser only.
<PAGE>
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5 Completion
================================================================================
Where and when
5.1 Completion of the sale and purchase of the Shares will
take place at 2.00 pm on the Completion Date at the
offices of Mallesons Stephen Jaques, Solicitors, Level
30, Waterfront Place, 1 Eagle Street, Brisbane, or such
other time and place as the Vendors and the Purchaser
may agree.
Payment of Repayable Receivables
5.2 The Vendors will procure that the Repayable Receivables
of the Company are repaid to the Company on or prior to
Completion.
Vendor's obligations
5.3 The Vendors agree to do the following on Completion:
(a) establish to the reasonable satisfaction of the
Purchaser that the conditions precedent set out
in clause 4.2 have been satisfied and (if
appropriate) deliver to the Purchaser
documentation proving that; and
(b) deliver to the Purchaser or its solicitors:
(i) a copy of an executed transfer of the
Westlake Property from the Company to
Alfred Jacob Gans; and
(ii) a copy of an executed and release of
mortgage for the Westlake Property,
together with an undertaking from the
Vendors to procure stamping and lodgment
for registration of the transfer within
7 days after Completion (and in respect
of which the Vendors indemnify the
Purchaser for any loss or damage it
suffers as a consequence of any failure
by it to comply with this obligation or
to procure registration of the
transfer); and
(iii) a stamped and executed surrender of the
Level 2 Lease from the Completion Date
and consent to the Purchaser's caveat
over the Level 2 Premises pending
registration of the New Lease, both
capable of immediate registration; and
(iv) executed transfers in favour of the
Purchaser of all the Shares together
with the share certificates for the
Shares and consents that the Purchaser
reasonably requires; and
(v) subject to clause 15, the executed New
Lease (2 copies) in immediately
registrable form (subject only to
stamping) together with any other
document reasonably required by the
Purchaser to procure the stamping and/or
registration of the New Lease; and
(c) cause:
(i) the board of directors of the Company to
direct that subject to the payment of
stamp duty, the transfers of the Shares
are registered;
<PAGE>
8
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(ii) the delivery to the Purchaser or its
nominee of the Records, the common seal
and any other company seals of the
Company;
(iii) the delivery to the Purchaser or its
nominee of duly completed bank
authorities authorised by the board of
directors of the Company directed to
that company's bankers authorising the
operation of each of its bank accounts
by nominees of the Purchaser; and
(iv) subject to the articles of association
of the Company, the appointment to the
board of directors of the Company of the
Purchaser's nominees and the resignation
from those boards, on terms approved by
the Purchaser, of all existing directors
but so that a properly constituted board
of directors is in existence at all
times.
Purchaser's obligations
5.4 If the Vendors comply with clause 5.3, the Purchaser
agrees to:
(a) make payment in accordance with clause 6.1 on
Completion; and
(b) make payment to the Vendors in accordance with
clause 6.6 and clause 6.6A on the first
anniversary and second anniversary of the
Completion Date respectively.
Date of effect
5.5 Subject to Completion taking place and the satisfaction
of any conditions subsequent to Completion, the
Purchaser will be deemed to have acquired the Shares on
1 August 1999.
5.6 Despite clause 5.5, the Purchaser will not be deemed:
(a) to be entitled to any profits; and
(b) to have assumed any liabilities or obligation.
in relation to the Westlake Property.
6 Payment of the Purchase Price
================================================================================
Purchase Price due on Completion
6.1 Subject to clause 6.2, the Purchaser agrees to pay the
Purchase Price due on Completion to the Vendors, to be
apportioned between the Vendors as they direct by way of
payment of AUD$l,832,652.00.
6.2 If the Repayable Receivables of the Company are not
repaid to the Company prior to Completion in accordance
with clause 5.2, the Purchase Price due on Completion
will be reduced by an amount equal to the amount of the
Repayable Receivables that has not been repaid.
<PAGE>
9
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Stakeholder to retain the Retention Amount
6.3 At Completion, the Purchaser must pay the Retention
Amount to the Stakeholder. The Stakeholder must invest
the Retention Amount in an interest beating deposit
account with the National Australia Bank (unless
otherwise directed in writing by all parties), on behalf
of all parties and at the risk of whichever party or
parties are entitled to all or any part of it. Each
party must notify the Stakeholder of its tax file number
by the Completion Date.
6.4 The fees and charges directly associated with the
maintenance of the investment account for the Retention
Amount will:
(a) in the first instance, be deducted from the
interest accruing on the account; and
(b) thereafter, be deducted from the Balance of
Purchase Price.
6.5 The Stakeholder may only, and is authorised and directed
by the parties to, release the Retention Amount to the
party or parties entitled to it in accordance with this
clause 6.
Release to the Vendor
6.6 On the first anniversary of the Completion Date, the
Stakeholder must release one third of the balance of the
Retention Amount less any amount the subject of an
unpaid claim of the type referred to in clauses 6.9 or
6.10 to the Vendors. If there is an unpaid claim under
those clauses which is disputed by the Vendors under
clause 6.11, and that claim is subsequently determined
in whole or in part in favour of the Vendors, the
Stakeholder must, as soon as possible after that
determination, release a further amount from the
Retention Amount to the Vendors equal to one third of
the amount of the claim determined in their favour.
6.6A On the second anniversary of the Completion Date, the
Stakeholder must promptly release to the Vendors any
part of the Retention Amount and interest accrued on
that amount, which the Purchaser is not entitled to
receive under this clause 6 and which is not required
for the purposes of clause 6.4.
Release to Purchaser - post Last Balance Date liabilities
6.7 Internationally deleted.
6.8 Intentionally deleted.
Release to the Purchaser - service commitment
6.9 Subject to clauses 6.11 and 6.12, if Alfred Jacob Gans
does not continually serve as General Manager of the
Company in accordance with this agreement and any other
agreement between them for any full year during the two
years from the Completion Date (excluding any period of
service not rendered due to the unlawful termination of
Alfred Jacob Gans by the Company or the termination of
his employment by the company pursuant to clause 9-3 of
the agreement for service between the parties or death
or disability), then the Purchaser is entitled to
receive AUD$210,000.00 from the Retention Amount (or, if
the Retention Amount is less than that, then the balance
of the Retention Amount).
<PAGE>
10
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Release to the Purchaser - Warranties
6.10 Subject to clauses 6.11 and 6.12 but without limiting
clause 12.5, the Purchaser is entitled to receive from
the Retention Amount, compensation for any liability or
loss arising directly or indirectly from, and any costs,
charges and expenses incurred in connection with, any
material inaccuracy in or breach of any of the
Warranties.
Notice of Purchaser's claim
6.11 The Stakeholder must not release any part of the
Retention Amount under clauses 6.9 or 6.10 unless:
(a) the Vendors have been provided with written
notice of the Purchaser's claim to an
entitlement under those clauses (which notice
may be provided by the Purchaser or the
Stakeholder and must provide reasonable details
of the basis for the claim and the amount
claimed); and
(b) a period of at least 28 days has elapsed since
that notice was given and the Vendors have not:
(i) notified the Purchaser or the
Stakeholder in writing that they dispute
the entitlement or the amount claimed;
or
(ii) in the case of a claim under clause
6.10, otherwise remedied (where
possible) the inaccuracy or breach.
6.12 The Purchaser is not entitled to any part of the
Retention Amount pursuant to clauses 6.9 or 6.10, unless
it has given, or caused to be given, to the Vendors
notice in accordance with clause 6.11(a) within 3 months
after it has become aware of all facts reasonably
necessary to enable it to form an opinion that it is
entitled to make a claim under the relevant clause.
6.13 If the Vendors notify the Purchasers that they dispute
the Purchaser's entitlement to a payment, or the amount
of the payment claimed pursuant to clause 6.11 (b)(i),
the parties must negotiate in good faith to reach an
agreement in relation to the claim.
Dispute Resolution
6.14 If the parties fail to reach agreement under clause 6.13
within 90 days after the notice was given by the
Purchaser to the Vendors, then the dispute may be
referred by any party for determination by an
independent person nominated by the President of the
Queensland Law Society in accordance with the procedures
specified in clauses 8.4. 8.5 an.. 8.7. Despite any such
referral, either party may at any time commence legal
proceedings in relation to the dispute.
Stakeholder may release Retention Amount
6.15 The Stakeholder may release any part of the Retention
Amount in accordance with the terms of:
(a) this Agreement:
(b) any court order; or
<PAGE>
11
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(c) an independent determination made under clause
6.14, unless the Stakeholder is aware that legal
proceedings have been commenced by either party
in relation to the dispute.
Stakeholder's obligations
6.16 The Stakeholder is under no obligation to investigate
the merits of any claim to an entitlement under this
clause 6 except, for the purposes of clause 6.9 and
6.10, the Stakeholder must sight a copy of the notice
provided by the Purchaser under clause 6.11(a). In the
absence of negligence or knowing breach of this clause
6, the Stakeholder is released by the parties from all
liability in relation to the release of the whole or any
part of the Retention Amount
6.17 Despite anything else in this agreement
(a) the Stakeholder
(i) is not obliged to pay more to any party
than remains in the Account at the time
it is notified of a party's claim; and
(ii) need not pay any party an amount which
is the subject of a prior claim; and
(iii) may prepare and lodge any taxation
return necessary in respect of the
Retention Amount and interest and to pay
any tax assessed in relation to the
interest (in respect of which the
Vendors will be deemed to presently
entitled); and
(b) the Purchaser cannot be required to pay any
further amount to the Vendors to meet any
payment under this clause 6.
6.18 In the absence of negligence or knowing default on the
part of the Stakeholder, the parties indemnify the
Stakeholder for any cost, expense, liability or loss
which it incurs as a consequence of being the
stakeholder under this agreement
Form of Payment
6.19 Subject to clause 6.20, each cash payment referred to in
clause 6 must be made by bank cheque, trust account
cheque or by electronic transfer of clear funds into an
Australian bank account of the Vendor as nominated by
the Vendor to the Purchaser in writing.
6.20 The payment under clause 6.1 must be made on the
Completion Date in by electronic transfer of clear funds
into all Australian bank of the Vendor as nominated by
the Vendor to the Purchaser in writing.
