<PAGE>
As filed with the Securities and Exchange Commission on February 10, 1999
Registration No. 333-68761
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ROWECOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5961 04-3370008
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Numbers) Identification No.)
incorporation or
organization)
RoweCom Inc.
725 Concord Avenue
Cambridge, MA 02138
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Richard R. Rowe, Ph.D.
Chairman of the Board, President
and Chief Executive Officer
RoweCom Inc.
725 Concord Avenue
Cambridge, MA 02138
(617) 497-5800
(Name, address, including zip code, and telephone number, including area code
of agent for service)
with copies to:
Brian Keeler, Esq. Winthrop B. Conrad, Jr., Esq.
Johan V. Brigham, Esq. Davis Polk & Wardwell
Bingham Dana LLP 450 Lexington Avenue
150 Federal Street New York, New York 10017
Boston, Massachusetts 02110 (212) 450-4000
(617) 951-8000 Facsimile No. (212) 450-4800
Facsimile No. (617) 951-8736
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Maximum Maximum
Title of each Class of Amount Offering Price Aggregate Amount of
Securities to be to be Per Offering Registration
Registered Registered Share(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... 3,565,000 $14 $49,910,000 $13,900(2)
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</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)This registration fee was paid upon the initial filing of this Registration
Statement on December 11, 1998.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Dated February 10, 1999
Prospectus
3,100,000 Shares
[ROWECOME LOGO APPEARS HERE]
Common Stock
(Par value $.01 per share)
RoweCom Inc. is offering 3,100,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our common
stock. We estimate that the initial public offering price will be between $12
and $14 per share.
We have filed an application to qualify the common stock for quotation on the
Nasdaq National Market under the symbol "ROWE."
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
<TABLE>
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<CAPTION>
Underwriting
Discounts and Proceeds
Price to other Estimated to
Public Offering Costs Company
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<S> <C> <C> <C>
Per Share $ $ $
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Total $ $ $
- ----------------------------------------------
</TABLE>
RoweCom has granted the underwriters the right to purchase up to an additional
465,000 shares of common stock to cover overallotments.
J.P. Morgan & Co.
CIBC Oppenheimer
Volpe Brown Whelan & Company
, 1999
<PAGE>
ART
[Heading which reads "Connecting businesses with the world's most
comprehensive Internet source of books and subscriptions." On the left hand
side, a column of artwork depicting individuals in a corporate environment,
captioned "Business and Employees." On the right hand side, a column of
various magazine covers, captioned "Books and Subscriptions." Both columns
have arrows pointing towards a center circle which reads "RoweCom Business to
Business e-commerce." Below are corporate logos with the caption "Strategic
Alliances and Partners."]
[A listing of selected clients grouped by industry and various control
benefits for clients. Artwork depicting the Arthur Andersen kStore home page,
an example of a report generated by the kStore, and various magazine covers.]
[A listing of client benefits, such as convenience and cost savings, and
publisher benefits. Artwork depicting the kStore Web pages and various
magazine covers.]
[Artwork depicting the kStore transaction model with footnotes that describe
each step and various magazine covers.]
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................................................... 1
Risk Factors......................................................... 4
Forward-looking Statements........................................... 13
Use of Proceeds...................................................... 14
Dividend Policy...................................................... 14
Capitalization....................................................... 15
Dilution............................................................. 16
Selected Financial Information....................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 19
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business.............................................................. 28
Management............................................................ 38
Certain Transactions.................................................. 45
Principal Stockholders................................................ 47
Description of Capital Stock.......................................... 49
Underwriting.......................................................... 52
Shares Eligible for Future Sale....................................... 54
Legal Matters......................................................... 55
Experts............................................................... 55
Available Information................................................. 55
Index to Consolidated Financial Statements............................ F-1
</TABLE>
----------------
In deciding whether to buy our common stock, you should rely only on the
information contained in this prospectus. To understand this offering fully,
you should read this entire prospectus carefully, including the financial
statements and notes. Individual sections of the prospectus, such as the
Prospectus Summary, are not complete and do not contain all of the information
that you should consider before investing in RoweCom's common stock. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
We intend to furnish to our stockholders annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
Until , all dealers that buy, sell or trade RoweCom common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
(i)
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Prospectus Summary
RoweCom is the leading business-to-business provider of e-commerce solutions
for purchasing and managing the acquisition of magazines, newspapers, journals,
books and other printed sources of commercial, scientific and general interest
information and analysis. These products are referred to as "knowledge
resources" in the information industry and in this prospectus. We offer our
clients and their employees easy and convenient access to the largest catalog
of such knowledge resources on the Internet. We also provide businesses with a
highly effective means of managing and controlling purchases of knowledge
resources and reducing costs. We target clients in knowledge-intense
industries, such as financial and professional services, high technology and
healthcare, as well as certain academic and non-profit institutions.
Information has become increasingly critical in most industries. This has been
reflected by rapid growth in the quantity and degree of specialization of
knowledge resources, as well as in the number of employees utilizing such
resources. As a result, businesses are spending increasingly significant
amounts on knowledge resources. In addition, many individual employees purchase
knowledge resources directly from publishers or through consumer online
services rather than through a corporate library or centralized purchasing
group. Despite these changes, the means by which most businesses and
institutions acquire knowledge resources has not evolved significantly and
still involves a manually intensive, paper based process.
RoweCom's flagship product, the kStore(TM), addresses these problems by
facilitating decentralized purchasing of knowledge resources by businesses and
their employees while at the same time giving management the tools required to
effectively control knowledge resource purchases. The kStore provides
businesses with a single comprehensive source for the purchase of knowledge
resources, and allows individual employees to find, order, and pay for
knowledge resources quickly and conveniently. At the same time, the kStore
provides managers with detailed reports of knowledge resource purchases by
their employees, permits them to institute customized approval procedures, and
reduces the costs of purchasing knowledge resources.
RoweCom has grown rapidly since it began operations in 1994. RoweCom's revenues
have increased from $3.1 million in 1996 to $19.1 million in 1998. Most of this
growth has resulted from our direct selling efforts, which we intend to expand.
We have also increased the number of distribution channels available to us and
rapidly increased the size of our catalog through strategic alliances with
content providers and knowledge resource marketers. In August 1998, we entered
into a five-year agreement with barnesandnoble.com to combine and jointly
market our respective catalogs to business customers. We have also entered into
strategic alliances with NewSub Services, Intelisys Commerce and Publications
Research Group. These alliances generally allow us to share content with our
strategic partners, market one another's catalogs of knowledge resource titles
and share revenue. We plan to continue to pursue additional strategic
alliances.
We intend to maintain and strengthen our position as the leading business-to-
business provider of e-commerce solutions for purchasing and managing the
acquisition of knowledge resources. Key elements of our strategy include:
. Increasing our client base and the number of individuals accessing the
kStore from desktop computers at existing clients.
. Increasing the content and functionality of the kStore.
. Developing additional strategic alliances to increase our channels of
distribution and available content.
. Enhancing the kStore's brand recognition through Web based advertising,
traditional advertising and attendance and presentations at major trade
shows.
. Expanding internationally through alliances with, or acquisitions of,
foreign content providers.
In seeking to maintain and strengthen our competitive position, we face a
number of important challenges. Our business is not yet profitable--we had an
accumulated deficit of $13.9 million at December 31, 1998--and we need to
increase sales significantly if we are to become profitable. In addition, we
have not yet faced significant competition in the e-commerce, business-to-
business market from any other company providing a similar package of knowledge
resource content and management tools. We expect that such competition may
emerge in 1999 and could adversely affect our growth. For a discussion of
certain risks of investing in our common stock, see "Risk Factors," beginning
on page 4.
1
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock Offered......................... 3,100,000 shares
Common Stock Outstanding after the Offering.. 9,630,416 shares
Over-allotment Option........................ 465,000 shares
Use of Proceeds.............................. Assuming an initial public
offering price of $13 per share,
the mid-point of the range set
forth on the cover page of this
prospectus, RoweCom will receive
net proceeds from this offering,
after deducting expenses, of
approximately $36.7 million, or
$42.3 million if the
underwriters purchase all of the
shares they are entitled to
purchase to cover over-
allotments. See "Underwriting."
We intend to use these proceeds
for working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... "ROWE"
</TABLE>
Unless otherwise indicated, the share information in the table above excludes
up to 465,000 shares that may be issued to the underwriters to cover over-
allotments. See "Underwriting."
The table reflects 5,004,236 shares of common stock issuable upon the
consummation of this offering as a result of the conversion of all outstanding
shares of all series of preferred stock of RoweCom, and the exercise of all
outstanding stock purchase warrants. See "Certain Transactions" and "Principal
Stockholders."
The table excludes 2,018,687 shares reserved for future issuance under
RoweCom's stock option and stock purchase plans and other options granted
outside of such plans. We have granted options to purchase 602,966 of such
shares and 163,584 of such options will be exercisable upon consummation of
this offering. See "Capitalization" and "Management--Stock Incentive Plans."
All references to shares of common stock in this prospectus reflect the impact
of a .34905-for-1 reverse stock split of the common stock declared by RoweCom's
board of directors on February 8, 1999.
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Our principal executive office is located at 725 Concord Avenue, Cambridge,
Massachusetts 02138 and our telephone number is 617-497-5800. Our corporate Web
site address is http://www.rowe.com. Information contained on our Web site is
not part of this prospectus.
2
<PAGE>
Summary Financial Information
The following table contains summary consolidated financial data of RoweCom
which should be read together with RoweCom's consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Pro forma per share amounts in the table below reflect the common stock
outstanding during each period plus the common stock to be issued at the
closing of this offering in connection with the conversion of preferred stock
and the exercise of warrants. For a more complete explanation of how pro forma
per share amounts have been calculated, you should read "Selected Financial
Information."
The "Pro forma as adjusted" column in the second table below reflects the
conversion of preferred stock and exercise of warrants described above plus the
sale by RoweCom of 3,100,000 shares of common stock at an assumed initial
public offering price of $13 per share, the mid-point of the range set forth on
the cover page of this prospectus. For a more complete explanation of how the
amounts in the "Pro forma as adjusted" column were calculated, you should read
"Selected Financial Information."
<TABLE>
<CAPTION>
----------------------------------------------
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998
---------- ---------- ---------- ----------
Dollars in thousands, except per
share data
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.......................... $ 324 $ 3,116 $ 12,890 $ 19,053
Cost of revenues.................. 323 3,083 12,701 18,736
---------- ---------- ---------- ----------
Gross profit.................. 1 33 189 317
Operating expenses:
Sales and marketing.............. 259 585 2,035 4,817
Research and development......... 149 532 584 1,631
General and administrative....... 171 351 751 1,561
---------- ---------- ---------- ----------
Total operating expenses........ 579 1,468 3,370 8,009
---------- ---------- ---------- ----------
Loss from operations.......... (578) (1,435) (3,181) (7,692)
Interest and other income, net.... 1 1 64 172
---------- ---------- ---------- ----------
Loss before income taxes...... (577) (1,434) (3,117) (7,520)
Provision for income taxes........ 8 16 137 109
---------- ---------- ---------- ----------
Net loss...................... $ (585) $ (1,450) $ (3,254) $ (7,629)
========== ========== ========== ==========
Basic and diluted pro forma net
loss per share................... -- -- -- $ (1.87)
Shares used in pro forma net loss
per share calculation............ 4,077,075
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
As of December 31, 1998
----------------------------
As of December 31, Pro Forma
1997 Actual as adjusted
------------------ ------------ --------------
<S> <C> <C> <C>
Dollars in thousands
Consolidated Balance Sheet
Data:
Working capital............... $ 185 $ 15,447 $52,326
Total assets.................. 2,108 20,284 57,163
Redeemable preferred stock.... 4,298 28,423 --
Total stockholders' (deficit)
equity....................... (3,768) (12,251) 53,051
</TABLE>
3
<PAGE>
Risk Factors
You should carefully consider the risks described below before deciding to
purchase shares of common stock. The risks and uncertainties described below
are not the only ones facing our company. If any of the following risks occurs,
our business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you could lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including the risks described below and elsewhere in this prospectus.
See "Forward-looking Statements."
Risks Particular to RoweCom
Extremely limited operating history
We began operations in 1994, did not generate significant revenues until March
1996 and began offering the kStore, our flagship product, in June 1997.
Consequently, we have an extremely limited operating history and our prospects
are subject to the risks and uncertainties frequently encountered by start-up
companies, particularly in the new and rapidly evolving markets for Internet
products and services. These risks include:
. the failure to maintain our leadership position through enhancement of
our services and catalog of magazines, newspapers, journals, books and
other knowledge resources;
. the failure to significantly and rapidly increase our client base;
. the development by competitors of services similar or superior to the
services we offer;
. the failure to increase penetration of our existing client base;
. the failure of businesses to widely adopt intranets and the Internet as
means for purchasing subscriptions and books; and
. the inability to identify, attract, retain and motivate qualified
personnel.
We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our future results of operations and
financial condition.
History of losses and probability of continuing losses
We have not achieved profitability on a quarterly or annual basis to date and
anticipate that we will continue to incur net losses for at least the near to
medium term. As of December 31, 1998, we had an accumulated deficit of $13.9
million. Although we have experienced revenue growth in recent periods, our
revenues may not continue at their current level or increase in the future. We
establish our expenditure levels for product development, sales and marketing
and other operating expenses based, in large part, on expected future revenues.
We currently expect to increase our operating expenses significantly in
connection with expansion of our sales and marketing operations and continued
development of our services and catalog. To the extent that these expenses are
not promptly followed by increased revenues, our future results of operations
and financial condition could be materially and adversely affected.
Revenue growth is not a reliable indicator of our prospects
Our extremely limited operating history and the uncertain nature of the markets
in which we compete make the prediction of future results of operations
difficult or impossible. Therefore, our recent revenue growth should not be
taken as indicative of the rate of revenue growth, if any, that can be expected
in the future. We believe that period-to-period comparisons of our results
should not be relied upon as an indication of future performance.
Reliance on a single product--the kStore
RoweCom currently derives substantially all of its revenues from the kStore and
we expect that kStore-related revenues will continue to account for a
significant portion of our revenues for the foreseeable future. A decline in
demand for the kStore or the inability of the kStore to penetrate new markets
as a result of competition, technological change or other factors would have a
material adverse effect on our future results of operations and financial
condition.
4
<PAGE>
Dependence on the strategic alliance with barnesandnoble.com
In August 1998, we entered into a strategic alliance agreement with
barnesandnoble.com llc. We are depending on this alliance for access to a broad
catalog of books to which we would not otherwise have access on comparable
terms. If this alliance does not generate significant levels of revenue, our
prospects would be adversely affected to a material extent. We have only
recently begun to put the alliance into practice and its benefits to RoweCom
have yet to be established. Under the agreement with barnesandnoble.com, we are
able to sell barnesandnoble.com's catalog of books and they are able to sell
our catalog of knowledge resources. For a description of the agreement, see
"Business--Strategic Alliances--barnesandnoble.com Relationship." The agreement
expires in five years, or may be terminated by one or both of the parties
earlier under certain circumstances, such as:
.failure to agree upon a development plan on schedule;
.material breach of the agreement;
.change of control other than an initial public offering by either party;
or
.failure to meet minimum sales targets.
Because we have only recently entered into this agreement, we cannot be sure
that the agreement will prove beneficial to us. In particular, we cannot be
sure that the barnesandnoble.com Business Solutions service, which commenced
operations in third quarter of 1998 and currently has a limited client base,
will generate a sufficient number of sales to make the strategic alliance
beneficial to RoweCom as a distribution channel. In addition, we cannot be
certain that the agreement will not be terminated prior to the initial five-
year term or renewed after five years. We have agreed with barnesandnoble.com
on two occasions to extend the deadline to agree upon a development plan. In
the event the agreement is terminated or not renewed, it is possible that we
will not be able to develop a relationship with another company to obtain
access on comparable terms to the catalog of books currently provided by
barnesandnoble.com. If the agreement is terminated or we are unable to renew
the agreement or otherwise obtain access to such content on acceptable terms,
our future financial results could be materially adversely affected.
Dependence on unproven strategic alliances for growth
We have recently entered into several other important strategic alliances and
our prospects depend significantly upon the development of these relationships.
These relationships are described under "Business--Strategic Alliances." If
these and any future strategic relationships into which we are able to enter do
not generate significant levels of revenue, or are terminated or expire, our
ability to become profitable could be adversely affected to a material extent.
We intend to continue to actively seek strategic partners and are relying on
such partnerships to generate a significant portion of RoweCom's growth in the
medium term. RoweCom's current strategic relationships are new and as yet
unproven.
If our marketing and content arrangements with our strategic partners were
lessened, curtailed, or otherwise modified, we might not be able to replace or
supplement such marketing efforts or the content provided by such partners
alone or with other companies. If these partners, which do not currently
compete with us, were to reduce their joint marketing activities with us,
further develop and market their own business-to-business subscription and book
procurement management system, or market such services developed by a
competitor, our business, results of operations and financial condition would
be materially and adversely affected.
Intense competition in the knowledge resource sales market
The market for the sale of magazines, newspapers, journals, books and other
knowledge resources to businesses is intensely and increasingly competitive. We
cannot be certain that we will maintain our competitive position against
current and potential competitors, especially the significant number of such
competitors with greater name recognition and client bases and greater
financial, marketing, service, support, technical and other resources than we
have.
We have not yet had significant direct competition from other companies
offering a knowledge resource procurement solution with management control
features comparable to those of the kStore. However, we expect that such
competition will develop in the short term and it may have an adverse impact on
our business. Many of our competitors may be able to respond more quickly to
new or emerging technologies and changes in client
5
<PAGE>
requirements, and to devote greater resources to the development, promotion and
sale of their service than we can. It is possible that our current or potential
competitors will develop Internet-based knowledge resource procurement products
and services superior to those we have developed or adapt more quickly than we
have to new technologies, evolving industry trends or changes in client
requirements. Our market is still evolving and we cannot be certain that we
will be able to compete successfully with current or future competitors, or
that competitive pressures faced by us will not have a material adverse effect
on our future results of operations and financial condition. See "Business--
Competition in the Knowledge Resource Industry."
Reliance on certain clients and industries
A small number of our clients account for a substantial amount of our revenues.
Any failure by one or more of these clients to purchase knowledge resources
through the kStore could have a material adverse effect on our results of
operations and financial condition. Our five largest clients accounted for
32.3% and 29.4% of our revenues in 1997 and 1998, respectively. Our revenues
also are highly concentrated in certain industries. Clients in the high
technology sector were responsible for 26.6% of our revenues in 1998 and 17.6%
in 1997. Clients in the health services sector were responsible for 31.0% of
revenues in 1998 and 33.2% in 1997. We cannot be certain that our top five
clients, or other clients, will continue to purchase knowledge resources
through the kStore or any other RoweCom service. In addition, our dependence on
clients in the high technology and health services sectors makes us vulnerable
to downturns in those sectors. Such a downturn could lead our clients in those
sectors to reduce their level of knowledge resource purchases, which could have
a material adverse effect on our financial condition and results of operations.
Dependence on Reed Elsevier for supply of knowledge resources
The primary supplier of the magazines and journals whose subscriptions we sell
is Reed Elsevier, which supplied titles accounting for 24.0% and 23.3% of our
sales in 1997 and 1998, respectively. We currently do not have a contract with
Reed Elsevier. If Reed Elsevier stops offering us knowledge resources on
favorable terms, we may not be able to offer clients competitive prices on
their orders. If Reed Elsevier were to cease to provide us with knowledge
resources, it would not be possible to obtain replacements for many of the
titles Reed Elsevier publishes at a comparable price, if at all, from an
intermediary. Either of these events could have a material adverse effect on
our financial condition and results of operations. Similarly, if any of the
other publishers with whom we do business decided not to provide us with
knowledge resources or decided to stop providing us with knowledge resources on
favorable terms, it could have a material adverse effect on our financial
condition and results of operations.
Significant fluctuation of quarterly revenues
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. As a result, our operating results may fall below market
analysts' expectations in some future quarters, which could have a material
adverse effect on the market price of our stock. Delays in client orders can
cause RoweCom's revenues and results of operations to significantly fluctuate
from period to period. Quarterly fluctuations may also result from factors such
as:
. penetration of our existing clients;
. obtaining new accounts;
. changes in our operating expenses;
. changes in the mix of knowledge resources sold;
. increased competition; and
. general economic factors.
Based upon all of these factors, we believe that quarterly revenues, expenses
and operating results are likely to vary significantly in the future, that
period-to-period comparisons of results of operations are not necessarily
meaningful and that, as a result, such comparisons should not be relied upon as
indications of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Selected Quarterly Results of
Operations."
6
<PAGE>
Possible inability to acquire additional content
One of the key elements of our strategy is to continue to expand our catalog of
knowledge resources. We gain content both through entrance into strategic
alliances and through contact with various publishers as we receive
particular requests from clients. There can be no assurance that we will be
able to continue to gain available content through strategic alliances or
directly from publishers. In the event that we are unable to continue to
increase our available content, we may:
. be at a competitive disadvantage with respect to competitors that may
compile greater libraries of available titles;
. lose clients that rely upon us as a single-source of knowledge resources;
and
. be unable to increase the amount of revenue that is otherwise generated
from particular clients.
Any of these effects could have a material adverse effect on our future results
of operations and financial condition.
Possible inability to develop brand
We believe that establishing and maintaining brand identity is a critical
aspect of attracting and expanding our client base, as well as of maintaining
and building upon the competitive advantage of being the first company to
provide businesses with an Internet-based subscription and book procurement
system. We have not yet developed a strong brand identity and if we fail to do
so it could have a material adverse impact on our business. The importance of
brand recognition will increase with competition. Promotion and enhancement of
the kStore brand will depend largely on our success in continuing to provide
high quality services, which cannot be assured. If users do not perceive the
kStore to be comprehensive and of high quality, or if we introduce new
features, or enter into new business ventures that are not favorably received
by users, we will risk diluting our brand. If we are unable to provide high
quality services, or otherwise fail to promote and maintain our brand, or if we
incur excessive expenses in an attempt to improve our services, or promote and
maintain our brand, our future results of operations and financial condition
could be materially and adversely affected.
Dependence on key personnel
Our future operating results depend in significant part upon the continued
services of a relatively small number of key technical and senior management
personnel, particularly Dr. Richard Rowe, our Chairman, President and Chief
Executive Officer. In addition our future results will depend significantly
upon the following key technical, sales and managerial employees:
. Louis Hernandez, Jr., Executive Vice President and Chief Financial
Officer;
. Steven Woit, Vice President, Content;
. Walter Crosby, Vice President and Chief Technical Officer; and
. Stephen Vozella, Vice President, Fulfillment.
There can be no assurance that we will retain our key employees or that we will
be successful in attracting, assimilating and retaining other highly qualified
technical, sales and managerial personnel in the future. The loss of any of our
key technical, sales and senior management personnel or the inability to
attract and retain additional qualified personnel could have a material adverse
effect on our future results of operations and financial condition. See
"Business--Employees."
We may have trouble expanding internationally
A part of our strategy is to expand into foreign markets. To date, we have had
only very limited experience in developing localized versions of our services
and in marketing and operating our services internationally. It may be
difficult for us to do so successfully in the future. In order to expand
overseas we intend to enter into relationships with foreign business partners.
We may experience difficulty in managing international operations because of
distance, as well as language and cultural differences, and there can be no
assurance that we or our future foreign business associates will be able to
successfully market and operate our services in foreign markets. We also
believe that, in light of substantial anticipated competition, it will be
necessary to implement our business strategy quickly in international markets
to obtain a significant share of the market. In addition, we
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<PAGE>
do not currently have the content necessary to conduct operations in many
foreign markets. We will be unlikely to be able to penetrate such markets
unless we gain such content, either through partnerships with publishers or
other content-providers in such markets, or possibly through acquisitions.
Loss of clients due to possible systems failures
The performance of our computer and telecommunications equipment is critical to
our reputation and achieving market acceptance of our services. Any system
failure, including network, software or hardware failure, that
causes interruption or an increase in response time of our online services
could result in decreased usage of our services. If such failures occur often,
it could reduce the attractiveness of our services to our users. An increase in
the volume of the kStore orders could strain the capacity of the hardware
employed by us, which could lead to slower response time or system failures.
Our operations are also dependent in part upon our ability to protect our
operating systems against physical damage from acts of God, power loss,
telecommunications failures, physical break-ins and similar events. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of our services, which could have a material
adverse effect on our future financial results. Our property and business
interruption insurance may not be adequate to compensate us for all losses that
may occur.
All of our computer and telecommunications equipment is located at our network
facility in London, Ontario. We currently have no backup systems at other
sites. Accordingly, there is a significant risk to our operations from a
natural disaster or system failure at our London facility. We currently
anticipate that we will establish redundant systems in our Cambridge,
Massachusetts headquarters, or elsewhere, upon consummation of the offering.
There can be no assurances, however, that any such back-up systems will be
online soon after consummation of the offering, or at all.
Possible failure to make systems Year 2000 compliant
We are currently undergoing efforts to ensure that all business systems owned
or operated by us or by third parties, the failure of which would directly and
adversely affect our ability to provide our services or otherwise affect
revenues, safety or reliability for such a period of time as to lead to
unrecoverable consequences, will not fail or make miscalculations as a result
of the Year 2000 date change. Although we believe that most of our in-house and
licensed information technology, including our production systems and
accounting software will not be affected by the Year 2000 date change, we
cannot be certain that the production systems of many of our strategic business
partners or the publishers from whom we purchase the newspapers, magazines,
journals and books that we sell to clients will not be adversely affected by
the Year 2000 date change. For a more complete discussion of the Year 2000
issue, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Year 2000 Issue on Operations and Financial
Condition of RoweCom."
Our revenues are seasonal
We have historically experienced seasonal fluctuations in revenues because
substantially all of our revenues have been generated in the fourth quarter of
each year when most subscriptions are purchased or renewed by our clients. This
pattern may be expected to continue, and interim results of financial
operations within any fiscal year cannot be expected to be representative. As a
strategic response to the concentration of orders in the fourth quarter, we may
from time to time make pricing, servicing or marketing decisions that could
have a material adverse effect on our future financial results.
Risk of failure to continuously enhance product offering
Our future success will depend on our ability to enhance our current products
and to continue to develop and introduce new products and services that keep
pace with competitive product introductions and technological developments,
satisfy diverse and evolving client requirements and otherwise achieve market
acceptance. In particular, we believe that our future success will be
dependent, in large part, upon market acceptance of the most recent version of
the kStore. We cannot be certain that we will be successful in developing and
marketing on a timely and cost-effective basis future services or service
enhancements, or offer new services that respond to technological advances. Any
failure by us to anticipate or respond adequately to changes in technology and
client preferences, or any significant delays in other development efforts,
could have a material adverse effect on our future results of operations and
financial condition.
8
<PAGE>
Future acquisitions could harm our business
We evaluate potential acquisitions on an ongoing basis. Acquisitions pose many
risks, including that:
. we may not be able to compete successfully for available acquisition
candidates, complete future acquisitions or accurately estimate the
financial effect on our company of any businesses we acquire,
. future acquisitions may require us to spend significant cash amounts or
may decrease our operating income,
. we may have trouble integrating the acquired business and retaining
personnel,
. acquisitions may disrupt our business and distract our management from
other responsibilities, and
. to the extent that any of the companies which we acquire fail, our
business could be harmed.
Difficulty of managing growth
Our business has grown rapidly in the last four years and must continue to do
so in order for RoweCom to become profitable. Total revenues have increased
from $324,000 in 1995 to $19.1 million in 1998, the number of our employees has
grown from 9 at December 31, 1995 to 101 at December 31, 1998, and the scope of
our operating and financial systems has expanded significantly. This recent
rapid growth has placed and, if sustained, will continue to place, a
significant strain on our management and operations. Accordingly, our future
operating results will depend on the ability of our officers and other key
employees to continue to implement and improve our operational, client support
and financial control systems, and effectively expand, train and manage our
employee base. We cannot be certain that we will be able to manage any future
expansion successfully, and any inability to do so would have a material
adverse effect on our future results of operations and financial condition.
Risks Typical of E-Commerce Companies
Possible slow adoption of Internet and intranet solutions by businesses
In order for us to be successful, intranets must continue to be adopted by
businesses as the means of making information and electronic services available
to employees. In addition, the Internet must continue to be adopted as an
important means of buying and selling products and services. Because intranet
and Internet usage is continuing to evolve, it is difficult to estimate with
any assurance the size of this market and its growth rate, if any. To date,
many businesses have been deterred from utilizing intranets and the Internet
for a number of reasons, including:
. security concerns;
. limited access to the corporate intranet;
. lack of availability of cost-effective, high-speed service;
. inconsistent quality of service;
. potentially inadequate development of network infrastructure;
. the inability to integrate business applications on these networks; and
. the need to operate with multiple and frequently incompatible products.
Businesses may not broadly accept electronic procurement of knowledge resources
Even if the Internet and intranets are widely adopted, the adoption of these
networks for book and subscription procurement, particularly by companies that
have relied on traditional means of procurement, will require broad acceptance
of the new approach. In addition, companies that have already invested
substantial resources in traditional methods of procurement may be reluctant to
adopt a new strategy. See "Business--Industry Overview."
The Internet may not be able to accommodate growth
We depend upon the Internet to conduct our business and any problems in the
functioning of the Internet could adversely affect our business. To the extent
that the Internet continues to experience significant growth in the number of
users, their frequency of use or their speed and quality-of-service
requirements, it is possible that the infrastructure for the Internet will not
be able to support the demands placed upon it. In addition, the Internet
9
<PAGE>
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally and RoweCom's services in particular. If the
infrastructure for the Internet does not effectively support growth that may
occur, our future financial results will be materially adversely affected. Even
if the required Internet infrastructure, standards and protocols are developed,
we may be required to incur substantial expenditures in order to adapt our
services to changing or emerging technologies, which could have a material
adverse effect on our future results of operations and financial condition.
Potential imposition of government regulation and legal uncertainties
Few laws or regulations currently are directly applicable to access to or
commerce on the Internet and we are not subject to direct government
regulation, other than regulations applicable to businesses generally. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease
the demand for our services, increase the cost of our doing business or
otherwise have a material adverse effect on our future results of operations
and financial condition. A number of legislative and regulatory proposals
relating to the Internet commerce are under consideration by federal, state,
local and foreign governments and, as a result, a number of laws or regulations
may be adopted with respect to Internet user privacy, taxation, pricing,
quality of products and services and intellectual property ownership. There is
also uncertainty as to how existing laws will be applied to the Internet in
areas such as property ownership, copyright, trademark, trade secret, obscenity
and defamation.
Potential for sales tax and other tax obligations
We do not collect sales or other similar taxes when we sell books and
subscriptions. If one or more states or any foreign country were to require
that we collect sales or other taxes on the sale of books and subscriptions
through our system, it could have a material adverse effect on our future
financial results.
A number of proposals have been made at the state and local level that would
impose taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of e-commerce and
could adversely affect our future results of operation and financial condition.
A law imposing a three-year moratorium on new taxes on Internet-based
transactions has recently been enacted in the US. This moratorium relates to
new taxes on Internet access fees and state taxes on e-commerce that
discriminate against out-of-state Web sites. Sales or use taxes imposed by
those buying or selling products or services over the Internet will not be
affected by this moratorium. We have not yet been able to determine how we will
be affected by this moratorium. To the extent that the moratorium provides a
material benefit, its expiration after three years could have a material
adverse effect on our financial condition and results of operations.
Possible e-commerce security breaches
We rely on encryption and authentication technology to effect secure
transmission of confidential information, such as payment instruction sets. It
is possible that advances in computer capabilities, new discoveries in the
field of cryptography, or other events or developments will result in a
compromise or breach of the codes used by us to protect client transaction
data. If any such compromise of our security were to occur, it could have a
material adverse effect on our reputation and future results of operations and
financial condition, and expose us to a risk of loss or litigation and possible
liability. It is possible that our security measures will not prevent security
breaches.
Possible infringement of intellectual property rights
Legal standards relating to the protection of intellectual property rights in
Internet-related industries are uncertain and still evolving. As a result, the
future viability or value of our intellectual property rights, as well as those
of other companies in the Internet industry, is unknown. We cannot be certain
that the steps we have
taken to protect our intellectual property rights will be adequate or that
third parties will not infringe or
10
<PAGE>
misappropriate our proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on our future financial
results. In addition, we cannot be certain that our business activities will
not infringe upon the proprietary rights of others, or that other parties will
not assert infringement claims against us.
Risks Relating to the Offering
Continued control by existing stockholders
Upon completion of this offering, the principal stockholders listed under
"Principal Stockholders" will beneficially own approximately 53.97% of our
outstanding common stock, and 51.50% if the underwriters' over-allotment option
is exercised in full. Consequently, such persons, as a group, will be able to
control the outcome of all matters submitted for stockholder action, including
the election of members to our board of directors and the approval of
significant change-in-control transactions. Therefore, they will effectively
control our management and affairs. This may have the effect of delaying or
preventing a change in control. See "Management" and "Principal Stockholders."
We will not pay dividends for the foreseeable future
We anticipate that earnings, if any, will be retained for the development of
our business and that no cash dividends will be declared on the common stock
for the foreseeable future. RoweCom's loan agreement with Imperial Bank also
prohibits the payment of dividends. See "Dividend Policy."
Immediate and substantial dilution to new investors
The initial public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock will be immediately after
the offering. Any common stock you purchase in the offering will have a post-
offering net tangible book value per share of $7.55 less than the price you
paid for the share, assuming an initial public offering price of $13 per share,
the mid-point of the range set forth on the cover page of this prospectus. See
"Dilution."
Stock price may decline after the offering and may be volatile in the future
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between the underwriters and us, and may not be indicative of our future market
prices. As a result, you may not be able to resell any shares you buy from us
at or above the initial public offering price due to a number of factors,
including:
. actual or anticipated fluctuations in our operating results;
. changes in expectations as to our future financial performance or
changes in financial estimates of securities analysts;
. announcement of new products or product enhancements by us or our
competitors;
. technological innovations by us or our competitors; and
. the operating and stock price performance of other comparable companies.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect
the trading price of our common stock, regardless of our actual operating
performance. In particular, the stock prices for many companies in the
technology and emerging growth sectors have experienced wide fluctuations which
have often been unrelated to the operating performance of such companies. Such
fluctuations may adversely affect the market price of the common stock.
You should read the "Underwriting" section for a more complete discussion of
the factors to be considered in determining the initial public offering price.
Shares available for future sale
A substantial number of shares of our common stock could be sold into the
public market after this offering. The occurrence of such sales, or the
perception that such sales could occur, could materially and adversely affect
our stock price or could impair our ability to obtain capital through an
offering of equity securities. After
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<PAGE>
this offering, we will have outstanding 9,630,416 shares of common stock, or
10,095,416 shares if the underwriters exercise their option to purchase
additional shares of common stock in the offering. We have also reserved an
additional 2,018,687 shares of common stock for issuance under our stock option
and stock purchase plans and under other stock option agreements. Options to
purchase 602,966 of these shares have been issued, of which 163,584 will be
exercisable upon the consummation of this offering.
The 3,100,000 shares of common stock being sold in this offering will be freely
transferable under the securities laws immediately after issuance, except for
any shares sold to "affiliates" of RoweCom. We intend to register for resale
the shares of common stock reserved for issuance under our stock option and
stock purchase plans approximately 180 days after the date of this prospectus.
In addition, certain stockholders have agreed pursuant to written "lock-up"
agreements that, for a period of 180 days from the date of this prospectus,
they will not sell their shares. As a result, upon the expiration of the lock-
up agreements 180 days after the date of this prospectus, 4,901,315 shares of
common stock will be eligible for sale subject, in most cases, to certain
volume and other restrictions under the Federal securities laws. The remaining
1,629,101 shares of common stock will become eligible for resale under the
Federal securities laws on the first anniversary of their respective dates of
issuance, beginning on December 11, 1999. See "Management--Stock Incentive
Plans" and "Shares Eligible for Future Sale."