7 Conduct of business pending Completion
================================================================================
7.1 Until Completion the Vendors must, unless the Purchaser
otherwise agrees, procure that the Company:
<PAGE>
12
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(a) carries on its business in a normal, proper and
efficient manner and regularly consults with the
Purchaser on the manner of conduct of its
business;
(b) uses all reasonable endeavours to preserve the
goodwill of its business;
(c) maintains its assets at normal levels; and
(d) carries out repairs and maintenance to the Plant
and Equipment, the Leased Plant and Equipment
and the Business Premises in accordance with
good commercial practice and standards of
maintenance and as required under the Equipment
Leases and the Property Leases.
7.2 Until Completion the Vendors must, unless the Purchaser
otherwise agrees, procure that the Company does not
(a) increase, reduce or otherwise alter its share
capital or grant any options for the issue of
shares or other securities;
(b) declare or pay a dividend;
(c) make a distribution or revaluation of assets;
(d) buy back its shares;
(e) enter into any abnormal or unusual transaction
which relates to or adversely affects its
business;
(f) enter into any contract involving total
expenditure in excess of $100,000;
(g) purchase any asset for more than $100,000 or
total assets costing more than $200,000; or
(h) allow the total amount owing to trade creditors
to exceed the monthly average for the previous 6
months.
8 Risk and insurance
================================================================================
Vendor to insure until Completion
8.1 The Vendors must procure that the Company takes out and
maintains until Completion insurance of the company's
assets covering such risks and for such amounts as would
be maintained in accordance with prudent business
practice.
Damage to assets
8.2 If any of the assets of the Company are damaged,
destroyed or otherwise affected before Completion to a
degree that materially and adversely affects the conduct
or profitability of the business of the Company, the
Purchaser may terminate this agreement by notice to the
Vendors.
<PAGE>
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8.3 If:
(a) the Purchaser does not elect to terminate this
agreement under clause 8.2; and
(b) the Company is not adequately insured under the
contracts of insurance referred to in clause
8.1,
then an appropriate adjustment will be made to the
Purchase Price as agreed between the Vendors and the
Purchaser.
8.4 If the Vendors and the Purchaser are unable to agree on
the adjustment within 21 days of the Completion Date,
then either the Vendors or the Purchaser may refer the
disagreement to an independent valuer with the request
that the independent valuer make a decision in respect
of the disagreement as soon as practicable after
receiving the reference and any submissions from the
Vendors and the Purchaser. If the Vendors or Purchaser
cannot agree on the independent valuer within seven days
of one requesting appointment, then the independent
valuer is to be the person nominated by the President of
the Australian Institute of Chartered Accountants
(Queensland Branch) at the request of the Vendors or the
Purchaser.
8.5 The independent valuer will be appointed as an expert
and not as an arbitrator. The procedures for
determination are to be decided by the independent
valuer in its absolute discretion.
8.6 The decision of the independent valuer is to be
conclusive and binding on the parries in the absence of
manifest error.
8.7 The Vendors (collectively) and the Purchaser agree to
each pay one half of the independent valuer's costs and
expenses in connection with the reference.
8.8 If this agreement is terminated under clause 8.2 then
clause 4.3 applies with the necessary changes.
9 Access to Records
================================================================================
9.1 The Vendors agree to ensure that the Purchaser and its
representatives are allowed full and free access to the
premises and Records of the Company at all reasonable
times before the Completion Date to enable the Purchaser
to become familiar with the affairs of the Company,
investigate the accuracy of the Warranties.
9.2 The Vendors must also provide the information,
assistance and facilities that the Purchaser reasonably
requires for the purposes set out in clause 9.1.
9.3 If for any reason the Purchaser does not proceed with
the purchase of the Shares it may not disclose or use
any information made available by the Vendors relating
to the business and affairs which is not in the public
domain or information already known to the Purchaser at
the time of the relevant disclosure.
<PAGE>
14
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10 Superannuation
================================================================================
10.1 In this clause 10 and Warranties 98 to 112 in Appendix A
the following words have these meanings:
Fund means the Sunsuper Fund (Trustee: Sunsuper).
Trust Deed means the trust deed that established the
Fund, as amended.
10.2 Intentionally deleted.
10.3 The Vendors agree to ensure that both before and after
the Completion Date the Purchaser and any actuary
appointed by it are provided with all records and
information which they may require (including detailed
information about each of the members and their
participation in the Fund), which is in the Vendor's
possession or control, in order to verify the
correctness of any calculations or values to be
ascertained for the purposes of this agreement
(including the Warranties), and to enable the Purchaser
to take over responsibility for and administer
superannuation arrangements for members. This obligation
extends to any records, information or systems which are
recorded, maintained or otherwise dependent on any
computerised or similar system or service.
11 Warranties, representations and indemnities
================================================================================
Warranties
11.1 Each of the Vendors and the Covenantor represents and
warrants to the Purchaser that each of the statements
set out in the appendix to this agreement is accurate.
Each of the statements is to be treated as a separate
representation and warranty and the interpretation of
any statement made may not be restricted by reference to
or inference from any other statement.
11.2 The Warranties are not extinguished or affected by any
investigation made by or on behalf of the Purchaser into
the affairs of the Company or by any other event or
matter unless:
(a) the Purchaser has given a specific written
waiver or release;
(b) the claim relates to a matter which is fairly
disclosed in a formal disclosure letter given by
or on behalf of the Vendors to the Purchaser
before the date of this agreement; or
(c) the claim relates to a thing done or not done
after the date of this agreement at the request
or with the approval of the Purchaser.
Reliance
11.3 Each of the Vendors and Covenantors acknowledges that it
has made and given the Warranties with the intention of
inducing the Purchaser to enter into this agreement and
that the Purchaser has entered into this agreement in
full reliance on the Warranties.
<PAGE>
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Representations
11.4 Each of the Vendors and Covenantor represents, warrants
and undertakes to the Purchaser that each of the
Warranties is true and correct on the date of this
agreement and will be at the Completion Date as if made
on and as at each of those dates.
Indemnity
11.5 Each of the Vendors and Covenantor indemnifies the
Purchaser against all liability or loss arising directly
or indirectly from, and any costs, charges and expenses
incurred in connection with, any inaccuracy in or breach
of any of the Warranties.
11.6 If a payment is made for a breach of any Warranty, the
payment is to be treated as an equal reduction in the
Purchase Price of each Share.
Right to terminate
11.7 If any material breach or inaccuracy of any of the
Warranties becomes apparent to the Purchaser on or
before Completion the Purchaser may, by notice to the
Vendors, terminate this agreement without prejudice to
any other remedy available to it. If this agreement is
so terminated then clause 4.3 applies with the necessary
changes.
Winding up of Vendor
11.8 Each of the Vendors and the Covenantor agrees to ensure
that for six years after Completion no Vendor is wound
up (whether or not voluntarily) without the prior
consent of the Purchaser. That consent may not be
unreasonably withheld if each of the shareholders of the
Vendor consent to covenants with the Purchaser before
the commencement of the winding up, in a form reasonably
required by the Purchaser, to discharge all outstanding
obligations of that Vendor under this agreement or,
where the Vendor is a trustee, each beneficiary to whom
a distribution is or is to be made on winding up
provides an indemnity to the Purchaser in respect of the
outstanding obligations of that Vendor under this
agreement in a form reasonably required by the
Purchaser.
Release of Covenantor
11.9 Despite any other provision of this agreement, the
Covenantor will be released from its obligations and
liabilities under this agreement upon the death or
permanent mental incapacity of Alfred Jacob Gans. This
release does not affect or limit the Purchaser's rights
against:
(a) the estate of Alfred Jacob Gans; or
(b) any representative of Alfred Jacob Gans; or
(c) any person as the recipient of a benefit under
the will of Alfred Jacob Gans.
12 Adjustment for Tax liability
================================================================================
12.1 In this clause 12 the following words have these
meanings:
Authority means any governmental authority or
instrumentality responsible for Tax, wherever situated.
<PAGE>
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Claim Amount means:
(a) the amount the Company is required to pay in Tax
to an Authority as a result of a Tax Claim; or
(b) the amount of any credit, rebate or refund of
Tax lost by the Company as a result of a Tax
Claim; or
(c) the amount of Tax that would, if the Company had
taxable income in the year of income to which
the Tax Claim relates, be payable by that
company as a result of the loss of any relief
allowance, deduction or loss carried forward,
calculated at the rate of Tax applicable to
companies in the year in which the Tax Claim is
made.
Deferred Provision means the sum of the provision for
deferred Tax liability in the Last Accounts and any
future Tax benefit which has been offset in the
calculation of that provision.
Tax means taxes, levies, imposts, deductions, charges,
withholdings and duties (excluding stamp duties),
together with any related interest, penalties, fines and
other statutory charges whether accruing before or after
Completion (including any CGT or stamp duty payable on
the transfer of the Westlake Property).
Tax Claim means an assessment notice (including a notice
of adjustment of a loss claimed by a company in a manner
adversely affecting the company), demand or other
document issued or action taken by or on behalf of an
Authority, whether before or after the date of this
agreement, as a result of which the Company is liable to
make a payment for Tax or is deprived of any credit,
rebate, refund, relief, allowance, deduction, or loss
carried forward.
Tax Provision means, at any time, the sum of:
(a) the provision for current Tax in the Last
Accounts;
(b) the Deferred Provision; and
(c) all amounts already paid or agreed to be paid by
the Vendors and Covenantor under this clause 12
at that time, less all Tax paid or payable in
respect of those payments.
12.2 Each of the Vendors and Covenantor agree that if at any
time the Company receives or suffers a Tax Claim that
relates to an act or omission of, or occurrence
affecting, that company before the close of business on
the Completion Date, then the Vendors and Covenantor
(collectively) must pay to the Purchaser the amount by
which the sum of:
(a) the Claim Amount for that Tax Claim; and
(b) all other Claim Amounts for Tax Claims that
relate to an act or omission of, or occurrence
affecting the Company before the close of
business on the Completion Date, other than Tax
Claims referred to in clause 12.6.
<PAGE>
17
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exceeds the Tax Provision.