We and certain of our shareholders who will hold in the aggregate 5,599,705
shares of common stock upon the consummation of this offering have entered into
a registration rights agreement which requires us to include shares of common
stock held by such shareholders in registered offerings of common stock made by
us in the future.
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<PAGE>
Forward-looking Statements
This prospectus contains forward-looking statements based on current
expectations, estimates and projections with respect to RoweCom and our
industry. These statements include:
. forecasts of growth in the business-to-business market for business
information, magazines, newspapers, journals, books and other knowledge
resources, growth in business-to-business e-commerce, and growth in the
number of professional workers relying on knowledge resources;
. statements regarding RoweCom's preparedness for the Year 2000 date
change and trends in RoweCom's sales, expense levels, and liquidity and
capital resources;
. statements relating to potential gross margin growth;
. statements regarding RoweCom's plans for international growth, including
in Canada; and
. other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend"
and other similar words that signify forward-looking statements.
These forward-looking statements involve risks and uncertainties, both known
and unknown, and actual results may differ materially from those anticipated or
expressed in such statements. Potential risks and uncertainties include those
described in this prospectus under "Risk Factors," which begin on page 4, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which begin on page 19. The forecasts of growth referred to above
are also based on a number of additional assumptions, including that:
. the worldwide economy will resume its expansion;
. the number of people online and the total number of additional hours
spent online will increase significantly over the next three years;
. advances in database technology will stimulate greater demand for
information; and
. spending on electronically delivered information will increase
significantly.
If any one or more of the preceding assumptions turns out to be incorrect, or
one or more of the risks identified in "Risk Factors" occurs, actual growth may
be materially different from that forecasted. Accordingly, there can be no
assurance that the business-to-business market for business information,
magazines, newspapers, journals, books and other knowledge resources, business-
to-business Internet commerce, or the number of professional workers relying on
knowledge resources will grow over the next three years at the rates forecasted
or at all. Lack of growth at the forecasted rates may have a material adverse
impact on our future results of operations and financial condition.
Except as required by law, we undertake no obligation to update any forward-
looking statement, whether as a result of new information, future events or
otherwise.
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<PAGE>
Use of Proceeds
Assuming an initial public offering price of $13 per share, which is the mid-
point of the range set forth on the cover of this prospectus, RoweCom will
receive approximately $36.7 million from the sale of common stock in this
offering, or $42.3 million if the underwriters' over-allotment option is
exercised in full. These amounts are net of estimated underwriting discounts
and commissions, and estimated offering expenses of $800,000 payable by
RoweCom.
The principal purposes of this offering are to:
. finance the expansion of RoweCom's business and to increase available
working capital;
. create a public market for the common stock;
. facilitate future access by RoweCom to public equity markets; and
. increase the visibility of RoweCom in the marketplace.
RoweCom currently intends to use:
. about 30-60% of the net proceeds of this offering to increase sales and
marketing efforts; and
. about 20-30% of the net proceeds of this offering to develop increased
functionality for the kStore, increase content available through the
kStore by increasing our content acquisition staff, and enhance our
technical infrastructure, including by developing redundant systems.
We intend 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 our business. We may also apply a portion of the net
proceeds of the offering to acquire businesses, products and technologies that
are complementary to ours. Although we have not identified any specific
businesses, products or technologies that we may acquire and have not entered
into any current agreements or negotiations with respect to any such
transactions, we evaluate such opportunities from time to time. Pending such
uses, the net proceeds will be invested in government securities and other
short-term, investment-grade, interest-bearing instruments.
Dividend Policy
RoweCom has never declared or paid any cash dividends on its capital stock and
does not intend to pay any cash dividends on its common stock for the
foreseeable future. Future dividends, if any, will be determined by the board
of directors. Under our loan agreement with Imperial Bank, we are prohibited
from paying dividends while the loan agreement is in effect.
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Capitalization
The following table sets forth the capitalization of RoweCom as of December 31,
1998 on an actual basis and on a pro forma, as adjusted basis after giving
effect to:
. the issuance of 5,004,236 shares of common stock upon the conversion of
all outstanding preferred stock and the exercise of all outstanding stock
purchase warrants; and
. the sale by RoweCom of 3,100,000 shares of common stock in this offering
at an assumed initial public offering price of $13 per share, the mid-
point of the range set forth on the cover page of this prospectus, after
deducting estimated underwriting discounts and commissions, and estimated
offering expenses of $800,000 payable by RoweCom.
This information should be read in conjunction with RoweCom's consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
---------------------------
As of December 31, 1998
---------------------------
Pro Forma
Actual as adjusted(3)
----------- --------------
<S> <C> <C>
Dollars in thousands, except per share data
Redeemable Convertible Preferred Stock:
Class A Preferred Stock, $.01 par value per
share; 1,772,857 shares issued and
outstanding; 0 shares issued and outstanding,
as adjusted(1)................................ $ 4,637 --
Class B Preferred Stock, $.01 par value per
share; 6,326,610 shares issued and
outstanding; 0 shares issued and outstanding,
as adjusted(2)................................ 8,198 --
Class C Preferred Stock, $.01 par value per
share, 4,586,599 shares issued and
outstanding; 0 shares issued and outstanding,
as adjusted................................... 15,588 --
----------- -----------
Total........................................ 28,423 --
Stockholders' equity:
Common Stock, $.01 par value per share;
34,000,000 shares authorized; 1,526,180 shares
issued and outstanding; 9,630,416 shares
issued and outstanding, as adjusted........... 15 $ 96
Additional paid-in capital..................... 1,710 66,931
Treasury stock, at cost........................ (53) (53)
Accumulated deficit............................ (13,901) (13,901)
Cumulative translation adjustment.............. (22) (22)
----------- -----------
Total stockholders' (deficit) equity......... (12,251) 53,051
----------- -----------
Total capitalization......................... $ 16,172 $ 53,051
=========== ===========
</TABLE>
- --------
(1)Includes 161,289 shares of Class A Preferred Stock of RoweCom and 1,611,568
shares of Class A Preferred Stock of RoweCom's subsidiary, Rowe Communications,
Ltd. ("RoweCom Canada"). See note 12 to the consolidated financial statements.
(2)Includes 5,140,370 shares of Class B Preferred Stock of RoweCom and
1,186,240 shares of Class B Preferred Stock of RoweCom Canada. See note 12 to
the consolidated financial statements.
(3)Reflects (A) the exchange of 1,611,568 shares of the Class A Preferred Stock
of RoweCom Canada into 3,163,306 shares of Class A-1 Preferred Stock of RoweCom
and 1,186,240 shares of the Class B Preferred Stock of RoweCom Canada into
1,186,240 shares of Class B Preferred Stock of RoweCom, effective as of the
consummation of this offering; (B) the conversion of an aggregate of 161,289
shares of Class A Preferred Stock, 3,163,306 shares of Class A-1 Preferred
Stock, 6,326,610 shares of Class B Preferred Stock and 4,586,599 shares of
Class C Preferred Stock of RoweCom into 4,969,705 newly-issued shares of common
stock effective as of the consummation of this offering; (C) the exercise of
stock purchase warrants for 34,531 shares of common stock, including the net
exercise of certain warrants; and (D) the sale by RoweCom of 3,100,000 shares
of common stock in the offering at an assumed initial public offering price of
$13 per share, the mid-point of the range set forth on the cover of this
prospectus, after deducting underwriting discounts and commissions, and
estimated offering expenses of $800,000 payable by RoweCom. See "Certain
Transactions" and "Principal Stockholders." Excludes (A) 602,966 shares of
common stock issuable upon the exercise of options outstanding on the date of
this prospectus, at a weighted average exercise price of $3.21 per share and
(B) 1,415,721 additional shares of common stock reserved for issuance under
RoweCom's stock option and stock purchase plans. See "Management--Stock
Incentive Plans."
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Dilution
The pro forma net tangible book value of RoweCom as of December 31, 1998 was
$15,764,754, or $2.41 per share of common stock after giving effect to the
conversion of all outstanding shares of preferred stock into common stock, and
the exercise of all outstanding stock purchase warrants. Pro forma net tangible
book value per share is determined by dividing the net tangible book value of
RoweCom (total tangible assets less total liabilities) by the total number of
shares of common stock outstanding after giving effect to the transactions
described in the previous sentence. After giving effect to the sale of the
3,100,000 shares of common stock offered by RoweCom hereby at an assumed
initial public offering price of $13 per share, the mid-point of the range set
forth on the cover of this prospectus, and after deducting estimated
underwriting discounts and commissions and offering expenses payable by RoweCom
(resulting in estimated net proceeds of $36,679,000), the adjusted pro forma
net tangible book value of RoweCom as of December 31, 1998, would have been
$52,443,754 or $5.45 per share. This represents an immediate increase in the
pro forma net tangible book value of $3.04 per share to existing stockholders
and an immediate dilution of $7.55 per share to new investors. The following
table illustrates the per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share........................ $13.00
Pro forma net tangible book value per share before this offering(1).... $ 2.41
Increase attributable to new investors(1).............................. $ 3.04
Adjusted pro forma net tangible book value per share after this
offering.............................................................. $ 5.45
Dilution per share to new investors.................................... $ 7.55
</TABLE>
- --------
(1)Assumes no exercise of the underwriters' over-allotment option and no
exercise of stock options outstanding as of December 31, 1998. As of the date
of this prospectus, options to purchase 602,966 shares of common stock were
outstanding at a weighted average exercise price of $3.21 per share, and
1,415,721 shares were available for the issuance of additional stock options
under RoweCom's stock option and stock purchase plans. To the extent that any
of these options are exercised, there will be further dilution to new
investors. If all of these outstanding options were exercised in full, the
dilution per share to new investors in this offering would be increased by $.32
per share to a total of $7.87 per share, and the average price per share paid
by RoweCom's existing shareholders would be $4.20. See "Capitalization,"
"Management--Stock Incentive Plans," "Certain Transactions" and note 14 to the
consolidated financial statements.
The following table summarizes on a pro forma basis, as of December 31, 1998,
the difference between the number of shares of common stock purchased from
RoweCom, the total consideration paid to RoweCom and the average price per
share paid by the existing stockholders and by the new investors (at an assumed
initial public offering price of $13 per share, the mid-point of the range set
forth on the cover of this prospectus, before deduction of estimated
underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
---------------------------------------------------
Shares Purchased Total Consideration
----------------- ------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 6,530,416 68% $29,950,402 43% $ 4.59
New investors(2)........... 3,100,000 32% 40,300,000 57% 13.00
--------- --- ----------- ----
Total...................... 9,630,416 100% $70,250,402 100%
</TABLE>
- --------
(1) Assumes the conversion of all outstanding shares of preferred stock into
common stock and the exercise of all outstanding stock purchase warrants, as if
each had occurred on December 31, 1998.
(2) See note 1 to the preceding table.
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<PAGE>
Selected Financial Information
The following historical selected consolidated financial information of RoweCom
is qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
prospectus.
The statement of operations data set forth below for each of the fiscal years
ended December 31, 1997 and 1998 and the balance sheet data at December 31,
1997 and 1998 are derived from consolidated financial statements of RoweCom
audited by PricewaterhouseCoopers LLP, independent accountants, which are
included elsewhere in this prospectus. The statement of operations data set
forth below for the fiscal year ended December 31, 1995, and the balance sheet
data at December 31, 1995 and 1996 are derived from audited financial
statements of RoweCom not included in this prospectus.
The selected consolidated financial data for the period from inception (January
1, 1994) through December 31, 1994 and at December 31, 1994 are derived from
unaudited consolidated financial statements of RoweCom not included in this
prospectus. The unaudited consolidated financial statements include all
adjustments (comprised only of normal recurring entries) which we consider
necessary for a fair presentation.
<TABLE>
<CAPTION>
-------------------------------------------------
Year Ended December 31,
-------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except per share data
Statement of Operations
Data:
Revenues................... -- $ 324 $ 3,116 $ 12,890 $ 19,053
Cost of revenues........... -- 323 3,083 12,701 18,736
-------- -------- -------- -------- ---------
Gross profit........... -- 1 33 189 317
Operating expenses:
Sales and marketing....... $ 9 259 585 2,035 4,817
Research and development.. 19 149 532 584 1,631
General and
administrative........... 7 171 351 751 1,561
-------- -------- -------- -------- ---------
Total operating
expenses................ 35 579 1,468 3,370 8,009
-------- -------- -------- -------- ---------
Loss from operations... (35) (578) (1,435) (3,181) (7,692)
Interest and other income,
net....................... (3) 1 1 64 172
-------- -------- -------- -------- ---------
Loss before income
taxes................. (38) (577) (1,434) (3,117) (7,520)
Provision for income
taxes..................... -- 8 16 137 109
-------- -------- -------- -------- ---------
Net loss............... $ (38) $ (585) $ (1,450) $ (3,254) $ (7,629)
======== ======== ======== ======== =========
Basic and diluted pro forma
net loss per share(1)..... -- -- -- -- $ (1.87)
Shares used in pro forma
net loss per share
calculation(1)............ 4,077,075
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
At December 31, At December 31, 1998
------------------------- ------------------------
Pro Forma
1994 1995 1996 1997 Actual as adjusted(2)
---- ---- ----- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Consolidated Balance Sheet
Data:
Working capital........... $ 1 $(49) $(481) $ 185 $ 15,447 $52,326
Total assets.............. 15 204 428 2,108 20,284 57,163
Redeemable preferred
stock.................... -- -- -- 4,298 28,423 --
Total stockholders' equity
(deficit)................ 12 52 (338) (3,768) (12,251) 53,051
</TABLE>
<TABLE>
<CAPTION>
--------------------------
Year ended December 31,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Supplemental Information
Average number of transactions per client(3)....... 148 233 257
Average gross revenue in dollars per transaction(3)
.................................................. $ 457 $ 390 $ 396
Number of clients.................................. 46 141 187
</TABLE>
- --------
(1)Pro forma per share amounts are calculated by using the sum of (A) the
weighted average number of shares of common stock outstanding during the period
and (B) the weighted average number of shares of common stock issuable upon the
conversion of shares of RoweCom's preferred stock outstanding during the
17
<PAGE>
period and the exercise of all outstanding stock purchase warrants. See
"Certain Transactions" and "Principal Stockholders."
(2)Reflects (A) the issuance of 5,004,236 shares of common stock as of the
closing of this offering upon the conversion of all shares of RoweCom's
preferred stock outstanding at that date and the exercise of all outstanding
stock purchase warrants (see "Certain Transactions" and "Principal
Stockholders") and (B) the sale by RoweCom of 3,100,000 shares of common stock
at an assumed initial public offering price of $13 per share, the mid-point of
the range set forth on the cover page of this prospectus, after deducting
estimated underwriting discounts and commissions, and estimated offering
expenses of $800,000 payable by RoweCom. Excludes (A) 602,966 shares of common
stock issuable upon the exercise of options outstanding on the date of this
prospectus at a weighted average exercise price of $3.21 per share and (B)
1,415,721 additional shares of common stock reserved for issuance under
RoweCom's stock option and stock purchase plans.
(3)A transaction is a single item purchased by a client, such as a single
subscription or book.
18
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. RoweCom's actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors"
and elsewhere in this prospectus.
Overview of RoweCom's Operations and Financial Performance
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. We offer our clients access to the largest catalog of magazines,
newspapers, journals, books and other knowledge resources on the Internet.
RoweCom allows employees to purchase knowledge resources easily and
conveniently from their desktop computers and provides businesses with a highly
effective means of managing and controlling purchases of knowledge resources
and reducing costs. Our target clients are in knowledge-intense industries,
such as financial and professional services, high technology and healthcare as
well as certain academic and non-profit institutions.
RoweCom began significant commercial operations in March 1996. We introduced
our flagship product, the kStore(TM), in June 1997. Since its inception,
RoweCom has incurred significant net losses and, as of December 31, 1998, had
an accumulated deficit on a consolidated basis of $13.9 million.
Substantially all of our revenues are generated by the sale of magazines,
newspapers, journals, books and other knowledge resources published by third
parties. The sales price of each knowledge resource during the reported periods
reflected the cost to RoweCom of the knowledge resource plus a transaction fee
retained by us. This pricing structure changed in the fourth quarter of 1998.
See "--RoweCom Gross Margin" on page 20. RoweCom received a flat fee or, in
some cases, a percentage of the selling price for each item purchased through
the kStore. While RoweCom receives orders and payments directly from its
clients, and processes such orders and payments on behalf of such clients, it
does not maintain an inventory of any of the knowledge resources it sells.
Accordingly, RoweCom does not incur inventory costs and is not subject to
inventory risk. Approximately 46.5% of our revenues for 1998 were generated
from the renewal of subscriptions. We believe that we will continue to receive
a substantial portion of revenue in the future from renewals. RoweCom, in some
cases, finances the knowledge resource purchases of its clients, principally
through borrowings under its credit facility, and at December 31, 1998 had
outstanding accounts receivable of $2.0 million.
RoweCom's services initially focused on academic libraries and centralized
purchasing groups. Beginning in 1998, we have increasingly focused our sales
and marketing efforts on corporate clients and on desktop purchases by
individuals rather than centralized purchasing groups. We believe that an
increase in the number of desktop purchasers at a client will increase the
amount of revenue generated by such client. As a result of our efforts,
purchases by corporate clients in 1998 have increased more rapidly than
purchases by academic and public institution clients. Sales to corporate
clients grew to approximately $12.6 million in 1998 from approximately $5.6
million in 1997.
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 purchases by individual employees increase as a percentage of total
revenues, the seasonality described above has begun to decrease because desktop
purchases are generally made as required, and thus are more evenly distributed
throughout the year. For a more detailed discussion of the seasonality of our
business, see "--Selected Quarterly Results of Operations."
Substantially all of RoweCom's expenses consist of the cost of the knowledge
resources sold to its clients, which are variable, and sales and marketing,
research and development and general and administrative expenses, which are
relatively fixed. RoweCom's fixed expense levels have increased over time as
its operations have expanded and are expected to continue to increase over the
near and medium term. Management expects that expenses will increase primarily
in sales and marketing as RoweCom increases its direct sales force and support
staff, and in research and development, as RoweCom develops new technology to
19
<PAGE>
enhance its service. Sales and operating results generally depend on the volume
and timing of orders received, which are difficult to forecast. As a result,
RoweCom may be unable to adjust fixed expense spending in a timely manner to
compensate for any unexpected fluctuation or shortfall in revenue or gross
profit. Any significant shortfall in gross profit in relation to RoweCom's
fixed expenses would have an immediate adverse effect on RoweCom's results of
operations.
In the third and fourth quarters of 1998, RoweCom entered into strategic
alliances with barnesandnoble.com llc and NewSub Services, Inc., each of which
added substantial new content to our catalog as well as new distribution
channels for our services. barnesandnoble.com will pay RoweCom a fixed
percentage of the purchase price of every book sold either through RoweCom's
kStore or barnesandnoble.com's Business Solutions service, other than sales to
existing clients of the Business Solutions service as of the date of the
agreement. RoweCom will pay barnesandnoble.com a fixed amount or percentage of
the purchase price of every subscription sold by RoweCom's kStore or
barnesandnoble.com's Business Solutions service, other than sales to existing
RoweCom customers as of the date of the agreement. Under the terms of the
agreement with NewSub Services, each party will earn revenue on titles sold
through the other party's online distribution channel by receiving a percentage
of the gross sales price or a transaction fee for each of its respective titles
sold by the other party. These strategic alliances are not expected to generate
material revenues until the second half of 1999. RoweCom has entered into other
strategic relationships and intends to continue to enter into strategic
relationships that will further increase content and add new distribution
channels. RoweCom expects that the terms of most strategic alliances will
include some element of revenue sharing between the parties. See "Business--
Strategic Alliances."
RoweCom's Gross Margin
RoweCom's gross margin has increased in each of the past three years from 1.08%
in 1996 to 1.66% in 1998. The gross margin reflects:
. the mix of products purchased by our clients;
. the discount rates we are able to obtain from publishers;
. our pricing structure; and
. the amount of installation fees we earn as a proportion of total
revenues.
We are seeking to increase RoweCom's gross margin by:
. revising our pricing structure;
. increasing sales of higher margin products;
. obtaining greater discounts from publishers; and
. increasing installation fees.
We believe that the combined effect of these strategies, which are discussed in
greater detail below, will be to improve our gross margin. However, we cannot
be certain that these strategies will be successful or of the timing or extent
of any improvement.
Pricing. RoweCom generally purchases publications from publishers at a discount
from the list price. These discounts vary widely from an average of 5% on high-
priced scientific, technical and medical publications, whose average selling
price is hundreds of dollars, to 80% for lower-priced general interest and
large circulation magazines, whose average selling price is below $30. Until
the fourth quarter of 1998, RoweCom's pricing strategy had been to pass the
discount provided by the publisher on to the buyer and retain only a flat fee
for each subscription sold. This aggressive pricing strategy was aimed at
gaining market share quickly and establishing the RoweCom brand, but led to low
gross margins.
In the fourth quarter of 1998, RoweCom began offering approximately 800 large
circulation and general interest publications under its alliance with NewSub
Services. RoweCom earns a 35% margin on initial orders and a 15% margin on
renewals of these publications. RoweCom plans to aggressively promote these
publications in 1999 in order to seek to improve gross margin overall.
In the first quarter of 1999, RoweCom began retaining a portion of the
discounts it obtains from publishers on serials instead of passing such
discounts on to customers, as it had done in the past. Nonetheless, RoweCom
20
<PAGE>
offers its large volume customers the guaranteed lowest price on the market for
all subscriptions. RoweCom expects that this change in pricing will benefit
RoweCom's gross margin, although no assurances can be given that this strategy
will be successful.
Product Mix. RoweCom believes that its increased focus on corporate desktop
purchases will result in increased sales of lower-priced items on which RoweCom
retains a higher percentage of the sales price. Corporate libraries and central
purchasing groups generally purchase higher-priced business and trade,
scientific, technical and medical publications, while desktop purchases tend to
be lower-priced business and trade, and general interest and large circulation
publications. RoweCom's kStore is specifically designed to allow decentralized
desktop purchases with centralized approval and reporting. This feature,
combined with favorable pricing on lower-priced items and books, should
increase sales of lower priced knowledge resources. Our increased focus on
desktop sales may result in higher gross margins, but there can be no assurance
that RoweCom's trend of increasing desktop purchases will continue or that, if
continued, the trend will produce increased gross margin.
Greater Discounts. We believe that the increasing volume of sales by RoweCom
will increase the buying power of RoweCom and possibly allow us to negotiate
higher discounts from publishers on the items we resell. This will provide the
opportunity for higher gross margins and improved pricing. We cannot be
certain, however, that our sales volumes will continue to increase or that we
will be able to obtain greater discounts.
Increasing Installation Fees. Prior to 1999, we frequently waived the
installation fee charged when a new customer's store was set up. Since 1999, it
has been RoweCom's policy to collect these fees and we believe that this change
in policy will have a positive effect on gross margin, although we cannot be
certain of success in this strategy.
Results of Operations
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues. Revenues consist almost entirely of the sales of knowledge resources.
Revenues increased to $19.1 million in 1998 as compared to $12.9 million in
1997, an increase of $6.2 million, or 47.8%. This increase resulted primarily
from increased sales per client and growth in our client base, particularly in
the corporate sector. Average revenues generated per client increased to
approximately $102,000 in 1998 from approximately $91,000 in 1997. During 1998,
187 of our clients placed orders, an increase of 33.0% over the 141 clients
that placed orders during 1997. A substantial majority of these new clients
were corporate clients. Revenues earned on sales to existing clients increased
by $3.0 million, or 23.0%, to $15.9 million in 1998 from $12.9 million in 1997.
Cost of Revenues. Cost of revenues consists almost entirely of the cost of
acquiring the knowledge resources sold to clients. Cost of revenues in 1998 was
$18.7 million as compared to $12.7 million during 1997, an increase of $6.0
million or 47.5%. This increase was due to the increase in sales discussed
above. Cost of revenues as a percentage of revenues decreased to 98.3% in 1998
as compared to 98.5% in 1997. This was primarily due to an increase in
installation revenues from $2,000 in 1997 to $42,000 in 1998.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and 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 $4.8 million during 1998 from $2.0 million during 1997, an
increase of $2.8 million or 136.8%. This growth principally reflected a $1.9
million increase in salary and hiring expenses and a $330,000 increase in sales
force expenses, including travel, office space, and telephone. The increase in
salary expense resulted from an increase in the average headcount of our direct
sales force, account managers and client service representatives during 1998 as
compared to 1997. RoweCom intends to significantly increase its direct sales
force in 1999, as well as hire additional account managers and client service
representatives.
Research and Development. Research and development expenses consist principally
of compensation and related expenses, including consulting fees, and other
expenses relating to the development and maintenance of our service and
production systems. Research and development expenses increased to $1.6 million
in 1998 from $584,000 in 1997, an increase of $1.0 million or 179.3%, primarily
as a result of increased staffing and
21
<PAGE>
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
improvements in the content of the catalog, user interface and functionality of
the kStore and transaction processing system increased 258.1% from $105,000 in
1997 to $376,000 in 1998.
General and Administrative Expenses. 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
1998 from $751,000 in 1997, an increase of $849,000 or 107.8%, principally
reflecting a $461,000 increase in salary and hiring expenses. This increase was
mainly due to growth in average headcount in the executive, administrative,
finance and human resources departments.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Revenues increased to $12.9 million in 1997, as compared to $3.1
million in 1996, an increase of $9.8 million, or 316.6%. This increase resulted
primarily from the significant growth in RoweCom's client base, particularly in
the academic sector. During 1997, 141 of our clients placed orders, an increase
of 207.0% over the 46 clients that placed orders during 1996. Revenues earned
on sales to existing clients also increased by $1.7 million, or 55.0%, to $4.8
million in 1997 from $3.1 million in 1996, and average revenues generated per
client increased to approximately $91,000 in 1997 from approximately $69,000 in
1996.
Cost of Revenues. Cost of revenues in 1997 was $12.7 million as compared to
$3.1 million during 1996, an increase of $9.6 million or 312.0%. This increase
was due to the significant increase in sales discussed above. Cost of revenues
as a percentage of revenues was 98.5% in 1997 as compared to 98.9% in 1996.
This improvement was principally the result of an increase in the proportion of
titles sold for which RoweCom retains a higher percentage of the purchase
price.
Sales and Marketing. Sales and marketing expenses increased to $2.0 million
during 1997 from $585,000 during 1996, an increase of $1.4 million, or 248.0%.
This growth principally reflected an increase in salary and related expenses
and, to a lesser extent, increased advertising expenses. The increase in salary
and related expenses resulted from an increase in commissions paid to RoweCom's
direct sales force as a consequence of higher sales and an increase in the
average headcount of our direct sales force, account managers and client
service representatives in 1997 as compared to 1996.
Research and Development. Research and development expenses increased to
$584,000 in 1997 from $532,000 in 1996, an increase of $52,000 or 9.7%,
primarily as a result of increased staffing and associated costs relating to
efforts to develop and launch the kStore.
General and Administrative Expenses. General and administrative expenses
increased to $751,000 in 1997 from $351,000 in 1996, an increase of $400,000 or
113.8%, primarily due to increases in average headcount in the executive,
administrative, and finance departments.
22
<PAGE>
Selected Quarterly Results of Operations
The following table presents unaudited quarterly consolidated statement of
operations data for each of the four quarters during the years ended December
31, 1997 and 1998. In management's opinion, this information has been prepared
substantially on the same basis as the audited consolidated financial
statements appearing elsewhere in this prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the unaudited quarterly
results. The quarterly data should be read in conjunction with the audited
consolidated financial statements of RoweCom and the notes thereto appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Three Months Ended
------------------------------------------------------------------------
1997 1998
---------------------------------- ------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
Dollars in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 621 $ 80 $ 240 $11,949 $ 1,307 $ 865 $ 1,413 $15,468
Cost of revenues........ 607 79 233 11,782 1,284 819 1,391 15,242
----- ----- ------- ------- ------- ------- ------- -------
Gross profit......... 14 1 7 167 23 46 22 226
Operating expenses:
Sales and marketing.... 221 647 706 461 607 1,311 1,425 1,474
Research and
development........... 80 44 275 185 209 261 279 882
General and
administrative........ 229 198 241 83 288 310 382 581
----- ----- ------- ------- ------- ------- ------- -------
Total operating
expenses 530 889 1,222 729 1,104 1,882 2,086 2,937
----- ----- ------- ------- ------- ------- ------- -------
Loss from
operations.......... (516) (888) (1,215) (562) (1,081) (1,836) (2,064) (2,711)
Interest and other
income, net............ 5 17 33 9 28 18 58 68
----- ----- ------- ------- ------- ------- ------- -------
Loss before income
taxes............... (511) (871) (1,182) (553) (1,053) (1,818) (2,006) (2,643)
Provision for income
taxes.................. 34 34 34 35 28 28 31 22
----- ----- ------- ------- ------- ------- ------- -------
Net loss............. $(545) $(905) $(1,216) $ (588) $(1,081) $(1,846) $(2,037) $(2,665)
===== ===== ======= ======= ======= ======= ======= =======
</TABLE>
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. In addition, the libraries and centralized purchasing groups to which we
initially targeted our services have tended to concentrate their purchases at
the end of each year. As purchases by individual employees increase as a
percentage of total revenues, the seasonality described above has begun to
decrease because desktop purchases are generally made as required, and thus are
more evenly distributed throughout the year. We have also recently added
approximately five million books to our catalog as a result of our strategic
alliance with barnesandnoble.com. As book sales become a larger portion of
total revenues, we believe that our revenues will become less seasonal because
books are typically purchased throughout the year, in contrast to
subscriptions, which generally come up for renewal in the fourth quarter of
each year.
Liquidity and Capital Resources
Net cash used in operating activities was $9.0 million in 1998 as compared to
$2.9 million in 1997 and $1.2 million in 1996. Cash used in operating
activities for 1998 resulted primarily from a net loss of $7.6 million and an
increase in accounts receivable of $1.7 million as well as an increase in other
current assets of $372,000 and a decrease in income taxes payable of $121,000.
This was partially offset by an increase in accounts payable, accrued expenses
and accrued compensation of $684,000. Cash used in operating activities in 1997
was primarily attributable to a net loss of $3.3 million and an increase in
accounts receivable and other current assets of $387,000. This was partially
offset by an increase in accrued expenses and accrued compensation of $479,000,
as well as an increase in income taxes payable of $126,000.
Net cash used in investing activities in 1998 was $597,000, substantially all
of which was used to purchase fixed assets, as compared to $229,000 in 1997 and
$91,000 in 1996.
Since its inception, RoweCom has financed its operations primarily through
sales of its equity securities in private placements. Net cash provided by
financing activities in 1998 was $25.0 million, primarily resulting from the
sale of shares of RoweCom's Class B Convertible Preferred Stock and Class C
Convertible Preferred
23
<PAGE>
Stock, and RoweCom Canada's Class B Preferred Stock. Net cash provided by
financing activities in 1997 was $3.8 million, primarily as the result of the
sale of shares of RoweCom Canada's Class A Preferred Stock. Net cash provided
by financing activities was $1.3 million in 1996, primarily as the result of
capital contributions by RoweCom's founder. All outstanding preferred stock of
RoweCom Canada will be exchanged for preferred stock of RoweCom immediately
prior to the completion of this offering, and all of the outstanding preferred
stock of RoweCom (including the shares issued in exchange for the preferred
stock of RoweCom Canada) will convert to common stock upon completion of this
offering. See "Certain Transactions."
In September 1998, RoweCom entered into an amendment of its loan agreement with
Imperial Bank which provided us with a revolving line of credit of up to
$4,000,000 in addition to the existing term loan of approximately $320,000.
RoweCom uses borrowings under this line of credit to finance its accounts
receivable. Borrowing requests under this facility are conditioned upon the
delivery of a list of eligible accounts receivable (as defined under the loan
agreement, as amended). As of December 31, 1998, RoweCom had $1,337,000
outstanding under this revolving line of credit. The loan agreement requires
compliance with certain customary financial covenants, such as a "quick ratio,"
(current assets divided by current liabilities) of 1.50 as of December 31,
1998. The loan is collateralized by all of RoweCom's assets, including accounts
receivable and equipment, but excluding intellectual property. See note 7 to
consolidated financial statements.
RoweCom currently believes that cash balances will be sufficient to meet
anticipated cash requirements through the fourth quarter of 1999. We also
believe that the net cash proceeds from this offering, together with cash
balances, will be sufficient to meet currently planned working capital and
capital expenditure requirements through at least 2000. However, there can be
no assurance that additional capital beyond the amounts currently forecasted by
RoweCom will not be required nor that any such required additional capital will
be available on reasonable terms, if at all, at such time as required.
Impact of Possible Share Transfer
Working Ventures Canadian Fund Inc. has agreed to exchange immediately prior to
the consummation of this offering its Class A Preferred Stock and Class B
Preferred Stock of RoweCom Canada into Class A-1 Preferred Stock and Class B
Preferred Stock of RoweCom, respectively. All preferred stock of RoweCom will
be converted to common stock upon the effectiveness of this offering.
Under an agreement among RoweCom's shareholders, in the event that the market
value of Working Ventures' initial investment in shares of Class A Preferred
Stock of RoweCom Canada increases by 45% or more (on an annually compounded
basis) and Working Ventures is not legally restricted from selling such Class A
Preferred Shares, or any common shares into which such preferred shares have
been converted, Working Ventures must transfer an aggregate of 310,371 shares
of common stock to certain other shareholders or optionholders of RoweCom,
substantially all of whom are directors, or former directors, officers and
employees of RoweCom. RoweCom will be required to record a compensation charge
for the period in which these potential transfers occur with respect to the
shares of common stock which are transferred to the RoweCom option and warrant
holders who are eligible to receive such shares as described above. The amount
of this compensation charge will be equal to the aggregate fair market value of
the common stock transferred on the date such stock is transferred to such
option and warrant holders. RoweCom is currently unable to determine whether or
when such a charge will be incurred, or if incurred, the amount of such charge.
See "Certain Transactions."
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 Compliant." While RoweCom believes that it has
been taking adequate steps to make sure that its business systems are Year 2000
Compliant, and does not believe that it will incur material costs to prepare
for the Year 2000 date change, achieving complete Year 2000 Compliance is
subject to various risks and uncertainties, and there can be no assurance that
the Year 2000 date change will not lead to failures of such systems that may
have a material adverse effect on RoweCom's future results of operations and
financial condition.
24
<PAGE>
RoweCom has been aware of the possible impact of Year 2000 issues on its
operations since inception and has focused on making its business systems Year
2000 Compliant since that time. Most of this effort has been focused upon
business systems owned or operated by 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 (collectively, "Critical
Systems"). RoweCom has adopted a Year 2000 compliance program for these
Critical Systems that is designed to:
. assess the readiness of the Critical Systems to deal with the Year 2000
date change;
. remediate any potential failures through the modification or replacement
of Critical Systems that may not be Year 2000 Complaint;
. test the existing and improved Critical Systems for Year 2000 Compliance
prior to the actual Year 2000 date change; and
. develop contingency plans to deal with possible failures by the Critical
Systems to be Year 2000 Compliant.
At present, approximately 20 employees of RoweCom are working either on a full-
time or part-time basis on Year 2000 Compliance issues and related issues, such
as back-office processing and integration of RoweCom's catalog with its
strategic partners.