12.3 Each of the Vendors and Covenantor agrees that if at any
time it becomes apparent that the Deferred Provision is
understated, calculating the proper Deferred Provision:
(a) in accordance with the requirements of the
Corporations Law and other applicable laws at
the time of preparation of the Last Accounts;
(b) in accordance with the Accounting Standards at
the time of preparation of the Last Accounts;
and
(c) on a consistent basis with the Last Accounts,
then the Vendors and Covenantor (collectively) must pay
to the Purchaser the amount of the understatement.
For the purpose of this clause an overstatement of the
future Tax benefit in the Last Accounts is taken to be
an understatement of the Deferred Provision.
For the purpose of this clause the Deferred Provision in
the Last Accounts, but not the proper Deferred
Provision, is to be reduced by the Claim Amount of a Tax
Claim which would, but for the inclusion of the Deferred
Provision in the Tax Provision, have resulted in a
payment under clause 12.2.
12.4 Any payment under clause 12.2 or 12.3 is to be treated
as a pro rata reduction in the purchase price for each
Share.
12.5 The obligations of the Vendors and Covenantor under
clauses 12.2 or 12.3 do not apply in respect of a Tax
Claim:
(a) if the possibility of the Tax Claim for the
Claim Amount arising has been disclosed in
writing to the Purchaser before execution of
this agreement, in sufficient detail to enable
the Purchaser to calculate the Claim Amount of
the Tax Claim;
(b) to the extent that the Tax Claim arises from the
failure by the Purchaser to supply to the
Vendors on a timely basis information which is
reasonably requested by the Vendors in relation
to a Tax Claim;
(c) to the extent that the Tax Claim represents the
disallowance of any deduction for canned forward
losses, and the disallowance results from:
(i) the Company not carrying on the same
business after Completion as it carried
on immediately before Completion: or
(ii) the Company, after Completion, deriving
income from a business of a kind that it
did not carry on or from a transaction
of a kind that it had not entered into
in the course of its business operations
before Completion;
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(d) to the extent that the Tax Claim arises from the
failure by the Company after Completion, in a
timely manner, to:
(i) lodge any return, notice, objection or
other document in relation to the Tax
Claim;
(ii) claim all or any portion of any relief,
allowance, deduction, credit, rebate or
right to repayment;
(iii) disclose or correctly describe in any
return, notice, objection or other
document relating to the Tax Claim any
fact, matter or thing to the extent that
it was or might reasonably be expected
to have been within the knowledge of
either the Purchaser or the company; or
(iv) take any other action which the company
is required to take under this clause or
any laws relating to Tax.
(e) to the extent that the Tax Claim relates to any
income, profit or gain earned, accrued or
received by reason of an act or omission of, or
occurrence affecting, the Company in the
ordinary course of its business and which for
Tax purposes is taken to be derived between the
Last Accounts Date and the date of Completion.
12.6 Payments under clause 12.2 or 12.3 must be made to the
Purchaser as follows:
(a) if the Company must make a payment of Tax in
respect of a Tax Claim to which clause 12.2
applies - seven days before the latest date on
which that payment may lawfully be made without
incurring any penalty or additional tax for late
payment;
(b) if the Company is deprived of any credit,
rebate, refund, relief, allowance, deduction,
loss carried forward - seven days before the
latest date on which Tax becomes payable by the
company without incurring any penalty or
additional tax for late payment, being Tax which
would not have been payable were it not for the
Tax Claim; and
(c) if an amount is payable under clause 12.3 -
seven days after the Purchaser advises the
Vendors of the understatement.
12.7 The Vendors and Covenantor (collectively) must pay
interest to the Purchaser on any moneys due under this
clause 12 but unpaid, from the date payment is due until
paid in full, at a rate equal to 2 per cent. per annum
above the rate quoted for that daily balance by the
Commonwealth Bank of Australia on unsecured overdraft
accommodation in excess of $100,000.
12.8 If for any reason an amount received by the Purchaser
under clause 12.2 or 12.3 is treated as assessable
income of the Purchaser under any law relating to Tax
the Vendors and Covenantor (collectively) agree to pay
to the Purchaser an increased amount so that, after
deducting from
<PAGE>
19
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that amount all Tax paid or payable in respect of the
receipt, the balance remaining is equal to the amount
due under the relevant clause.
12.9 If the Purchaser or the Company becomes aware of a Tax
Claim the Purchaser must give written notice of it to
the Vendors within a reasonable time of becoming so
aware.
The Purchaser must ensure the Vendors and their
professional advisers have reasonable access to the
personnel of the Purchaser and the Company and to any
relevant premises, assets and Records within the
custody, power, possession or control of those companies
to enable the Vendors and their professional advisers to
examine the Tax Claim and Records and to take copies or
photographs of them, at the expense of the Vendors,
provided the Vendors and their professional advisers
give to the Purchaser or the Company such undertakings
as to confidentiality as the Purchaser may reasonably
require.
The Purchaser must ensure that the Company takes any
proper and reasonable action that the Vendors
(collectively) request to avoid, resist, compromise or
defend a demand or notice issued by an Authority which
gives rise to the Tax Claim, provided the Vendors
indemnify the Purchaser and the Company to the
reasonable satisfaction of the Purchaser against any
liability or loss which may be suffered or costs,
damages or expenses which may be incurred as a result of
compliance with their request.
The Vendors may only request an action under this clause
12.9 if they provide the Purchaser with an opinion from
a partner specialising in Tax of a major law firm or
accounting firm in the city where the action is taken by
the Authority which gives rise to the Tax Claim that
there is a real prospect that the requested action will
result in the demand or notice issued by the Authority
being avoided, resisted, compromised or defended.
The action that the Vendors may request be taken by the
Purchaser or the Company in respect of a Tax Claim
includes the making of appeals and objections, provided
that all other avenues of review have been exhausted.
Any action required under this clause 12.9 must be taken
in a timely manner.
12.10 If, following the making of a payment under clause 12.2
for a Tax Claim, all or part of the Claim Amount is
refunded either in cash or by credit to the Company
(including, but not limited to, any amount or credit
received following a successful objection or appeal),
the Purchaser must immediately pay to the Vendors the
lesser of the refund and the amount of the payment paid
under clause 12.2. Any payment under clause 12.10 is to
be treated as a pro rata increase in the purchase price
for each Share.
12.11 If the Vendors and the Purchaser cannot agree on any
amount to be paid under this clause 12 within 21 days of
a dispute arising, then either the Vendors or the
Purchaser may refer the disagreement to an expert with
the request that the expert make a decision on the
disagreement as soon
<PAGE>
20
as practicable after receiving any submissions from the
Vendors and the Purchaser. The expert is to be a person
with over ten years experience in Tax agreed by the
Vendors and the Purchaser, or if they do not agree on
the person to be appointed within seven days of one
party requesting appointment, a person with the same
expertise appointed by the President of the Australian
Institute of Chartered Accountants at the request of
either the Vendors or the Purchaser. The decision of the
expert is to be conclusive and binding on the parties in
the absence of manifest error. The Vendors and the
Purchaser agree to each pay one half of the expert's
costs and expenses in connection with the reference. The
expert is appointed as an expert and not as an
arbitrator. The procedures for determination are to be
decided by the expert in its absolute discretion.
12.12 The operation of this clause 12 is subject to clause
5.5, except in relation to the Westlake Property.
13 Default by Vendors
================================================================================
If the Vendors or any of them do not Complete, other
than as a result of default by the Purchaser, the
Purchaser may give the Vendors notice requiring them to
Complete within 7 days of receipt of the notice. If the
Vendors do not Complete within that period, the
Purchaser may elect to proceed for specific performance
or terminate this agreement. In either case the
Purchaser may seek damages for the default If this
agreement is so terminated then clause 4.3 will apply
with the necessary changes. This termination does not
affect any other rights the Purchaser has against the
Vendors at law or in equity.
14 Restraint
================================================================================
14.1 Each of the Vendors and the Covenantor undertakes to the
Purchaser that after the Completion Date, it will not:
(a) be concerned or interested in any other business
or undertaking of a similar nature to that
carried out by the Company (including as a
consultant); or
(b) be a director or shareholder of any corporation
or organisation which is competitive with the
Company; or
(c) acquire more than 2% in any publicly listed
company which [ILLEGIBLE] on a business which is
the same or of a similar nature to the Company's
business.
14.2 Each of the Vendors and the Covenantor must not accept
any payment or other benefit as an inducement or reward
for any act or forbearance or in connection with the
business of the Company after the Completion Date.
14.3 Nothing in clause 14.1 will prevent each of the Vendors
and the Covenantor from holding or being otherwise
interested in any shares or other securities (directly
or through nominees) in companies where those securities
are, for the time being, quoted on any recognised stock
exchange whether in Australia or overseas.
<PAGE>
21
- --------------------------------------------------------------------------------
14.4 Each of the Vendors and the Covenantor undertakes to the
Company that it will not:
(a) for the period specified in clause 14.4(a)(ii)
and in the area specified in clause
14.4(a)(iii), either directly or indirectly in
any capacity (including as principal, agent,
partner, employee, shareholder, unitholder,
director, trustee, beneficiary, manager,
consultant, adviser or financier) engage or be
involved in:
(i) (A) the business of being a serials
subscription agents to libraries,
government departments, businesses and
other readers of journals, magazines and
newspapers from Australia and overseas;
and/or
(B) any business or activity which is
the same as or substantially similar to
the Company's business or any material
part of it;
(ii) (A) for a period of 4 years from the
Completion Date;
(B) for a period of 3 years from the
Completion Date;
(C) for a period of 2 years from the
Completion Date;
(D) for a period of 1 year from the
Completion Date;
(E) for a period of 6 months from the
Completion Date;
(iii) (A) in the whole of world;
(B) in any country in which the
Purchaser carries on business;
(C) in Australia and New Zealand;
(D) in Australia;
(E) in Queensland.
(b) for a period of 4 years from the Completion
Date, entice away or endeavour to entice away
from the Company's business, any employees of
the Company or any director, agent,
representative, associate or advisor of or to
the Company in connection with the Company's
business; or
(c) for a period of 4 years from the Completion
Date, solicit the custom or business of anyone
who was a customer of the Company at any time
during the 2 years prior to the Completion Date.
<PAGE>
22
- --------------------------------------------------------------------------------
14.5 Each of the Vendors and the Covenantor undertakes to the
Company that it will not, at any time after Completion,
either directly or indirectly in any capacity (including
as principal, agent, partner, shareholder, unitholder,
trustee, beneficiary, manager, consultant, advisor or
financier):
(a) use or disclose any confidential information
pertaining to the Company to anyone other than
the Company and the Purchaser, except as
required by law; or
(b) use a logo, symbol, trade mark or business name
substantially identical or deceptively similar
to those of the Company.
14.6 Clause 14.4(a) has effect as if it were the number of
separate clauses which results from combining the
commencement of clause 14.4(a) with each paragraph of
clause 14.4(a)(i) and combining each such combination
with each paragraph of clause 14.4(a)(ii) and combining
each such combination with each paragraph of clause
14.4(a)(iii), each such resulting clause being severable
from each other resulting clause, and if any of those
separate resulting clauses is invalid or unenforceable
for any reason, that invalidity or unenforceability does
not prejudice or in any way affect the validity or
enforceability of any other resulting clause. If the
combination of clauses, when taken together, is judged
to go beyond what is reasonable in the circumstances and
necessary to protect the goodwill of the Company, but
would be judged reasonable and necessary if part were
deleted, then the clauses are to be construed as if that
part were deleted.
14.7 Each of the Vendors, the Covenantor and the Purchaser
agree that, in the circumstances (including the
acquisition of certain the shares in the Company by the
Purchaser), the prohibitions and restrictions in this
clause 14 are reasonable and necessary to protect the
goodwill of the Business.
14.8 This clause 14 does not limit or affect any other
agreement between the Vendors (or any of them) and the
Purchaser (including the Executive Service Agreement
with Alfred Jacob Gans dated on or about the date of
this agreement).
15 New Lease
================================================================================
Agreement to lease
15.1 The Vendor agrees to:
(a) a surrender of the Level 2 Lease; and
(b) grant the New Lease to the Company.
from the Completion Date.
Initial rent
15.2 If the rent for the first year of the initial term of
the New Lease has not been agreed by Completion, the
rent is to be:
(a) the amount agreed by the parties; or
<PAGE>
23
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(b) if the parties have not reached agreement within
one month after the Completion Date, then the
amount determined in accordance with the
procedure for market review specified in
Schedule 2 (parts D to G) of the New Lease,
reduced by 10%.
15.3 Until determination of the rent under clause 15.2, the
Purchaser must pay rent under the New Lease at the rate
of $185.00 per square metre per annum and the parties
must make any adjustment required so that the rent paid
by the Purchaser is equal to the rent payable in
accordance with clause 15.2. That adjustment is to be
made with the next rent payment by the Purchaser (in
which case, the Purchaser may offset any amount due to
it under this clause against the rent payable under the
New Lease).
16 Costs and stamp duty
================================================================================
16.1 The Vendors and the Purchaser agree to bear their own
legal and other costs and expenses in connection with,
the preparation, execution and completion of this
agreement and of other related documentation, except for
stamp duty.
16.2 The Purchaser agrees to bear all stamp duty payable or
assessed in connection with this agreement and the
transfer of the Shares to the Purchaser.
17 Power of attorney
================================================================================
17.1 Each Vendor appoints the Purchaser to be its attorney to
exercise the powers set out in this clause 17 from the
Completion Date until the Shares are registered in the
name of the Purchaser.
17.2 The Purchaser may do in the name of each Vendor and on
its behalf everything necessary or expedient, in the
Purchaser's sole discretion, to:
(a) transfer the Shares;
(b) exercise any rights, including rights to appoint
a proxy or representative and voting rights,
attaching to the Shares;
(c) receive any dividend or other entitlement paid
or credited to the Vendors in respect of the
Shares; and
(d) do any other act or thing in respect of the
Shares or the Company.
17.3 Each Vendor declares that all acts and things done by
the Purchaser in exercising powers under this power of
attorney will be as good and valid as if they had been
done by the Vendor and agrees to ratify and confirm
whatever the Purchaser does in exercising powers under
this power of attorney.
17.4 Each Vendor declares that this power of attorney of the
Purchaser is given for valuable consideration and is
irrevocable from the date of this
<PAGE>
24
- --------------------------------------------------------------------------------
power of attorney until the Shares are registered in the
name of the Purchaser.
17.5 The Purchaser is expressly authorised to do any act as a
result of which a benefit is conferred on it.
18 Notices
================================================================================
18.1 A notice, approval, consent or other communication in
connection with this agreement:
(a) must be in writing;
(b) must be marked for the attention of the company
secretary or, in the case of individuals, that
individual; and
(c) must be left at the address of the addressee, or
sent by prepaid ordinary post (airmail if posted
to or from a place outside Australia) to the
address of the addressee or sent by facsimile to
the facsimile number of the addressee which is
specified in this clause or if the addressee
notifies another address or facsimile number
then to that address or facsimile number.
The address, and facsimile number of each party
is:
Vendors
Address: 3 Mozart Place, Mt Ommaney, Qld
Facsimile: N/A
Purchaser
Address: 725 Concord Avenue, Cambridge,
Massachusetts, USA
Facsimile: 617 497 6825
Covenantor
Address: 3 Mozart Place, Mt Ommaney, Qld
Facsimile: N/A
18.2 A notice, approval, consent or other communication takes
effect from the time it is received unless a later time
is specified in it.
18.3 A letter or facsimile is taken to be received:
(a) in the case of a posted letter, on the third
(seventh, if posted to or from a place outside
Australia) day after posting; and
(b) in the case of facsimile, on production of a
transmission report by the machine from which
the facsimile was sent which indicates that the
facsimile was sent in its entirety to the
facsimile number of the recipient.
<PAGE>
25
- --------------------------------------------------------------------------------
19 Assignment
================================================================================
19.1 Subject to clause 19.2, a party may not assign its
rights under this agreement without the consent of the
other party.
19.2 The Purchaser has the right to mortgage or charge its
interest under this agreement without the consent of the
other party.
20 Miscellaneous
================================================================================
Exercise of rights
20.1 A party may exercise a right, power or remedy at its
discretion, and separately or concurrently with another
right, power or remedy. A single or partial exercise of
a right, power or remedy by a party does not prevent a
further exercise of that or of any other right, power or
remedy. Failure by a party to exercise or delay in
exercising a right, power or remedy does not prevent its
exercise.
Waiver and variation
20.2 A provision of or a right created under this agreement
may not be:
(a) waived except in writing signed by the party
granting the waiver; or
(b) varied except in writing signed by the parties.
Approvals and consent
20.3 A party may give conditionally or unconditionally or
withhold its approval or consent in its absolute
discretion unless this agreement expressly provides
otherwise.
Remedies cumulative
20.4 The rights, powers and remedies provided in this
agreement are cumulative with and not exclusive of the
rights, powers or remedies provided by law independently
of this agreement.
No merger
20.5 The Warranties in this agreement do not merge on
Completion.
Survival of indemnities
20.6 Each indemnity in this agreement is a continuing
obligation, separate and independent from the other
obligations of the parties and survives termination of
this agreement.
Enforcement of indemnities
20.7 It is not necessary for a party to incur expense or make
payment before enforcing a right of indemnity conferred
by this agreement.
Further assurances
20.8 Each party agrees, at its own expense, on the request of
any other party, to do everything reasonably necessary
to give effect to this agreement and the transactions
contemplated by it (including the execution of
documents) and to use all reasonable endeavours to cause
relevant third parties to do likewise.
<PAGE>
26
- --------------------------------------------------------------------------------
Publicity
20.9 A party may not make press or other announcements or
releases relating to this agreement and the transactions
the subject of this agreement without the approval of
the other parties to the form and manner of the
announcement or release unless that announcement or
release is required to be made by law or by a stock
exchange.
Time of the essence
20.10 Time is of the essence of this agreement in respect of
any date or period determined under this agreement.
Entire agreement
20.11 This agreement constitutes the entire agreement of the
parties about its subject matter and any previous
agreements, understandings and negotiations on that
subject matter cease to have any effect.
Execution by facsimile
20.12 The Vendors acknowledge that the Purchaser may make or
accept this offer by facsimile transmission.
21 Governing law, jurisdiction and service of process
================================================================================
21.1 This agreement and the transactions contemplated by this
agreement are governed by the law in force in Queensland.
21.2 Each party irrevocably and unconditionally submits to the
exclusive jurisdiction of the courts of Queensland and courts of
appeal from them for determining any dispute concerning this
agreement or the transactions contemplated by this agreement.
Each party waives any right it has to object to an action being
brought in those courts, to claim that the action has been
brought in an inconvenient forum, or to claim that those courts
do not have jurisdiction.
21.3 Without preventing any other mode of service, any document in an
action (including, but not limited to, any writ of summons or
other originating process or any third or other party notice)
may be served on any party by being delivered to or left for
that party at its address for service of notices under clause
18.
22 Redundancy payments for employees
================================================================================
The Purchaser agrees that it will cause the Company as a minimum
entitlement to pay to each employee of the Company at the
completion or termination of their employment (otherwise than
for death or misconduct), in addition to their lawful
entitlements to accrued recreation leave, sick leave, and long
service leave, severance pay of an amount equal to the greater
of:
(a) one week's salary for each complete year of service with
the Company; and
(b) the amount of severance pay and pay in lieu of notice to
which they would be entitled under the Industrial
Relations Act 1999
<PAGE>
27
- --------------------------------------------------------------------------------
(Qld) and the Termination Change and Redundancy Policy
(1987) 30 QGIG 1119.
EXECUTED as an agreement
<PAGE>
28
- --------------------------------------------------------------------------------
Appendix Warranties and Representations
================================================================================
Vendors' qualifications
================================================================================
1 The Vendors are the registered holders and beneficial
owners of the Shares as set out in Schedule 1.
2 There are no mortgages, charges, pledges, liens,
encumbrances or other security interests over or
affecting the Shares.
3 Each of the Vendors has the power to enter into and
perform this agreement and has obtained all necessary
consents to enable it to do so.
4 The entry into and performance of this agreement by the
Vendors does not constitute a breach of any obligation
(including any statutory, contractual or fiduciary
obligation), or default under any agreement or
undertaking, by which any of the Vendors is bound.