RoweCom has focused its Year 2000 Compliance efforts on the following types of
Critical Systems:
In-house Information Technology
RoweCom has developed a new application that it will use for all client
operations, including order processing and report generation. RoweCom is
currently testing and has begun implementation of this application and is
expecting the application to be fully implemented no later than the third
quarter of 1999. This application, which was designed and developed entirely by
our in-house development staff, was designed to be Year 2000 Compliant.
Accordingly, RoweCom believes that it will not incur any material costs as a
result of any failures by its in-house information technology to be Year 2000
Compliant. RoweCom does not believe that any of its other in-house information
technology systems are Critical Systems.
Third Party Information Technology
RoweCom believes the only information technology licensed from third parties
that constitutes a Critical System is the Navision accounting software used by
the Company's finance and human resources departments and deployed on a client-
server system. We deployed a new release of this software in the first quarter
of 1998. In its contract with us, Navision represents that its system is Year
2000 Compliant. RoweCom has no reason to believe that this application is not
Year 2000 Compliant.
Third Party Operations
The Critical Systems maintained by third parties include the Electronic Data
Interchange (EDI) transaction system which carries out RoweCom's transactions
with publishers, the CyberCash credit card transaction processing system that
we use to clear credit card purchases, the Automated Clearing House (ACH)
transaction system pursuant to which we clear automatic debit purchases, and
the catalog and purchasing operations maintained by barnesandnoble.com. RoweCom
is in the process of assessing the likelihood that any of these systems will
not be Year 2000 Compliant. Toward that end, RoweCom is:
. inquiring about the readiness of such companies' systems for the Year
2000 date change;
. testing, where possible, such systems for Year 2000 Compliance; and
. developing contingency plans for those third party systems that we have
reason to believe may not be Year 2000 Compliant.
While the EDI transaction processing software, which sends order information to
publishers, is Year 2000 Compliant, the publishers' EDI access software may not
receive this data upon the Year 2000 date change or may send data to RoweCom in
a format that is not Year 2000 Compliant. In such an event, RoweCom may
experience material disruption of its operations, including failure to transmit
customers' orders to publishers, failure to receive information from
publishers, and failure to provide adequate customer service. This transaction
system relies on the production systems of a large number of publishers, many
of which may not
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have systems that are Year 2000 Compliant. Because the EDI transaction system
is based upon an industry standard, there are no means currently available by
which RoweCom can remediate possible failures to be Year 2000 Compliant.
RoweCom believes that the credit card transaction processing system it
currently uses is Year 2000 Compliant, based upon tests that it has conducted
using credit card expiration dates with years subsequent to 1999. RoweCom also
believes, based upon representations from Banc One, that the ACH transaction
processing system will be Year 2000 Compliant, although it has not conducted
independent testing of its readiness. In addition, Banc One, as a member of the
Federal Reserve System will be subjected to the stringent Year 2000 readiness
requirements mandated by that system. Accordingly, RoweCom does not have reason
to believe that its ACH transaction processing system will not be Year 2000
Compliant.
RoweCom's clients are currently able to purchase the books included in our
catalog of titles solely through our business partner, barnesandnoble.com.
Users currently may access the barnesandnoble.com and RoweCom catalogs by means
of links found in the Business Solutions and the kStore Web sites. RoweCom and
barnesandnoble.com expect that the Business Solutions and the kStore Web sites
will each contain an integrated catalog of titles by the end of the first
quarter of 1999. In the event that this integrated service is not operational
prior to the Year 2000 date change, a failure by barnesandnoble.com to make all
of its systems Year 2000 Compliant could result in serious difficulties in
processing book orders for the our clients. The Company intends to acquire
certifications from barnesandnoble.com with respect to its Year 2000
Compliance. In addition, RoweCom has also discussed Year 2000 readiness of
NewSub Services and, based upon these discussions, believes that the
proprietary processing system of NewSub is Year 2000 Compliant. However,
RoweCom is also developing an integrated catalog with NewSub Services similar
to the integration with the barnesandnoble.com described above. Failure to
develop an operational service with any partner prior to the Year 2000 date
change may result in an inability to adequately process and fulfill orders from
RoweCom's customers.
RoweCom believes that it has already incurred the majority of the expenses that
it expects to incur to deal with Year 2000 issues. In 1998, we spent
approximately $25,000 on licensing the Navision accounting package. RoweCom
does not believe that it will be required to spend significantly more on third
party information technology. In addition, during 1998 RoweCom incurred
expenses of approximately $400,000 in the development of its internal client
operations application. We anticipate that completing the development and
testing process for the in-house production system will cost an additional
$400,000. Additional costs also may be incurred by the Company in ensuring that
all of its other Critical Systems are Year 2000 Compliant, particularly with
regard to Critical Systems operated and maintained by third parties. RoweCom is
currently unable to estimate such costs with any reliability. We have funded
costs incurred to date from working capital and prior financings and will fund
any additional costs incurred from working capital and the net proceeds it
receives from this offering.
RoweCom has not yet developed formal contingency plans for the majority of the
Critical Systems. We believe that in the event of a failure of the Navision
accounting system, alternative systems that are Year 2000 Compliant will be
readily available at minimal cost. Because there is no real current alternative
for the ACH System, RoweCom is unlikely to be able to develop a contingency
plan to deal with a possible failure of such system to be Year 2000 Compliant.
In the event of a failure of the ACH System to be so compliant, RoweCom would
be required to rely on other payment methods, including credit cards. In the
event of a failure of any one of our other Critical Systems, we would be forced
to complete most transactions on a manual basis. RoweCom may also develop
additional contingency plans as the Year 2000 date change approaches in order
to deal with yet unknown Year 2000 issues.
Although RoweCom currently believes that the Critical Systems that it operates
will be Year 2000 Compliant, there can be no assurance that all of such systems
and the other Critical Systems maintained by third parties on behalf of RoweCom
will be Year 2000 Compliant by the end of 1999. A reasonably possible worst
case scenario might include one or more of the Critical Systems maintained by
one of our business partners being non-compliant. Any such failure could result
in a material disruption of our operations. Specifically, we could experience
interruptions in our ability to process orders with certain publishers, collect
and process receipts from credit cards or direct disbursement accounts,
accurately maintain accounting records and perform adequate customer service. A
failure by any of RoweCom's Critical Systems, or any other systems deployed by
us prior to the Year 2000 date change, to be Year 2000 Compliant could have a
material adverse effect upon our future results of operations and financial
condition.
RoweCom is not able to assess the Year 2000 Compliance 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
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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.
Recent Accounting Pronouncements Applicable to this Offering
In March 1998, The American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. RoweCom does not expect the adoption of
this standard to have a material effect on our capitalization policy.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 will become
effective in January 2000. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. To date RoweCom has
not utilized derivative instruments or hedging activities and, therefore, the
adoption of SFAS 133 will not have a material impact on RoweCom's financial
position or results of operations.
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Business
RoweCom is the leading business-to-business provider of e-commerce solutions
for purchasing and managing the acquisition of magazines, newspapers, journals,
books and other knowledge resources. RoweCom offers its clients access to the
largest catalog of such knowledge resources on the Internet and allows its
clients' employees to purchase knowledge resources easily and conveniently from
their desktop computers. RoweCom also provides businesses with a highly
effective means of managing and controlling purchases of knowledge resources
and reducing costs. RoweCom targets clients in knowledge-intense industries,
such as financial and professional services, high technology and healthcare, as
well as certain academic and non-profit institutions.
RoweCom's kStore(TM) facilitates decentralized purchasing of knowledge
resources by businesses and their employees while at the same time giving
management the tools required to effectively control knowledge resource
purchases. The kStore provides businesses with a single comprehensive source
for the purchase of knowledge resources, offering more than 43,000 magazines,
journals and newspapers from over 13,000 publishers, and approximately five
million books through RoweCom's alliance with barnesandnoble.com. The kStore's
automated service is easily accessible from an employee's desktop computer via
the corporate intranet or the Internet and permits the employee to find, order,
and pay for knowledge resources quickly and conveniently. At the same time, the
kStore provides managers with detailed reports of knowledge resource purchases
by their employees and permits them to institute customized approval
procedures. The kStore also helps management reduce the costs of knowledge
resource acquisition by eliminating many of the inefficiencies of traditional
knowledge resource acquisition methods and by offering discounted prices on
most titles.
Industry Overview
The effective use of knowledge resources has become an increasingly important
competitive advantage for businesses and other institutions. Timely and
relevant information, easily accessible to all members of an enterprise, has
become critical to job productivity. The quantity and the degree of
specialization of knowledge resources available to businesses and their
employees, and the cost of such resources have increased dramatically.
According to Veronis Suhler and Associates, Inc., US businesses spent
approximately $38 billion in 1997 on knowledge resources, such as market
studies, business magazines and professional publications, and other types of
business information, such as financial news services, credit reports and other
general business information. Veronis Suhler has forecasted that this spending
will grow to $51 billion by 2001. Based on US government census data and
projections, RoweCom believes that over the same period the number of US
professional workers that depend on knowledge resources will increase from 37
million to 41 million. As a result, businesses and other institutions need
efficient and cost effective methods for managing the growing number of
purchases of knowledge resources by employees.
The growth in demand for knowledge resources is occurring at a time when the
Internet and corporate intranets are becoming increasingly significant for
communications and e-commerce. International Data Corporation estimates that
business-to-business Internet commerce, including spending on knowledge
resources, will grow from an estimated $7.4 billion in 1997 to $179.4 billion
in 2001. RoweCom believes that spending on knowledge resources via the Internet
and corporate intranets has also accelerated in recent years and will increase
in the future.
Most companies currently do not have an efficient and easy-to-use means of
executing and managing purchases of knowledge resources. The process of
purchasing knowledge resources historically has involved significant manual
effort and has focused on the professional librarian or central purchasing
group, rather than the individual worker whose job performance depends on such
resources. This manually intensive, paper-based process requires finding the
appropriate publishers, submitting written or telephone orders, processing
multiple renewal notices, and completing expense reports for reimbursement.
Increasingly, individual employees are purchasing knowledge resources directly
from publishers and other vendors rather than ordering through a corporate
library or central purchasing group. As a result, employees are making numerous
individual purchases from a large number of publishers and services using a
variety of payment methods. RoweCom believes that for most businesses the
aggregate cost of purchases of knowledge resources made by individuals is
significantly larger than the knowledge resource budget of the corporate
library or central purchasing group. Decentralized purchases make it difficult
for businesses to manage employee purchases, control spending and prevent
duplicative or unauthorized orders.
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As knowledge resources have become more numerous and specialized, the marketing
and cost effective distribution of such knowledge resources to appropriate
users has become difficult for publishers and other content providers.
Conventional retail outlets do not reach the full range of individuals
purchasing knowledge resources and cannot physically stock the entire range of
knowledge resources available. In addition, the cost to the publisher of
maintaining inventories at multiple outlets is too high to allow the
distribution through such outlets of specialized knowledge resources that will
only sell in limited numbers at any one outlet.
The RoweCom Solution
RoweCom's business-to-business e-commerce solution provides clients and their
employees with an easy and convenient way to purchase and manage the
acquisition of knowledge resources through corporate intranets or the Internet.
From the desktop computer, a client's employee can access a customized RoweCom
Web site offering more than 43,000 magazines, newspapers and journals from over
13,000 publishers, and approximately five million books. RoweCom provides
businesses with a highly effective means of managing and controlling purchases
of knowledge resources and reducing costs. RoweCom also provides publishers and
other content providers with a unique distribution channel which enables
RoweCom to offer its clients additional content at lower prices. Key benefits
of the RoweCom solution include:
Convenience
RoweCom's kStore provides a single comprehensive source for the purchase of
knowledge resources. RoweCom offers its clients access to the largest combined
database of magazines, newspapers, journals, books and other knowledge
resources on the Internet. RoweCom's highly automated service provides an easy
and quick way to find, order, and pay for knowledge resources by providing
multiple electronic search functions and payment methods. These features
facilitate ordering and eliminate paper purchase orders, invoices, check
requests and manual approvals. The kStore can be made available through the
client's intranet site or the Internet, and may be accessed from an employee's
desktop computer, the corporate library or central purchasing group using a
point and click interface. The kStore also includes automated features, such as
subscription renewal notifications, and 24-hour, 7 days a week client support
via telephone and the Internet.
Control
RoweCom allows businesses to proactively manage their purchases of knowledge
resources through the implementation of customized purchase approval procedures
and the use of enterprise-wide purchasing reports. RoweCom also helps
businesses and their employees "buy smarter" by:
. indicating to employees which items have already been purchased by other
employees;
. creating greater awareness of available titles among employees; and
. allowing managers to analyze and guide employees' purchasing activities.
RoweCom helps clients reduce duplicate orders, increase shared use of knowledge
resources and enhance the likelihood that employees will purchase knowledge
resources that will maximize their productivity and performance.
Cost Savings
RoweCom offers substantial direct and indirect cost savings to its clients. The
kStore provides the lowest price available on the Internet for popular
magazines, and an additional 5% discount on the already discounted price of
books available directly from barnesandnoble.com. In addition, RoweCom offers
large volume clients the guaranteed lowest price on the Internet for all
subscriptions. Clients also achieve indirect cost savings through the kStore's
automated service, which reduces the manual processing of orders, approvals,
payment, claims and renewals. In addition, RoweCom enables enterprises to
reduce duplicate orders and facilitates resource sharing among employees.
Benefits to Publishers and other Content Providers
RoweCom provides publishers and other content providers with a number of
benefits, including:
. an efficient and low cost direct distribution channel to targeted buyers,
corporate libraries, and centralized purchasing groups; knowledge
resources are shipped at the time of purchase which enables vendors to
reduce the levels of inventory required and therefore reduce the costs
associated with stocking and returns;
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. an increase in the sales of many second and third tier magazines,
newspapers, journals, books and other knowledge resources that are not
typically stocked in physical locations and are generally hard to find;
and
. a unique distribution channel which enables RoweCom to offer its clients
additional content at lower prices.
Strategy
RoweCom's objective is to maintain and strengthen its position as the leading
business-to-business provider of e-commerce solutions for purchasing and
managing the acquisition of magazines, newspapers, journals, books and other
knowledge resources. Key elements of RoweCom's strategy include:
Penetrate the Business-to-Business Market
RoweCom seeks to increase the number of clients and individuals accessing the
kStore from the desktop computer. RoweCom targets companies in knowledge-
intense industries, such as financial and professional services, high
technology and healthcare, as well as certain academic and public institutions.
RoweCom is increasing its sales force to develop new client relationships and
to expand the use of the kStore by its existing clients by increasing the
awareness among, and availability to, the client's employees. RoweCom believes
that being the first knowledge resource purchasing solution on a client's
intranet promotes brand loyalty and provides it with a significant competitive
advantage. Once the kStore is adopted by the client, RoweCom is also well
positioned to add new services and knowledge resource offerings at minimal
additional cost. RoweCom also intends to increase its telesales efforts to
focus on small and mid-size businesses, educational institutions and government
agencies.
Increase Content and Functionality
RoweCom will continue to increase the content available to its clients and
enhance the capabilities of the kStore. This will reinforce its position as the
leading single source provider of knowledge resources to businesses on the
Internet and will increase the overall potential revenue per client. RoweCom
has significantly increased its catalog of knowledge resources through
strategic alliances with publishers and resellers, and has historically added
between 300-500 serial titles each month in response to requests from its
clients. In addition to expanding content, RoweCom has introduced new features
to the kStore, such as group-ordering which allows a designated individual to
order on behalf of a group of purchasers. RoweCom intends to further enhance
the kStore's functionality by adding new capabilities, such as collaborative
filtering, which provides users with information about purchases by other
individuals with similar buying profiles, and personalized recommendations of
knowledge resources based on individual profiles and purchasing patterns. We
believe that these new features may increase the volume and dollar size of
transactions per client.
Develop Strategic Alliances
RoweCom intends to continue to enter into strategic alliances to increase its
channels of distribution and available content. We recently entered into
strategic alliances with barnesandnoble.com and NewSub Services, which added
new distribution channels, substantial additional content and improved pricing.
RoweCom intends to enter into additional strategic distribution alliances to
obtain access to new clients and markets quickly and in a cost-effective
manner. Relationships with other vendors can provide access to additional
content offerings, such as electronic journals, aggregated full text archival
content, and databases that provide the most current information on any topic.
Enhance Brand Recognition
RoweCom intends to continue promoting the kStore as the leading business-to-
business e-commerce solution for purchasing and managing the acquisition of
knowledge resources. RoweCom intends to build brand recognition among
businesses through Web-based advertising, traditional advertising and
attendance and presentations at major trade shows. We believe that promoting
our reputation as the leading online provider of knowledge resources to the
business-to-business market will build loyalty among our client base, increase
usage of the kStore by clients' employees, attract new clients and promote the
value of our brand name. In addition, RoweCom believes that a strong brand name
will help it establish additional marketing and distribution alliances.
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Expand Internationally
RoweCom intends to expand its presence in markets outside the United States. By
adding foreign language content and localizing and translating the kStore user
interface, we intend to enhance our ability to fully service US-based clients
that have employees in other countries as well as non-US clients. RoweCom
expects to carry out its international expansion by means of strategic
alliances and, possibly, the acquisition of local content providers. Management
currently plans to commence its international expansion in Canada during the
second half of 1999.
RoweCom's Products And Services
The kStore
RoweCom's kStore provides each client with its own customized "company store"
which enables businesses and their employees to order, pay for and manage the
purchase of magazines, journals, newspapers, books and other knowledge
resources. The kStore can be customized for each client, quickly and easily.
RoweCom charges a fee, averaging approximately $5,000, for the initial
installation of the kStore on a client's intranet or for the set-up of a
customized Internet kStore site. The design of the kStore is open, scalable and
modular, which permits easy installation of additional features.
The following diagram illustrates the key steps involved in making a purchase
and implementing management policies using the kStore.
[DIAGRAM APPEARS HERE]
Access. Employees access the kStore easily through the corporate intranet or
the Internet. The secure customized site allows access only to qualified
corporate employees. The service may be customized for each client so that the
user interface and design is consistent with the corporate intranet and
reflects the client's pre-established purchase and payment policies. In
addition, the service may be customized to restrict the content available to
employees.
Search. The kStore offers a selection of search tools enabling employees to
quickly find knowledge resources by means of a variety of standard easy-to-use
methods, including searching by title, publisher, and standard cataloging
reference number. The kStore also provides additional information about a
title, including links to publisher Web sites and the Library of Congress.
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Select / Order. To select items, employees simply click on an icon to add a
book or subscription to their online shopping cart or remove products from
their shopping carts as they continue searching. The kStore provides employees
with price information and the identity of other employees in the enterprise
who have previously ordered the same item. Prior to executing orders, employees
may review the content of their cart, the number of titles ordered, and the
total purchase price including shipping and handling.
Approve. Once an order has been placed, it may be subject to one or more
approval levels that are based upon policies previously established by the
client for both order and payment. These approvals may be either passive, where
the kStore automatically compares the items ordered to a series of approval
rules pre-established by the client, or active, requiring the affirmative
approval of a supervising manager. The approval process occurs without the
participation of the employee.
Pay. RoweCom offers its clients several secure payment options including direct
debit, procurement card or credit card. Once the order and payment is approved
and processed, the employee receives an e-mail confirming that the order and
payment have been received and providing an estimated date that the knowledge
resource will be delivered.
Analyze Purchasing Patterns / Revise Policies. Using the kStore, managers can
obtain a variety of reports, including reports on purchases by location,
publication, and business area. These reports allow businesses to proactively
monitor purchasing of knowledge resources throughout the enterprise, to
implement and revise specific enterprise-wide purchasing policies, and to
optimize the use of knowledge resources within the enterprise. These reports
may be accessed online or ordered from RoweCom on a periodic basis.
Renew. Prior to the expiration date of a subscription, the kStore automatically
sends an e-mail notice to the purchasing employee to prompt the employee to
renew a subscription. This e-mail notice permits the employee to renew simply
by clicking on a single "renew" button on the e-mail notice. As with initial
purchases, clients may set up customized approval policies for subscription
renewals.
Content
RoweCom offers its clients access to the largest single source of magazines,
newspapers, journals, books and other knowledge resources on the Internet, with
access to more than 43,000 magazines, journals, and newspapers from over 13,000
publishers, approximately five million books from its alliance with
barnesandnoble.com, and approximately 2,200 newsletters and trade publications
from its alliance with Publications Resource Group. Of the 43,000 magazines,
journals and newspapers currently available from the kStore, approximately 800
are large circulation and general interest magazines and the balance consists
of business and trade magazines and scientific and medical journals. Annual
subscription rates range from under $50 for popular magazines to more than
$10,000 for certain scientific and medical journals. RoweCom will continue to
increase the content available to its clients to reinforce its position as the
leading single source provider of knowledge resources to businesses, and to
increase the overall potential revenue per client. Additional offerings are
expected to include electronic journals, aggregate full text archival content
and databases that provide the most current information on any topic. RoweCom
increases its catalog of knowledge resources through strategic relationships
with publishers and resellers as well as in response to requests from its
clients.
Management Tools
The kStore provides businesses with tools to better manage purchases of
knowledge resources by their employees. The kStore permits managers to create
single or multiple levels of approvals that govern purchases by employees. The
approvals that are included in a customized kStore may be either passive or
active. In a passive approval process, the order is compared to a series of
previously defined purchasing protocols. If the order meets the criteria set
forth in the protocol, the purchase is automatically approved. If the order
fails the protocol, it is either rejected or referred to a second approval
process, which may be active or passive. In an active approval process, the
affirmative approval by a supervising manager of an order is required to
consummate the purchase transaction. The active approval process can be
structured in a number of ways, including sending individual approval e-mails
to a manager requesting authorization for each order, and compiling collections
of requested approvals that may be reviewed on a periodic basis and then
approved either individually or collectively.
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Payment and Fulfillment
RoweCom has developed proprietary software that fully automates the ordering
and payment process. The system is able to accept multiple payment options
including credit cards and authorized debits to disbursement or procurement
accounts. Once orders are placed and approved, payment instructions are sent to
Banc One securely over the Internet. RoweCom has an ongoing relationship with
Bank One Corporation, the fifth largest bank holding company in the US and the
parent of Banc One, under which all orders are processed by the Banc One system
using RoweCom's proprietary software. RoweCom pays Banc One a nominal fee for
each item ordered through the kStore.
Although RoweCom does not fulfill or deliver any client's order for a knowledge
resource, it provides client support to ensure that the client's expectations
and needs are fulfilled with respect to each order. Client representatives are
available 24 hours per day, 7 days per week via the telephone and the Internet.
Client support provides a vital role in increasing sales to RoweCom's existing
client base by focusing on client satisfaction and on increasing the total
number of orders placed by each client.
Strategic Alliances
barnesandnoble.com Relationship
In August 1998, RoweCom entered into a five-year agreement with
barnesandnoble.com, a company jointly owned by Barnes and Noble, Inc. and
Bertelsman A.G., to combine and jointly market to business customers the
companies' respective catalogs. As a result of this agreement, RoweCom's
clients can access the largest combined database of magazines, newspapers,
journals, books and other knowledge resources on the Internet.
barnesandnoble.com currently markets to business customers over the Internet
through its Business Solutions service, which commenced operations in the third
quarter of 1998.
Under the agreement, barnesandnoble.com will provide all books ordered by
either party's business clients, and RoweCom will provide all magazine,
journal, and newspaper subscriptions ordered by its clients or by Business
Solutions clients. barnesandnoble.com will pay RoweCom a fixed percentage of
the purchase price of every book sold either through RoweCom's kStore or
barnesandnoble.com's Business Solutions service other than sales to Business
Solutions' clients as of the date of this agreement. RoweCom will pay
barnesandnoble.com a fixed amount or percentage of the purchase price of every
subscription sold by the kStore or the Business Solutions service, other than
sales to existing RoweCom customers as of the date of the agreement.
Users currently may access the barnesandnoble.com and RoweCom catalogs by means
of links found in the Business Solutions and the kStore Web sites. RoweCom and
barnesandnoble.com expect that the Business Solutions and the kStore sites will
each contain a complete catalog of RoweCom and barnesandnoble.com titles by the
end of the first quarter of 1999.
The agreement provides a framework for the parties to develop jointly an
integrated Web site to market and sell books, magazines and all other digital
media. This integrated Web site would combine both the kStore and Business
Solutions. However, management cannot be certain when, if ever, such an
integrated Web site would be initiated. barnesandnoble.com has also agreed that
it will not, prior to the launch of such an integrated Web site, enhance its
Business Solutions service to provide certain management control features such
as approval rules.
RoweCom believes that its relationship with barnesandnoble.com may enhance its
efforts to expand internationally as a result of the recent acquisition by
Bertelsman of a 50% interest in barnesandnoble.com. Bertelsman, one of the
largest global diversified media companies, sources and distributes a
significant amount of international content.
Other Significant Relationships
NewSub Services. In September 1998, RoweCom entered into content and
distribution agreement with NewSub Services, a consumer-based affinity marketer
for popular magazines, which provides RoweCom with additional content at low
prices. NewSub has agreed to offer its catalog of approximately 800 popular
titles through RoweCom's kStore at the guaranteed lowest publisher-authorized
price available on the Internet. RoweCom will, in turn, be the exclusive
provider of any RoweCom title not currently included in NewSub's title catalog
through NewSub Services' online magazine marketing and distribution channels.
Under the terms
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of the agreement with NewSub Services, each party will earn revenue on titles
sold through the other party's online distribution channel by receiving a
percentage of the gross sales price or a transaction fee for each of its
respective titles sold by the other party. This alliance is expected to be
implemented during the first quarter of 1999.
Intelisys Commerce. In August 1998, RoweCom entered into an agreement with
Intelisys to sell magazines, newspapers, journals, books and other knowledge
resources to Intelisys clients, providing RoweCom with a significant new
distribution channel for its products. Intelisys markets and sells software and
services that allow businesses to buy goods and services from vendors via the
Internet. Intelisys' clients will be able to access the kStore through the
Intelisys software. Under this agreement, Intelisys will receive a percentage
of any RoweCom title sold through an Intelisys distribution channel. In turn,
RoweCom will receive a percentage of the net revenue of each Intelisys software
installation for each client successfully referred by RoweCom to Intelisys.
This alliance is expected to be implemented in the first quarter of 1999.
Publications Resource Group. In October 1998, RoweCom entered into an agreement
with Publications Resource Group, whereby RoweCom obtains an additional
distribution channel and additional content. Publications Resource Group
markets and sells market research reports, newsletters, and other services to
businesses and consumers through catalogs and on the Internet. Publications
Resource Group will market RoweCom's kStore services and content through
Publication Resource Group's distribution channels, and RoweCom will distribute
Publication Resource Group's content through RoweCom's kStore. Publications
Resource Group will receive a percentage of the transaction fee for each
RoweCom title sold through a Publications Resource Group distribution channel
and RoweCom will receive a percentage of the gross sales price for each
Publications Resource Group title sold through the kStore. This alliance is
expected to be implemented in the first quarter of 1999.
Trilogy Software. In October 1998, RoweCom entered into a Memorandum of
Understanding with Trilogy Software, Inc., a management software provider. The
companies agreed to integrate Trilogy's Buying Chain software with RoweCom's
kStore to allow clients to make purchases of magazines, journals, newspapers
and books directly from the kStore using Trilogy's Buying Chain software
solution.
Ariba Technologies. In November 1998, RoweCom entered into a Memorandum of
Understanding with Ariba Technologies, Inc., a developer and supplier of
enterprise application software for operating resource management. Under this
agreement, Ariba will provide its customers with access to the kStore through
the Ariba Web site or the intranets Ariba installs for its customers, providing
RoweCom with an additional distribution channel for its products. Ariba will
also provide information about RoweCom to its worldwide sales force and include
RoweCom in its marketing materials.
Sales And Marketing
RoweCom's sales and marketing strategy is designed to attract new clients,
increase use of the kStore by existing clients and their employees, maximize
repeat purchases and renewals and develop additional revenue opportunities. Our
primary focus is a direct sales campaign to target companies in knowledge-
intense industries, such as financial and professional services, high
technology and healthcare, as well as certain academic and public institutions.
We believe this approach is both efficient and effective due to the size and
potential of the target market and the level of service to which the targeted
clients are accustomed. The majority of the direct sales effort is conducted by
RoweCom's National Account Managers ("NAMs"), who are responsible for
developing new client relationships, primarily in the United States. RoweCom
intends to significantly increase the number of NAMs over the next 12 months,
all of whom will initially focus on RoweCom's targeted markets. As of December
31, 1998, there were six NAMs and in the first month of 1999, RoweCom added 4
additional NAMs. However, we do not expect to continue hiring NAMs at this
rate. As RoweCom hires additional NAMs, some or all of the NAMs will begin to
focus on additional targeted industries. We are also increasing its telesales
capacity in order to expand our direct sales focus to small and mid-size
businesses, academic institutions and government agencies.
Once a client relationship has been established, a client is assigned an
Account Manager who helps to assess the client's needs, to customize the
kStore, and to develop a formal deployment plan designed to maximize the use of
the kStore. Account Managers serve as the primary client contact after the
initial sale and are responsible for maintaining the on-going relationship with
the client, working with the client to maximize the number of employees using
the kStore to purchase knowledge resources and to increase the number of
purchases per
34
<PAGE>
employee. RoweCom intends to add additional Account Managers over the next 12
months to service its expanding client base. RoweCom also offers 24-hour, 7
days a week client support via telephone and the Internet. Client support
provides a vital role in increasing sales to RoweCom's existing client base by
focusing on client satisfaction and on increasing the total number of orders
placed by each client.
RoweCom's marketing efforts also include print and Web advertising, direct
mailings, participation in trade shows, co-marketing with strategic partners,
and public relations campaigns to build and reinforce RoweCom's brand
recognition.
Clients
RoweCom targets companies in knowledge-intense industries, such as financial
and professional services, high technology and healthcare, as well as certain
academic and public institutions. At December 31, 1998, RoweCom had
approximately 187 clients, of which approximately 150 were companies and 37
were academic and non-profit organizations. RoweCom's largest clients by
revenue are in the high technology and healthcare sectors. The following is a
representative list of clients of RoweCom, by industry sector.
High Technology Professional Services Healthcare
BASF Corporation Arthur Andersen LLP Aurora Healthcare
Hewlett Packard Company Ernst & Young LLP Massachusetts General
Lawrence Livermore PricewaterhouseCoopers Hospital
National Laboratory LLP National Institutes of
Health
Financial Services Academic
First Chicago NBD Johns Hopkins University
First Union Corporation Ohio University
Blue Cross/Blue Shield University of California
Association at San Francisco
Competition in the Knowledge Resource Industry
The market for the sale of magazines, newspapers, journals, books and other
knowledge resources to businesses is intensely and increasingly competitive. We
have not yet had significant direct competition from other companies offering a
knowledge resource procurement solution with management control features
comparable to those of the kStore. However, we expect that such competition
will develop in the short term and it may have an adverse impact on our
business. RoweCom's competitive landscape has been, and will continue to be,
impacted by changes in the prevalence and acceptance of online commerce and
changes in the knowledge resources industry. RoweCom believes that the
principal competitive factors in its emerging market will be brand recognition,
extent of content offerings, convenience, management control, customization,
price, client service, and a combined familiarity with the knowledge market and
the latest enabling technologies.
RoweCom currently competes, or may in the future compete, directly or
indirectly with companies that fall within the following categories:
. large, well-established news and information providers such as Dow
Jones, Knight-Ridder, Lexis/Nexis, Pearson, Reuters and Thomson, any of
which might in the future decide to expand their product offerings to
include magazines, newspapers, journals, books and other knowledge
resources of the type offered by RoweCom;
. traditional subscription agents, who may decide to focus on the
corporate market, expand their service to include control and management
features, and significantly expand their knowledge resource offerings;
. major consumer based online book resellers, such as Amazon.com, or
Borders.com who may also decide to focus on the business-to-business
market, expand their service functionality to include control and
management features such as those offered by RoweCom, or expand their
knowledge resources offerings;
35
<PAGE>
. consumer online services and portals such as Yahoo! and America Online
which may decide to focus on the business-to-business market and expand
their knowledge resources offering and management and control features;
. publishers and information providers which may decide to increase their
direct marketing efforts to the business-to-business market or develop a
competing service similar to the kStore; and
. enterprise-wide supplier management system providers which may decide to
focus specifically on the knowledge resources markets.
Intellectual Property
RoweCom regards its copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to its success, and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, clients, partners
and others to protect its proprietary rights. RoweCom pursues the registration
of its trademarks and service marks in the U.S., and has applied for the
registration of certain of its trademarks and service marks. We have been
granted trademark registrations for the marks "RoweCom" and "Subscribe," each
of which will remain in full force and effect without further action by RoweCom
until December 2003. RoweCom also has pending registration applications for the
marks "Knowledge Acquisition Manager," "Knowledge Acquisition Reporter," each
of which have been preliminarily approved by U.S. Patent and Trademark Office.
RoweCom also has pending registration applications for the marks "kStore,"
"knowledgeStore," and "kWorld," "Knowledge World" and "Knowledge For Your
Business." These applications are currently awaiting examination by the U.S.
Patent and Trademark Office. RoweCom has not sought trademark, service mark or
copyright protection outside of the United States and effective protection may
not be available in every country in which our products and services are made
available online.
Technology
RoweCom uses both proprietary solutions and commercially available licensed
technologies. RoweCom's services are built using industry standard Microsoft NT
products utilizing the Internet Information Server, Microsoft Transaction
Server, and SQL Server for database transactions. RoweCom is using products
utilized by other industry leaders. In addition, all of RoweCom's services are
designed to process information using standard Electronic Data Interchange
(EDI) transactions as defined for the serials and periodicals industry, and
RoweCom is actively engaged with other leading e-commerce providers to develop
XML versions of these transactions. RoweCom seeks to maintain transaction
security through the use of industry standard SSL transactions, and uses
proprietary EDI interfaces and private networks to ensure the integrity of
client order information and credit card transactions. RoweCom is able to scale
the number of transactions that will be supported using load balancing and
performance management tools developed for its standard platform. RoweCom uses
high performance Web and database servers on enterprise-level systems and has
established high-performance Internet service provider links to ensure the
availability of bandwidth.
RoweCom's systems are supported by an experienced staff of developers and
technicians, who are responsible for both system development and maintenance.
This staff, which was comprised of 28 individuals as of December 31, 1998, is
primarily headquartered in our facilities in London, Ontario. This group mainly
focuses on back office processing and developing interfaces that permit
RoweCom's services to be customized to the particular needs of a client and to
be linked with corporate intranets, Internet service providers, content
providers and other online services. Many of RoweCom's development and support
professionals have specialized experience with particular segments in the
knowledge resource marketplace (e.g. corporate clients, corporate libraries,
educational institutions, public libraries, and consumers).
Employees
As of December 31, 1998, RoweCom had 95 full-time and 6 part-time employees.
RoweCom also employs a limited number of independent contractors and temporary
employees on a periodic basis. None of RoweCom's employees are represented by a
labor union and we consider our labor relations to be good.
RoweCom believes its success depends to a significant extent on its ability to
attract, motivate and retain highly skilled management and employees. To this
end, we focus on incentive programs such as employee stock options, competitive
compensation and benefits for its employees.
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<PAGE>
Facilities
RoweCom is headquartered in Cambridge, Massachusetts where it leases
approximately 11,304 square feet pursuant to a term lease that expires on
October 31, 1999. These facilities are used for executive office space,
including sales and marketing and finance and administration, and client
support. In addition, RoweCom maintains a regional office in London, Ontario
where it leases approximately 7,733 square feet of office space pursuant to a
term lease that expires on October 31, 2001. These facilities are used for
research and development, technical support and content acquisition. RoweCom
believes that its current space will be adequate to meet its needs for the
foreseeable future.