5 No meeting has been convened or resolution proposed, or
petition presented, and no order has been made, for the
winding-up of any corporate Vendor. No petition has been
presented and no order has been made for the bankruptcy
of any personal Vendor. No voluntary arrangement has
been proposed or reached with any creditors of any
Vendor. Each Vendor is able to pay its debts as and when
they fall due.
The Company
================================================================================
6 The Company:
(a) is accurately described in Recitals A and B;
(b) has full corporate power to own its properties,
assets and business and to carry on its business
as now conducted; and
(c) has done everything necessary to do business
lawfully in all jurisdictions in which its
business is carried on.
7 No meeting has been convened or resolution proposed, or
petition presented, and no order has been made, for the
winding-up of the Company. No distress, execution or
other similar order or process has been levied on any of
the property or assets of the Company. No voluntary
arrangement has been proposed or reached with any
creditors of the Company. No receiver, receiver and
manager, provisional liquidator, liquidator or other
officer of the court has been appointed in relation to
the Company. The Company is able to pay its debts as and
when they fall due.
7A There is no person holding the office of Permanent
Managing Director.
The Shares
================================================================================
8 The Shares comprise the whole of the issued ordinary
share capital of the Company, and are fully paid.
<PAGE>
29
- --------------------------------------------------------------------------------
9 There are no commitments in place under which the
Company is obliged at any time to issue any shares or
other securities of the company.
10 There is no restriction on the sale or transfer of the
Shares to the Purchaser except for the consent of the
directors of the Company to the registration of the
transfers of the Shares.
Financial statements
================================================================================
11 The forecasts and projections relating to the Company
given to the Purchaser or its professional advisers by
or on behalf of any Vendor (excluding those prepared by
Alf Gans and included with the Last Accounts) have been
prepared with all due care and prudence and on a
reasonable basis. There are no facts or circumstances
known to any Vendor or Covenantor or their professional
advisers, or which ought to be known to any of them on
reasonable enquiry, which would lead a prudent business
manager to make any material revision of those forecasts
or projections.
12 The Last Accounts disclose a true and fair view of the
state of the affairs, financial position and assets and
liabilities of the Company as at the Last Balance Date,
and the income, expenses and results of operations of
the Company for the financial period ending on that
date.
13 The Last Accounts were prepared:
(a) in accordance with the requirements of the
applicable Companies Code or Corporations Law
and any other applicable laws;
(b) in accordance with the Accounting Standards;
(c) in the manner described in the notes to them;
(d) on a consistent basis with the accounts for the
prior financial year;
(e) without revaluing upwards any assets during the
period which is the subject of the Last
Accounts; and
(f) recording each asset at its reasonably estimated
current market value.
14 The Company is not directly or indirectly obliged in any
way to guarantee, assume or provide funds to satisfy any
obligation of any person.
15 No letter of comfort has been given by the Company.
Business
================================================================================
16 The Company is the legal and beneficial owner of all its
property and assets. There are no mortgages, pledges,
liens, encumbrances, charges
<PAGE>
30
- --------------------------------------------------------------------------------
or other security interests over or affecting any
property or assets except as set out in Schedule 2.
17 The Company holds all statutory licences, consents and
authorisations necessary for the carrying on of its
business and the use of the Business Premises. So far as
the Company and each of the Vendors and Covenantor are
aware, there is no fact or matter that might prejudice
the continuance or renewal of those licences, consents
or authorisations.
18 The business of the Company is conducted in accordance
with all applicable laws, does not contravene any laws
and no allegation of any contravention of any applicable
laws is known to the Company or any of the Vendors or
Covenantor.
19 The assets of the Company are sufficient to enable the
effective conduct of the business of the Company after
Completion as it is carried on at the date of this
agreement, and has been carried on since the Last
Balance Date.
20 There has not been any breach of or default by the
Company of any term or provision of:
(a) its memorandum and articles of association;
(b) any instrument to which it is a party or by
which it is bound; or
(c) any judgment, order or injunction of any court,
commission, board or other administrative or
governmental authority,
and there has not occurred any event which, with the
passage of time or giving of notice, would constitute a
breach or default of that kind.
21 The transfer of the Shares in accordance with this
agreement does not and will not constitute a breach of
any obligation (including any statutory, contractual or
fiduciary obligation) or default under any agreement or
undertaking by which the Company is bound.
22 As far as the Company and each of the Vendors and
Covenantor are aware, there is no existing customer or
supplier of the Company who will or is likely to:
(a) cease trading with the Company; or
(b) materially reduce its trading with the Company,
as a result of the acquisition of the Shares by the
Purchaser.
23 No person has given or entered into any guarantee,
indemnity or letter of comfort in respect of the
Company.
24 There are no powers of attorney given by the Company in
force except the power of attorney in clause 17.
25 The names and locations of all banks in which the
Company has an account and the names of all persons
authorised to sign on the accounts are listed in
Schedule 3.
<PAGE>
31
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26 Except as disclosed in Schedule 4 no Vendor or relative
of a Vendor or body corporate associated (as that term
is defined in the Corporations Law) with a Vendor is a
party to any contract or arrangement with the Company.
27 At no time during the last three years has the Company
had a direct or indirect interest in any contract or
arrangement containing terms which were not of an
entirely arm's length nature, nor have the profits or
financial position of the Company during that period
been effected by any contract or arrangement with terms
of that nature.
28 The Company:
(a) does not hold any shares in the capital of any
company;
(b) is not a member of any partnership or other
unincorporated association;
(c) is not a trustee of any trust estate or fund;
and
(d) does not have a permanent establishment (as that
expression is defined in any relevant double
taxation agreement) outside Australia.
Business Premises
================================================================================
29 The Business Premises are the only places of business of
the Company and are the only business premises owned,
leased or occupied by the Company.
30 The Company has exclusive occupation of the Business
Premises free from all encumbrances or third party
rights.
31 The Company has properly performed and observed all
material covenants affecting the Business Premises.
32 There are no restrictions, stipulations or outgoings
affecting the Business Premises which are of an onerous
or unusual nature or conflict with the present use. The
use of the Business Premises by the Company does not
constitute a breach of the Property Lease, the Business
Premises Lease or any applicable law.
33 The Property Lease is the only lease of real property to
the Company. The Company has made all payments required
by and has otherwise complied with the terms of the
Property Lease.
34 No development, alterations or works have been carried
out in relation to the Business Premises which would
require any permission or consent under any statute or
regulation which has not been obtained and all
conditions attaching to any such permission or consent
have been fully complied with.
35 As far as the Company and each of the Vendors and
Covenantor are aware, there are no proposals by any
competent authority or other person which would
adversely affect the Business Premises.
<PAGE>
32
- --------------------------------------------------------------------------------
36 Each of the buildings and other erections on the
Business Premises:
(a) is in such condition and repair as to be
substantially fit for the purpose for which it
is presently used; and
(b) is approved and otherwise complies with
applicable laws and industrial health and safety
regulations.
37 The connections to power and waste disposal services
existing in the buildings and other erections on the
Business Premises are approved and otherwise comply with
applicable laws. None of the Company or any of the
Vendors or Covenantor are aware of any imminent or
likely interruption of those services.
38 There are no current disputes relating to the Business
Premises or its use.
Plant and Equipment
================================================================================
39 Schedule 7 is a complete list of all items of Plant and
Equipment owned by the Company with a written down value
in excess of [ ] as at the List Balance Date. Schedule 9
accurately describes all of the Equipment Leases.
40 The rate of depreciation applied in the Last Accounts
for each item of Plant and Equipment has been applied
over previous accounting periods of the company and is
adequate to write down its value to nil realisable value
it the end of its useful working life.
41 Each item of Plant and Equipment and Leased Plant and
Equipment:
(a) is in good repair taking into account normal
wear and tear;
(b) is in satisfactory working condition and capable
of doing the work for which it is designed, and
(c) has been maintained in a manner that does not
prejudice any rights under any maintenance
contract in connection with any of that plant
and equipment.
42 There is no claim outstanding against any supplier of
the Plant and Equipment or Leased Plant and Equipment or
of maintenance services format plant and equipment in
connection with any defect in that plant and equipment.
43 Each item of Plant and Equipment and Leased Plant and
Equipment is in the physical possession of the Company.
44 Each item of Plant and Equipment and Leased Plant and
Equipment is erected or positioned in accordance with
all applicable laws and is operated by the Company
without contravening any laws or industrial health and
safety regulations.
45 The Company has made all payments required by and has
otherwise complied with the terms of each of the
Equipment Leases.
<PAGE>
33
- --------------------------------------------------------------------------------
Inventory
================================================================================
Warranties 46 to 51 have been intentionally deleted.
Intellectual Property Rights
================================================================================
52 Schedule 9 is a complete and accurate list of:
(a) all registered and unregistered business names
and trade marks;
(b) all registered patents and designs; and
(c) all applications for registration of patents and
designs,
owned or used at any time by the Company in connection
with its business and contains full details of the
Intellectual Property Licences.
53 The Company owns all right, title and interest
throughout the world in and to the Intellectual Property
Rights. The Company has not licensed any of the
Intellectual Property Rights and has not assigned or in
any way disposed of any right, title or interest in the
Intellectual Property Rights.
54 The Company has not disclosed any of the Confidential
Information except properly in the ordinary course of
its business and on a confidential basis.
55 The Intellectual Property Rights are valid and
enforceable throughout the world. The Company has taken
all necessary steps to obtain and maintain appropriate
registrations for the Intellectual Property Rights and
to protect and defend the Intellectual Property Rights.
56 Neither the carrying on of its business by the Company
nor the use of the Intellectual Property Rights:
(a) infringes, or is alleged to infringe, the
intellectual property rights (including business
names, trade marks, patents, designs, copyright
and rights to confidential information) of any
third party; or
(b) is, or is alleged to be, in breach of any
obligation of confidence owed to any third
party.
57 As far as the Company and each of the Vendors and
Covenantor are aware, there has not been:
(a) any infringement of any of the Intellectual
Property Rights;
(b) any misuse or unauthorised disclosure of the
Confidential Information; or
(c) any other act which may affect the validity or
enforceability of the Intellectual Property
Rights.
<PAGE>
34
- --------------------------------------------------------------------------------
58 None of the Company or any of the Vendors or Covenantor
are aware of any use by any other person of any of the
business names or the trade marks owned or used by the
Company.
59 Each of the Intellectual Property Licences is valid,
binding and enforceable against the parties to it. The
Company has complied at all times with the terms of the
Intellectual Property Licences and no licensor has any
right to terminate an Intellectual Property Licence.
Contracts
================================================================================
59 Full details of all material contracts entered into by
the Company have been fully disclosed to the Purchaser
in writing. Schedule 10 is a complete list of all
banking facilities available to the Company.
60 The Company has complied at all times with its
obligations under all material contracts entered into by
it.
61 Each of the contracts entered into by the Company is
valid, binding and enforceable against the parties to it
and there is no party in breach of, or in default under,
any such contract.
62 None of the contracts entered into by the Company
contain any onerous, unusual or other provision material
for disclosure to a prudent intending purchaser of the
Shares.
63 None of the contracts entered into by the Company is
known to the Company or any of the Vendors or Covenantor
to be likely to result in a loss for that company.
64 The Company has not made any offers, tenders or
quotations which are still outstanding and capable of
giving rise to a contract by the unilateral act of a
third party, other than in the ordinary course of
business and on customary terms.
65 All debts of the Company will be good and collectable in
the ordinary course of business and in any event not
later than three months after the Completion Date.
66 The total amount borrowed by the Company from its
bankers does not exceed its overdraft accommodation and
the total amount borrowed or raised by the Company from
any source does not exceed any limitation in its
articles of association or in any deed or agreement
executed by it.
Insurance
================================================================================
67 Schedule 11 comprises a complete list of all contracts
of insurance and indemnity in force in respect of the
business and the property and assets.
68 Each of the contracts of insurance is in force and there
is no fact or circumstance known to the Company or any
of the Vendors or Covenantor which would lead to any of
them being prejudiced. None of the contracts of
insurance will be terminated or cease to have effect as
a consequence of the change in ownership of the Shares.
<PAGE>
35
- --------------------------------------------------------------------------------
69 All of the property and assets of the Company of an
insurable nature are insured in amounts representing
their full replacement or reinstatement value against
fire and other risks normally insured against. All
risks, whether in relation to damage to property,
personal injury, product liability or otherwise are
adequately insured for such amounts as would be
maintained in accordance with prudent business practice.
Taxation
================================================================================
70 All tax and duty returns required by law (including, but
not limited to, all laws imposing or relating to income
tax, fringe benefits tax, sales tax, payroll tax, group
tax, land tax, water and municipal rates and stamp and
customs duty) to be lodged or filed by the Company have
been lodged or filed.
71 No tax or duty return referred to in warranty 69
contains a statement that is false or misleading in any
material particular or omits to refer to any matter
which is required to be included or without which the
statement is false or misleading.
72 All records relating to tax or duty returns referred to
in warranty 69 or to the preparation of those returns
required by law to be maintained by the Company have
been duly maintained.
73 All taxes, levies, assessments, contributions, fees,
rates, duties, and other governmental or municipal
charges or impositions (other than those which may be
still paid without penalty or interest) for which the
Company is liable, including any penalty or interest,
have been paid.
74 There is no current dispute between the Company and the
Commissioner of Taxation of the Commonwealth of
Australia or any other federal, state or municipal body
or authority responsible for the collection of tax or
duty.
75 All amounts of income tax required by law to be deducted
by the Company from the salary or wages of employees
have been duly deducted and, where appropriate, duly
paid.
76 No dividend has been paid by the Company:
(a) in respect of which the required franking amount
(as provided for in section 160AQE of the Income
Tax Assessment Act ("Tax Act") has exceeded the
franked amount (as defined in section 160APA of
the Tax Act) of the dividend; or
(b) which has been franked in excess of the required
franking amount,
which would result in that company being liable to pay
franking deficit tax under section 160AQJ of the Tax Act
or additional tax under section 160ARX of the Tax Act.
77 The Company will have sufficient profits available for
distribution to members to permit payment of the
dividend referred to in clause 7.3. Payment of that
dividend in accordance with that clause will not result
in
<PAGE>
36
- --------------------------------------------------------------------------------
the Company becoming liable to pay franking deficit tax
under section 160AQJ of the Tax Act or additional tax
under section 160ARX of the Tax Act.
78 All documents entered into by the Company have been duly
stamped.
79 All stamp duty payable on any transfer of the Shares
before the Completion Date has been duly paid.
Records
================================================================================
80 The Records:
(a) are complete, true and accurate in all material
respects;
(b) give a true and fair view of the trading
transactions, financial and contractual position
of the Company and of its assets and
liabilities;
(c) as far as is relevant, have been prepared in
accordance with the applicable Companies Code or
Corporations Law and the Accounting Standards;
and
(d) are in the possession of the Company in their
original form.
81 The Company has filed all annual returns and other forms
as and where required to be filed or registered under
the Companies Code or Corporations Law (as applicable)
and the Company is not liable to be struck off the
register of companies.
Litigation
================================================================================
82 The Company is not involved in any litigation or
arbitration proceedings and there are no facts likely to
give rise to any such proceedings.
83 No claim has been made against the Company in connection
with any defective product or services supplied by it in
the course of carrying on its business and the Company
has maintained adequate insurance for at least the last
6 years against any such claim. The Company has not
breached the provisions of the Trade Practices Act or
any equivalent state or territory enactments or the
requirements of consumer product safety standard or
consumer product information standard prescribed by law.
84 None of the operations of the Company are subject to any
unsatisfied judgment or any order, award or decision
handed down in any litigation or arbitration
proceedings.
Environment
================================================================================
85 There is no Contaminant present in, on, under or above
the Business Premises and there is nothing which may
become or give rise to such a Contaminant in the future.
<PAGE>
37
- --------------------------------------------------------------------------------
86 The Business Premises are safe and without risk to
health of persons.
87 The Company in the conduct of its business or the
occupation and use of the Business Premises, has not
harmed the Environment in a manner not permitted by any
Environmental Law.
88 All authorisations and approvals required under any
Environmental Law relating to the business of the
Company are in full force and effect and will not be
terminated or cease to have effect as a consequence of
the change in ownership of the Shares.
89 No authorisations or approvals under any Environmental
Law relating to the business of the Company are subject
to a right of appeal by any person.
90 The Company has at all times complied with all the terms
of any authorisations and approvals under any
Environmental Law relating to the business of the
Company.
91 There is no proposal to revoke, suspend, modify or not
renew any authorisation or approval under any
Environmental Law relating to the business of the
Company.
92 There is no actual or contingent obligation to pay money
or carry out any work in relation to the Business
Premises or any other assets of the Company to comply
with an Environmental Law.
93 The Company is not subject to any liability under any
Environmental Law or under the common law arising from
the carrying on of its business at any time.
94 The carrying on of its business by the Company has not
been negligent and has not resulted in or caused any
public or private nuisance or contravention of the rule
known as the Rule in Rylands v Fletcher (1868) LR3 (HL)
330.
Employees
================================================================================
95 All contracts of service or for services and letters of
appointment in respect of any employees of, or
consultants to, the Company have been fully disclosed to
the Purchaser in writing. No loans or other advances
have been made to any directors or employees of the
Company. Each of the contracts entered into with
employees or consultants are enforceable against the
parties to it and there is no party in breach of, or in
default under, any such contract.
96 The Company has made all payments in respect of
occupational superannuation required under any contract
or award in respect of each of its employees.
97 The Company is not involved in any industrial or trade
dispute or any dispute regarding any claim with any of
its employees or with any trade union and, so far as the
Company and each of the Vendors and Covenantor are
aware, there are no facts or circumstances which are
likely to result in such a dispute.
<PAGE>
38
- --------------------------------------------------------------------------------
98 Since 1997 the Company has not considered dismissing any
existing Employees.
99 Since the Last Accounts Date there has not been any
material change in the remuneration or emoluments or
benefits of any executives who are employees.
Superannuation
================================================================================
Warranties 100 to 106 have been intentionally deleted.
107 Full disclosure has been made to the Purchaser of all
material facts relating to contributions and benefit
arrangements in connection with the Fund and there are
no superannuation or other benefit schemes, other than
the Fund, to which the Company is contributing or has
entered into a commitment which could involve future
contributions, or under which any of the employees of
that company receives or is entitled to receive or
reasonably expects to receive any benefits.
108 Intentionally deleted.
109 All taxes, levies, assessments, contributions, fees,
rates, duties and other governmental or municipal
charges or impositions (other than those which may still
be paid without penalty or interest) for which the
Vendors are liable, including any penalty or interest,
have been paid.
110 Full and proper records and accounts (so far as those
are required by law) of the superannuation arrangements
of the Company have been kept, are up to date, and
disclose a true and fair view.
111 Intentionally deleted.
112 Intentionally deleted.
113 The transfer of the Shares will not cause any increase
in the obligations of the Company to make contributions
to the Fund.
114 None of the Vendors have misrepresented to any person
the benefits which are or may be available in respect of
the Fund.
Changes since the Last Balance Date
================================================================================
115 Since the Last Balance Date:
(a) the business of the Company has been carried on
in the ordinary and usual course and no
contracts or commitments differing from those
ordinarily necessitated by the nature of that
business have been entered into or incurred;
(b) there has been no change in the assets, the
liabilities or the financial position or profits
of the Company from that set out in the Last
Accounts except changes in the ordinary course
of business, none of which individually or in
the aggregate is materially adverse to the
company; and
<PAGE>
39
- --------------------------------------------------------------------------------
(c) the business or financial position of the
Company has not been materially and adversely
affected by any matter, either financial or
otherwise and whether covered by insurance or
not.
116 Since the Last Balance Date:
(a) no distributions of cash or specific assets by
way of dividend or otherwise on the share
capital of the Company have been made;
(b) no shares in or debentures of the Company have
been issued or agreed to be issued or put under
option;
(c) no alteration has been made to the rights
attached to any existing shares in the Company;
(d) no alteration has been made to the memorandum or
articles of association of the Company;
(e) no alteration has been made to the capital
structure of the Company;
(f) no additional directors have been appointed to
the Company.