Legal Proceedings
RoweCom is not a party to any material litigation, and believes that no
litigation that has been threatened to be brought against RoweCom to date will
have a material adverse effect on its financial position or results of
operations or cash flows.
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<PAGE>
Management
Executive Officers and Directors
The following sets forth certain information with respect to the directors and
executive officers of RoweCom as of the date hereof.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Name Age Position(s)
- ---------------------------------------------------------------------------
<C> <C> <S>
Dr. Richard Rowe, Ph.D. 65 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Executive Vice President and Chief Financial
Louis Hernandez, Jr. 32 Officer
Steven Woit 40 Vice President, Content
Walter Crosby 40 Vice President and Chief Technology Officer
Stephen Vozella 52 Vice President, Fulfillment
Ronald Grigg 47 Vice President, Design and Development
Robert Rea 37 Sales and Service Director
Thomas Lemberg* 52 Director
Jerome Rubin+ 63 Director
Philippe Villers 63 Director
John Kennedy*+ 40 Director
Stanley Fung*+ 41 Director
</TABLE>
- --------
* Member of Compensation Committee
+ Member of Audit Committee
Richard Rowe Ph.D., the founder of RoweCom, has served as Chairman of the
board, President and Chief Executive Officer of RoweCom since 1994. Prior to
founding RoweCom, from 1979 to 1993, Dr. Rowe was the President and CEO of the
Faxon Company, one of the world's largest library subscription agencies. Prior
to joining Faxon, Dr. Rowe was the Associate Dean of the Harvard Graduate
School of Education, Director of Harvard's interfaculty Doctoral Program in
Clinical Psychology and Public Practice, and Director of the Cambridge office
of the American Institutes for Research. Dr. Rowe holds a Ph.D. in clinical
psychology.
Louis Hernandez, Jr. has served as RoweCom's Executive Vice President since
January 1998 and Chief Financial Officer since February 1997. From February
1997 to December 1997, Mr. Hernandez also served as the Vice President of
RoweCom. Prior to joining RoweCom, Mr. Hernandez served as the Chief Financial
Officer and Corporate Secretary for U.S. Medical Instruments, Inc., a high
technology medical device company. From 1990 to 1996, Mr. Hernandez worked in
the business and advisory services group of Price Waterhouse LLP. Mr. Hernandez
is a certified public accountant.
Steven Woit has served as Vice President, Content since January 1998. Prior to
joining RoweCom, from 1980 to 1998, Mr. Woit had worked with International Data
Group as Vice President of New Product Development Division in independent
business units within International Data Group, including Federal Computer
Week, CIO Magazine, and Digital News. From January 1997 until December 1997,
Mr. Woit was General Partner with IDG Ventures. From September 1996 to December
1996 Mr. Woit was Chief Executive Officer of Web Shopper. Mr. Woit served as
Executive Vice President at Computerworld, Inc. from September 1994 to
September 1996.
Walter Crosby has served as Vice President and Chief Technical Officer since
June 1998. Prior to joining RoweCom, from October 1997 to June 1998, Mr. Crosby
was an independent consultant. From January 1995 to October 1997, Mr. Crosby
was Chief Information Officer and Vice President for Information Systems for
Computerworld, Inc. Prior to joining Computerworld, Inc., Mr. Crosby was
Corporate Director of Management Information Systems for Ziff Davis Publishing
Company from June 1990 to January 1995.
Stephen Vozella has served as Vice President, Fulfillment since June 1998.
Prior to joining RoweCom, from September 1993 to October 1996, Mr. Vozella
served as Vice President and Chief Information Officer for Fund Services at
First Data Investor Services Group. From May 1989 to June 1993, Mr. Vozella
held various senior management positions at Fidelity Investments including Vice
President, Information Technology, Retail Investor Services, and Vice
President/General Manager, Boston Telephone Operations.
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<PAGE>
Ronald Grigg has served as Vice President, Design and Development since
December 1994. Prior to joining RoweCom, from 1982 to 1994 Mr. Grigg served as
the Director of Corporate Information Services for Faxon Canada Ltd. Prior to
joining Faxon, Mr. Grigg was the Systems Analyst for R.J. Thompson Data Systems
of London Ontario, where he designed customized accounting, inventory control
and general ledger software.
Robert Rea was appointed Sales and Service Director for RoweCom in November
1998. From April 1998 through October 1998, Mr. Rea was Business Development
Manager for RoweCom. From 1996 to 1998, Mr. Rea was Vice President, Sales and
Marketing for Ovum, Inc., an international research and information firm. From
1989 to 1996, Mr. Rea worked at Giga Information Group, most recently as
Eastern Regional Sales Manager where he was responsible for sales of
information technology products.
Thomas Lemberg has served as a director of RoweCom since May 1996. Mr. Lemberg
is Senior Vice President and General Counsel of the Polaroid Corporation. Prior
to joining the Polaroid Corporation, from 1987 to 1995, Mr. Lemberg was the
Vice President and General Counsel of Lotus Development Corporation.
Jerome Rubin has served as a director of RoweCom since May 1995. Mr. Rubin has
been Managing Director of Veronis, Suhler & Associates, Inc., an investment
banking firm specializing in the media and communications industry since 1995.
From 1991 through 1995, Mr. Rubin was also the Chairman Emeritus of the MIT
Media Lab's "News in the Future" consortium. Mr. Rubin has also been Chairman
of E-Ink, a development stage company since 1997. In 1973, Mr. Rubin founded
and was the first president of LEXIS/NEXIS, the first online legal database
service. From 1983 to 1991, Mr. Rubin was the Group Vice President/Chairman for
Professional Information and Book Publishing at the Times Mirror Company.
Philippe Villers has served as a director of RoweCom since August 1998. Mr.
Villers has been President and board Member of GrainPro, Inc. since 1996. Since
1981, he has also served as founder, President, and board Member of Families
USA Foundation. From 1985 to 1988, Mr. Villers previously founded and led
Cognition, Inc. where he served as President for three years. Prior to 1988, he
co-founded Computervision, Inc. and Automatix, Inc.
John Kennedy has served as a director of RoweCom since February 1999. Mr.
Kennedy is President of M/Net, a division of PSDI Limited. Prior to joining
M/Net, from 1991 to 1997, Mr. Kennedy was the president of the Efficient
Systems Division of A.R.M. Group Inc.
Stanley Fung has served as a director of RoweCom since December 1998. Mr. Fung
has been a managing director of Zero Stage Capital Company since 1992. Prior to
joining Zero Stage in 1992, Mr. Fung was an investment manager in Advest
International, an international venture capital firm.
Board of Directors
At the first annual meeting of stockholders after the completion of this
offering, RoweCom's board of directors will be divided into three classes of
directors. Directors in the first class will be elected for a one-year term,
those in the second class will be elected for a two-year term, and those in the
third class will be elected for a three-year term. The board of directors has
not yet determined which directors will be in each class. At each subsequent
annual meeting, stockholders will elect replacements for the directors whose
term is then expiring, and the directors so elected will serve for a three-year
term.
RoweCom's board of directors has established a compensation committee and an
audit committee. The members of the compensation committee are Thomas Lemberg,
Stanley Fung, and John Kennedy, and the members of the audit committee are
Jerome Rubin, Stanley Fung, and John Kennedy.
Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The current and continuing
directors of RoweCom were nominated and elected in accordance with the Second
Amended and Restated Stockholders Agreement, dated as of December 11, 1998,
which will terminate upon the closing of this offering.
Executive officers of RoweCom are appointed by its board of directors and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of the executive officers or directors of
RoweCom.
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<PAGE>
RoweCom anticipates that, following this offering, directors who are employees
of RoweCom will not be paid any fees or receive any additional compensation for
service as members of the board of directors or any committee of the board
other than the issuance of options to purchase shares of common stock under the
1999 Non-Employee Director Stock Option Plan and RoweCom will enter into
customary arrangements with respect to fees and other compensation, including
expense reimbursement, for directors who are not employees of RoweCom or any of
its subsidiaries. See "Management--Stock Incentive Plans--1999 Non-Employee
Director Stock Option Plan." RoweCom maintains directors' and officers'
liability insurance and its certificate of incorporation provides for mandatory
indemnification of directors and officers to the fullest extent permitted by
Delaware law. In addition, RoweCom's certificate of incorporation limits the
liability of its directors or its stockholders for breaches of the directors'
fiduciary duties to the fullest extent permitted by Delaware law. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
Compensation Committee Interlocks and Insider Participation
In May 1997, RoweCom's board of directors established a compensation committee.
The compensation committee is responsible for reviewing and approving all
compensation arrangements for officers of RoweCom and for administering its
stock option and stock purchase plans. During the period from May 1997 to the
end of 1997, the Compensation Committee was composed of Thomas Lemberg, Daniel
Nova, a former director of RoweCom who is affiliated with Highland Capital
Partners III Limited Partnership, a stockholder of RoweCom, and James Whitaker,
a former director of RoweCom who is affiliated with Working Ventures Canadian
Fund Inc. The current compensation committee consists of Thomas Lemberg,
Stanley Fung, and John Kennedy.
Employment and Non-Competition Agreements
With the exception of Mr. Hernandez, none of RoweCom's executive officers has
an employment contract, and each of such officers serves at the discretion of
RoweCom's board of directors. Mr. Hernandez is party to an Employment
Agreement, dated as of November 4, 1998, with RoweCom that provides for Mr.
Hernandez to be employed as RoweCom's Executive Vice President and Chief
Financial Officer for a period ending on December 31, 2000, subject to
extension by mutual consent. Under the terms of the Employment Agreement, Mr.
Hernandez is to be paid a base annual salary of $130,000 with the possibility
of annual cash bonuses equal to up to 50% of the base salary, based upon the
achievement of certain performance targets to be agreed upon by Mr. Hernandez
and RoweCom's Chief Executive Officer from time to time. The Employment
Agreement also contains non-competition and non-solicitation provisions that
are intended to survive the termination of employment for a period of 12
months.
Dr. Rowe and Messrs. Hernandez, Woit, and Grigg are each parties to Non-
Competition Agreements with RoweCom pursuant to which they have agreed not to
compete with the business of RoweCom or solicit its customers or employees for
a period of 18 months after termination of employment, in the case of Dr. Rowe,
and 12 months after termination of employment, in the case of each of the other
officers. Under the terms of these Non-Competition Agreements, if the relevant
officer is terminated other than for Cause (as defined in the Non-Competition
Agreement) or resigns for Good Reason (also as defined in the Non-Competition
Agreement), RoweCom will pay to the officer for the duration of the non-
competition period a monthly non-competition payment equal to two-thirds of his
monthly salary at the time of termination. RoweCom has the option of ceasing
these payments at any time during the non-competition period, at which time the
officer's non-competition and related obligations under the Non-Competition
Agreement would cease.
40
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning the compensation
earned during the year ended December 31, 1998 for (i) RoweCom's Chief
Executive Officer and (ii) each other executive officer of RoweCom whose total
salary and bonus may exceed $100,000 for services rendered to RoweCom and its
subsidiary during 1998 (collectively, the "Named Officers"). For disclosure
regarding terms of the stock options, see "Management--Stock Incentive Plans."
<TABLE>
<CAPTION>
----------------------------------
Annual Long-Term
Compensation Compensation Options
------------ ---------------------
(Number of Securities
Underlying Options
Salary(1) Granted)
Name and Position(s) ------------ ---------------------
<S> <C> <C>
Richard Rowe, Ph.D........................ $153,000 --
Chairman of the board of directors,
President, Chief Executive Officer
and Treasurer
Louis Hernandez, Jr....................... 124,000 140,687
Executive Vice President and Chief
Financial Officer
Steven Woit............................... 119,000 55,208
Vice President, Content
Ronald Grigg.............................. 88,000 8,726
Vice President, Design and Development
</TABLE>
- --------
(1)Excludes certain perquisites and other benefits the amount of which did not
exceed 10% of the employee's total salary and expected bonus. RoweCom has
allocated approximately $260,000 for the payment of bonuses to employees for
bonuses earned with respect to 1998. No determination will be made regarding
the allocation of bonuses to the Named Officers until after this offering.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to each of the Named Officers that received such options during 1998.
No stock appreciation rights were granted to these individuals during such
year. As of December 31, 1998, Richard Rowe did not have any stock options.
Individual Grants
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities % of Total Appreciation for
Underlying Options Granted Option Term(2)
Options to Employees Price Expiration ---------------------
Granted(1) in 1998 Per Share Dates 5% 10%
Name ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Louis Hernandez, Jr. ... 22,750 6.33% $ .72 1/29/08 $ 441,220 $ 679,127
63,465 17.67% .72 5/21/08 1,230,856 1,894,540
118,321 15.28% 2.86 9/10/98 946,829 1,520,489
Steven Woit............. 17,500 4.87% .72 1/29/08 339,413 522,426
37,857 10.54% .72 5/21/08 734,232 1,130,132
Ronald Grigg............ 8,726 2.44% .72 1/29/08 169,697 261,198
</TABLE>
- --------
(1)Shares underlying options generally vest over a four-year period, unless
accelerated in accordance with the stock option agreements governing such stock
options. For information regarding terms of the stock options, see
"Management--Stock Incentive Plans."
(2)Assumes increases in the fair market value of the common stock of 5% and 10%
per year from $13, the mid-point of the range set forth on the cover of this
prospectus, over the ten-year option period as mandated by the rules and
regulations of the Securities and Exchange Commission, and does not represent
RoweCom's estimate or projection of the future value of the common stock. The
actual value realized may be greater or less than the potential realizable
values set forth in the table.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information concerning option exercises
during 1998 and option holdings at December 31, 1998 with respect to each of
the Named Officers that held options. As of December 31, 1998, Richard Rowe did
not have any stock options.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Value Options at In-the-Money Options at
Exercise Realized December 31, 1998(1) December 31, 1998(2)
Name ----------- -------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis Hernandez, Jr..... -- -- 4,887 160,234 $ 60,012 $1,863,710
Steven Woit............. -- -- -- 55,208 -- 677,954
Ronald Grigg............ -- -- 14,544 11,634 168,274 140,814
</TABLE>
- --------
(1)"Exercisable" refers to those options which were both exercisable and
vested, while "Unexercisable" refers to those options which were unvested.
(2)Value is determined by subtracting the exercise price per share from $13,
the mid-point of the range set forth on the cover page of this prospectus, and
multiplying the result by the number of shares underlying the options.
Stock Incentive Plans
Amended and Restated 1998 Stock Incentive Plan
In February 1999, RoweCom's board of directors and stockholders approved
RoweCom's Amended and Restated 1998 Stock Incentive Plan, which provides for
the grant of incentive stock options, nonqualified stock options and restricted
stock awards to employees (including officers and employee directors) and
consultants. A maximum of 872,625 shares of common stock are currently reserved
for issuance pursuant to the 1998 Stock Incentive Plan. This maximum number of
shares will increase, effective as of January 1, 2000, and each January 1
thereafter during the term of the plan, by an additional number of shares of
common stock equal to 5% of the total number of shares of common stock issued
and outstanding as of the close of business on the preceding December 31. No
participant in the 1998 Stock Incentive Plan may in any year be granted stock
options or awards with respect to more than 383,955 shares of common stock.
The 1998 Stock Incentive Plan is administered by the compensation committee of
RoweCom's board of directors, which has the authority to determine which
eligible individuals are to receive options or restricted stock awards, the
terms of such options or awards, the status of such options as incentive or
nonqualified stock options under the federal income tax laws, including the
number of shares, exercise or purchase prices and times at which the options
become and remain exercisable or restricted stock vests and the time, manner
and form of payment upon exercise of an option. The exercise price of options
granted under the 1998 Stock Incentive Plan may not be less than 85% of the
fair market value of a share of common stock on the date of grant (100%, in the
case of incentive stock options). The options become exercisable at such time
or times as are determined by the compensation committee and expire after a
specified period that may not exceed ten years.
Upon the acquisition of 50% or more of RoweCom's outstanding common stock
pursuant to a hostile tender offer, each option granted to an officer of
RoweCom, if it has been outstanding for at least six months, will automatically
be canceled in exchange for a cash distribution to the officer based upon the
difference between the tender offer price and the exercise price of the option.
In the event RoweCom is acquired, vesting of options and restricted stock
awards granted under the 1998 Stock Incentive Plan will accelerate to the
extent that the options or RoweCom's repurchase rights with respect to
restricted stock awards are not assumed by or assigned to the acquiring entity.
The compensation committee also has discretion to provide for accelerated
vesting of options and restricted stock awards upon the occurrence of certain
changes in control. Accelerated vesting may be conditioned upon subsequent
termination of the affected optionee's service.
With the consent of an option holder, the compensation committee can cancel
that holder's options and replace them with new options (for the same or a
different number of shares) having an exercise price based upon the fair market
value of RoweCom's common stock on the new grant date.
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<PAGE>
As of December 31, 1998, no shares had been issued upon exercise of options
granted under the 1998 Stock Incentive Plan, options for 281,381 shares were
outstanding and options to purchase 591,250 shares were available for future
grant under the 1998 Stock Incentive Plan.
RoweCom's board of directors may amend or modify the 1998 Stock Incentive Plan
at any time, subject to the rights of holders of outstanding options. The 1998
Stock Incentive Plan will terminate on May 4, 2008.
1999 Non-Employee Director Stock Option Plan
In February 1999, RoweCom's board of directors and its stockholders approved
the 1999 Non-Employee Director Stock Option Plan. Under the Director Option
Plan, each director of RoweCom who is not also an employee of RoweCom will
receive upon the commencement of this offering, or upon later initial election
to RoweCom's board of directors, an option to purchase 10,472 shares of common
stock. Additionally, after a director's initial grant, the director will
receive, as of each date on which he is reelected as a director (but not more
frequently than 3 years), an option to purchase 10,472 shares of common stock
minus the number of options previously granted under the Non-Employee Director
Stock Option Plan which have not yet vested. Options are granted under the plan
at an exercise price equal to the fair market value of the common stock on the
date of grant. They vest monthly, at the rate of 3,491 shares a year, and have
a term of ten years. An aggregate of 87,263 shares of common stock have been
reserved for issuance under the Director Option Plan.
1999 Employee Stock Purchase Plan
In February 1999, RoweCom's board of directors and stockholders approved the
1999 Employee Stock Purchase Plan, which enables eligible employees to acquire
shares of common stock through payroll deductions. The Employee Stock Purchase
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended. The initial offering
period will start on the date of this prospectus and end on June 30, 1999,
unless otherwise determined by RoweCom's board of directors. Subsequent
offerings under the Employee Stock Purchase Plan are planned to start on
January 1 and July 1 of each year and end on June 30 and December 31 of each
year. During each offering period, an eligible employee may select a rate of
payroll deduction of from 1% to 10% of compensation, up to an aggregate of
$12,500 in any offering period. The purchase price for the common stock
purchased under the Employee Stock Purchase Plan is 85% of the lesser of the
fair market value of the shares on the first day or the last day of the
offering period. An aggregate of 872,625 shares of common stock have been
reserved for issuance under the Employee Stock Purchase Plan.
1997 Stock Incentive Plan
In May 1997, RoweCom's board of directors and its stockholders approved
RoweCom's 1997 Stock Incentive Plan, which provides for the grant of incentive
stock options, nonqualified stock options and restricted stock awards to
employees (including officers and employee directors) and consultants. A
maximum of 114,618 shares of common stock have been reserved for issuance under
the 1997 Stock Incentive Plan. No participant in the 1997 Stock Incentive Plan
may in any year have been granted stock options or awards with respect to more
than 52,358 shares of common stock. No more than an aggregate of $100,000 or
such other limit as may be imposed by the Internal Revenue Code with respect to
the aggregate fair market value of the options as of the grant date may be
exercised for the first time by a participant under the 1997 Stock Incentive
Plan (this limitation does not apply to nonqualified stock options or
restricted stock awards).
The 1997 Stock Incentive Plan is administered by the compensation committee,
which has the authority to determine which eligible individuals are to receive
options or restricted stock awards, the terms of such options or awards, the
status of such options as incentive or nonqualified stock options under the
federal income tax laws, including the number of shares, exercise or purchase
prices and times at which the options become and remain exercisable or
restricted stock vests and the time, manner and form of payment upon exercise
of an option. The exercise price of options granted under the 1997 Stock
Incentive Plan has been determined by the compensation committee (100%, in the
case of incentive stock options and 110%, in the case of incentive stock
options to a greater than 10% stockholder (measured on the date of grant)). The
options become exercisable at such time or times as determined by the
compensation committee and expire after a specified period that may not exceed
ten years (five years, in the case of a greater than 10% stockholder). All the
113,554 options that
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<PAGE>
have been granted by the Company pursuant to the 1997 Stock Incentive Plan will
vest and become exerciseable upon a "Liquidity Event" (as defined in the
agreements representing the options granted under the 1997 Stock Incentive
Plan). The consummation of this offering and a sale of RoweCom will constitute
a "Liquidity Event" for such purpose. Accordingly, all of such options will
vest and become exerciseable immediately after such event.
With the consent of an option holder, the compensation committee can cancel
that holder's options and replace them with new options (for the same or a
different number of shares) having an exercise price based upon the fair market
value of the common stock on the new grant date.
As of December 31, 1998, 698 shares had been issued upon the exercise of
options granted under the 1997 Stock Incentive Plan, and options for 113,554
shares had been granted under the 1997 Stock Incentive Plan.
RoweCom's board of directors may amend or modify the 1997 Stock Incentive Plan
at any time, subject to the rights of holders of outstanding options. The 1997
Stock Incentive Plan will terminate on April 25, 2007.
44
<PAGE>
Certain Transactions
In November 1996, Philippe Villers, a director of RoweCom, loaned RoweCom the
principal amount of $200,000. In January, 1997, Jerome Rubin, a director of
RoweCom, loaned RoweCom the principal amount of $100,000. In April, 1997, in
exchange for the cancellation of the indebtedness of RoweCom to Mr. Villers and
Mr. Rubin, RoweCom issued to Mr. Villers and Mr. Rubin 80,645 and 40,322 shares
of RoweCom's Class A Preferred Stock, respectively. RoweCom also issued to Mr.
Villers and Mr. Rubin, for no additional consideration, stock purchase warrants
providing for the purchase of up to 28,149 and 14,074 shares of RoweCom's
capital stock, respectively. Each of the stock purchase warrants will be
exercisable for shares of RoweCom's common stock at a strike price of $7.10 per
share, subject to any stock dividend, stock split, or similar event. In the
event that either of the stock purchase warrants are not exercised prior to the
consummation of this offering, such stock purchase warrant will be deemed to be
exercised on a "net" basis such that a portion of the shares available under
the stock purchase warrant having a value (determined with respect to the
difference between the price of the common stock in this offering and the
strike price of the stock purchase warrant) will be deemed to have been
surrendered in payment of the exercise price for the remaining shares available
under the stock purchase warrant.
In April 1997, Working Ventures Canadian Fund Inc. acquired 1,611,568 shares of
Class A Preferred Stock of Rowe Communications Ltd. ("RoweCom Canada"), and an
option to exchange such shares of RoweCom Canada Class A Preferred Stock for
shares of common stock of RoweCom, for US $4,000,000. In May 1998, in
connection with the sale of RoweCom's Class B Preferred Stock, the Class A
Exchange Option was amended to permit Working Ventures to exchange its
1,611,568 shares of RoweCom Canada Class A Preferred Stock for 3,163,306 shares
of the Class A-1 Preferred Stock of RoweCom.
In May 1998, Crystal Internet Venture Fund, L.P., Highland Capital Partners III
Limited Partnership, Highland Entrepreneurs' Fund III Limited Partnership, and
three other unaffiliated third parties purchased an aggregate of 5,140,370
shares of RoweCom's Class B Preferred Stock for an aggregate purchase price of
$6,500,000 and Working Ventures acquired 1,186,240 shares of Class B Preferred
Stock of RoweCom Canada, and an option to exchange such RoweCom Canada Class B
Preferred Stock for an equal number of shares of the Class B Preferred Stock of
the Company, for an aggregate purchase price of $1,500,000.
In December 1998, Axiom Venture Partners II Limited Partnership, Zero Stage
Capital VI, L.P., Working Ventures, Crystal Internet Venture Fund, L.P.,
Highland Capital Partners III Limited Partnership, and other unaffiliated
parties purchased an aggregate of 4,586,599 shares of RoweCom's Class C
Preferred Stock for an aggregate purchase price, net of expenses, of
$15,531,599. All of Working Ventures' shares, together with the remaining
outstanding shares of RoweCom's Class A Preferred Stock, Class A-1 Preferred
Stock, Class B Preferred Stock, and Class C Preferred Stock will convert into
common stock upon the consummation of this offering in accordance with their
terms.
In February 1999, RoweCom and Working Ventures entered into an Exchange Option
Exercise Agreement under which Working Ventures agreed to exchange all of its
RoweCom Canada Class A Preferred Stock and Class B Preferred Stock for shares
of RoweCom's Class A-1 Preferred Stock and Class B Preferred Stock,
respectively, effective immediately prior to the consummation of this offering.
Under the terms of the Exchange Option Exercise Agreement and a Second Amended
and Restated Stockholders Agreement to which Working Ventures and RoweCom are
parties, each share of RoweCom Canada Class A Preferred Stock will be exchanged
for 1.963 share of Class A-1 Preferred Stock of RoweCom and each share of Class
B Preferred Stock of RoweCom Canada will be exchanged for one share of Class B
Preferred Stock of RoweCom.
Working Ventures has agreed that, in the event that certain circumstances occur
after the exercise of the Series A Exchange Option, after the consummation of
this offering, it will transfer, for no additional consideration, an aggregate
of 310,371 shares of common stock to certain other stockholders and
optionholders of RoweCom, including Richard Rowe, Ph.D., the Chairman of the
board of directors, President and Chief Executive Officer of RoweCom, Thomas
Lemberg, Jerome Rubin, and Philippe Villers, each a director of RoweCom, Louis
Hernandez, Jr., the Executive Vice President and Chief Financial Officer of
RoweCom, Steven Woit, the Vice President, Sources of RoweCom, Ronald Grigg, the
Vice President, Design and Development of RoweCom and PV Securities Corp., a
Massachusetts securities corporation of which Philippe Villers, a director of
RoweCom, is the sole stockholder. Set forth below is a chart that describes the
number of
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shares of common stock that may be received by these individuals and entity as
a result of the transfer of these shares of Class A-1 Preferred Stock or common
stock by Working Ventures, after giving effect to the conversion of all shares
of Class A-1 Preferred Stock into common stock upon consummation of this
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Possible Share Transfer."
<TABLE>
<CAPTION>
--------------
Shares of
Common Stock
to be Received
Shareholder --------------
<S> <C>
Richard Rowe, Ph.D. .......................................... 255,095
Thomas Lemberg................................................ 895
Jerome Rubin.................................................. 6,007
PV Securities Corp. .......................................... 4,813
Philippe Villers.............................................. 4,814
Louis Hernandez, Jr........................................... 8,057
Steven Woit................................................... 2,984
Ronald Grigg.................................................. 7,325
</TABLE>
In March 1998, Dr. Rowe loaned RoweCom $100,000 payable on demand. The
Promissory Note accrued interest at the rate of 12% per annum compounded daily,
and was repaid in full (including $2,000 of accrued interest) on May 5, 1998.
Working Ventures, Axiom Venture Partners II Limited Partnership, Zero Stage
Capital VI, L.P., Crystal Internet Venture Fund, L.P., Highland Capital
Partners III Limited Partnership, and certain other stockholders of RoweCom are
entitled to certain registration rights with respect to the common stock they
will hold upon the consummation of this offering. See "Description of Capital
Stock--Registration Rights."
We believe that all of the transactions set forth above that were consummated
with parties that may be deemed to be affiliated with RoweCom were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. All future transactions with parties that may be deemed to be
affiliated with RoweCom, including loans between RoweCom and its officers,
directors, principal stockholders and their affiliates, will be approved by a
majority of the board, including a majority of the independent and
disinterested outside directors on RoweCom's board of directors, and will
continue to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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<PAGE>
Principal Stockholders
The following table sets forth certain information regarding beneficial
ownership of the common stock as of December 31, 1998 by:
. each person who is known by RoweCom to own beneficially more than five
percent of the outstanding common stock;
. each of RoweCom's directors and the Named Officers; and
. all current executive officers and directors of RoweCom as a group.
The table has been prepared on a pro forma basis assuming the:
. conversion of all outstanding shares of preferred stock into common
stock of RoweCom;
. exercise of all options that, by their terms, are exercisable within 60
days of December 31, 1998; shares subject to such options are deemed
outstanding for the purpose of computing the ownership percentage of the
person holding such options, but are not deemed outstanding for purposes
of computing the ownership percentage of any other person;
. exercise of all outstanding stock purchase warrants; and
. sale of 3,100,000 shares, where indicated, in this offering (assuming no
exercise of the underwriters' over-allotment option).
As used in this table, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any common
stock.
<TABLE>
<S> <C> <C> <C>
----------------------------------------
<CAPTION>
Shares Percentage of Common
Beneficially Stock Beneficially
Owned Owned
------------ ------------------------
Before After
Beneficial Owner Number Offering Offering
<S> <C> <C> <C>
Richard Rowe, Ph.D. ............... 1,491,848(1) 22.84% 15.49%
Working Ventures Canadian Fund
Inc............................... 1,543,822(2) 23.64% 16.03%
Highland Capital Partners III
Limited Partnership............... 1,084,574(3) 16.61% 11.26%
Crystal Internet Venture Fund,
L.P............................... 628,914(4) 9.63% 6.53%
Thomas Lemberg..................... 5,235(5) * *
Jerome Rubin....................... 11,617(6) * *
John Kennedy....................... 1,543,822(7) 23.64% 16.03%
Philippe Villers................... 91,204(8) 1.39% *
Louis Hernandez, Jr. .............. 65,245(9) * *
Steven Woit........................ 17,453(10) * *
Ronald Grigg....................... 34,111(11) * *
Stanley Fung....................... 205,459(12) 3.14% 2.13%
All executive officers and
directors as a group (12
persons).......................... 3,524,134(13) 52.38% 35.86%
</TABLE>
- --------
*Less than 1%.
(1)Does not include 255,095 shares that may be transferred to Dr. Rowe by
Working Ventures after consummation of this offering. If such transfer had
occurred as of December 31, 1998, the percentages of common stock beneficially
owned before and after the offering by Dr. Rowe would have been 26.75% and
18.14%, respectively. Dr. Rowe's address is c/o RoweCom, Inc., 725 Concord
Avenue, Cambridge, MA 02138.
(2)Consists entirely of shares issuable upon the conversion of 3,163,306 shares
of Class A-1 Preferred Stock, 1,186,240 shares of Class B Preferred Stock and
73,378 shares of Class C Preferred Stock into common stock upon consummation of
this offering. Includes 310,371 shares that may be transferred to various other
stockholders after the consummation of this offering. If such transfer had
occurred as of December 31, 1998, the percentage of common stock beneficially
owned before and after the offering would have been 18.89% and 12.81%,
respectively. The address for Working Ventures is 250 Bloor Street East, Suite
1600, Toronto, Ontario M4W1E6.
(3)Consists entirely of shares issuable upon the conversion of 3,036,773 shares
of Class B Preferred Stock and 70,443 shares of Class C Preferred Stock owned
by Highland Capital Partners III Limited Partnership, and 126,532 shares of
Class B Preferred Stock and 2,935 shares of Class C Preferred Stock owned by
Highland Entrepreneurs' Fund III Limited Partnership, an affiliate of Highland
Capital Partners III Limited Partnership,
47
<PAGE>
into common stock upon consummation of this offering. The address for Highland
Capital Partners III Limited Partnership is Two International Place, Boston, MA
02110.
(4)Consists entirely of shares issuable upon the conversion of 1,581,654 shares
of Class B Preferred Stock and 220,135 shares of Class C Preferred Stock into
common stock upon consummation of this offering. The address for Crystal
Internet Venture Fund, L.P. is 1120 Chester Avenue, Cleveland, OH 44114.
(5)Includes 5,235 shares issuable upon the exercise of options that will become
exercisable within 60 days of December 31, 1998. Does not include 895 shares
that may be transferred to Mr. Lemberg by Working Ventures after the
consummation of this offering.
(6)Consists entirely of 6,382 shares issuable upon the net exercise of a stock
purchase warrant held by Mr. Rubin (assuming an initial public offering price
of $13 per share, the mid-point of the range set forth on the cover of this
prospectus), and 5,235 shares issuable upon the exercise of options that will
become exercisable within 60 days of December 31, 1998. Does not include 6,007
shares that may be transferred to Mr. Rubin by Working Ventures after
consummation of the offering. See "Certain Transactions."
(7)Consists entirely of shares beneficially owned by Working Ventures Canadian
Fund Inc. Mr. Kennedy is the representative of Working Ventures Canadian Fund
Inc. to RoweCom's board of directors and may be deemed to control the voting
and disposition of the common stock held by Working Ventures Canadian Fund Inc.
Mr. Kennedy disclaims beneficial ownership of the common stock held by Working
Ventures Canadian Fund Inc. Mr. Kennedy's address is c/o Working Ventures
Canadian Fund Inc., 250 Bloor Street East, Suite 1600, Toronto, Ontario M4W1E6.
(8)Includes 45,602 shares held by PV Securities Corp., a Massachusetts
securities corporation of which Mr. Villers is the sole shareholder and 28,149
shares issuable upon the exercise of stock purchase warrants held by members of
Mr. Villers' immediate family or trusts for the benefit of such persons. Does
not include 9,627 shares that may be transferred to Mr. Villers or PV
Securities Corp. by Working Ventures after the consummation of this offering.
If such transfer had occurred as of December 31, 1998, the percentage of common
stock beneficially owned before and after the offering would have been 1.54%
and 1.04% respectively. See "Certain Transactions."
(9)Includes 65,245 shares issuable upon the exercise of options that will
become exercisable within 60 days of December 31, 1998. Does not include 8,057
shares that may be transferred to Mr. Hernandez by Working Ventures after the
consummation of this offering. If such transfer had occurred as of December 31,
1998, the percentage of common stock beneficially owned before and after the
offering would have been 1.11% and 0.76%, respectively. See "Certain
Transactions."
(10)Includes 17,453 shares issuable upon the exercise of options that will
become exercisable within 60 days of December 31, 1998. Does not include 2,984
shares that may be transferred to Mr. Woit by Working Ventures after the
consummation of this offering.
(11)Includes 17,452 shares issuable upon the exercise of options that will
become exercisable within 60 days of December 31, 1998. Does not include 7,325
shares that may be transferred to Mr. Grigg by Working Ventures after the
consummation of this offering. See "Certain Transactions."
(12) Consists entirely of shares beneficially owned by Zero Stage Capital VI
L.P. Mr. Fung is managing director of Zero Stage Capital VI L.P. and may be
deemed to control the voting and disposition of the common stock held by Zero
Stage Capital VI L.P. Mr. Fung disclaims beneficial ownership of the common
stock held by Zero Stage Capital VI L.P. Mr. Fung's address is c/o Zero Stage
Capital VI L.P., 101 Main Street, Cambridge, MA 02142.
(13)Includes 197,467 shares issuable upon the exercise of options that will
become exercisable within 60 days of December 31, 1998.
48
<PAGE>
Description of Capital Stock
Upon the closing of this offering, the authorized capital stock of RoweCom will
consist of 34,000,000 shares of common stock, $.01 par value per share, and
23,000,000 shares of preferred stock, $.01 par value per share, whose rights
and designation have not yet been established. There will be no preferred stock
outstanding immediately after the closing of this offering. The description in
the sections below of RoweCom's certificate of incorporation and by-laws refers
to RoweCom's Third Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws, respectively, as they will be in effect upon the
closing of this offering.
Common Stock
As of December 31, 1998, there were 1,526,180 shares of common stock
outstanding and held by five stockholders. These numbers reflect certain
transactions that will take place prior to the closing of this offering. These
transactions are described previously in the section entitled "Certain
Transactions." They are as follows:
. The conversion of all preferred stock of RoweCom and RoweCom Canada that
are outstanding prior to this offering into RoweCom common stock.
. The exercise of all outstanding preferred stock purchase warrants. The
price that the holders of the warrants must pay to obtain their shares,
the "exercise price," may in some cases not be paid in cash. Instead, we
will take the number of shares that the holder would otherwise have
received and deduct from that the number of shares that is equal in
value, based on the offering price of the common shares, to the "exercise
price."
Based upon the number of shares of common stock outstanding as of December 31,
1998 and giving effect to the issuance of the 3,100,000 shares of common stock
offered by this prospectus and the exercise of all outstanding stock purchase
warrants, assuming the underwriters do not exercise their over-allotment
option, there will be 9,630,416 shares of common stock outstanding upon the
closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, and are not able to multiply the
number of shares they own by the number of directors up for election for
purpose of electing directors. Accordingly, holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are entitled to
receive dividends in proportion to the number of shares they hold, if they are
declared by RoweCom's board of directors out of funds that are legally
available for that purpose, provided that dividends declared on outstanding
preferred stock shall have priority. Upon the liquidation, dissolution or
winding up of RoweCom, the holders of common stock are entitled to receive the
net assets of RoweCom available after the payment of all debts and other
liabilities, provided that holders of the outstanding preferred stock shall
have priority. Holders of the common stock have no preferential right to
participate in any future debt or equity offerings, right to have their shares
redeemed or right to convert their shares into any other type of security. The
outstanding shares of common stock are, and the shares offered by RoweCom in
this offering will be, when issued and paid for, fully paid and non-assessable.
In the event RoweCom issues shares of preferred stock in the future, the rights
of the holders of RoweCom's common stock may be adversely affected by that
issuance. This is because it is probable that any preferred stock issued will
have certain rights and preferences that entitle the holders of such shares to
have priority over the holders of the common stock with respect to certain
matters. These matters include the right to receive dividends and the right to
receive the assets of RoweCom in the event of a bankruptcy or similar type
event. There will be no shares of preferred stock outstanding immediately after
the closing of this offering.
Preferred Stock
Under RoweCom's certificate of incorporation, RoweCom's board of directors is
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of
23,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series. Each series may have different rights, preferences and
designations and qualifications, limitations and restrictions that may be
established by RoweCom's board of directors without approval from the
shareholders. These rights, designations and preferences include:
.number of shares to be issued;
.dividend rights;
49
<PAGE>
. dividend rates;
. right to convert the preferred shares into a different type of security;
. voting rights attributable to the preferred shares;
. right to set aside a certain amount of assets for payments relating to the
preferred shares; and
. prices to be paid upon redemption of the preferred shares or a
bankruptcy type event.
If RoweCom's board of directors decides to issue any preferred stock, it could
have the effect of delaying or preventing another party from taking control of
RoweCom. This is because the terms of the preferred stock would be designed to
make it prohibitively expensive for any unwanted third party to make a bid for
the shares of RoweCom. We have has no present plans to issue any shares of
preferred stock.
Delaware Law and Certain Charter and By-Law Provisions
RoweCom is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a certain period of time.
That period is three years after the date of the transaction in which the
person became an interested stockholder, unless the interested stockholder
attained that status with the approval of the board of directors or unless the
business combination is approved in a prescribed manner. A "business
combination" includes certain mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or owned within three years prior,
15% or more of the corporation's voting stock.
RoweCom's certificate of incorporation and by-laws provide for the division of
the board of directors into three classes, as nearly equal in size as possible,
with each class beginning its three year term in a different year. See
"Management--Executive Officers and Directors." Any director may be removed
only for cause by the vote of a majority of the shares that are permitted to
vote for the election of directors.
RoweCom's by-laws provide that for nominations to its board of directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the matter
in writing to RoweCom's Secretary. To be timely, a notice of nominations or
other business to be brought before an annual meeting must be delivered (x)
between 120 and 150 days before the date that is the one year anniversary of
the date of the preceding year's proxy statement relating to the annual
meeting; or (y) if the date of the current year's annual meeting is more than
30 days before or 60 days after the anniversary date described in (x) or no
proxy statement was delivered in the preceding year, then notice must be given
no earlier than 90 days before the meeting and no later than (1) 60 days before
the meeting or (2) 10 days after the date on which a public announcement that
relates the date of the annual meeting is made, whichever is later. With
respect to special meetings, notice must generally be delivered not more than
90 days prior to such meeting and not later than the later of 60 days prior to
such meeting or 10 days following the day on which public announcement of such
meeting is first made by the Company. The notice must contain, among other
things, certain information about the stockholder delivering the notice and, as
applicable, background information about each nominee or a description of the
proposed business to be brought before the meeting.
RoweCom's certificate of incorporation empowers its board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
. comparison of the proposed consideration to be received by stockholders
in relation to the then current market price of RoweCom's capital stock,
the estimated current value of RoweCom in a freely negotiated transaction
and the estimated future value of RoweCom as an independent entity and
. the impact of a transaction on the employees, suppliers and clients of
RoweCom and its effect on the communities in which RoweCom operates.
The provisions described above could make it more difficult for a third party
to acquire control of RoweCom and, furthermore, could discourage a third party
from making any attempt to acquire control of RoweCom.
50
<PAGE>
RoweCom's certificate of incorporation provides that any action required or
permitted to be taken by the stockholders of RoweCom may be taken only at duly
called annual or special meeting of the stockholders, and that special meetings
may be called only by the Chairman of the board of directors of RoweCom, a
majority of the board of directors of RoweCom or the President of RoweCom,
except that holders of a majority of the common stock entitled to vote on the
election of directors may call a special meeting for the purpose of filling a
vacancy on the board of directors, and holders of at least two-thirds of the
common stock entitled to vote generally may call a special meeting for any
other purpose. These provisions could have the effect of delaying until the
next annual stockholders meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities of RoweCom. These
provisions may also discourage another person or entity from making an offer to
RoweCom stockholders for the common stock. This is because the person or entity
making the offer, even if it acquired a majority of the outstanding voting
securities of RoweCom, would be unable to call a special meeting of the
stockholders and would further be unable to obtain unanimous written consent of
the stockholders. As a result, any meeting as to matters they endorse,
including the election of new directors or the approval of a merger, would have
to wait for the next duly called stockholders meeting.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
RoweCom's certificate of incorporation requires the affirmative vote of the
holders of at least 67% of the outstanding voting stock of RoweCom to amend or
repeal any of the provisions of RoweCom's certificate of incorporation
described above, or to reduce the number of authorized shares of common stock
and preferred stock. The 67% vote is also required to amend or repeal any of
RoweCom's by-law provisions described above. The RoweCom by-laws may also be
amended or repealed by unanimous vote of RoweCom's board of directors. The 67%
stockholder vote would be in addition to any separate vote that each class of
preferred stock is entitled to that might in the future be required in
accordance with the terms of any preferred stock that might be outstanding at
the time any amendments are submitted to stockholders.
Registration Rights
The Company is party to a Second Amended and Restated Registration Rights
Agreement, dated as of December 11, 1998, with certain of its stockholders,
including Working Ventures Canadian Fund Inc., Axiom Venture Partners II
Limited Partnership, Zero Stage Capital VI, L.P., Highland Capital Partners III
Limited Partnership and Crystal Internet Venture Fund, L.P., who will hold in
the aggregate 5,599,705 shares of common stock upon the completion of this
offering. In accordance with the Registration Rights Agreement, RoweCom has
granted these stockholders the following:
. The right to demand, upon four occasions, that their shares of common
stock be registered under the Securities Act of 1933, as amended, in a
manner similar to the registration of the shares that are offered by this
prospectus. They may make this request after the earlier of (x) January 31,
2003 or (y) six months after RoweCom's initial public offering.
. The right to have their shares of capital stock of RoweCom included in
any registration of common stock by RoweCom under the Securities Act, other
than those effected on Forms S-4 or S-8. In addition, RoweCom has agreed to
file registration statements on Form S-3 registering common stock for
resale by these stockholders, subject to certain limitations, upon the
request of the holders of certain percentages of common stock.
RoweCom is required to bear the expenses of the first twelve registrations and
all registrations described in the first sentence of (2) above conducted by
RoweCom in accordance with the Registration Rights Agreement. Certain
stockholders of RoweCom who will hold in the aggregate 5,599,705 shares of
common stock upon completion of this offering have agreed not to exercise any
registration rights during the 180 day period beginning on the date of this
prospectus.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is BankBoston, N.A.
51
<PAGE>
Underwriting
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom J.P. Morgan Securities Inc., CIBC Oppenheimer Corp. and Volpe Brown Whelan
& Company, LLC, are acting as representatives, have severally agreed to
purchase, and RoweCom has agreed to sell to them, the respective number of
shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
----------------
Number of Shares
Underwriters ----------------
<S> <C>
J.P. Morgan Securities Inc. ...............................
CIBC Oppenheimer Corp. ....................................
Volpe Brown Whelan & Company, LLC..........................
---------
Total.................................................... 3,100,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. Under the
terms and conditions of the underwriting agreement, all of the underwriters are
obligated to take and pay for all such shares of common stock, if any are
taken.
The underwriters propose initially to offer the shares of common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the common stock, the offering price and other
selling terms may be changed from time to time by the Underwriters.
According to the terms of the underwriting agreement, RoweCom has granted to
the underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to 465,000 additional shares of common stock, on the same terms and
conditions as set forth on the cover page hereof. If such option is exercised
in full, the total price to the public, underwriting discounts and commissions,
and proceeds to RoweCom will be $ , $ and $ , respectively. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of shares of common stock offered hereby. To
the extent that option is exercised, each of the underwriters will have a
commitment, subject to certain conditions, to purchase approximately the same
percentage of those additional shares as the number of shares of common stock
to be purchased by it as shown in the table above bears to the total number of
shares of common stock initially offered hereby.
RoweCom and certain of its stockholders, option holders, warrant holders,
officers and directors have agreed that during the period beginning on the date
of this prospectus and continuing to and including the date 180 days after the
date of this prospectus they will not (1) offer, pledge, announce the intention
to sell, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
52
<PAGE>
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities of RoweCom which are
substantially similar to the common stock, including but not limited to any
securities that are convertible into or exercisable or exchangeable for, or
that represent the right to receive common stock or any such substantially
similar securities or (2) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of common stock or any securities substantially similar to the
common stock (other than, in the case of RoweCom, (x) pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
prospectus and (y) the issuance of common stock in connection with the
transactions described in this prospectus), without the prior written consent
of J.P. Morgan Securities Inc.
RoweCom has agreed to indemnify the underwriters against certain liabilities,
losses and expenses, including liabilities under the Securities Act, or to
contribute to payments that the underwriters may be required to make in respect
thereof.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with this offering,
creating a syndicate short position. In addition, the underwriters may bid for,
and purchase, shares of common stock in the open market to cover syndicate
short positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the common stock in this offering, if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price for the shares of common stock offered hereby
has been determined by agreement between RoweCom and the underwriters. Among
the factors considered in making such determination were the history of and the
prospects for the industry in which RoweCom competes, an assessment of
RoweCom's management, the present operations of RoweCom, the historical results
of RoweCom and the trend of its revenues and earnings, the prospects for future
earnings of RoweCom, the general condition of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies. There can be no assurance that an active trading market
will develop for the common stock or that the common stock will trade in the
public market at or above the initial public offering price.
It is expected that delivery of the shares sold in this offering will be made
to investors on or about , 1999.
The underwriters have reserved for sale up to 310,000 shares of common stock
for directors and employees of RoweCom and certain other persons associated
with RoweCom who have an interest in purchasing such shares of common stock in
this offering. The underwriters have advised RoweCom that the price per share
for such shares will be the initial public offering price. The number of shares
available for sale to the general public in this offering will be reduced to
the extent such persons purchase such reserved shares. Any reserved shares not
so purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered by this prospectus.
53
<PAGE>
Shares Eligible For Future Sale
Upon completion of this offering, we will have outstanding 9,630,416 shares of
common stock assuming the exercise of all outstanding stock purchase warrants
but no exercise of the underwriters' over-allotment option and no exercise of
outstanding options under RoweCom's stock incentive plans or other agreements.
Of these shares, the 3,100,000 shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act, except for any shares held by an existing "affiliate" of RoweCom, as such
term is defined by Rule 144 under the Securities Act. The remaining 6,530,416
shares, and any shares purchased by affiliates in this offering, will be
"restricted shares" as defined in Rule 144.
In addition, substantially all of the optionholders, warrantholders and
stockholders of RoweCom, and all officers and directors of RoweCom, have agreed
pursuant to written "lock-up" agreements not to sell any shares of common stock
for 180 days after the date of this prospectus without the prior written
consent of J.P. Morgan Securities Inc. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after this
offering, a person (or persons whose shares are aggregated) who owns shares
that were purchased from RoweCom or any affiliate at least one year previously,
including a person who may be deemed an affiliate of RoweCom, is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the then outstanding shares of the common stock which will equal
approximately 9,630 shares immediately after the completion of this
offering or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 must be made with the required notice and the availability
of current public information about RoweCom.
Any person (or persons whose shares are aggregated) who is not deemed to have
been an affiliate of RoweCom at any time during the 90 days preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 under the Securities Act that were purchased from RoweCom or any affiliate
at least two years previously, would be entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements, or notice requirements.
Rule 701 may be relied upon with respect to the resale of securities originally
purchased from RoweCom by its employees, directors, officers, consultants or
advisers prior to this offering. In addition, the Commission has indicated that
Rule 701 will apply to the typical stock options granted by an issuer before it
becomes a public company, along with the shares acquired upon exercise of such
options (including exercises after the date of this prospectus). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, may be sold by:
. persons other than affiliates, in ordinary brokerage transactions; and
. by affiliates under Rule 144 without compliance with its one-year
holding period requirement.
As a result of the foregoing regulations, beginning 90 days after the closing
of this offering, we expect that 31,748 shares of common stock will be eligible
for resale without restriction under Rule 144(k) or Rule 701, all of which
shares are subject to lock-up agreements. In addition, upon the expiration of
the lock-up agreements 180 days after the date of this prospectus, an
additional 4,869,567 shares of common stock, including 4,139,367 shares of
common stock held by affiliates of RoweCom, will become eligible for sale under
Rule 144, subject to the volume and other limitations of such rule. The
remaining 1,629,101 shares of common stock will be eligible for sale under Rule
144 on the first anniversary of their respective dates of issuance, beginning
on December 11, 1999.
RoweCom has agreed not to offer, sell or otherwise dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock or any rights to acquire common stock for a period of 180 days
after the date of this prospectus, without the prior written consent of the
Representatives of the Underwriters, subject to certain limited exceptions. See
"Underwriting."
54
<PAGE>
After the completion of this offering, the holders of 5,599,705 shares of
common stock or their transferees would be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would cause such shares to be freely tradable
without restriction under the Securities Act (except for shares purchased by
Affiliates) immediately upon the effectiveness of such registration, which
could result in some of such shares becoming eligible for sale in advance of
the dates set forth above.
In addition, RoweCom intends to file one or more registration statements under
the Securities Act covering approximately 114,618 shares of common stock
reserved for issuance under the 1997 Plan, 872,625 shares reserved for issuance
under the Amended 1998 Plan, 872,625 shares reserved for issuance under the
1999 Employee Stock Purchase Plan, 87,263 shares reserved for issuance under
the Director Option Plan, and 71,556 options granted outside of such plans. See
"Management--Stock Incentive Plans." Such registration statements are expected
to be filed within 90 days after the date of this prospectus and will
automatically become effective upon filing. Following such filing, shares
registered under such registration statements will, subject to the 180-day
lock-up agreements described above and Rule 144 volume limitations applicable
to Affiliates, be available for sale in the open market upon the exercise of
vested options 90 days after the effective date of this prospectus. At December
31, 1998, options to purchase an aggregate of 602,966 shares were issued and
outstanding under the 1997 Plan, the 1998 Amended Plan, and the options issued
and outstanding outside of such plans.
Legal Matters
The validity of the common stock offered in this prospectus will be passed upon
for RoweCom by Bingham Dana LLP, Boston, Massachusetts. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Davis Polk & Wardwell, New York, New York.
Experts
The consolidated balance sheets as of December 31, 1997 and 1998, and the
consolidated statements of operations, stockholders' (deficit) equity and cash
flows for each of the three years in the period ended December 31, 1998,
included in this prospectus and the Registration Statement of which this
prospectus is a part have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Available Information
We have filed with the Commission a registration statement on Form S-1 with
respect to the common stock being offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration
statement. For further information about us and the common stock, see the
registration statement, and its exhibits. Descriptions in this prospectus of
any contract or other document are not necessarily complete and, where the
contract or document is an exhibit to the registration statement, any such
description is qualified in all respects by the exhibit. Copies of the
registration statement, including exhibits, may be examined without charge in
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W. Room 1024, Washington, DC 20549, and the Securities and
Exchange Commission's Regional Offices located at 500 West Madison Street,
Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13th Floor, New York,
NY 10048 or on the Internet at http://www.sec.gov. You can get information
about the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0300. Copies of all or a portion of the
registration statement can be obtained from the Public Reference Section of the
Securities and Exchange Commission upon payment of prescribed fees.
As a result of this offering, RoweCom will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. Such reports, proxy statements and
other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, DC 20006.
55
<PAGE>
ROWECOM INC.
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 ................ F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998...................................................... F-4
Consolidated Statements of Stockholders' (Deficit) Equity for the years
ended December 31, 1996, 1997 and 1998................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
This is the form of the report that we expect to issue upon the filing of an
amendment to the Company's Certificate of Incorporation amending certain terms
defined therein and effecting a 0.34905-for-one reverse stock split of the
Company's common stock, as discussed in Notes 12 and 15 to the Consolidated
Financial Statements, respectively.
PricewaterhouseCoopers LLP
Report of Independent Accountants
To the Board of Directors and
Stockholders of RoweCom Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows present fairly, in all material respects, the financial position of
RoweCom Inc. and its subsidiary at December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Boston, Massachusetts
January 15, 1999 (Except for the information presented in Notes 12 and 15 for
which the date is February 8, 1999)
F-2
<PAGE>
RoweCom Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
----------------------------------------
Pro Forma
At December 31, at December 31,
----------------------- ---------------
1997 1998 1998
---------- ----------- ---------------
(Note 1)
(unaudited)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........... $ 691,358 $16,050,826 $16,250,826
Accounts receivable (net of
allowance for doubtful accounts of
$0 and $60,000).................... 254,256 1,981,530 1,981,530
Restricted cash..................... 588,499 922,851 922,851
Other current assets................ 229,254 604,523 604,523
---------- ----------- -----------
Total current assets.............. 1,763,367 19,559,730 19,759,730
Equipment and furnishings, net........ 235,386 632,155 632,155
Deferred tax asset.................... 81,730 76,477 76,477
Other assets, net..................... 27,558 16,023 16,023
---------- ----------- -----------
Total assets...................... $2,108,041 $20,284,385 $20,484,385
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Current liabilities:
Accounts payable.................... 166,013 365,853 365,853
Accrued expenses.................... 582,330 810,633 810,633
Accrued compensation................ 114,896 355,780 355,780
Customer advances................... 588,499 922,851 922,851
Income taxes payable................ 126,321 -- --
Loans payable....................... -- 1,657,719 1,657,719
---------- ----------- -----------
Total current liabilities......... 1,578,059 4,112,836 4,112,836
Commitments (Note 9)
Class A Redeemable, Convertible
Preferred stock, $.01 par value,
5,000,000 shares authorized,
1,772,857 shares issued and
outstanding and 0 shares issued and
outstanding on a pro forma basis
(liquidation value of $4,920,758).... 4,298,210 4,636,533 --
Class B Redeemable, Convertible
Preferred stock, $.01 par value,
8,000,000 shares authorized,
6,326,610 shares issued and
outstanding and 0 shares issued and
outstanding on a pro forma basis
(liquidation value of $8,367,101).... -- 8,198,016 --
Class C Redeemable, Convertible
Preferred Stock, $.01 par value,
5,000,000 shares authorized;
4,586,599 shares issued and
outstanding and 0 shares issued and
outstanding on a pro forma basis
(liquidation value of $15,683,252)... -- 15,588,268 --
Stockholders' (deficit) equity:
Common stock, $.01 par value per
share, 34,000,000 shares
authorized; 1,544,140 shares issued
and outstanding at December 31,
1997; 1,526,180 shares issued and
outstanding at December 31, 1998
and 6,530,416 shares issued and
outstanding on a pro forma basis... 15,441 15,261 65,304
Additional paid-in capital.......... 1,709,249 1,709,742 30,282,516
Treasury stock, at cost............. -- (53,267) (53,267)
Accumulated deficit................. (5,509,613) (13,901,240) (13,901,240)
Cumulative translation adjustment... 16,695 (21,764) (21,764)
---------- ----------- -----------
Total stockholders' (deficit)
equity........................... (3,768,228) (12,251,268) 16,371,549
---------- ----------- -----------
Total liabilities and
stockholders' (deficit) equity... $2,108,041 $20,284,385 $20,484,385
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
RoweCom Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
-------------------------------------
Year Ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $ 3,116,454 $12,889,988 $19,052,639
Cost of revenues........................ 3,082,763 12,701,290 18,735,846
----------- ----------- -----------
Gross profit......................... 33,691 188,698 316,793
Operating expenses:
Sales and marketing.................... 584,602 2,034,331 4,817,402
Research and development............... 532,488 584,081 1,631,052
General and administrative............. 351,246 751,107 1,560,882
----------- ----------- -----------
Total operating expenses.............. 1,468,336 3,369,519 8,009,336
----------- ----------- -----------
Loss from operations................. (1,434,645) (3,180,821) (7,692,543)
Interest and other income, net......... 617 63,652 172,051
----------- ----------- -----------
Loss before income taxes............. (1,434,028) (3,117,169) (7,520,492)
Provision for income taxes............. 15,695 136,352 109,000
----------- ----------- -----------
Net loss............................. (1,449,723) (3,253,521) (7,629,492)
=========== =========== ===========
Accretion of dividends on redeemable
preferred stock....................... -- (183,584) (762,135)
----------- ----------- -----------
Net loss to common stockholders...... $(1,449,723) $(3,437,105) $(8,391,627)
=========== =========== ===========
Pro forma (unaudited):
Basic and diluted pro forma net loss
per share (Notes 1 and 2) ............ $ (1.87)
Weighted average shares used in
computing basic and diluted pro forma
net loss per share (Notes 1 and 2).... 4,077,075
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
RoweCom Inc.
Consolidated Statements of Stockholders' (Deficit) Equity
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Common Additional Treasury Cumulative
Stock Common Paid-In Stock at Accumulated Translation Comprehensive
Shares Stock Capital Cost Deficit Adjustment Total Loss
------ -------- ---------- -------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 7,679 $ 77 $ 674,700 -- $ (622,792) -- $ 51,985
Capital contributions
to Rowe
Communications, Inc... -- -- 839,913 -- -- -- 839,913
Issuance of common
stock in connection
with the foundation of
RoweCom LLC, July 1,
1996.................. 1,544,140 15,441 194,559 -- -- -- 210,000
Net loss............... -- -- -- -- (1,449,723) -- (1,449,723) $ (1,449,723)
Cumulative translation
adjustment............ -- -- -- -- -- $ 9,584 9,584 9,584
------------
Comprehensive loss..... -- -- -- -- -- -- -- $ (1,440,139)
--------- -------- ---------- -------- ------------ -------- ------------- ============
Balance, December 31,
1996................... 1,551,819 15,518 1,709,172 -- (2,072,515) 9,584 (338,241)
Shares cancelled upon
dissolution of Rowe
Communications, Inc... (7,679) (77) 77 -- -- -- --
Accretion of dividends
on preferred stock to
redemption value...... -- -- -- -- (183,577) -- (183,577)
Net loss............... -- -- -- -- (3,253,521) -- (3,253,521) $ (3,253,521)
Cumulative translation
adjustment............ -- -- -- -- -- 7,111 7,111 7,111
------------
Comprehensive loss..... -- -- -- -- -- -- -- $ (3,246,410)
--------- -------- ---------- -------- ------------ -------- ------------- ============
Balance, December 31,
1997................... 1,544,140 15,441 1,709,249 -- (5,509,613) 16,695 (3,768,228)
Accretion of dividends
on preferred stock to
redemption value...... -- -- -- -- (762,135) -- (762,135)
Exercise of stock
options............... 698 7 493 -- -- -- 500
Purchase of treasury
stock shares.......... (18,658) (187) -- $(53,267) -- -- (53,454)
Net loss............... -- -- -- -- (7,629,492) -- (7,629,492) $ (7,629,492)
Cumulative translation
adjustment............ -- -- -- -- -- (38,459) (38,459) (38,459)
------------
Comprehensive loss..... -- -- -- -- -- -- -- $ (7,667,951)
--------- -------- ---------- -------- ------------ -------- ------------- ============
Balance, December 31,
1998................... 1,526,180 $ 15,261 $1,709,742 $(53,267) $(13,901,240) $(21,764) $(12,251,268)
========= ======== ========== ======== ============ ======== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
RoweCom Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
--------------------------------------
Years Ended December 31,
--------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(1,449,723) $(3,253,521) $ (7,629,492)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 49,660 79,476 211,738
Loss on disposal of
intangibles................ -- 29,033 --
Changes in operating assets and
liabilities:
Accounts receivable......... (26,155) (228,101) (1,731,677)
Other current assets........ (41,945) (158,631) (371,957)
Accounts payable............ 80,339 23,373 202,067
Income taxes payable........ -- 126,321 (121,302)
Accrued expenses and accrued
compensation............... 197,165 478,744 481,624
----------- ----------- ------------
Net cash used in operating
activities................. (1,190,659) (2,903,306) (8,958,999)
Cash flows from investing
activities:
Purchase of equipment and
furnishings................. (56,329) (203,173) (595,887)
Purchase of intangible
assets...................... (34,840) (25,531) (1,000)
----------- ----------- ------------
Net cash used in investing
activities.................. (91,169) (228,704) (596,887)
Cash flows from financing
activities:
Net proceeds from issuance of
preferred stock............. -- 3,712,464 23,362,472
Proceeds from issuance of
common stock................ 210,000 -- 500
Loan proceeds................ 210,000 127,638 2,507,719
Loan repayments.............. -- (37,638) (850,000)
Capital contribution......... 839,913 -- --
Purchase of treasury stock... -- -- (53,454)
----------- ----------- ------------
Net cash provided by
financing activities....... 1,259,913 3,802,464 24,967,237
Effect of exchange rates on
cash........................ 9,584 7,111 (51,883)
Net (decrease) increase in
cash and cash equivalents... (12,331) 677,565 15,359,468
Cash and cash equivalents,
beginning of period........... 26,124 13,793 691,358
----------- ----------- ------------
Cash and cash equivalents, end
of period..................... $ 13,793 $ 691,358 $ 16,050,826
=========== =========== ============
Supplementary information:
Conversion of loan payable
into preferred stock........ -- $ 300,000 --
Accretion of preferred
stock....................... -- $ 183,577 $ 762,135
Income taxes paid............ $ 15,286 -- $ 211,058
Interest paid................ $ -- $ 9,820 $ 19,356
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
RoweCom Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
RoweCom Inc. ("RoweCom"), was formed as Rosewood Knowledge Management, Inc. on
January 12, 1994, and was renamed as Rowe Communications, Inc. on February 16,
1995, to provide Internet-based knowledge acquisition and management services.
RoweCom's principal product is the knowledgeStore (the "kStore"). The kStore
allows knowledge workers, librarians, and purchasing agents to order, pay for,
and manage the purchase of knowledge resources. RoweCom provides each client's
organization with its own highly customized "company store" which facilitates
the ordering, payment and management of subscriptions to magazines, newspapers
and journals as well as other knowledge resources electronically through
RoweCom's online catalog. The kStore allows ordering from a decentralized or
centralized environment, the inclusion of built-in approval levels, and the
automation of enterprise-wide reporting.
On July 1, 1996, Rowe Communications, Inc. transferred substantially all of its
assets and liabilities to RoweCom LLC in exchange for a 97% interest in RoweCom
LLC, which is a limited liability company formed under the laws of the State of
Delaware. On April 25, 1997, RoweCom LLC merged with RoweCom. The merger had no
significant impact on RoweCom's financial statement presentation. Rowe
Communications Ltd., a Canadian company ("RoweCom Canada"), is a subsidiary of
RoweCom. All significant intercompany accounts and transactions between RoweCom
and its sole subsidiary, RoweCom Canada, included in the accompanying
consolidated financial statements have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of three months or less from the date of purchase and
whose carrying amounts approximate fair value due to the short maturity of the
investments.
Revenues
Revenues are principally generated from subscription orders for third-party
publications, which include the cost of the subscription and the associated
transaction fee earned by RoweCom. RoweCom recognizes revenues from a
subscription order when the customer transmits an order.
Revenues for the setup of the kStore on customers' intranets are recognized
upon installation. Revenue earned from installations was immaterial for the
years ended 1996, 1997 and 1998. Revenues related to transaction fees paid by
third parties for transactions sourced from RoweCom's kStore site are
recognized when reported by the third-party.
Research and Development and Capitalized Software Costs
Costs incurred prior to the establishment of technological feasibility are
charged to research and development expense as incurred. Software production
costs incurred subsequent to the establishment of technological feasibility are
capitalized until the product or enhancement is available for general release
to customers. Amortization is based on the straight-line method over the
remaining estimated life of the product. Software production costs eligible for
capitalization have been immaterial.
Advertising Costs
RoweCom expenses advertising costs as incurred. Advertising expense for the
years ended 1996, 1997 and 1998 was $40,325, $227,183 and $244,806,
respectively.
Equipment and Furnishings
Equipment and furnishings are stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
lives of the related assets. Leasehold improvements are depreciated over the
shorter of the lease term or the estimated useful life. Upon retirement or
sale, the cost of the assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the determination of net income or loss.
Other Current Assets
Included in other current assets at December 31, 1997 is $130,000 in advances
to publishers. There were no such amounts outstanding at December 31, 1998.
F-7
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
Other Assets
Other assets are recorded at cost and consist of trademark costs and a license
agreement. Trademark costs are being amortized over five years using the
straight-line method. The license agreement with Banc One Corporation for
processing services is being amortized over a thirty-one month period using the
straight-line method.
Foreign Currency Translation
The local currency for Rowe Communications, Ltd., the Canadian dollar, is the
functional currency of that company. The accounts of Rowe Communications Ltd.
are translated into U.S. dollars using exchange rates in effect at period-end
for assets and liabilities and at average exchange rates during the period for
results of operations. The related translation adjustments are reported as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions have been immaterial for all periods presented
and are included in interest and other income, net.
Income Taxes
RoweCom accounts for income taxes under the liability method. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse. The measurement
of deferred tax assets is reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
Prior to its merger into RoweCom on April 25, 1997, RoweCom LLC was a limited
liability company for which all U.S. income and losses flowed through to its
members and are, therefore, not available to offset future taxable income of
RoweCom.
Concentration of Credit Risk, Significant Customer Information and Segment
Information
Financial instruments which potentially expose RoweCom to concentrations of
credit risk consist primarily of trade accounts receivable. RoweCom performs
ongoing evaluations of customers' financial condition, in certain cases
requires advances from customers for future purchases and maintains reserves
for potential uncollectible amounts, which, in the aggregate, have not exceeded
management expectations. For the years ended December 31, 1997 and 1998, the
top three customers represented 23% and 21% of revenues, respectively. RoweCom
has adopted Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which requires
segment disclosure. RoweCom has determined that it conducts its operations in
one business segment.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to provide estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expense during the reporting period. Actual results
could differ from those estimates.
RoweCom has a limited operating history, has never achieved profitability and
is subject to the risks and uncertainties encountered by start-up companies
such as the uncertain nature of the markets in which RoweCom competes and the
risk that RoweCom may be unable to manage any future growth successfully.
In addition, RoweCom is subject to the risks encountered by companies relying
on the continued growth of online commerce and Internet infrastructure. The
risk includes the use of the Internet as a viable commercial marketplace and
the potentially inadequate development of the necessary network infrastructure.
One supplier provided 24% and 23% of knowledge resources sold by RoweCom for
the years ended December 31, 1997 and 1998, respectively. If this supplier were
to cease providing knowledge resources at favorable prices RoweCom may be
unable to offer competitive prices to its customers.
F-8
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
Finally, RoweCom has historically experienced season fluctuations in revenues.
This pattern may be expected to continue and results of financial operations
within any fiscal year cannot be expected to be representative.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of RoweCom's initial public offering, all of the outstanding
shares of Class A, A-1, B and C redeemable convertible preferred stock and all
outstanding stock purchase warrants will automatically convert into 5,004,236
shares of RoweCom common stock. The unaudited pro forma presentation of the
balance sheet has been prepared assuming the conversion of the preferred stock
and the preferred stock warrants, into common stock as of December 31, 1998.
Pro Forma Net Loss Per Common Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the
treasury stock method) outstanding after certain adjustments described below.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be anti-dilutive. In the computation of pro
forma net loss per share, accretion of preferred stock to the mandatory
redemption amount is not included as an increase to net loss. Also, the pro
forma net loss per common share gives effect to the exchange of all outstanding
preferred stock of RoweCom Canada into preferred stock of RoweCom, the
mandatory conversion of all outstanding shares of preferred stock into shares
of common stock and the exercise of all outstanding stock purchase warrants.
2. Net Loss Per Common Share
The following is a calculation of net loss per share
<TABLE>
<CAPTION>
----------------------------------------
Year Ended December 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Historical
Basic and diluted:
Net loss to common stockholders.... $ (1,449,723) $ (3,437,105) $ (8,391,627)
Weighted average number of common
shares............................ 776,084 1,551,819 1,527,827
Net loss per common share-basic and
diluted........................... $ (1.87) $ (2.22) $ (5.49)
Pro forma (Unaudited)
Basic and diluted:
Net loss........................... $ (7,629,492)
Weighted average number of common
shares............................ 1,555,976
Weighted average assumed number of
shares upon conversion of
preferred stock and the net
exercise of all outstanding stock
purchase warrants................. 2,521,099
------------
Total weighted average number of
shares used in computing pro forma
net loss per share................ 4,077,075
Basic and diluted pro forma net
loss per common share............. $ (1.87)
</TABLE>
Options to purchase shares of RoweCom's common stock totaling 101,224 and
155,327 at December 31, 1996 and 1997, and 470,327 at December 31, 1998, and
preferred stock purchase warrants totaling 120,968 at December 31, 1997, and
1998 were outstanding but were not included in the computations of diluted
earnings per share as the inclusion of these shares would have been anti-
dilutive. No options were granted prior to 1996.
F-9
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
3. Restricted Cash
Restricted cash consists of funds advanced by customers for the future purchase
of publications. The amount has also been recorded as customer advances.
4. Equipment and Furnishings
The components of equipment and furnishings were as follows:
<TABLE>
<CAPTION>
--------------------------------
At December 31,
Useful Life --------------------
(Years) 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
Computer equipment and software............... 3 $ 275,049 $ 669,442
Furniture and office equipment................ 5 60,986 195,638
Leasehold improvements........................ 1-2 -- 67,017
--------- ---------
336,035 932,097
Less: accumulated depreciation................ (100,649) (299,942)
--------- ---------
$ 235,386 $ 632,155
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997, and 1998 was
$41,913, $56,528 and $199,293, respectively.