Brokerage
================================================================================
117 No person is entitled to recover from the Company any
fee or commission in connection with the purchase or
sale of the Shares.
Information
================================================================================
118 All information given by the Company or any of the
Vendors or Covenantor or the Vendors' professional
advisers to the Purchaser or to the Purchaser' s
professional advisers in the course of negotiations
leading to this agreement and Completion are true and
accurate in all respects. None of that information is
misleading in any material particular, whether by
omission or otherwise.
119 To the best of the knowledge and belief of the Company
and each of the Vendors and Covenantor, all details
relating to the Company which would be material for
disclosure to a prudent intending purchaser of the
Shares have been disclosed to the Purchaser.
120 So far as the Company and each of the Vendors and
Covenantor are aware, there are no facts or
circumstances which might reasonably be expected
materially and adversely to affect the financial
position, operations, profitability or prospects of the
Company other than facts and circumstances affecting as
a whole the industry in which the business of the
Company is carried on.
Managing Directors
================================================================================
121 Liliane Gans has resigned from her position as Managing
Director or Governing Director, as the case may be.
<PAGE>
40
- --------------------------------------------------------------------------------
Schedule 1 Vendors and Shareholdings
================================================================================
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3 Column 4
Name and Address of each Vendor Number of Class of Shares Amount paid up
Shares held held on each of the
Shares held
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ashcliff Pty Ltd (ACN 057 727 198) of 1 A $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Ashcliff Pty Ltd (ACN 057 727 198) of 1 B $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Ashcliff Pty Ltd (ACN 057 727 198) of 1 C $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Ashcliff Pty Ltd (ACN 057 727 198) Of 1 D $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Ashcliff Pty Ltd (ACN 057 727 198) of 3,999 Ordinary $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Ashcliff Pty Ltd (ACN 057 727 198) of 210,000 Z $1.00
Level 4, Benson House, 2 Benson Street,
Toowong in the State of Queensland.
Alfred Jacob Gans of 3 Mozart Place. Mt 1 Ordinary $1.00
Ommaney in the State of Queensland.
</TABLE>
<PAGE>
41
- --------------------------------------------------------------------------------
Schedule 2 Mortgages and other Encumbrances over the
Company
================================================================================
Nil
<PAGE>
42
- --------------------------------------------------------------------------------
Schedule 3 Bank Accounts and Signatories
================================================================================
BANK ACCOUNTS
<TABLE>
<S> <C> <C>
Australia
National Australia Bank BSB: 084424 Toowong Branch
A/c No: 50-839-6907 29 Sherwood Road
Toowong, Queensland
Australia
Flexiphone 131013
Fax (07) 3870-3 224
United States
Harris Trust & Savings Bank A/c No: 3 00-988-3 111 West Monroe Street
(Main Account) Chicago Illinois 60690
USA
Phone: 0011-1-312461-
2121
Fax: 0011-1-312-845-
2199
A/c No: 77941 Annette Epps
(Alfred Gans Market Plus Associate Vice President
Account) Phone: 0011-1-312461-
2971
Fax: 0011-1-312-293-
4823
A/c No: 77942
(Liliane Gans Market
Plus Account)
United Kingdom
National Westminster Bank A/c No: 00761885 City of London Office
Retail Business Centre
P0 Box 12264,
4th Floor 1 Princes Street
London EC2R 8QP
England
Phone: 0011-44-171-390-
1625
Fax: 0011-44-171-390-
1828
Clive Gardner
Business Manager
Phone: 0011-44-171-390-
1615
New Zealand
Bank of New Zealand A/c No: 0264-00360077- Newmarket Branch
000 123 Broadway
Newmarket Auckland
New Zealand
Phone: 0011-64-9529-2340
Fax: 0011-64-9520-1178
</TABLE>
<PAGE>
43
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Mike Atwill
Business Manager
Canada
Toronto-Dominion Bank A/c No: 0690-0632223 55 King Street W & Bay
Street
Toronto Ontario M5K 1A2
Canada
Jennifer Ishmael
Phone: 0011-1416-982-
5129
Fax: 0011-1416-944-
5796, or
Papua New Guinea
Bank of South Pacific Ltd A/c No: 36183427 Port Moresby Service Centre
PO Box 173
Port Moresby
Papua New Guinea
M. Tomar
Senior Office Supervisor
Phone: 0011-625-321-2444
Fax: 0011-625-321-3741
</TABLE>
CHEOUE SIGNATORIES:
Sole Signatories (no restrictions): Alfred Jacob Gans
Liliane Gans
Sole Signatories (restricted to amounts Roslyn Jackson
of AUD$1,000, NZ$1,000, CAN$l,000,
UK(Pound)500, USD81,000, Kina 1,000)
Joint signatories: Roslyn Jackson
Denise Frances Ada
Sylvia Mary Medhurst
Eileen Heikkila
Helen Rosamund Williams
<PAGE>
44
- --------------------------------------------------------------------------------
Schedule 4 Contracts with the Vendors
================================================================================
Agreement to lease between Alfred Jacob Gans and
the Company for Level 2, 41 Sherwood Road,
Toowong in the State of Queensland, more
particularly described as Lot 6 on BUP 10844.
<PAGE>
45
- --------------------------------------------------------------------------------
Schedule 5 Not used
================================================================================
<PAGE>
46
- --------------------------------------------------------------------------------
Schedule 6 Not used
================================================================================
<PAGE>
47
- --------------------------------------------------------------------------------
Schedule 7 List of Plant and Equipment
================================================================================
1xCadenza Woodgrain/Leathertop
1xExecutive Desk (with return)
1xCadenza (cream/brawn)
1x cream Bench with shelves (not fixed)
1xcream/brown Desk (attached draws)
2xPC Workstations
4xMobile Pedestal
1xPedestal (without wheels)
1xDesk with return (fixed draws)
8xWorkstations
1xMobile PC Workstation
3xPedestal (without wheels)
1xWorkstation Desk on coasters
1xDesk with slide
1x2-tier Desk
1xdesk high Work Bench
1xfixed Wall Bench (2 shelves)
3x fixed Wall Shelf
1xfixed Bookshelf (2 part)
1xfixed Bookshelf
1xset Desk Shelves - cream laminate
1xcomer shelves (black) on coasters
1xDesk (cream)
1xCadenza (cream)
1xDesk with return
1xDesk with return (cream/brown)
8xWorkstation (fixed draws)
1xWorkbench /Shelves (raised from floor)
1xGlass Coffee Table
1x2bay set of Shelves (cream laminate)
1x3 bay set of Shelves (cream laminate)
1xDesk (brown/cream) with draws
1xPrinter Table on wheels
1xwood laminate Set of Shelves (single bay)
4xTypist Table
1xbrown laminate Set of Shelves
3xWorkbenches
1xWall Cabinets (with doors)
1x Reception Desk
1xBlue Leather 3-seater Lounge
1xBlacklwhite cabinet (on coasters)
1xConference Table
1xExecutive Desk with Cadenza
1xDesk with return
1xDesk + desk height set of shelves
1xset of laminate shelves (on coasters)
1xWork Table
1xCadenza/bench
1xBook Shelf (3 high)
7xDesks (brown/cream) with returns
6xDesks (cream) with returns
1xDesk (brown/cream) (no return)
<PAGE>
48
- --------------------------------------------------------------------------------
1xDesk (cream) no return/fixed draws
1xfloor FAN
6xWhiteboards
1xACER Scanner
2x metal Cabinets (with doors)
1xEthanet Hub
3x28K Modems
1xDiscdrive cabinet
1xCISCO IDSN Router
1xCD Discdrive Tape Unit
1xCD and Tape Unit
2xBattery back-up Units
3x56K Modems
1x288K Modem
1xCISCO Ethanet Switchbox +2 Converters
1xStallion Terminal Server
2xSpecialix Terminal Server
1xTECO Airconditiioning Unit
1x Honeywell Temperature Box
1xWall Clock
1xPanasonic Microwave
1xLamar Bar Refrigerator
1xSunbeam Urn
2xSMC Ethanet HUB
1xPanasonic Airconditioning Unit
1xEmulex Terminal Server
1xD-Link Multiport Repeater
1xHoneywell Temperature Warning Box
1xWall Cabinet with Patch Pan A
1xWhiteboard with coasters
1xfixed U-Shape Workstation
1xKelvinator Refrigerator
2xBindomatic 5000 + racks Heat Binder
1xIBICO Thermotronic 400 + racks Heat Binder
3xcork Peg Boards
2xflat base Trolleys
1xHSM 104.1 Shredder
2xwall fixed Book Shelf
1x"Breeze Master" Floor Fan
1xXerox Facsimile + phone
1xPansonic Facsimile
1xNational Microwave
1xZIP Miniboil Water Heater
1xSink/bench/cabinets (fixed)
1xabove sink Kitchen Cabinet
2xFixed Work bench (kitchen
3xInput-eze
1xBailey Ladder
1x Canon Calculator
1xSharp C51183 Calculator
1x56K Modem
1xFoot Step (on coasters)
Fixed Benches/shelves surround Publisher and Data Services Sections
6xMonitor Arms
<PAGE>
49
- --------------------------------------------------------------------------------
1xepson Stylus PRO Colour Printer
1xCiTOH 300 Printer
1xLexmark Lazer printer
1xC-iTOH 500 Line Printer
1xGestetner Lazer Printer
1xKyocera F54700 Lazer Printer
1xLexmark Label Printer
1xHewlett Packard Deskjet 500
1xKyocera FS 1550 Lazer Printer
1xCanon ASO Printer
1xCiTOH 1000 Printer
1xGestetner GLX8Ol Lazer Printer
1xKyocera F53 700 Lazer Printer
1xGestemer GLX800 Lazer Printer
1xBrother EM-701 Typewriter
1xBrother CE6O Typewriter
2xIBM Selectric Typewriter
1xIBM 6746 Typewriter
1xXEROX 5018 Photocopier
BCSl50 - 24
DBC7S3 - 8
DBC754 - 1 (consol)
9x typist with arms
6xstacker chairs
28xtypist
1xChair with arms
1xgrey Lounge Chair
2xBar Stools
1xStool
1xFold-up Lounge
6xConference Chairs
4xVisitor Chairs
1xExecutive Chair
14x4-draw filing
.9x2-draw filing
1x3-draw filing
1x Chest of Draws
30 x VDU with keyboard
3 (for repair) VDU with keyboard
2xSamtron Monitor with CPU and Speakers
1xOsborne Monitor with CPU and speakers