5. Other Assets
The components of other assets were as follows:
<TABLE>
<CAPTION>
------------------
At December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Trademarks.................................................. $ 28,541 $ 29,541
License agreement........................................... 40,000 40,000
-------- --------
68,541 69,541
Less accumulated amortization............................... (40,983) (53,518)
-------- --------
$ 27,558 $ 16,023
======== ========
</TABLE>
6. Income Taxes
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
-------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Current
Federal............................................. -- -- --
State............................................... -- -- $ 40,000
Foreign............................................. $15,695 $136,352 69,000
<CAPTION>
------- -------- --------
<S> <C> <C> <C>
Total................................................. $15,695 $136,352 $109,000
<CAPTION>
======= ======== ========
</TABLE>
F-10
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
The following is a reconciliation between U.S. federal statutory rate and the
effective rate:
<TABLE>
<CAPTION>
---------------------------
Year ended December 31
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
U.S. federal statutory rate....................... (34.0)% (34.0)% (34.0)%
Foreign taxes..................................... -- 4.4 .5
State taxes, net of federal tax benefit........... 1.1 -- 1.0
Net operating losses not benefited................ 34.0 % 34.0 % 34.0 %
------- ------- -------
1.1 % 4.4 % 1.5 %
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Net Operating Loss...................................... $ 238,000 $ 1,628,499
Stock Issuance Costs................................... 102,162 100,366
Reserves and Other..................................... -- 394,188
<CAPTION>
--------- -----------
<S> <C> <C>
Total................................................. 340,162 2,123,053
Valuation Allowance..................................... (238,000) (2,022,687)
<CAPTION>
--------- -----------
<S> <C> <C>
Net Deferred Tax Asset................................ $ 102,162 $ 100,366
<CAPTION>
========= ===========
</TABLE>
As of December 31, 1998, RoweCom has net operating losses for federal & state
income tax purposes of approximately $4,071,000 which begin to expire in 2012
and 2003, respectively. The difference between the statutory rate and the
effective tax rate is primarily attributed to the valuation allowance.
As required by Statement of Financial Accounting Standards No. 109, management
of RoweCom has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised principally of
intangible assets and net operating loss carryforwards. Management has
determined that it is more likely than not that RoweCom will not recognize the
benefits of the federal and state deferred tax assets and, as a result, a
valuation allowance of approximately $2,023,000 has been established at
December 31, 1998.
RoweCom has recognized a net deferred tax asset at December 31, 1997 and 1998
of $102,162 and $100,366, respectively, related to issuance costs of its Class
A and Class B Redeemable Convertible Preferred Stock. No valuation allowance
was recorded for the foreign net deferred tax assets since it is more likely
than not that these net deferred tax assets will be realized in the future.
Included in other current assets is $20,432 and $23,889 representing the
current portion of the net deferred tax asset of RoweCom at December 31, 1997
and 1998, respectively.
7. Loans Payable
RoweCom's loan payable of $200,000 outstanding at December 31, 1996 with a
third-party individual with an interest rate of 8%, compounded daily, was
converted to preferred shares and stock purchase warrants in 1997 (see note
12).
On June 19, 1998, RoweCom entered into an equipment loan agreement with a bank.
Under this loan agreement RoweCom may borrow up to $500,000, for the purpose of
acquisition of equipment, for a period of six months. In December 1998, the
outstanding balance of $320,369 was converted into a term loan, to be repaid in
thirty equal monthly installments. The interest on the outstanding balance is
calculated daily at the bank's prime rate (7.75% at December 31, 1998), plus
1.0%. The loan is collateralized by all RoweCom's assets, including accounts
receivable and equipment, but excluding intellectual property. RoweCom is
required to maintain certain financial ratios, including a "quick ratio" of
1.50 through December 31, 1998, and 1.10 thereafter. The loan agreement defines
"quick ratio" as the sum of consolidated cash and cash equivalents plus
consolidated eligible accounts receivable, divided by consolidated current
liabilities.
Effective September 23, 1998, RoweCom and the bank amended the agreement by
adding a revolving line of credit totaling $4,000,000. Outstanding principal is
due on the earlier of the 85th day after the date of each revolving loan, or
September 23, 1999. The interest rate on the outstanding balance is computed
daily at the
F-11
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
bank's prime rate plus 0.5%. At December 31, 1998, $1,337,350 was outstanding
under this line of credit. At December 31, 1998, the weighted average interest
rate on outstanding borrowing under this agreement was 8.35%.
8. Related Party Transactions
Included in accounts payable at December 31, 1996 was $1,701 for consulting
services rendered by members of the board of directors and $24,000 for legal
services rendered by a party related to a significant shareholder. The December
31, 1997 and December 31, 1998 accounts payable includes $313 and $0,
respectively, for legal services rendered by a party related to a principal
shareholder and total expense for December 31, 1997 and 1998 for these services
was $9,207 and $38,314, respectively.
9. Commitments
RoweCom leases office space in Cambridge, Massachusetts and London, Ontario
under operating lease agreements which expire on August 31, 2000 and April 30,
1999, respectively. Rent expense for the years ended December 31, 1996, 1997
and 1998 was $31,461, $108,000 and $217,234, respectively. RoweCom also leases
certain office equipment under operating leases expiring through 2001. Future
minimum lease payments are $273,058, $83,395 and $2,534 for 1999, 2000 and
2001, respectively.
10. Retirement Plan
RoweCom maintains a contributory 401(k) defined contribution plan (the "Plan")
to provide retirement benefits for principally all employees of RoweCom, as
defined. Under the terms of the Plan, participants may defer between 1% and 15%
of their compensation, a portion of which may be contributed on a pretax basis
as defined by law. RoweCom may also make discretionary contributions to the
Plan. Participants vest in employer contributions over a five-year period.
RoweCom did not make any contributions to the Plan during 1996, 1997 or 1998.
11. Stockholders' (Deficit) Equity
Common Stock
RoweCom has authorized 34,000,000 shares of common stock, $.01 par value.
Common stock has full voting rights. Dividend and liquidation rights of common
stock are subordinated to those of all classes of preferred stock.
12. Redeemable Convertible Preferred Stock
RoweCom
RoweCom has authorized 5,000,000 shares of Class A Redeemable Convertible
Preferred Stock, $.01 par value, of which 161,289 shares were issued and
outstanding at December 31, 1997 and December 31, 1998. RoweCom has authorized
5,000,000 shares of Class A-1 Redeemable Convertible Preferred Stock, $.01 par
value, of which none were issued and outstanding at December 31, 1997 and
December 31, 1998. RoweCom has authorized 8,000,000 shares of Class B
Redeemable Convertible Preferred Stock, $.01 par value, of which 5,140,370
shares were issued and outstanding at December 31, 1998, and 5,000,000 shares
of Class C Redeemable Convertible Preferred Stock, $.01 par value, of which
none were issued and outstanding at December 31, 1996 and 1997 and 4,586,599
shares were issued and outstanding at December 31, 1998.
In April 1997, the loan payable for $200,000 held by a third party at December
31, 1996 and an additional loan payable of $100,000 which was entered into in
1997 were converted into 161,289 shares of Class A.
In May 1998, RoweCom sold 5,140,370 shares of Class B at a price of $1.2645 per
share. Net proceeds to RoweCom, after deducting issuance costs, were
$6,372,678.
F-12
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
In December 1998, RoweCom sold 4,586,599 shares of Class C Preferred Stock at a
price of $3.407 per share. Net proceeds to RoweCom, after deducting issuance
costs, were $15,531,559.
The terms of Class A, Class A-1, Class B and Class C are as follows:
Conversion. Each share of Class A, Class A-1, Class B and Class C may be
converted into 0.34905 common shares at the option of the stockholder.
On February 8, 1999, the Second Amended and Restated Certificate of
Incorporation was amended to provide, among other things, that upon the
closing of an initial public offering of RoweCom's common stock in which
RoweCom has an equity valuation of at least $80,000,000, and results in
proceeds of at least $20,000,000 (a "Qualified IPO"), all outstanding
shares of Class A, Class A-1, Class B and Class C are automatically
converted into shares of common stock.
Dividend and Voting Rights. Holders of Class A, Class A-1, Class B and
Class C are entitled to fixed, preferential, cumulative dividends in the
amount of 6.75% per annum on the liquidation preference of $2.48, $1.2645,
$1.2645 and $3.407 for each Class A share, Class A-1 share, Class B share
and Class C share, respectively. When and if declared by RoweCom's board of
directors, dividends on Class A, Class A-1, Class B and Class C are payable
in cash or additional Class A, Class A-1, Class B and Class C shares in
preference and prior to any payment of any dividend on the common shares.
Dividends on Class C are payable in preference and prior to any other class
of shares and dividends on Class B are payable in preference and prior to
any dividends on Class A and Class A-1 shares. The determination of whether
a dividend is payable in cash or in additional shares is to be made at the
discretion of the board. Any dividend that is not declared by the board of
directors or paid in cash or additional preferred shares will accrue and
compound annually at a rate of 6.75%. Upon the consummation of a Qualified
IPO, any and all rights to accrued and unpaid dividends shall cease. The
holders of Class A, Class A-1, Class B and Class C are entitled to vote on
all matters and are entitled to the number of votes equal to the number of
common shares into which the Class A, Class A-1, Class B and Class C are
convertible as of the date of record.
Liquidation Preferences. In the event of any liquidation, dissolution or
winding up of RoweCom, the holders of Class A, Class A-1, Class B and Class
C are entitled to receive, prior to and in preference to any payment or
distribution of any assets or surplus funds of the Company to the holders
of the common shares, an amount for each Class A, Class A-1, Class B and
Class C share held, equal to $2.48, $1.2645, $1.2645 and $3.407,
respectively, plus in each case, any accrued and unpaid dividends on the
Class A, Class A-1, Class B and Class C shares, whether or not declared. If
upon such liquidation, the assets and funds thus distributed among the
holders of the preferred shares shall be insufficient to permit the payment
to such holders of the full liquidation preference, then the entire assets
and funds of RoweCom legally available for distribution shall be
distributed in the following order: (i) first, among the holders of Class C
shares, (ii) second, among the holders of Class B shares and (iii) third,
pro rata according to liquidation preference among the holders of Class A
and Class A-1, treated as a single class.
Redemption. Upon the earlier of the occurrence of certain events or May 5,
2003 and at any time thereafter, the holders of Class A will be entitled to
require RoweCom to redeem all of the Class A shares at a price of $2.48 per
share, plus all unpaid cumulative dividends, whether or not declared, which
have accrued thereon. The holders of Class A-1, Class B and Class C will
have the right to require the Company to purchase from the holders all of
the outstanding Class A-1, Class B and Class C shares on December 11, 2003
and at any time thereafter up until December 11, 2005. RoweCom must
purchase the Class A-1, Class B and Class C shares at a purchase price
equal to the greater of (i) the fair market value of such shares or (ii)
the respective liquidation preference plus all accrued but unpaid
dividends.
F-13
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
The following table sets forth preferred stock activity of RoweCom Inc.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Class A Class B Class C
Shares Class A Shares Class B Shares Class C Total
------- -------- --------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1996.. -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ----------- -----------
Conversion
of note
payable to
Class A
redeemable
convertible
preferred
stock..... 161,289 $300,000 -- -- -- -- $ 300,000
------- -------- --------- ---------- --------- ----------- -----------
Balance at
December
31, 1997.. 161,289 300,000 -- -- -- -- 300,000
Accretion
of Class A
redeemable
convertible
preferred
stock..... -- 47,555 -- -- -- -- 47,555
Issuance of
Class B
redeemable
convertible
preferred
stock, net
of
issuance
costs of
$127,320.. -- -- 5,140,370 $6,372,678 -- -- 6,372,678
Accretion
of Class B
redeemable
convertible
preferred
stock..... -- -- -- 298,145 -- -- 298,145
Issuance of
Class C
redeemable
convertible
preferred
stock, net
of
issuance
costs of
$94,984... -- -- -- -- 4,586,599 $15,531,559 15,531,559
Accretion
of Class C
redeemable
convertible
preferred
stock..... -- -- -- -- -- 56,709 56,709
------- -------- --------- ---------- --------- ----------- -----------
Balance at
December
31, 1998.. 161,289 $347,555 5,140,370 $6,670,823 4,586,599 $15,588,268 $22,606,646
======= ======== ========= ========== ========= =========== ===========
</TABLE>
Rowe Communications Ltd.
Rowe Communications Ltd. ("Ltd.") has an unlimited authorized number of its
Class A Redeemable Convertible Voting Preferred Stock ("Ltd. Class A") and an
unlimited authorized number of its Class B Redeemable Convertible Non-Voting
Preferred Stock ("Ltd. Class B").
In April 1997 Ltd. sold 1,611,568 shares of Ltd. Class A at $2.48 per share, in
a private offering to a Canadian venture capital firm. Net proceeds to Ltd.,
after deducting issuance costs, were $3,712,464. At December 31, 1997 and 1998,
1,611,568 shares of Ltd. Class A were issued and outstanding. These shares are
aggregated on the Company's balance sheet with the Class A shares.
In May 1998, Ltd. sold 1,186,240 shares of Ltd. Class B at $1.2645, in a second
private offering to a Canadian venture capital firm. Net proceeds to Ltd.,
after deducting issuance costs, were $1,458,235. At December 31, 1998,
1,186,240 shares of Ltd. Class B were issued and outstanding. These shares are
aggregated on the Company's balance sheet with the Class B shares.
Conversion. The holder of Ltd. Class A has the right (pursuant to the
RoweCom Second Amended and Restated Stockholders Agreement) at any time to
require RoweCom to issue 3,163,306 Class A-1 shares in the capital stock of
RoweCom, in exchange for such holder's Ltd. Class A shares (the "Class A
Exchange Option") plus any additional shares or assets (including
dividends, whether declared or accumulated) which the holder would have
acquired had the holder held such number of Class A-1 shares in the capital
stock of RoweCom. If the stockholder of Ltd. Class A has exercised the
Class A Exchange Option, the stockholder must transfer, for no additional
consideration, a total of 889,187 (subject to adjustments) Class A-1 shares
to certain existing stock, option and warrant holders of the Company upon
the occurrence of certain events. At December 31, 1998, approximately
150,000 of those Class A-1 shares would be transferred to existing holders
of stock options and warrants to purchase the Company's common stock. The
holder of Ltd. Class B has the right at any time to require RoweCom to
issue Class B shares, in exchange for such holders Ltd. Class B shares
(Class B Exchange Option) on a one for one basis plus any additional shares
or assets (including dividends, whether declared or accumulated) which the
holder would have acquired had the holder held the same number of Class B
shares in the capital stock of RoweCom.
F-14
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
Under an Exchange Option Exercise Agreement, the holder of the Ltd. Class A
Preferred Shares and the Ltd. Class B Preferred Shares irrevocably agrees
to exercise its Class A Exchange Option and Class B Exchange Option upon
the closing of an Initial Public Offering meeting certain conditions.
Dividend and Voting Rights. The holder of Ltd. Class A was entitled to
receive fixed, preferential, cumulative dividends in the amount of 6.75%
per annum on the liquidation preference of $2.48 for each Ltd. Class A
share from April 1997 through May 1998. In May 1998 and upon the closing of
the Ltd. Class B offering, the Articles of Incorporation of Ltd. were
amended such that the holder of Ltd. Class A and the holder of Ltd. Class B
are entitled to receive dividends as and when declared by the board of
directors. The holders of Ltd. Class B are not entitled to receive notice
of or to attend and vote at meetings of the shareholders of Ltd. except to
the extent that such holders are entitled to vote under the Business
Corporations Act (Ontario). The holders of Ltd. Class A Preferred Shares
shall be entitled to receive notice of and attend all meetings of the
shareholders of Ltd. and each Ltd. Class A Preferred Share shall confer the
right to one (1) vote.
Liquidation Preferences. In the event of any liquidation, dissolution or
winding up of Ltd., holders of Ltd. Class A and Ltd. Class B are entitled
to receive prior to and in preference to any payment or distribution of any
assets to the holders of the common shares, an amount for each Ltd. Class A
share and Ltd. Class B share held, equal to $2.48 and $1.2645, plus any
accrued and unpaid dividends on the Ltd. Class A and Ltd. Class B shares
declared.
Redemption. Upon the earlier of the occurrence of certain events or May 5,
2003 and at any time thereafter, the holders of Ltd. Class A and Ltd. Class
B may require RoweCom to redeem all of the Ltd. Class A and Ltd. Class B
shares at a price of $2.48 and $1.2645 per Ltd. Class A and Ltd. Class B
share, plus all accrued and unpaid cumulative dividends, declared.
The following table sets forth preferred stock activity of Rowe Communications
Ltd.
<TABLE>
<CAPTION>
----------------------------------------------------
Class A Class B
Shares Class A Shares Class B Total
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... -- -- -- -- --
<CAPTION>
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of Class A
redeemable convertible
preferred stock, net of
issuance costs of
$284,225................. 1,611,568 $3,712,464 -- -- $3,712,464
Tax effect of issuance of
preferred stock.......... -- 102,169 -- -- 102,169
Accretion of Class A
redeemable convertible
preferred stock.......... -- 183,577 -- -- 183,577
<CAPTION>
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997..................... 1,611,568 3,998,210 -- -- 3,998,210
Accretion of Class A
redeemable convertible
preferred stock.......... -- 290,768 -- -- 290,768
Issuance of Class B
redeemable convertible
preferred stock, net of
issuance costs of
$41,765.................. -- -- 1,186,240 $1,458,235 1,458,235
Accretion of Class B
redeemable convertible
preferred stock.......... -- -- -- 68,958 68,958
<CAPTION>
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998..................... 1,611,568 $4,288,978 1,186,240 $1,527,193 $5,816,171
<CAPTION>
========= ========== ========= ========== ==========
</TABLE>
13. Stock Purchase Warrants
In connection with the issuance of Ltd. Class A (note 12) and the conversion of
the loans payable into 161,289 shares of Class A, 120,968 stock purchase
warrants of RoweCom were issued with an exercise price of $2.48 per share. The
class of stock purchasable under the stock purchase warrants is Ltd. Class A
Preferred. If prior
F-15
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
to the time of exercise, the warrant holder has exercised the Class A Exchange
Option, then the shares purchasable pursuant to the stock purchase warrant
shall be common stock of RoweCom. The value of the warrants was immaterial at
the time of issuance.
14. Stock Options
In 1996 as part of the initial formation and operating agreement of RoweCom and
prior to the inception of the 1997 Stock Incentive Plan, stock options were
issued to key employees and members of the board of directors. Vesting terms
range from immediate vesting to vesting at a rate of 20% per year. All options
expire ten years from RoweCom's date of formation. A total of 95,989 options
were issued in 1996 and an additional 69,810 were authorized for future grants.
On April 25, 1997, RoweCom adopted the 1997 Stock Incentive Plan for directors,
officers, employees, and consultants of RoweCom. A total of 114,618 shares of
common stock were reserved for issuance under the 1997 Stock Incentive Plan.
These options vest over a five-year period and expire over a period not
exceeding ten years.
On April 8, 1998, RoweCom adopted the 1998 Stock Incentive Plan. A total of
349,050 shares of common stock were reserved for issuance under the 1998 Stock
Incentive Plan. These options vest over a four year period and expire over a
period not exceeding ten years.
The board establishes the exercise price and vesting period at the time the
options are granted and specifies these terms in the applicable option
agreements.
Under the terms of the Plans, the exercise price of incentive stock options
granted must not be less than 100% (110% in certain cases) of the fair market
value of the common stock on the date of grant, as determined by the board of
directors. In reaching the determination of fair market value at the time of
each grant, the board of directors considers a broad range of factors including
the illiquid nature of an investment in RoweCom's common stock, RoweCom's
historical financial performance, and RoweCom's future prospects.
After assessing the fair value of the Company's common stock, the Board of
Directors, on July 9, 1998, determined that certain stock options held by
employees of the Company had an exercise price significantly higher than the
estimated fair value. As a result, such stock options were not providing the
desired incentive to the employees, and such employees were then provided the
opportunity to replace their existing options with new options, on a one for
one basis, at a price of $0.72 per share, with no change in their original
vesting schedule. This stock option repricing resulted in new options to
purchase 385,144 shares of common stock. At the execution of the stock option
repricing, the fair value of the Company's common stock was $0.72 per share and
therefore no compensation charge was recorded.
Transactions during 1996, 1997 and 1998 related to stock options granted by
RoweCom were as follows:
<TABLE>
<CAPTION>
------------------------
Weighted
Average
Shares Exercise Price
-------- --------------
<S> <C> <C>
Outstanding at January 1, 1996
Granted.............................................. 118,677 $ 2.00
Exercised............................................ -- --
Forfeited/canceled................................... (17,452) 1.43
--------
Outstanding at December 31, 1996....................... 101,225 1.75
Granted.............................................. 57,593 2.55
Exercised............................................ -- --
Forfeited/canceled................................... (3,490) 2.86
--------
Outstanding at December 31, 1997....................... 155,328 2.03
Granted.............................................. 819,198 2.09
Exercised............................................ (698) .72
Forfeited/canceled................................... (503,500) 2.72
--------
Outstanding at December 31, 1998....................... 470,328 $ 1.17
<CAPTION>
========
</TABLE>
F-16
<PAGE>
RoweCom Inc.
Notes to Consolidated Financial Statements--(Continued)
At December 31, 1996, 1997 and 1998, 31,414, 69,228, and 66,994 options were
exercisable at exercise prices ranging from $0.72 to $2.86 and at December 31,
1998 64,896 were available for grant.
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ .72 350,873 8.7 $ .72 34,416 $ .72
1.43 43,631 2.4 1.43 30,833 1.43
2.86 64,829 9.7 2.86 1,745 2.86
5.01 10,995 9.8 5.01 --
------- ------
470,328 8.3 years $1.17 66,994 $1.09
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS No. 123), encourages but does not require companies
to record compensation cost for stock-based employee contribution plans at fair
value. RoweCom has chosen to account for stock-based employee compensation
using the intrinsic value method prescribed under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense has been recognized for
its stock-based compensation plan.
Had compensation cost for RoweCom's stock option plans been determined based on
the estimated fair value of the option at the date of grant for awards in 1996,
1997 and 1998 using the minimum value method consistent with SFAS No. 123, the
adjustment to net loss would have been immaterial. The weighted average fair
values of options granted are $0.52, $1.03, and $0.80, respectively. For this
purpose, the fair value of options at the date of grant was estimated using the
minimum value method with the following weighted-average assumptions: risk-free
interest rates of 6.57%, 6.58%, and 5.40%; no dividend yields; no volatility
factors; and a weighted-average expected life of the options of eight years.
15. Stock Split
On February 8, 1999, the board of directors declared a .34905-for-1 reverse
stock split of the RoweCom's common stock, to be effective upon the filing of
the Third Restated Certificate of Incorporation of RoweCom. All references to
the number of common shares and per share amounts in the consolidated financial
statements and related footnotes have been restated to reflect the effect of
the reverse stock split for all periods presented.
F-17
<PAGE>
[ROWECOM LOGO APPEARS HERE]
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<CAPTION>
---------
Total(1)*
---------
<S> <C>
SEC Registration Fee............................................. $13,900
NASD Fees........................................................ $ 5,500
NASDAQ Listing Fees.............................................. $ *
Printing and Engraving Expenses.................................. $ *
Legal Fees and Expenses.......................................... $ *
Accountants' Fees and Expenses................................... $ *
Expenses of Qualification Under State Securities Laws, Including
Attorneys' Fees................................................. $ *
Transfer Agent and Registrar's Fees.............................. $ *
Miscellaneous Costs.............................................. $ *
-------
Total.......................................................... $ *
=======
</TABLE>
*To be provided by amendment.
(1)Amounts are as of , 1999.
Item 14. Indemnification of Directors, Officers and Employees
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
The form of the Third Amended and Restated Certificate of Incorporation of the
Registrant and the Amended and Restated By-laws of the Registrant, copies of
the forms of which are filed as Exhibits 3.1 and 3.2, provide for
indemnification of officers and directors of the Registrant and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions.
The above discussion of the Registrant's Third Amended and Restated Certificate
of Incorporation, Amended and Restated By-Laws and Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in
its entirety by the forms of such Third Amended and Restated Certificate of
Incorporation, Amended and Restated By-Laws, and statute.
The Registrant will agree to indemnify the Underwriters and their controlling
persons, and the Underwriters will agree to indemnify the Registrant and its
controlling persons, including directors and executive officers of the
Registrant, against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of the Underwriting Agreement
that will be filed as part of the Exhibits hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
Item 15. Recent Sales of Unregistered Securities
On April 1, 1997, Working Ventures Canadian Fund Inc. acquired 1,611,568 shares
of Class A Preferred Stock of Rowe Communications Ltd. ("RoweCom Canada") and
an option to exchange such shares of RoweCom Canada Class A Preferred Stock for
shares of common stock of the Registrant (the "Exchange Option") for an
aggregate offering of $4,000,000. No underwriting discounts or commissions were
paid by the Company in connection therewith. The Exchange Option was issued in
reliance on the exemption under the Securities Act of 1933, as amended,
provided by Regulation S thereunder.
On April 1, 1997, RoweCom issued 80,645 shares of the Registrant's Class A
Preferred Stock to Philippe Villers in exchange for the cancellation of
indebtedness of the Registrant to Mr. Villers, and 40,322 shares of Class A
Preferred Stock to Mr. Jerome Rubin in exchange for the cancellation of
indebtedness of the Registrant
II-1
<PAGE>
to Mr. Rubin. In connection with the issuance of these shares of Class A
Preferred Stock of the Registrant, the Registrant issued stock purchase
warrants to each of Messrs. Villers and Rubin providing for the purchase of up
to 28,149 shares of the Registrant's capital stock in the case of the warrant
issued to Mr. Villers, and up to 14,074 shares of the Registrant's capital
stock in the case of the stock purchase warrant issued to Mr. Rubin. These
shares of Class A Preferred Stock and the stock purchase warrants were issued
in reliance on the exemptions from registration under the Securities Act
provided by Regulation D thereunder.
On May 4, 1998, Crystal Internet Venture Fund, L.P., Highland Capital Partners
III Limited Partnership, Highland Entrepreneurs' Fund III Limited Partnership,
Pai, Wei Ming Chung, Fu Kuan Investment Corp., and Puretech Profits Limited
(BVI) purchased an aggregate of 5,140,370 shares of the Class B Preferred Stock
of the Registrant for an aggregate purchase price of $6,500,000, and Working
Ventures acquired 1,186,240 shares of the Class B Preferred Stock of RoweCom
Canada and an option to exchange such shares of RoweCom Canada Class B
Preferred Stock for shares of Class B Preferred Stock of the Registrant for an
aggregate purchase price of $1,500,000. The sales made by the Registrant were
made, in each case, in reliance upon the exemptions from registration under the
Securities Act provided by Regulation D or Regulation S.
On May 4, 1998, in connection with the sale of the Registrant's Class B
Preferred Stock, the Exchange Option was amended to permit Working Ventures to
exchange its shares of RoweCom Canada Class A Preferred Stock for shares of the
Class A-1 Preferred Stock of the Registrant. The sale of the option to exchange
such stock for shares of Class A-1 Preferred Stock of the Registrant was made
in reliance on the exemption from registration under the Securities Act
provided by Regulation S thereunder.
On December 15, 1998, Axiom Venture Partners II Limited Partnership, Zero Stage
Capital VI, L.P., Working Ventures, Crystal Internet Venture Fund, L.P.,
Highland Capital Partners III Limited Partnership, and other unaffiliated
parties purchased an aggregate of 4,586,599 shares of RoweCom's Class C
Preferred Stock for an aggregate purchase price, net of expenses, of
approximately $15,500,000. The sales made by Registrant were made in reliance
upon the exemptions from registration under the Securities Act provided by
Regulation D or Regulation S thereunder.
As of December 31, 1998, the Registrant had issued options to purchase an
aggregate of 113,554 shares of common stock under the Registrant's 1997 Stock
Incentive Plan, the Amended and Restated 1998 Stock Incentive Plan and options
issued and outstanding outside of such plans. The Registrant has also issued an
aggregate of 698 shares of common stock to various employees upon the exercise
of options granted pursuant to the Registrant's 1997 Stock Incentive Plan for
an aggregate consideration of $500, at an average exercise price of $.72 per
share. These grants of options, and the sales of common stock upon the exercise
of these options, were made in reliance on the exemptions from registration
under the Securities Act provided by Rule 701 thereunder.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) The following is a list of exhibits filed as a part of this registration
statement:
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
**3.1 Form of Third Amended and Restated Certificate of Incorporation
of the Registrant.
**3.2 Form of Amended and Restated By-Laws of the Registrant.
**4.1 Specimen Certificate for shares of the Registrant's Common
Stock.
**5.1 Opinion of Bingham Dana LLP counsel to the Registrant, regarding
the legality of the shares of Common Stock.
*10.1 1997 Stock Incentive Plan of the Registrant
10.2 1999 Non-Employee Director Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Amended and Restated 1998 Stock Incentive Plan
*10.5 Lease of 725 Concord Ave., Cambridge, Massachusetts, dated as of
August 30, 1996, between David E. Clem and David M. Roby,
Trustees of Lyme Properties Realty Trust u/d/t dated September
30, 1994 and the Registrant, as amended by First Addendum to
Lease, dated August 20, 1997, among David E. Clem and David M
Roby, Trustees of Lyme Properties Realty Trust u/d/t, Curtin
Insurance Agency, Inc. and the Registrant.
*10.6 Consent to Cross Assignment of Leases, dated August 1, 1998,
between David E. Clem and David M. Roby, Trustees of Lyme
Properties Realty Trust u/d/t dated September 30, 1994 and the
Registrant.
*10.7 Stock Purchase Agreement, dated May 4, 1998, between the
Registrant, Rowe Communications Ltd. ("RoweCom Canada"), and the
Purchasers named therein, relating to the sale by the Registrant
of its Class B Convertible Preferred Stock.
*10.8 Share Purchase Agreement, dated as of April 1, 1997, between the
Registrant and the Purchasers named therein relating to the sale
by the Registrant of shares of its Class A Convertible Preferred
Stock.
10.9 Second Amended and Restated Stockholders' Agreement, dated as of
December 11, 1998, by and among the Registrant and certain
stockholders of the Registrant.
10.10 Stock Purchase Agreement, dated as of December 11, 1998, between
the Registrant and the Purchasers named therein, relating to the
sale by the Registrant of shares of Class C Preferred Stock.
10.11 Second Amended Registration Rights Agreement, dated as of
December 11, 1998, by and among the Registrant, RoweCom Canada,
and the Purchasers named therein.
*10.12 Executive Employment Agreement, dated as of November 4, 1998
between the Registrant and Mr. Louis Hernandez.
*10.13 Loan Agreement, dated June 19, 1998, between Imperial Bank and
the Registrant, as amended by Amendment No. 1 to the Loan
Agreement, dated September 23, 1998, between the Registrant and
Imperial Bank.
*10.14 General Security Agreement, dated June 19, 1998, between
Imperial Bank and the Registrant.
*10.15 Form of Non-Competition Agreements by and between the Registrant
and each of Richard Rowe, Ph.D., Louis Hernandez, Stephen
Vozella, Walter Crosby, Steven Woit and Ronald Grigg.(/1/)
+10.16 Electronic Commerce Referral and Revenue Sharing Agreement,
dated August 24, 1998, by and between Intelisys Electronic
Commerce LLC and the Registrant.
+10.17 Marketing and Integration Agreement, dated as of August 20,
1998, by and between barnesandnoble.com llc and the Registrant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
+10.18 Content and Co-Marketing Agreement, dated September 28, 1998 by
and between the Registrant and NewSub Services, Inc.
+10.19 Content and Co-Marketing Agreement, dated October 23, 1998
between the Registrant and Publications Resource Group, Inc.
*10.20 Stock Purchase Warrant between Philippe Villers and the
Registrant.
*10.21 Stock Purchase Warrant between Jerome Rubin and the Registrant.
10.22 Exchange Option Agreement, dated as of February 3, 1999, between
the Registrant and Working Ventures.
*21.1 Subsidiary of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
**23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included
in Exhibit 5.1).
27.1 Financial Data Schedule.
99.1 Consent of Veronis Suhler & Associates, Inc.
99.2 Consent of International Data Corporation.
99.3 Power of Attorney.
</TABLE>
(1)Each of the Non-Competition Agreements is identical in all respects, except
as described in the prospectus.
*Previously filed.
**To be filed by amendment.
+Confidential treatment requested.
Schedules
Schedule II Valuation and Qualifying Accounts
Except for the financial statement schedule listed above, all other schedules
have been omitted because either they are not required, are not applicable or
the information is otherwise set forth in the Consolidated Financial Statements
and notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) To provide the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names
as required by the Underwriter to permit prompt delivery to each purchaser.
(2) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
RoweCom Inc., has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on this
10th day of February 1999.
ROWECOM INC.
/s/ Richard Rowe
By: _________________________________
Richard Rowe
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard Rowe Chairman of the Board of February 10, 1999
______________________________________ Directors, President,
Richard Rowe Chief Executive Officer
and Director (principal
executive officer)
/s/ Louis Hernandez, Jr.* Executive Vice President February 10, 1999
______________________________________ and Chief Financial
Louis Hernandez, Jr. Officer (principal
financial and accounting
officer)
/s/ Stanley Fung* Director February 10, 1999
______________________________________
Stanley Fung
/s/ Thomas Lemberg* Director February 10, 1999
______________________________________
Thomas Lemberg
/s/ Jerome Rubin* Director February 10, 1999
______________________________________
Jerome Rubin
/s/ Philippe Villers* Director February 10, 1999
______________________________________
Philippe Villers
/s/ John Kennedy Director February 10, 1999
______________________________________
John Kennedy
</TABLE>
/s/ Richard Rowe
*By: _______________________
Richard Rowe
Attorney-in-Fact
II-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charge to Balance at
beginning of year Costs and Expenses Deductions End of Year
----------------- ------------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996:
Accounts receivable
reserve................ $-- -- -- (a) $ --
Year Ended December 31,
1997:
Accounts receivable
reserve................ $-- -- -- (a) $ --
Year Ended December 31,
1998:
Accounts receivable
reserve................ $-- 60,000 -- (a) $60,000
</TABLE>
- --------
(a)Specific write-offs
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of RoweCom Inc.:
Our audits of the consolidated financial statements referred to in our report
dated January 15, 1999 (except for Notes 12 and 15 for which the date is
February 8, 1999) of RoweCom Inc. also included an audit of the financial
statement schedule listed in Item 16(a) herein. In our opinion, the financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 15, 1999
S-2
<PAGE>
EXHIBIT INDEX
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
**3.1 Form of Third Amended and Restated Certificate of Incorporation
of the Registrant.
**3.2 Form of Amended and Restated By-Laws of the Registrant.
**4.1 Specimen Certificate for shares of the Registrant's Common
Stock.
**5.1 Opinion of Bingham Dana LLP counsel to the Registrant, regarding
the legality of the shares of Common Stock.
*10.1 1997 Stock Incentive Plan of the Registrant
10.2 1999 Non-Employee Director Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Amended and Restated 1998 Stock Incentive Plan
*10.5 Lease of 725 Concord Ave., Cambridge, Massachusetts, dated as of
August 30, 1996, between David E. Clem and David M. Roby,
Trustees of Lyme Properties Realty Trust u/d/t dated September
30, 1994 and the Registrant, as amended by First Addendum to
Lease, dated August 20, 1997, among David E. Clem and David M
Roby, Trustees of Lyme Properties Realty Trust u/d/t, Curtin
Insurance Agency, Inc. and the Registrant.
*10.6 Consent to Cross Assignment of Leases, dated August 1, 1998,
between David E. Clem and David M. Roby, Trustees of Lyme
Properties Realty Trust u/d/t dated September 30, 1994 and the
Registrant.