1xADI Monitor with CPU and speakers
1xAcer 17" Monitor with CPU and speakers
1xChun Monitor with CPU
1xTatung Monitor
1xEpix Monitor
1xSparc Station 1 complete Server with Monitor, Keyboard, Disc Drives
and CPU
1xPhillips Consol 17" Monitor with keyboard
1xViewsonic Consol 17" Monitor with k/board
2xSparc Station 10 CPU's
1xWyse Monitor & Keyboard
1xTechstar Monitor, CPU and keyboard
1xFalco Monitor with keyboard
1x Winpro Monitor, keyboard, speakers & CPU
<PAGE>
50
- --------------------------------------------------------------------------------
1xNEC Laptop
1xVelta Monitor/keyboard/speakers & CPU
1xSamtron Monitor/keyboard/speakers & CPU
1xsingle 6high (2bays) Shelving
2xbacktoback 6 high (4bays) Shelving
2x2backtoback, 6 high (16bays) Shelving
1xsingle 6high (3bays) Shelving
2xsingle 6high (2 bays) Shelving
3xsingle backtoback, 6high Shelving
1xsingle bay, 4high Shelving
1xsingle bay, 4high Shelving
1xSingle Bay Lateral filing Shelving
1x2Bay 6high Shelving
3xSingle Bay 6 high Shelving
1xsingle Bay 6 high Shelving
2xsingle 6 high Lateral Files Shelving
1x16 bay Compactus Shelving
2x2bays 6 high Shelving
2xsingle 6 high Shelving
1xbacktoback single 6 high Shelving
2xbacktoback double 6 high Shelving
1x3 shelf single bay Shelving
<PAGE>
51
- --------------------------------------------------------------------------------
Schedule 8 Particulars of Equipment Leases
================================================================================
Nil
<PAGE>
52
- --------------------------------------------------------------------------------
Schedule 9 Particulars of Registered and Unregistered
Intellectual Property
================================================================================
Business Names:
ISA Australia
Unregistered Trade Marks:
ISAcomplete
ISAscan
Patents:
Nil
Designs:
Nil
Intellectual Property Licences
Software Licences:
Microsoft NT 50036-415-0157726-1435
50036-415-0157726-51660
Microsoft Windows 95 15096-OEM-0012891-45490
02097-OEM-O018586-70187
36-OEM-0029361-30181
25895-OEM-0004692-84048
33697-OEM-0027813-73470
35295-OEM-0008265-14760
15995-OEM-0001463-62394
13696-OEM-0011903-303134
30998-OEM-0038665-63521
Microsoft Office Professional 52488-415-0131817-15160
53488-415-0122003-61808
53488-415-0445985-93698
53488-415-0445985-35933
53488-415-0131817-97588
<PAGE>
53
- --------------------------------------------------------------------------------
53488-415-0131817-30181
53488-415-0144784-16120
53488-415-1031817-04307
53488-415-0444772-21961
53488-415-0445985-30314
AcuCobol 4.1 106280
AcuBench 4.1 305779-8077
Intelliterm 32 A000000000224136
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Telex for windows W1404225
Elwin Code Editor 859853129
826298697
876630345
843075913
VCQ Cyberquery 500418001/1
Vet Anti-Virus 9.94 116204
Visual Basic 6 8289131300403862284
Visual Basic 3 00-203-0300-70030697
CSE HTML Validator 10194
Front Page 98 68866-415-0140702-70535
Logisoft Payroll V2.81 PP-WIN-95-001316-7416
National Online CAN 0040 44937
Pagemaker 03W601X11011240271
Acrobat D.PE WAW210P7297015-520
Photoshop LE 5PW300R3413010-520
VB4 (16 bit) 27023242010931728886
Chronilist 97D294
OmniPage 2889B-J00-005660
Visual C++ 254-056-001
<PAGE>
54
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WordPerfect 7 No Number recorded
Print Shop Delux No Number recorded
<PAGE>
55
- --------------------------------------------------------------------------------
Schedule 10 Banking Facilities
================================================================================
NZ$10,000.00 overdraft facility with the Bank of New
Zealand.
UK(pound)1O,000.00 overdraft facility with the National
Westminster Bank PLC.
<PAGE>
56
- --------------------------------------------------------------------------------
Schedule 11 Contracts of Insurance
================================================================================
Public / products liability insurance policy
(Policy No. 5L/1114891) with Lumley General
Insurance Limited for $5,000,000 in respect of 41
Sherwood Road, Toowong.
Electronic equipment insurance policy (Policy No.
14ZE 1365436) with Lumley General Insurance
Limited for $175,000 in respect of 41 Sherwood
Road, Toowong.
<PAGE>
57
- --------------------------------------------------------------------------------
Schedule 12 New Lease
================================================================================
<PAGE>
58
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SIGNED by as LOUIS HERNANDEZ )
as authorised representative for )
ROWECOM, INC in the presence of )
)
/s/ Barry Sandin )
- ------------------------------------------- )
Signature of witness )
)
BARRY SANDIN )
- ------------------------------------------- ) /s/ Louis Hernandez
Name of witness (block letters) ) --------------------------------------------
) Louis Hernandez, Executive Vice
162 Monroe Rd., Quincy, MA ) President and Chief Financial Officer
- ------------------------------------------- )
Address of witness ) By executing this agreement the signatory
) warrants that the signatory is duly
Finance Professional ) authorised to execute this agreement on
- ------------------------------------------- ) behalf of ROWECOM, INC
Occupation of witness )
EXECUTED by ASHCLIFF PTY LTD )
ACN 057 727 198 in accordance with )
section 127(1) of the Corporations Law by ) --------------------------------------------
authority of its directors in the presence of: ) Signature of director
)
)
) --------------------------------------------
) Name of director (block letters)
)
)
- ------------------------------------------- ) --------------------------------------------
Signature of witness ) Signature of director/company secretary*
) *delete whichever is not applicable
)
)
- ------------------------------------------- ) --------------------------------------------
Name of witness (block letters) ) Name of director/company secretary
) (block letters)
) *delete whichever is not applicable
- ------------------------------------------- )
SIGNED by LILIANE GANS in the )
presence of: )
)
- ------------------------------------------- )
Signature of witness )
)
- ------------------------------------------- )
Name of witness (block letters) )
)
- ------------------------------------------- )
Address of witness )
)
- ------------------------------------------- ) --------------------------------------------
Occupation of witness ) Signature of Liliane Gans
</TABLE>
<PAGE>
59
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SIGNED by as LOUIS HERNANDEZ )
as authorised representative for )
ROWECOM, INC in the presence of )
)
- ------------------------------------------- )
Signature of witness )
)
- ------------------------------------------- )
Name of witness (block letters) ) --------------------------------------------
) Louis Hernandez, Executive Vice
- ------------------------------------------- ) President and Chief Financial Officer
Address of witness )
) By executing this agreement the signatory
- ------------------------------------------- ) warrants that the signatory is duly
Occupation of witness ) authorised to execute this agreement on
behalf of ROWECOM, INC
EXECUTED by ASHCLIFF PTY LTD )
ACN 057 727 198 in accordance with ) /s/ Alfred Jacob Gans
section 127(1) of the Corporations Law by ) --------------------------------------------
authority of its directors in the presence of: ) Signature of director
[SEAL]
) ALFRED JACOB GANS
) --------------------------------------------
) Name of director (block letters)
)
/s/ Peter Eric Burden ) /s/ L. Gans
- ------------------------------------------- ) --------------------------------------------
Signature of witness ) Signature of director/company secretary*
) *delete whichever is not applicable
)
PETER ERIC BURDEN ) Liliane Gans
- ------------------------------------------- ) --------------------------------------------
Name of witness (block letters) ) Name of director/company secretary
(block letters)
*delete whichever is not applicable
SIGNED by LILIANE GANS in the )
presence of: )
)
/s/ Peter Eric Burden )
- ------------------------------------------- )
Signature of witness )
)
PETER ERIC BURDEN )
- ------------------------------------------- )
Name of witness (block letters) )
)
307 QUEEN ST. BRISBANE )
- ------------------------------------------- )
Address of witness )
)
SOLICITOR ) /s/ L. Gans
- ------------------------------------------- ) --------------------------------------------
Occupation of witness ) Signature of Liliane Gans
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SIGNED by ALFRED JACOB GANS )
in the presence of: )
)
/s/ Peter Eric Burden )
- ------------------------------------------- )
Signature of witness )
)
PETER ERIC BURDEN )
- ------------------------------------------- )
Name of witness (block letters) )
)
307 QUEEN STREET )
- ------------------------------------------- )
Address of witness )
)
SOLICITOR ) /s/ Alfred Jacob Gans
- ------------------------------------------- ) --------------------------------------------
Occupation of witness ) Signature of Alfred Jacob Gans
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 47,150 16,057
<SECURITIES> 0 0
<RECEIVABLES> 3,936 2,042
<ALLOWANCES> 127 60
<INVENTORY> 0 0
<CURRENT-ASSETS> 546 604
<PP&E> 1,507 632
<DEPRECIATION> 1,329 28
<TOTAL-ASSETS> 62,915 20,284
<CURRENT-LIABILITIES> 8,144 4,113
<BONDS> 0 0
0 0
0 28,422
<COMMON> 101 15
<OTHER-SE> 54,548 (122,667)
<TOTAL-LIABILITY-AND-EQUITY> 62,915 20,284
<SALES> 13,159 3,585
<TOTAL-REVENUES> 13,159 3,585
<CGS> (12,325) (3,494)
<TOTAL-COSTS> (12,325) (3,494)
<OTHER-EXPENSES> (15,897) (5,072)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,673 104
<INCOME-PRETAX> (13,390) (4,877)
<INCOME-TAX> 63 87
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,453) (4,964)
<EPS-BASIC> (1.74) (3.53)
<EPS-DILUTED> (1.74) (3.53)
</TABLE>