*10.7 Stock Purchase Agreement, dated May 4, 1998, between the
Registrant, Rowe Communications Ltd. ("RoweCom Canada"), and the
Purchasers named therein, relating to the sale by the Registrant
of its Class B Convertible Preferred Stock.
*10.8 Share Purchase Agreement, dated as of April 1, 1997, between the
Registrant and the Purchasers named therein relating to the sale
by the Registrant of shares of its Class A Convertible Preferred
Stock.
10.9 Second Amended and Restated Stockholders' Agreement, dated as of
December 11, 1998, by and among the Registrant and certain
stockholders of the Registrant.
10.10 Stock Purchase Agreement, dated as of December 11, 1998, between
the Registrant and the Purchasers named therein, relating to the
sale by the Registrant of shares of Class C Preferred Stock.
10.11 Second Amended Registration Rights Agreement, dated as of
December 11, 1998, by and among the Registrant, RoweCom Canada,
and the Purchasers named therein.
*10.12 Executive Employment Agreement, dated as of November 4, 1998
between the Registrant and Mr. Louis Hernandez.
*10.13 Loan Agreement, dated June 19, 1998, between Imperial Bank and
the Registrant, as amended by Amendment No. 1 to the Loan
Agreement dated September 23, 1998 between the Registrant and
Imperial Bank.
*10.14 General Security Agreement, dated June 19, 1998, between
Imperial Bank and the Registrant.
*10.15 Form of Non-Competition Agreements by and between the Registrant
and each of Richard Rowe, Ph.D., Louis Hernandez, Stephen
Vozella, Walter Crosby, Steven Woit and Ronald Grigg.(/1/)
+10.16 Electronic Commerce Referral and Revenue Sharing Agreement,
dated August 24, 1998, by and between Intelisys Electronic
Commerce LLC and the Registrant.
+10.17 Marketing and Integration Agreement, dated as of August 20,
1998, by and between barnesandnoble.com llc and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
+10.18 Content and Co-Marketing Agreement, dated September 28, 1998 by
and between the Registrant and NewSub Services, Inc.
+10.19 Content and Co-Marketing Agreement, dated October 23, 1998
between the Registrant and Publications Resource Group, Inc.
*10.20 Stock Purchase Warrant between Philippe Villers and the
Registrant.
*10.21 Stock Purchase Warrant between Jerome Rubin and the Registrant.
10.22 Exchange Option Agreement, dated as of February 3, 1999, between
the Registrant and Working Ventures.
*21.1 Subsidiary of Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
**23.2 Consent of Bingham Dana LLP, counsel to the Registrant (included
in Exhibit 5.1).
27.1 Financial Data Schedule.
99.1 Consent of Veronis, Suhler & Associates Inc.
99.2 Consent of International Data Corporation.
99.3 Power of Attorney.
</TABLE>
(1)Each of the Non-Competition Agreements is identical in all respects, except
as described in the prospectus.
*Previously filed with the Securities and Exchange Commission.
**To be filed by amendment.
+Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
ROWECOM INC.
_______ Shares of Common Stock
Underwriting Agreement
________ __, 1999
J.P. Morgan Securities Inc.
CIBC Oppenheimer
Volpe Brown Whelan & Company
As representatives of the several
underwriters listed in Schedule I
hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
RoweCom Inc., a Delaware corporation (the "Company"), proposes to issue and
sell to the several underwriters listed in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of __________ shares of Common Stock, par value
$.01 per share, of the Company (the "Underwritten Shares") and, for the sole
purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, at the option of the Underwriters, up to an additional
_________ shares of Common Stock of the Company (the "Option Shares"). The
Underwritten Shares and the Option Shares are herein referred to as the
"Shares". The shares of Common Stock of the Company to be outstanding after
giving effect to the sale of the Shares are herein referred to as the "Stock".
As part of the offering contemplated by this Agreement, J.P. Morgan Securities
Inc. has agreed to reserve out of the Shares set forth opposite its name on
Schedule I to this Agreement up to _________ Shares for sale to the Company's
employees, officers and directors and other parties associated with the Company
(collectively, "Participants"), as set forth in the Prospectus under the heading
"Underwriting" (the "Directed Share Program"). The Shares to be sold pursuant
to the Directed Share Program (the "Directed Shares") will be sold pursuant to
this Agreement at
<PAGE>
the public offering price. Any Directed Shares not orally confirmed for purchase
by any Participants by the end of the first business day after the date on which
this Agreement is executed will be offered to the public as set forth in the
Prospectus.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective, including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospec tus". If the Company files or has filed on the date hereof an
abbreviated registration statement pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement") in connection with the transactions
contemplated hereby, then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, on the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedule I hereto at a purchase price per share of
$______ (the "Purchase Price").
In addition, the Company agrees to issue and sell the Option Shares to the
several Underwriters as hereinafter provided and the Underwriters shall have the
option to purchase at their election up to ________ Option Shares for the sole
purpose of covering over-allotments in the sale of the Underwritten Shares.
Each Underwriter, on the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, shall have the
option to purchase, severally and not jointly, from the Company at the Purchase
Price that portion of the number of Option Shares as to which such election
shall have been exercised (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying such number of Option Shares by a fraction the
numerator of which is the number of Underwritten Shares set forth opposite such
Underwriter's name on Schedule I hereto and the denominator of which is the
total number of Underwritten Shares set forth in Schedule I hereto, for the sole
purpose of
2
<PAGE>
covering over-allotments (if any) in the sale of the Underwritten Shares by the
several Underwriters.
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of this Agreement, by written notice to the Company from J.P. Morgan
Securities Inc. on behalf of the several Underwriters. Such notice shall set
forth the aggregate number of Option Shares as to which the option is being
exercised and the date and time when the Option Shares are to be delivered and
paid for, which may be the same date and time as the Closing Date (as
hereinafter defined) but shall not be earlier than the Closing Date nor later
than the tenth full Business Day (as hereinafter defined) after the date of such
notice (unless such time and date are postponed in accordance with the
provisions of Section 9 hereof). Any such notice shall be given at least two
Business Days prior to the date and time of delivery specified therein.
2. The Company understands that the several Underwriters intend (i) to
make a public offering of their respective portions of the Shares as soon after
(A) the Registration Statement has become effective and (B) the parties hereto
have executed and delivered this Agreement, as in the judgment of the
Representatives is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the account specified by the Company to the Representatives,
in the case of the Underwritten Shares, at 10:00 a.m., New York City time, on
___________, 1999, or at such other time on the same or such other date, not
later than the fifth Business Day thereafter, as J.P. Morgan Securities Inc. on
behalf of the several Underwriters and the Company may agree upon in writing or,
in the case of the Option Shares, on the date and at the time specified by J.P.
Morgan Securities Inc. in the written notice of the Underwriters' election to
purchase such Option Shares or at such other time on the same or such other
date, not later than the fifth Business Day thereafter, as J.P. Morgan
Securities Inc. on behalf of the several Underwriters and the Company may agree
upon in writing. The time and date of such payment for the Underwritten Shares
is referred to herein as the "Closing Date" and the time and date for such
payment for the Option Shares, if other than the Closing Date, are herein
referred to as the "Additional Closing Date". The closing and additional
closing, if any, shall take place at the offices of Bingham Dana LLP, Boston,
MA. As used herein, the term "Business Day" means any day other than a day on
which banks are permitted or required to be closed in New York City.
3
<PAGE>
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made only against delivery
to the Representatives for the respective accounts of the several Underwriters
of the Shares to be purchased on such date, registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates
for the Shares, if any, will be made available for inspection and packaging by
the Representatives at the office of J.P. Morgan Securities Inc. set forth above
not later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4. The Company represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the Securities Act, complied when so filed in all material respects with
the Securities Act, and as of the date thereof did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided
that the foregoing representations and warranties shall not apply to any
statements or omissions made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission; the Registration Statement and Prospectus (and the Registration
Statement and Prospectus as amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto) comply, and will
comply, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the date of the Prospectus
and any amendment or supplement thereto, in all material respects with the
Securities Act and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
date of the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a
4
<PAGE>
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Prospectus, as amended or supplemented, if applicable, at the Closing Date
and the Additional Closing Date, if any, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided that the foregoing representations and
warranties shall not apply to statements or omissions in the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein;
(c) the financial statements, and the related notes thereto,
included in the Registration Statement and the Prospectus present fairly
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates indicated and the results of their operations
and changes in their consolidated cash flows for the periods specified;
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, and the
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein; and the pro forma financial
information, and the related notes thereto, included in the Registration
Statement and the Prospectus has been prepared in accordance with the
applicable requirements of the Securities Act and is based upon good faith
estimates and assumptions believed by the Company to be reasonable;
(d) the statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company believes
are reliable and accurate;
(e) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general affairs,
business, prospects, condition (financial or other), management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus (as it stood at the time of the execution
and delivery of this Agreement) and except as set forth or contemplated in
the Prospectus (as it stood at the time of the execution and delivery of
this Agreement) neither the Company nor any of
5
<PAGE>
its subsidiaries has entered into any transaction or agreement (whether or
not in the ordinary course of business) material to the Company and its
subsidiaries taken as a whole;
(f) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(g) each of the Company's subsidiaries has been duly incorporated
and is validly existing as a corporation under the laws of its jurisdiction
of incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each jurisdiction in
which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole; and all the outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized
and validly issued, are fully-paid and non-assessable, and (except, in the
case of Rowe Communications Ltd., for a single share of common stock owned
by Ron Grigg) upon consummation of the Transactions (as defined below) will
be owned by the Company, directly or indirectly, free and clear of all
liens, encumbrances, security interests and claims;
(h) this Agreement has been duly authorized, executed and delivered
by the Company;
(i) the Company has an authorized capitalization as set forth in
the Prospectus and such authorized capital stock conforms as to legal
matters to the description thereof set forth in the Prospectus, and all of
the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully-paid and non-assessable and are
not subject to any pre-emptive or similar rights; and, except for this
Agreement and as described in or expressly contemplated by the
6
<PAGE>
Prospectus, there are no outstanding rights (including, without limitation,
pre-emptive rights), warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in the Company or any of its subsidiaries, or any contract,
commitment, agreement, understanding or arrangement of any kind relating to
the issuance of any capital stock of the Company or any such subsidiary,
any such convertible or exchangeable securities or any such rights,
warrants or options;
(j) the shares of capital stock of the Company to be issued
pursuant to (i) the transactions (the "Transactions") described in the
Prospectus under "Certain Transactions" and under footnote 3 to the table
included under the heading "Capitalization" (including any shares of
preferred stock) and (ii) the stock options described in the Prospectus
under "Stock Incentive Plans" and any options granted outside the plans
described thereunder have been duly authorized and, when issued, will be
validly issued, fully-paid and non-assessable and will not be subject to
any preemptive or similar rights;
(k) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be duly
issued and will be fully paid and non-assessable and will conform to the
descriptions thereof in the Prospectus; and the issuance of the Shares is
not subject to any preemptive or similar rights that have not been waived;
(l) neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both, or after giving effect to the
Transactions, would be, in violation of or in default under, its
Certificate of Incorporation or By-Laws or any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it or any of them or any
of their respective properties is bound, except for such violations and
defaults which individually and in the aggregate are not material to the
Company and its subsidiaries, taken as a whole; the issue and sale of the
Shares and the performance by the Company of its obligations under this
Agreement and the consummation of the Transactions and the transactions
contemplated hereby will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
7
<PAGE>
property or assets of the Company or any of its subsidiaries is subject,
except for such conflicts, breaches or defaults which individually and in
the aggregate are not material to the Company and its subsidiaries taken as
a whole; nor will any such action result in any violation of the provisions
of the Certificate of Incorporation or the By-Laws of the Company or any
applicable law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company, its
subsidiaries or any of their respective properties; and no consent,
approval, authorization, order, license, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
Transactions or the transactions contemplated by this Agreement, except
such consents, approvals, authorizations, orders, licenses, registrations
or qualifications as have been obtained under the Securities Act and as may
be required under state securities or Blue Sky Laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(m) there are no legal or governmental investigations, actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries or
any of their respective properties or to which the Company or any of its
subsidiaries is or may be a party or to which any property of the Company
or any of its subsidiaries is or may be the subject which, if determined
adversely to the Company or any of its subsidiaries, could individually or
in the aggregate have, or reasonably be expected to have, a material
adverse effect on the general affairs, business, prospects, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, taken as a whole, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(n) the Company and its subsidiaries have good and marketable title
in fee simple to all items of real property and good and marketable title
to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described or referred to
in the Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made or proposed to be made of
such property by the Company and its subsidiaries; and any real property
and buildings held under lease by the Company and its
8
<PAGE>
subsidiaries are held by them under valid, existing and enforceable leases
with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such property and buildings by
the Company or its subsidiaries;
(o) no relationship, direct or indirect, exists between or among
the Company or any or its subsidiaries on the one hand, and the directors,
officers, stockholders, clients, publishers, content providers or suppliers
of the Company or any entity with whom the Company has a strategic alliance
or any of their subsidiaries on the other hand, which is required by the
Securities Act to be described in the Registration Statement and the
Prospectus which is not so described;
(p) no person has the right to require the Company to register any
securities for offering and sale under the Securities Act by reason of the
filing of the Registration Statement with the Commission or the issue and
sale of the Shares except as described in the Prospectus;
(q) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(r) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries, are independent
public accountants as required by the Securities Act;
(s) except as disclosed in the Prospectus, the Company and its
subsidiaries have filed all federal, state, local and foreign tax returns
which have been required to be filed and have paid all taxes shown thereon
and all assessments received by them or any of them to the extent that such
taxes have become due and are not being contested in good faith; and,
except as disclosed in the Registration Statement and the Prospectus, there
is no tax deficiency which has been or might reasonably be expected to be
asserted or threatened against the Company or any subsidiary, except for
such deficiencies as will not have, individually or in the aggregate, a
material adverse effect on the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole;
(t) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to,
9
<PAGE>
cause or result in stabilization or manipulation of the price of the
Common Stock;
(u) each of the Company and its subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals
and other authorizations from, and has made all declarations and filings
with, all federal, state, local and other governmental authorities
(including foreign regulatory agencies), all self-regulatory organizations
and all courts and other tribunals, domestic or foreign, necessary to own
or lease, as the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof, except for such licenses,
permits, certificates, consents, orders or other approvals, the absence of
which will not have, individually or in the aggregate, a material adverse
effect on the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole, and neither the Company nor any such
subsidiary has received any actual notice of any proceeding relating to
revocation or modification of any such license, permit, certificate,
consent, order, approval or other authorization, except as described in the
Registration Statement and the Prospectus; and each of the Company and its
subsidiaries is in compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date hereof, except for such
instances of non-compliance as shall not have, individually or in the
aggregate, a material adverse effect on the general affairs, business,
prospects, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole;
(v) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company or any of its
subsidiaries which are likely to have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(w) each employee benefit plan, within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") that is maintained, administered or contributed to by the Company
or any of its affiliates for employees or former employees of the Company
and its affiliates has been maintained in compliance in all material
respects with its terms and the requirements of any applicable statutes,
orders, rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended, ("Code"). No prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975 of
the Code has occurred with respect to any such plan excluding transactions
effected pursuant to a statutory or administrative
10
<PAGE>
exemption. For each such plan which is subject to the funding rules of Section
412 of the Code or Section 302 of ERISA no "accumulated funding deficiency" as
defined in Section 412 of the Code has been incurred, whether or not waived, and
the fair market value of the assets of each such plan (excluding for these
purposes accrued but unpaid contributions) exceeded the present value of all
benefits accrued under such plan determined using reasonable actuarial
assumptions.
(x) the Company, including through its subsidiary Rowe Communications
Ltd., owns or possesses adequate licenses or other rights to use all patents,
copyrights, trademarks, trade dress, service marks, trade names, technology,
trade secrets and know-how (the "Intellectual Property") necessary to conduct
its business in the manner described in the Prospectus and the Company has not
received any notice of infringement or conflict with (and the Company is not
aware of any infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, trade dress, service marks,
trade names, technology or know-how which could result in any material adverse
effect upon the Company and its subsidiaries taken as a whole; and the
discoveries, inventions, products or processes of the Company necessary to
conduct its business in the manner described in the Prospectus do not, to the
best knowledge of the Company, infringe or conflict with any right or patent of
any third party, or any discovery, invention, product or process which is the
subject of a patent application filed by any third party, known to the Company
which could have a material adverse effect on the Company and its subsidiaries
taken as a whole;
(y) the Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
(z) with the exception of _____ shares of Common Stock to be owned by
_____ upon completion of the Transactions, all outstanding shares of Common
Stock, all shares of Common Stock that will become outstanding upon completion
of the Transactions, and all securities convertible into or exercisable or
exchangeable for Common Stock, are
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subject to agreements (collectively, the "Lock-up Agreements") executed by the
holders thereof substantially in the form attached hereto as Exhibit A;
(aa) the Company (A) has notified each holder of a currently
outstanding option issued under any of the stock incentive plan described in the
Prospectus under "Management--Stock Incentive Plans" (the "Option Plans") and
each person who has acquired shares of Common Stock pursuant to the exercise of
any option granted under an Option Plan that pursuant to the terms of such
Option Plan, none of such options or shares may be sold or otherwise transferred
or disposed of for a period of 180 days after the date of the initial public
offering of the Shares and (B) has imposed a stop-transfer instruction with the
Company's transfer agent in order to enforce the foregoing lock-up provision
imposed pursuant to the Option Plan;
(bb) as of the date the Registration Statement becomes effective, the
Common Stock will be authorized for listing on the Nasdaq National Market (as
herein defined) upon official notice of issuance;
(cc) upon completion of the offering of the Shares contemplated hereby,
the Amended and Restated Stockholders' Agreement dated as of May 4, 1998 (the
"Stockholders Agreement") shall cease to have any legal effect, except as
provided in Sections 7.11 and 11.2 thereof;
(dd) upon completion of the offering of the Shares contemplated hereby,
the Amended and Restated Unanimous Shareholders' Agreement, dated May 4, 1998 of
Rowe Communications Ltd. (the "RoweCan Shareholders Agreement") shall cease to
have any legal effect, except as provided in Section 11.2 thereof;
(ee) upon completion of the offering of the Shares contemplated hereby,
the Transactions will have been completed;
(ff) the Company's only subsidiary is Rowe Communications Ltd.
(gg) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program;
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<PAGE>
(hh) no authorization, approval, consent, license, order,
registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is
necessary under the securities laws and regulations of any foreign
jurisdiction in which the Directed Shares are offered outside the United
States; and
(ii) the Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business
with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
5. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement
to become effective at the earliest possible time and, if required, to file
the final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act and to furnish copies
of the Prospectus to the Underwriters in New York City prior to 10:00 a.m.,
New York City time, on the Business Day next succeeding the date of this
Agreement in such quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the
Representatives four signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment thereto, in
each case without exhibits and, during the period mentioned in Section 5
below, to each of the Underwriters as many copies of the Prospectus
(including all amendments and supplements thereto) as the Representatives
may reasonably request during the period specified in 5 below;
(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the time
the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
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<PAGE>
review and not to file any such proposed amendment or supplement to which the
Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm such advice in
writing (i) when the Registration Statement has become effective, (ii when any
amendment to the Registration Statement has been filed or becomes effective, (ii
when any supplement to the Prospectus or any amended Prospectus has been filed
and to furnish the Representatives with copies thereof, (iv of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for any additional information, (v) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus or the initiation or threatening of any
proceeding for that purpose, (vi of the occurrence of any event, within the
period referenced in Section 5 below, as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, and (vi of the receipt by the Company
of any notification with respect to any suspension of the qualification of the
Shares for offer and sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and to use its best efforts to prevent the
issuance of any such stop order, or of any order preventing or suspending the
use of any preliminary prospectus or the Prospectus, or of any order suspending
any such qualification of the shares, or notification of any such order thereof
and, if issued, to obtain as soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall occur
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Company, to the Underwriters and to the dealers
(whose names and addresses the Representatives will furnish to the Company) to
which Shares may have been sold by the Representatives on behalf of the
Underwriters and to any other dealers upon request, such amendments or
supplements to the Prospectus as may be necessary so that the statements
14
<PAGE>
in the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives shall
reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Shares; provided that the Company
shall not be required to file a general consent to service of process in any
jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a period
of at least twelve months beginning with the first fiscal quarter of the Company
occurring after the effective date of the Registration Statement, which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of
the Commission promulgated thereunder;
(h) for a period of three years after the Closing Date, to furnish to the
Representatives copies of all reports or other communications (financial or
other) furnished to holders of the Shares, and copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange;
(i) for a period of 180 days after the date of the initial public offering
of the Shares, without the prior written consent of J.P. Morgan Securities Inc.,
on behalf of the Underwriters, not to (i) offer, pledge, announce the intention
to sell, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, or file or
cause to be filed a registration statement in respect of, any shares of Stock or
any securities convertible into or exercisable or exchangeable for Stock or (ii
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Stock or such other securities, in cash or otherwise, other than (A) the
Shares to be sold hereunder; (B) any shares of Stock of the Company issued upon
the exercise of options granted under existing employee stock option plans; (C)
shares of Stock of the Company issued in connection with the Transactions; (D)
options granted pursuant to the stock incentive plans described in the
Prospectus and (E) the filing of a registration statement on
15
<PAGE>
Form S-8 in connection with the stock incentive plans described in the
Prospectus;
(j) to use the net proceeds received by the Company from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the Shares on the Nasdaq
National Association of Securities Dealers Automated Quotations National Market
(the "Nasdaq National Market");
(l) to report the use of the proceeds of the sale of Shares contemplated
hereby of the time and in the manner required by Rule 463 under the Securities
Act;
(m) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations hereunder,
including without limiting the generality of the foregoing, all costs and
expenses (i) incident to the preparation, issuance, registration, transfer,
execution and delivery of the Shares, including any transfer or other taxes
payable thereon, (ii incident to the preparation, printing and filing under the
Securities Act of the Registration Statement, the Prospectus and any preliminary
prospectus (including in each case all exhibits, amendments and supplements
thereto), (ii incurred in connection with the registration or qualification of
the Shares under the laws of such jurisdictions as the Representatives may
designate (including fees of counsel for the Underwriters and its
disbursements), (iv in connection with the listing of the Shares on the Nasdaq
National Market, (v) related to the filing with, and clearance of the offering
by, the National Association of Securities Dealers, Inc. (including fees of
counsel for the Underwriters and its disbursements), (vi in connection with the
printing (including word processing and duplication costs) and delivery of this
Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the
furnishing to the Underwriters and dealers of copies of the Registration
Statement and the Prospectus, including mailing and shipping, as herein
provided, (vi any expenses incurred by the Company in connection with a "road
show" presentation to potential investors, (vi the cost of preparing stock
certificates and (ix the cost and charges of any transfer agent and any
registrar;
(n) in connection with the Directed Share Program, to ensure that the
Directed Shares will be restricted to the extent required by the National
16
<PAGE>
Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of the effectiveness of the Registration
Statement. ___________ will notify the Company as to which Participants
will need to be so restricted. At the request of ___________, the
Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time;
(o) to pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program; and
(p) to comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share
Program.
6. The several obligations of the Underwriters hereunder to purchase
the Shares on the Closing Date or the Additional Closing Date, as the case may
be, are subject to the performance by the Company of its obligations hereunder
and to the following additional conditions:
(a) the Registration Statement shall have become effective (or if
a post-effective amendment is required to be filed under the Securities
Act, such post-effective amendment shall have become effective) not later
than 5:00 P.M., New York City time, on the date hereof; and no stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the Commission; the
Prospectus shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Securities Act and in accordance with
Section 5 hereof; and all requests for additional information from the
Commission shall have been complied with to the satisfaction of the
Representatives;
(b) the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date or the
Additional Closing Date, as the case may be, as if made on and as of the
Closing Date or the Additional Closing Date, as the case may be, and the
Company shall have complied with all agreements and all conditions on its
part to be
17
<PAGE>
performed or satisfied hereunder at or prior to the Closing Date or the
Additional Closing Date, as the case may be;
(c) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or long-
term debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the general affairs, business, prospects, condition (financial or
other), management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole, otherwise than
as set forth in or contemplated by the Prospectus (as it stood at the time of
the execution and delivery of this Agreement), the effect of which in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares on the Closing Date or
the Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus (as it stood at the time of the execution and
delivery of this Agreement); and neither the Company nor any of its subsidiaries
has sustained since the date of the latest audited financial statements included
in the Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any employment or labor dispute, from any dispute relating to the use of
Intellectual Property, or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus (as it stood at
the time of the execution and delivery of this Agreement);
(d) the Representatives shall have received on and as of the Closing Date
or the Additional Closing Date, as the case may be, a certificate of an
executive officer of the Company, with specific knowledge about the Company's
financial matters, satisfactory to the Representatives to the effect set forth
in subsections (a), (b), (c) and (d) of this Section (but only with respect to
the respective representations, warranties, agreements and conditions of the
Company) and to the further effect that there has not occurred any change in the
capital stock or long term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, business, prospects,
condition (financial and other), management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries taken as a
whole from that set forth or contemplated in the Prospectus (as it stood at the
time of the execution and delivery of this Agreement);
18
<PAGE>
(e) Bingham Dana LLP, counsel for the Company, shall have
furnished to the Representatives their written opinion, dated the Closing
Date or the Additional Closing Date, as the case may be, in the form
attached hereto as Exhibit A hereto.
---------
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the State of Delaware and the Commonwealth of Massachusetts, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable to the Underwrit
ers' counsel, familiar with the applicable laws and (B) as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company, the representations and warranties made by the Company herein,
and certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company. The opinion of such counsel for the Company shall state that
the opinion of any such other counsel upon which they relied is in form
satisfactory to such counsel and, in such counsel's opinion, the Underwriters
and they are justified in relying thereon. With respect to the matters to be
covered in Section above counsel may state their opinion and belief is based
upon their participation in the preparation of the Registration Statement and
the Prospectus and any amendment or supplement thereto and review and discussion
of the contents thereof but is without independent check or verification except
as specified.
The opinion of Bingham Dana LLP described above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(f) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date or Additional Closing
Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished
to you letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, containing statements and information of the
type customarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus;
(g) the Representatives shall have received on and as of the
Closing Date or Additional Closing Date, as the case may be, an opinion of
Davis Polk & Wardwell, counsel to the Underwriters, with respect to the due
authorization and valid issuance of the Shares, the Registration
19
<PAGE>
Statement, the Prospectus and other related matters as the Representatives
may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon
such matters;
(h) the Shares to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance;
(i) on or prior to the Closing Date or Additional Closing Date,
as the case may be, the Company shall have furnished to the Representatives
such further certificates and documents as the Representatives shall
reasonably request;
(j) Separate "lock-up" agreements, each substantially in the form
of Exhibit B hereto, between you and the officers and directors and all
securityholders (including holders of any securities issued in connection
with the Transactions) of the Company relating to sales and certain other
dispositions of shares of Stock or certain other securities, shall be in
full force and effect on the Closing Date or Additional Closing Date, as
the case may be; and
(k) Berg Kennedy Cleaver Broad, counsel for the Company and Rowe
Communications Ltd., shall have furnished to the Representatives their
written opinion, dated the Closing Date or the Additional Closing Date, as
the case may be, in the form attached as Exhibit C hereto.
---------
7. The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934 (the "Exchange Act"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except (i) insofar
as such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives expressly
20
<PAGE>
for use therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities, unless such failure is the result of noncompliance by the Company
with Section 5(b) hereof.
The Company agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses incurred in connection with any suit,
action or proceeding or any claim asserted) (i) caused by any untrue statement
or alleged untrue statement of a material fact contained in the prospectus
wrapper material prepared by or with the consent of the Company for distribution
in foreign jurisdictions in connection with the Directed Share Program attached
to the Prospectus or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, when considered in conjunction with
the Prospectus or any applicable preliminary prospectus, not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of any
Shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase; or (iii)
related to, arising out of, or in connection with the Directed Share Program,
provided that, the Company shall not be responsible under this subparagraph
(iii) for any losses, claim, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Underwriters.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement
thereto, or any preliminary prospectus.
21
<PAGE>
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the three
preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnify ing
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have mutual
ly agreed to the contrary, (ii) the Indemnifying Person has failed within a
reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in respect of the legal
expenses of any Indemnified Person in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act and (ii) the fees and expenses of more than one separate firm (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the second paragraph of
this Section 7 in respect of any action or proceeding of a type described in
such paragraph, then in addition to such separate firm for the Underwriters and
all such persons, if any, who so control any Underwriter, the Indemnifying
Person shall be liable for the reasonable fees and expenses of not more than one
additional separate firm (in addition to any local counsel) for the Underwriters
and all such persons, if any, who so control any Underwriter for the defense of
any losses, claims, damages and liabilities arising out of the Directed Share
Program and all such fees and expenses shall be reimbursed as they are incurred.
In the case of any such separate firm or firms for the Underwriters and such
control persons of any Underwriters, such firm or firms shall be designated in
writing by J.P. Morgan Securities Inc. In the case of any such separate firm
for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. The
Indemnifying
22
<PAGE>
Person shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Person agrees to indemnify any
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for fees and expenses of counsel as contemplated by the
second, third and fourth sentences of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such Indemnifying Person of the aforesaid request and (ii)
such Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding.
If the indemnification provided for in this Section 7 is unavailable to an
Indemnified Person or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person in lieu of
indemnifying such Indemnified Person, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same respective proportions as the net proceeds from the offering
(before deducting expenses) received by the Company and the total underwriting
discounts and the commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the
23
<PAGE>
Company or by the Underwriters, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares set forth opposite their names in Schedule I hereto,
and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter or by or on behalf of
the Company, its officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company, if after the execution and delivery of this Agreement and prior
to the Closing Date (or, in the case of the Option Shares, prior to the
Additional Closing
24
<PAGE>
Date) (i) trading generally shall have been suspended or materially limited on
or by, as the case may be, any of the New York Stock Exchange, the American
Stock Exchange, the National Association of Securities Dealers, Inc., the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in the
United States, New York or Massachusetts shall have been declared by either
Federal, New York State or Commonwealth of Massachusetts authorities, or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in the judgment of
the Representatives, is material and adverse and which, in the judgment of the
Representatives, makes it impracticable to market the Shares being delivered at
the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any post-
effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Underwritten Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as the Representatives may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-tenth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives and the
Company for the purchase of such Shares are not made within 36 hours after such
default, this Agreement (or the obligations of the several Underwriters
25
<PAGE>
to purchase the Option Shares, as the case may be) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date (or, in the case of the Option Shares, the Additional Closing Date), but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all out-of-
pocket expenses (including the fees and expenses of its counsel) reasonably
incurred by the Underwriters in connection with this Agreement and the offering
contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Underwriters, any controlling persons referred to herein and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person, firm or
corporation any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained. No purchaser of Shares from
any Underwriter shall be deemed to be a successor merely by reason of such
purchase.
12. Any action by the Underwriters or the Representatives hereunder may be
taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone on
behalf of the Underwriters or the Representatives, and any such action taken by
the Representatives jointly or by J.P. Morgan Securities Inc. shall be binding
upon the Underwriters. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the Underwriters shall be
given to the Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street,
New York, New York 10260 (telefax: 212-648-5705); Attention: Syndicate
Department. Notices to the Company shall be given to it at ____________,
_____________, ____________, (telefax:________); Attention:____________.
26
<PAGE>
13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PROVISIONS THEREOF.
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
ROWECOM INC.
By:
-----------------------------------
Title:
Accepted:_________, 199_
J.P. MORGAN SECURITIES INC.
CIBC OPPENHEIMER
VOLPE BROWN WHELAN & COMPANY
Acting severally on behalf of themselves
and the several Underwriters listed
in Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
By:
-----------------------------------
Title:
27
<PAGE>
SCHEDULE I
----------- ----------------
Underwriter Number of Shares
To Be Purchased
J.P. Morgan Securities Inc. ....................
CIBC Oppenheimer ...............................
Volpe Brown Whelan & Company ...................
---------------
Total
===============
28
<PAGE>
EXHIBIT 10.2
ROWECOM INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
This 1999 Non-Employee Director Stock Option Plan (this "Plan") is a stock
option plan pursuant to which options to purchase shares of the Common Stock,
$0.01 par value per share ("Common Stock"), of RoweCom Inc. (the "Company") will
be granted to non-employee directors of the Company. The purpose of this Plan
is to attract and retain the services as directors of the Company of qualified
persons who are not employees of the Company, to express the Company's
appreciation for their service as directors, and to provide them with additional
incentives to contribute to the future success of the Company's business.
ARTICLE II
DEFINITIONS
"Board" means the Board of Directors of the Company.
"Change in Control" means either of the following transactions:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the
<PAGE>
-2-
beginning of such period, or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in the preceding clause (A) who were still
in office at the time such election or nomination was approved by the
Board.
"Director" means a member of the Board who is not, and during the twelve
months preceding the relevant time of reference, has not been, an employee of
the Company or any of its subsidiaries.
"Fair Market Value" has the following meaning: If, at the time an Option
is granted under this Plan, the Common Stock is publicly traded, Fair Market
Value will be determined as of the date on which such Option is granted and will
be (i) the last sale price of a share of Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last sale price of
the Common Stock reported in the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the average
of the closing bid and asked prices for the Common Stock quoted by an
established quotation service for over-the-counter securities, if the Common
Stock is not then traded on a national securities exchange or reported in the
NASDAQ National Market System; provided, that in the case of the Options granted
hereunder on the date this Plan first becomes effective pursuant to Article X
hereof, Fair Market Value will be the initial public offering price at which
Shares are offered to the public pursuant to the registration statement referred
to in Article X. If the Common Stock is not publicly traded at the time an
Option is granted under this Plan, Fair Market Value will be the fair value of a
share of the Common Stock as determined by the Board, taking into consideration
such factors that as it deems appropriate, which may include recent sale and
offer prices of Common Stock in arms'-length private transactions.
"Option" means an option to purchase shares of Common Stock, granted under
this Plan.
"Option Agreement" means an agreement between the Company and an Optionee,
setting forth the terms and conditions of an Option.
"Optionee" means a person to whom an outstanding Option has been granted
under this Plan.
"Shares" means shares of Common Stock.
<PAGE>
-3-
ARTICLE III
SHARES AVAILABLE FOR OPTIONS
A. Maximum Number of Reserved Shares. The maximum number of Shares for
which Options may be issued under this Plan is 250,000 (subject to automatic
proportionate adjustment in the event of any stock dividend, stock split, stock
combination, recapitalization, or other similar event affecting the Common Stock
and occurring after February 5, 1999). In the event that an Option granted
under this Plan to any Optionee expires or is terminated unexercised as to any
Shares covered thereby, such Shares will thereafter again be available for
purposes of this Plan.
B. Adjustment of Number of Shares; Fractional Shares. In the event of
any stock dividend, stock split, stock combination, recapitalization, or other
similar event affecting the Common Stock, occurring after February 5, 1999, and
occurring after the date on which an Option is granted, the number and kind of
securities for which such Option may thereafter be exercised, and the exercise
price payable therefor, will be proportionately adjusted. Immediately prior to
the occurrence of any Acquisition or Change of Control, each Option will become
fully exercisable with respect to the total number of shares of Common Stock
subject to such Option. No fraction of a share of the Common Stock will be
purchasable or deliverable upon exercise of any Option, but in the event any
adjustment of the number of Shares covered by the Option causes such number to
include a fraction of a Share, such fraction will be adjusted to the nearest
smaller whole number of Shares.
ARTICLE IV
GRANTING OF OPTIONS
A. Automatic Grants.
(i) Each Director serving as such on the date this Plan becomes
effective in accordance with Article X hereof will automatically receive a
grant of Options to purchase 30,000 Shares (subject to automatic
proportionate adjustment in the event of any stock dividend, stock split,
stock combination, recapitalization, or other similar event affecting the
Common Stock and occurring after February 5, 1999); and each other person
who first becomes a Director subsequent to such date will automatically
receive a grant of Options to purchase 30,000 Shares (subject to automatic
proportionate adjustment in the event of any stock
<PAGE>
-4-
dividend, stock split, stock combination, recapitalization, or other
similar event affecting the Common Stock and occurring after February 5,
1999).
(ii) After a Director's initial grant of Options under this Plan,
such Director will receive, upon and as of each date on which such Director
is reelected as a Director of the Company (but not more frequently than
once every three years), an option to purchase a number of shares equal to
the excess of (A) 30,000 Shares (subject to automatic proportionate
adjustment in the event of any stock dividend, stock, stock combination,
recapitalization, or other similar event affecting the Common Stock and
occurring after February 5, 1999), over (B) the number of outstanding
Options previously granted to such Director under this Plan and in which
such Directors' rights have not yet vested.
(iii) Each Option granted pursuant to Section A(i) of this Article IV
will vest (i.e., become exercisable) ratably, at the rate of 10,000 Shares
(subject to automatic proportionate adjustment in the event of any stock
dividend, stock split, stock combination, recapitalization, or other
similar event affecting the Common Stock and occurring after February 5,
1999) per annum, on the last day of each calendar month ending after the
date such Option is granted; provided, that the Optionee continues to serve
as a Director of the Company as of each such vesting date.
Each Option granted pursuant to Section A(ii) of this Article IV will
vest ratably, at the rate of 10,000 Shares (subject to automatic
proportionate adjustment in the event of any stock dividend, stock split,
stock combination, recapitalization, or other similar event affecting the
Common Stock and occurring after February 5, 1999) per annum, on the last
day of each calendar month ending after the first date on which all
outstanding Options previously granted to such Director under this Plan
have fully vested; provided, that the Optionee continues to serve as a
Director of the Company as of each such vesting date.
(iv) No Options will be granted after the tenth anniversary of the
date on which this Plan first becomes effective in accordance with Article
X hereof.
B. Option Agreement. As soon as practicable after the grant of an Option
under this Plan, the Company and the Optionee will enter into a Stock Option
Agreement evidencing the Option so granted. Such agreement will be in such form
consistent with this Plan as the Board may deem appropriate.
<PAGE>
-5-
ARTICLE V
TERMS OF STOCK OPTIONS
The terms of Options granted under this Plan will be as follows:
(i) The per-share Option exercise price will be the Fair Market
Value of a Share on the date of grant.
(ii) Options will not be transferable other than by will or by the
laws of descent and distribution, except as may be otherwise determined by
the Board. No Option will be subject, in whole or in part, to attachment,
execution, or levy of any kind.
(iii) Each Option will expire and all rights thereunder will end at
the expiration of ten years after the date on which it was granted, subject
in all cases to earlier termination as provided in this Plan or in the
Option Agreement relating to such Option.
(iv) If an Optionee ceases to be a Director for any reason, such
Optionee's Options will thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such
cessation of service as a director; and upon any such cessation of service
as a Director, such remaining rights to purchase will in any event
terminate upon the earlier of (A) the expiration of the original term of
the option, or (B) the second anniversary of such cessation of service.
ARTICLE VI
DELIVERY OF SHARES
Shares delivered upon the exercise of an Option will be Shares heretofore
or hereafter authorized and then unissued, or previously issued shares
heretofore or hereafter acquired through purchase in the open market or
otherwise, or some of each. No Optionee will have any rights as a stockholder
of the Company (including without limitation any rights to vote or to receive
dividends or other distributions) in respect of Shares underlying any Option
unless and until such Option has been duly exercised and such Shares have been
duly issued to such Optionee. No Shares will be delivered upon the exercise of
an Option until the Option price has been paid in full in cash or by check. The
obligations of the Company to sell and deliver Shares upon exercise of Options
will be subject to all applicable laws, rules, and regulations,
<PAGE>
-6-
including all applicable federal and state securities laws, and the obtaining of
all such approvals by government agencies as may be deemed necessary or
appropriate by the Board or the relevant committee of the Board. If so required
by the Board, no Shares will be delivered upon the exercise of an Option until
the Optionee has given the Company a satisfactory written statement that he is
purchasing the Shares for investment, and not with a view to the sale or
distribution of any such Shares, and with respect to such other matters as the
Board may deem advisable in order to assure compliance with applicable
securities laws. All Shares issued upon exercise of Options will bear
appropriate restrictive legends. The Company may require of any person to whom
Options are granted that he or she agree that, if the Company will deem it
necessary or desirable to make any public offering of shares of Common Stock,
then without the prior written consent of the Company or the managing
underwriter of any such offering, he or she will not sell, make any short sale
of, loan, grant any option for the purchase of, pledge or otherwise encumber, or
otherwise dispose of any Shares issued or issuable pursuant to Options, during
such period (not to exceed 210 days) commencing on the effective date of the
registration statement relating to such offering as the Company may request.
ARTICLE VII
CONTINUATION AS A DIRECTOR
Neither this Plan nor any Option granted hereunder will confer upon any
individual any right to continue as a member of the Board, or limit or otherwise
affect any rights of the Company.
ARTICLE VIII
ADMINISTRATION
This Plan will be governed by and interpreted and construed in accordance
with the internal laws of the State of Delaware (without reference to principles
of conflicts or choice of law). The captions of the articles of this Plan are
for reference only and will not affect the interpretation or construction of
this Plan. The Board or an authorized committee of the Board may make such
rules and regulations and establish such procedures as it deems appropriate for
the administration of this Plan. In the event of a disagreement as to the
interpretation of this Plan or any amendment thereto or any rule, regulation, or
procedure thereunder or as to any right or obligation arising from or related to
this Plan, the decision of the Board or such committee of the Board will be
final and binding upon all persons, including the Company and its stockholders.
<PAGE>
-7-
ARTICLE IX
TERMINATION AND AMENDMENT OF PLAN
The Board may at any time terminate this Plan or make such modifications of
this Plan as it will deem advisable. No termination or amendment of this Plan
may adversely affect the rights of any Optionee, as such, without the consent of
such Optionee.
ARTICLE X
EFFECTIVE DATE
This Plan will become effective as of the effective date of the Company's
first effective registration statement to become effective pursuant to the
Securities Act of 1933, as amended.
<PAGE>
EXHIBIT 10.3
ROWECOM INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Definitions. As used in this 1999 Employee Stock Purchase Plan of
-----------
RoweCom Inc., the following terms have the respective meanings ascribed to them
below:
(a) Base Compensation means annual or annualized base compensation,
-----------------
exclusive of overtime, bonuses, contributions to employee benefit plans, and
other fringe benefits.
(b) Beneficiary means, with respect to any Participating Employee, the
-----------
person designated as beneficiary on such Participating Employee's Membership
Agreement or other form provided by the Company for such purpose, or if no such
beneficiary is named, the person to whom the Option is transferred by will or
under the applicable laws of descent and distribution.
(c) Board means the board of directors of the Company, except that if and
-----
for so long as the board of directors of the Company has delegated its authority
with respect to the Plan to the Committee pursuant to Section 4, then all
references in this Plan to the Board will be deemed to refer to the Committee
acting in such capacity.
(d) Code means the Internal Revenue Code of 1986, as amended.
----
(e) Company means RoweCom Inc., a Delaware corporation.
-------
(f) Committee means the Compensation Committee of the Board.
---------
(g) Effective Date means the effective date of the Company's first
--------------
registration statement to become effective pursuant to the Securities Act of
1933, as amended.
(h) Eligible Employee means a person who is eligible under the provisions
-----------------
of Section 7 to receive an Option as of a particular Offering Commencement Date.
(i) Employer means, as to any particular Offering Period, the Company and
--------
any Related Corporation that is designated by the Board as a corporation whose
Eligible Employees are to receive Options as of that Period's Offering
Commencement Date, and any Related Corporation that
<PAGE>
-2-
has been designated by the Board as such a corporation as to a prior Offering
Period, unless and until the Board acts to revoke such designation.
(j) Market Value means, as of the Offering Commencement Date of the first
------------
Offering Period under this Plan, the initial public offering price at which
shares of Stock are offered to the public, as specified in the Company's
registration statement referred to above, and as of any other particular date,
(i) if the Stock is listed on a national securities exchange, the closing price
of the Stock on such exchange on such date, (ii) if the Stock is not listed on a
national securities exchange but is quoted through the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System
or any successor thereto, the last sale price of the Stock so quoted on such
date, and (iii) if the Stock is not listed on a national securities exchange or
quoted through the NASDAQ National Market System or any successor thereto, but
is quoted through NASDAQ other than through the National Market System, or is
otherwise publicly traded, the average of the closing bid and asked prices of
the Stock so quoted or otherwise reported on such date.
(k) Membership Agreement means an agreement whereby a Participating
--------------------
Employee authorizes an Employer to withhold payroll deductions from his or her
Base Compensation.
(l) Offering Commencement Date means the first business day of an Offering
--------------------------
Period on which Options are granted to Eligible Employees.
(m) Offering Period means each of the periods described in Section 8 that
---------------
is designated or deemed designated by the Board as an "Offering Period."
(n) Offering Termination Date means the last business day of an Offering
-------------------------
Period, on which Options must, if ever, be exercised.
(o) Option means an option to purchase shares of Stock granted under the
------
Plan.
(p) Option Shares means shares of Stock purchasable under an Option.
-------------
(q) Participating Employee means an Eligible Employee to whom an Option is
----------------------
granted.
<PAGE>
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(r) Plan means this 1999 Employee Stock Purchase Plan of the Company, as
----
amended from time to time.
(s) Related Corporation means any corporation that is or during the term
-------------------
of the Plan becomes a parent corporation of the Company, as defined in Section
424(e) of the Code, or a subsidiary corporation of the Company, as defined in
Section 424(f) of the Code.
(t) Stock means the common stock, $0.01 par value per share, of the
-----
Company.
2. Purpose of the Plan. The Plan is intended to encourage ownership of
-------------------
Stock by employees of the Company and any Related Corporations and to provide an
additional incentive for the employees to promote the success of the business of
the Company and any Related Corporations. It is intended that the Plan qualify
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
3. Term of the Plan. The Plan will become effective on the Effective
----------------
Date. No Option may be granted under the Plan after the tenth anniversary of
the Effective Date.
4. Administration of the Plan. The Plan will be governed by and
--------------------------
interpreted and construed in accordance with the internal laws of the State of
Delaware (without reference to principles of conflicts or choice of law). The
captions of sections of the Plan are for reference only and will not affect the
interpretation or construction of the Plan. The Plan will be administered by
the Board. The Board will determine which semi-annual periods will be Offering
Periods in accordance with Section 8, and which (if any) Related Corporations
will be Employers as to each Offering Period. The Board will have authority to
interpret the Plan, to prescribe, amend, and rescind rules and regulations
relating to the Plan, to determine the terms of Options granted under the Plan,
and to make all other determinations necessary or advisable for the
administration of the Plan. All determinations of the Board under the Plan will
be final and binding as to all persons having or claiming any interest in or
arising out of the Plan, including the Company, its stockholders, and any and
all Participating Employees. The Board may delegate all or any portion of its
authority with respect to the Plan to the Committee, and thereafter until such
delegation is revoked by the Board all powers under the Plan delegated to the
Committee will be exercised by the Committee.
<PAGE>
-4-
5. Termination and Amendment of Plan. The Board may terminate the Plan at
---------------------------------
any time, and may amend the Plan at any time and from time to time. Without
limiting the generality of the foregoing, the Board may amend the Plan from time
to time to increase or decrease the length of any future Offering Periods and to
make all required conforming changes to the Plan. No termination or amendment of
the Plan may adversely affect the rights of a Participating Employee with
respect to any Option held by the Participating Employee prior to such
termination or amendment.
6. Shares of Stock Subject to the Plan. No more than an aggregate of
-----------------------------------
2,500,000 shares of Stock may be issued or delivered pursuant to the exercise of
Options granted under the Plan (subject to automatic proportionate adjustment in
the event of any other stock dividend, stock split, stock combination,
recapitalization, or other similar event affecting the Common Stock and occuring
after February 5, 1999, and to adjustments made in accordance with Section 9.7).
Shares to be delivered upon exercise of Options may be either shares of Stock
that are authorized but unissued or shares of Stock held by the Company in its
treasury. If an Option expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject to the Option will not count
against the above limit and will become available for other Options granted
under the Plan.
7. Persons Eligible to Receive Options. Each employee of an Employer will
-----------------------------------
be granted an Option on each Offering Commencement Date on which such employee
meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more than
twenty hours per week and for more than five months per calendar year.
(b) The employee will not, after grant of the Option, own Stock possessing
five percent or more of the total combined voting power or value of all classes
of stock of the Company or of any Related Corporation. For purposes of this
paragraph (b), the rules of Section 424(d) of the Code will apply in determining
the Stock ownership of the employee, and Stock that the employee may purchase
under outstanding options will be treated as Stock owned by the employee.
(c) Upon grant of the Option, the employee's rights to purchase Stock
under all employee stock purchase plans (as defined in Section 423(b) of the
Code) of the Company and its Related Corporations will not accrue at a rate
exceeding $25,000 of Market Value of Stock (determined as of the grant date) for
each calendar year in which such Option is outstanding at
<PAGE>
-5-
any time. The accrual of rights to purchase Stock will be determined in
accordance with Section 423(b)(8) of the Code.
8. Offering Commencement Dates. Options will be granted on the first
---------------------------
business day of the period running from the Effective Date to June 30, 1999, and
of each semi-annual period running from July 1 to the next following December 31
or from January 1 to the next following June 30 that is designated by the Board
as an Offering Period. Following the initial Offering Period under the Plan
(i.e., the period running from the Effective Date to June 30, 1999), all
succeeding semi-annual periods described above will be deemed Offering Periods
without need of further Board action unless and until contrary action will have
been taken by the Board prior to the beginning of what would otherwise be an
Offering Period.
9. Terms and Conditions of Options.
-------------------------------
9.1 General. All Options granted on a particular Offering Commencement
-------
Date will comply with the terms and conditions set forth in Sections 9.2 through
9.11. Subject to Sections 7(c) and 9.9, each Option granted on a particular
Offering Commencement Date will entitle the Participating Employee to purchase
that number of shares of Stock equal to the result of $12,500 (or such lesser
amount as is selected by the Board, prior to the applicable Offering
Commencement Date, and applied uniformly during the Offering Period then
beginning) divided by the Market Value of one such share on the Offering
Commencement Date and then rounded down, if necessary, to the nearest whole
number.
9.2 Purchase Price. The purchase price of each Option Share will be 85%
--------------
of the lesser of (a) the Market Value of a share of Stock as of the Offering
Commencement Date or (b) the Market Value of a share of Stock as of the Offering
Termination Date.
9.3 Restrictions on Transfer.
------------------------
(a) Options may not be transferred otherwise than by will or pursuant to
applicable laws of descent and distribution. During the lifetime of a
Participating Employee, such Participating Employee's Options may not be
exercised by anyone other than such Participating Employee.
(b) The Optionee will agree in the Membership Agreement to notify the
Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company will have the right to
place a legend on all stock certificates representing Option
<PAGE>
-6-
Shares instructing the transfer agent to notify the Company of any transfer of
such Option Shares. The Company will also have the right to place a legend on
all stock certificates representing Option Shares setting forth or referring to
the restriction on transferability of such Option Shares.
9.4 Expiration. Each Option will expire at the close of business on the
----------
Offering Termination Date or on such earlier date as may result from the
operation of Sections 9.5 or 9.6.
9.5 Termination of Employment of Optionee. If a Participating Employee
-------------------------------------
ceases for any reason (other than death) to be continuously employed by an
Employer, whether due to voluntary severance, involuntary severance, transfer,
or disaffiliation of a Related Corporation with the Company, his or her Option
will immediately expire, and the Participating Employee's accumulated payroll
deductions will be returned by the Company. For purposes of this Section 9.5, a
Participating Employee will be deemed to be employed throughout any leave of
absence for military service, illness, or other bona fide purpose that does not
exceed the longer of ninety days or the period during which the Participating
Employee's reemployment rights are guaranteed by statute (including without
limitation the Veterans Reemployment Rights Act or similar statute relating to
military service) or by contract. If the Participating Employee does not return
to active employment prior to the termination of such period, his or her
employment will be deemed to have ended on the ninety-first day of such leave of
absence (or such longer period guaranteed by statute or by contract as provided
above).
9.6 Death of Optionee. If a Participating Employee dies, his or her
-----------------
Beneficiary will be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The number of
shares purchasable will be limited by the amount of the Participating Employee's
accumulated payroll deductions as of the date of his or her death. Accumulated
payroll deductions will be applied by the Company toward the purchase of shares
only if, not later than the Offering Termination Date, the Participating
Employee's Beneficiary submits to the Employer a written request that the
deductions be so applied. Accumulated payroll deductions not withdrawn or
applied to the purchase of shares will be delivered by the Company to the
Beneficiary within a reasonable time after the Offering Termination Date.
<PAGE>
-7-
9.7 Capital Changes Affecting the Stock. In the event that, between the
-----------------------------------
Offering Commencement Date and the Offering Termination Date with respect to an
Option, a stock dividend is paid or becomes payable in respect of the Stock, or
there occurs a split-up or contraction in the number of shares of Stock, the
number of shares of Stock for which the Option may thereafter be exercised and
the price to be paid for each such share will both be proportionately adjusted.
In the event that, after the Offering Commencement Date, there occurs a
reclassification or change of outstanding shares of Stock or a consolidation or
merger of the Company with or into another corporation or a sale or conveyance,
substantially as a whole, of the property of the Company, the Participating
Employee will be entitled on the Offering Termination Date to receive shares of
Stock or other securities equivalent in kind and value to the shares of Stock he
or she would have held if he or she had exercised the Option in full immediately
prior to such reclassification, change, consolidation, merger, sale, or
conveyance and had continued to hold such shares (together with all other shares
and securities thereafter issued in respect thereof) until the Offering
Termination Date. In the event that there is to occur a recapitalization
involving an increase in the par value of the Stock that would result in a par
value exceeding the exercise price under an outstanding Option, the Company may
notify the affected Participating Employee of such proposed recapitalization,
after which the Participating Employee will have the right to exercise his or
her Option prior to such recapitalization; if the Participating Employee fails
to exercise the Option prior to recapitalization, the exercise price under the
Option will be appropriately adjusted. In the event that, after the Offering
Commencement Date, there occurs a dissolution or liquidation of the Company,
except pursuant to a transaction to which Section 424(a) of the Code applies,
each Option will terminate, but the Participating Employee will have the right
to exercise his or her Option prior to such dissolution or liquidation.
9.8 Payroll Deductions. A Participating Employee may purchase shares
------------------
under his or her Option during any particular Offering Period by completing and
returning to the Company at least 15 days prior to the beginning of such
Offering Period a Membership Agreement indicating a percentage (which will be a
full integer between one and ten, inclusive) of his or her Base Compensation
that is to be withheld each pay period (not to exceed an aggregate of $12,500 in
any Offering Period). No Participating Employee will be permitted to change the
percentage of Base Compensation withheld during an Offering Period. However,
not more than once per Offering Period the Participating Employee may cancel his
or her Agreement, and withdraw all (but not less than all) of his or her
accumulated payroll deductions, by submitting a written request therefor to the
Company not
<PAGE>
-8-
later than the close of business on the Offering Termination Date. The
percentage of Base Compensation withheld may be changed from one Offering Period
to another.
9.9 Exercise of Options. On the Offering Termination Date the
-------------------
Participating Employee may purchase the number of shares purchasable by his or
her accumulated payroll deductions, or if less, the maximum number of shares
subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares that all Optionees elect to purchase,
together with any shares already purchased under the Plan, exceeds the total
number of shares that may be purchased under the Plan pursuant to Section 6, the
number of shares that each Optionee is permitted to purchase will be decreased
pro rata based on the Participating Employee's accumulated payroll deductions in
relation to all accumulated payroll deductions currently being withheld under
the Plan.
(b) If the number of shares purchasable includes a fraction, such number
will be adjusted to the next smaller whole number and the purchase price will be
adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering Termination
Date will be automatically applied by the Company toward the purchase of Option
Shares, or to the extent in excess of the aggregate purchase price of the shares
then purchasable by the Participating Employee, refunded to the Participating
Employee, except that where such excess is less than the purchase price for a
single share of Stock on the Offering Termination Date, such excess will not be
refunded but instead will be carried over and applied to the purchase of shares
in the first following Offering Period (subject to the possibility of withdrawal
by the Participating Employee during such Offering Period in accordance with the
terms of the Plan).
9.10 Delivery of Stock. Except as provided below, within a reasonable
-----------------
time after the Offering Termination Date, the Company will deliver or cause to
be delivered to the Participating Employee a certificate or certificates for the
number of shares purchased by the Participating Employee. A stock certificate
representing the number of Shares purchased will be issued in the participant's
name only, or if his or her Membership Agreement so specifies, in the name of
the employee and another person of legal age as joint tenants with rights of
survivorship. If any law or applicable regulation of the Securities and
Exchange Commission or other body having jurisdiction in the premises requires
that the Company or the
<PAGE>
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Participating Employee take any action in connection with the shares being
purchased under the Option, delivery of the certificate or certificates for such
shares will be postponed until the necessary action will have been completed,
which action will be taken by the Company at its own expense, without
unreasonable delay. The Optionee will have no rights as a shareholder in respect
of shares for which he or she has not received a certificate.
9.11 Return of Accumulated Payroll Deductions. In the event that the
----------------------------------------
Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, or death, or in the event that accumulated payroll
deductions exceed the price of shares purchased, such amount will be returned by
the Company to the Participating Employee or the Beneficiary, as the case may
be, not later than within a reasonable time following the Offering Termination
Date applicable to the Option Period in which such deductions were taken.
Accumulated payroll deductions held by the Company will not bear interest nor
will the Company be obligated to segregate the same from any of its other
assets.
<PAGE>
EXHIBIT 10.4
ROWECOM INC.
AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this Amended and Restated 1998 Stock Incentive Plan of
RoweCom Inc. (the "Company") are to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract, motivate, and
retain employees and consultants of exceptional ability and to provide a means
to encourage stock ownership and a proprietary interest in the Company to
selected employees and consultants of the Company upon whose judgment,
initiative, and efforts the financial success and growth of the business of the
Company largely depend.
2. DEFINITIONS.
(a) "Accelerate," "Accelerated," and "Acceleration," when used with
respect to an Option, mean that as of the relevant time of reference, such
Option will become fully exercisable with respect to the total number of shares
of Common Stock subject to such Option and may be exercised for all or any
portion of such shares.
(b) "Acquisition" means
(i) a merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from the persons who held those securities immediately prior
to such transaction, or
(ii) the sale, transfer, or other disposition of all or
substantially all of the Company's assets to one or more persons
(other than any wholly owned subsidiary of the Company) in a single
transaction or series of related transactions.
(c) "Beneficial Ownership" means beneficial ownership determined pursuant
to Securities and Exchange Commission Rule 13d-3 promulgated under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company.
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(e) "Change of Control" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, or
(ii) over a period of 36 consecutive months or less, there is a
change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number, if a fraction)
ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (A) have been
Board members continuously since the beginning of such period, or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
the preceding clause (A) who were still in office at the time such
election or nomination was approved by the Board.
(f) "Committee" means the Compensation Committee of the Board; provided,
that the Board by resolution duly adopted may at any time or from time to time
determine to assume any or all of the functions of the Committee under the Plan,
and during the period of effectiveness of any such resolution, references herein
to the "Committee" will mean the Board acting in such capacity.
(g) "Common Stock" means the authorized common stock of the Company.
(h) "Company" means RoweCom Inc., a Delaware corporation.
(i) "Eligible Employee" means any person who, at the time of the grant of
an Option or Restricted Stock Award, is an employee (including officers and
employee directors) or consultant of the Company or any Subsidiary.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time.
(k) "Fair Market Value" means the value of a share of Common Stock as of
the relevant time of reference, as determined as follows. If the Common Stock
is then publicly traded, Fair Market Value will be (i) the last sale price of a
share of Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last sale price of the Common Stock reported in
the NASDAQ National Market System, if the Common Stock is not then traded on a
national securities exchange; or (iii) the average of the closing bid and asked
prices for the Common Stock quoted by an established quotation service for over-
the-counter securities, if the Common Stock is not then traded on a national
securities exchange or reported in the NASDAQ National Market System. If the
Common Stock is not then publicly traded, Fair Market Value will be the fair
value of a share of the Common Stock as determined by the Board or the
Committee, taking into consideration such factors as it deems appropriate, which
may include recent sale and offer prices of Common Stock in arms'-length private
transactions.
(l) "Hostile Takeover" means a change in ownership of the Company effected
through a transaction in which:
(i) any person or group of persons (within the meaning of
Section 13(d)(3) of the Exchange Act), other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with the Company, directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders that the Board does not recommend such stockholders to
accept, and
(ii) more than 50% of the securities so acquired in such tender
or exchange offer are accepted from holders other than the officers
and directors of the Company who are subject to the short-swing profit
restrictions of Section 16 of the Exchange Act.
(m) "Participant" means any Eligible Employee selected to receive an
Option or Restricted Stock Award pursuant to Section 5.
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(n) "Restricted Stock Award" means a right to the grant or purchase, at a
price determined by the Committee, of Common Stock which is nontransferable and
subject to substantial risk of forfeiture until specific conditions of
continuing employment or performance are met.
(o) "Incentive Stock Option" means an Option intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code and
regulations thereunder.
(p) "Option" means a right to acquire shares of Common Stock granted under
the Plan, which right may but need not qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code and regulations thereunder.
(q) "Plan" means this Amended and Restated 1998 Stock Incentive Plan, as
it may be amended and/or restated from time to time.
(r) "Subsidiary" means any subsidiary corporation (as defined in Section
424 of the Internal Revenue Code) of the Company.
(s) "Takeover Price" means, with respect to any Incentive Stock Option,
the Fair Market Value per share of Common Stock on the date such Option is
surrendered to the Company in connection with a Hostile Takeover, or in the case
of any other Option, such Fair Market Value or, if greater, the highest reported
price per share of Common Stock paid by the tender or exchange offeror in
effecting such Hostile Takeover.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of Section
3(c) and Section 8 of the Plan, the aggregate number of shares of Common Stock
that may be issued or transferred pursuant to Options or Restricted Stock Awards
under the Plan will not exceed 2,500,000 shares, which aggregate number of
shares, automatically and without further action, will increase, effective as of
January 1, 2000, and each January 1 thereafter during the term of the Plan, by
an additional number of shares of Common Stock equal to five per cent (5%) of
the total number of shares of Common Stock issued and outstanding as of the
close of business on the immediately preceding December 31.
(b) The shares of Common Stock to be delivered under the Plan will be made
available, at the discretion of the Committee, from authorized but
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unissued shares of Common Stock and/or from previously issued shares of Common
Stock reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any reason,
and/or shares covered by Restricted Stock Awards are forfeited, such number of
shares will no longer be charged against the limitation provided in Section 3(a)
and may again be made subject to Options or Restricted Stock Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in
accordance with the internal laws of the State of Delaware (without reference to
principles of conflicts or choice of law). The captions of sections of the Plan
are for reference only and will not affect the interpretation or construction of
the Plan.
(b) The Plan will be administered by the Committee. The Committee has and
may exercise such powers and authority of the Board as may be necessary or
appropriate for the Committee to carry out its functions as described in the
Plan. The Committee will determine the Eligible Employees to whom, and the time
or times at which, Options or Restricted Stock Awards may be granted and the
number of shares subject to each Option or Restricted Stock Award. The
Committee also has authority (i) to interpret the Plan, (ii) to determine the
terms and provisions of the Option or Restricted Stock Award instruments, and
(iii) to make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee will be final, conclusive, and
binding upon all parties.
(c) No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award under it.
5. GRANTS.
(a) The Committee will determine and designate from time to time those
Eligible Employees who are to be granted Options or Restricted Stock Awards, the
type of each Option to be granted and the number of shares covered thereby or
issuable upon exercise thereof, and the number of shares covered by each
Restricted Stock Award. Each Option and Restricted Stock Award will be
evidenced by a written agreement or instrument and may
<PAGE>
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include any other terms and conditions consistent with the Plan, as the
Committee may determine.
(b) Subject to adjustment in accordance with the provisions of Section 8
of the Plan, (i) no person may in any year be granted Options or Restricted
Stock Awards with respect to more than 1,100,000 shares of Common Stock, and
(ii) no more than an aggregate of 12,500,000 shares of Common Stock may be
issued pursuant to the exercise of Incentive Stock Options granted under the
Plan.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The price at which Common Stock may be purchased by a Participant
under an Option will be determined by the Committee; provided, however, that the
purchase price under a nonqualified Option will not be less than 85% of the Fair
Market Value of the Common Stock on the date of grant of such Option, and the
purchase price under an Incentive Stock Option will not be less than 100% of the
Fair Market Value of the Common Stock on the date of grant of such Option (or
110% of such Fair Market Value, in the case of any Incentive Stock Option
granted to a 10% owner (within the meaning of Section 422(b)(6) of the Code)).
(b) Each Option will be exercisable at such time or time, during such
periods, and for such numbers of shares as is determined by the Committee and
set forth in the agreement or instrument evidencing the Option grant (subject to
Acceleration by the Committee, in its discretion). In any event, the Option
will expire no later than the tenth anniversary of the date of grant (or the
fifth anniversary of the date of grant, in the case of any Incentive Stock
Option granted to a 10% owner (within the meaning of Section 422(b)(6) of the
Code)).
(c) Unless the Compensation Committee otherwise determines (whether at the
time the Option is granted or otherwise), upon the exercise of an Option, the
purchase price will be payable in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to
employees of the Company or a Subsidiary, and the aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the number
of shares with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year may not exceed any applicable
limit from time to time imposed on Incentive Stock Options by the Internal
Revenue Code (such limit currently being $100,000). To the extent that an
Incentive Stock Option, whether at the
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time of grant or thereafter, exceeds such limits, the excess shares will be
considered to have been granted under a separate Option not constituting an
Incentive Stock Option.
(e) No fractional shares need be issued pursuant to the exercise of an
Option, nor need any cash payment be made in lieu of fractional shares.
(f) Subject to the short-swing profit restrictions of the Federal
securities laws, upon the occurrence of a Hostile Takeover, each Option granted
to any officer of the Company, if outstanding for at least six months, will
automatically be canceled in exchange for a cash distribution from the Company
in an amount equal to the excess of (i) the aggregate Takeover Price of the
shares of Common Stock at the time subject to the canceled Option (regardless of
whether the Option is otherwise then exercisable for such shares) over (ii) the
aggregate Option price payable for such shares. Such cash distribution will be
made within five days after the consummation of the Hostile Takeover. Neither
the approval of the Committee nor the consent of the Board will be required in
connection with such Option cancellation and cash distribution.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards granted
or sold pursuant to the Plan may be issued or transferred for such consideration
(which may consist wholly of services), and subject to such restrictions, as the
Committee may determine, and will be subject to the following conditions:
(i) The shares may not be sold, transferred, or otherwise alienated
or hypothecated until the restrictions are removed or expire, unless the
Committee determines otherwise.
(ii) The Committee may provide in the agreement or instrument
evidencing the grant of the Restricted Stock Awards that the certificates
representing shares subject to Restricted Stock Awards granted or sold
pursuant to the Plan will be held in escrow by the Company until the
restrictions on the shares lapse in accordance with the provisions of
subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to Restricted Stock
Awards granted or sold pursuant to the Plan will bear a legend making
appropriate reference to the restrictions imposed.
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(iv) The Committee may impose other conditions on any shares subject
to Restricted Stock Awards granted or sold pursuant to the Plan as it may
deem advisable, including without limitation restrictions under the
Securities Act of 1933, as amended, under the requirements of any stock
exchange or securities quotations system upon which such shares or shares
of the same class are then listed, and/or under any blue sky or other
securities laws applicable to such shares.
(b) The restrictions imposed under subparagraph (a) above upon Restricted
Stock Awards will lapse at such time or times, and/or upon the achievement of
such predetermined performance objectives, as may be determined by the
Committee. In the event a holder of a Restricted Stock Award ceases to be an
employee or consultant of the Company, all shares under the Restricted Stock
Award that remain subject to restrictions at the time his or her employment or
consulting relationship terminates will be returned to or repurchased by the
Company unless the Committee determines otherwise.
(c) Subject to the provisions of subparagraphs (a) and (b) above, and
except as otherwise determined by the Committee, the holder will have all rights
of a shareholder with respect to the shares covered by Restricted Stock Awards
granted or sold, including the right to vote such shares and to receive all
dividends and other distributions paid or made with respect thereto.
8. ADJUSTMENT PROVISIONS.
(a) All of the share numbers set forth in the Plan reflect the capital
structure of the Company as of February 5, 1999. Subject to Section 8(b), if
subsequent to such date the outstanding shares of Common Stock of the Company
are increased, decreased (including, without limitation, in connection with the
0.34905-for-one reverse stock split to be effected in or about February 1999),
or exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other distribution with respect to such shares of Common
Stock, or other securities and occurring after February 5, 1995, an appropriate
and proportionate adjustment will be made in (i) the maximum numbers and kinds
of shares provided in Sections 3 and 5, (ii) the numbers and kinds of
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shares or other securities subject to the then outstanding Options and
Restricted Stock Awards, and (iii) the price for each share or other unit of any
other securities subject to then outstanding Options (without change in the
aggregate purchase price as to which such Options remain exercisable).
(b) The Committee will have discretion to provide for the Acceleration of
one or more outstanding Options held by employees and the vesting of unvested
shares held by employees as Restricted Stock Awards upon the occurrence of a
Change of Control of the Company. Such Accelerated vesting may be conditioned
on the subsequent termination of the affected optionee's employment and/or such
other conditions as the Committee may determine. Except as determined by the
Committee prior to the occurrence of a Change of Control, any Options
Accelerated in connection with a Change of Control will remain fully exercisable
until the expiration or sooner termination of their respective terms.
(c) In the event of an Acquisition (subject to any provisions of then
outstanding Restricted Stock Awards and Options, respectively, granting greater
rights to the holders thereof): The unvested shares of Common Stock held by
employees as Restricted Stock Awards shall immediately vest in full, except to
the extent that the Company's repurchase rights with respect to those shares are
to be assigned to the acquiring entity; and all outstanding Options held by
employees will Accelerate to the extent not assumed by the acquiring entity or
replaced by comparable options to purchase shares of the capital stock of the
successor or acquiring entity or parent thereof (the determination of
comparability to be made by the Committee, which determination shall be final,
binding, and conclusive). The Committee shall have discretion, exercisable
either in advance of an Acquisition or at the time thereof, to provide (upon
such terms as it may deem appropriate) for (i) the automatic Acceleration of one
or more outstanding Options held by employees that are assumed or replaced and
do not otherwise Accelerate by reason of the Acquisition, and/or (ii) the
subsequent termination of one or more of the Company's repurchase rights with
respect to shares held by employees as Restricted Stock Awards that are assigned
in connection with the Acquisition and do not otherwise terminate at that time,
in the event that the employment of the respective grantees of such Options or
Restricted Stock Awards should subsequently terminate following such
Acquisition.
(d) Each outstanding Option that is assumed in connection with an
Acquisition, or is otherwise to continue in effect subsequent to such
Acquisition, will be appropriately adjusted, immediately after such Acquisition,
to apply to the number and class of securities that would have
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been issued to the Option holder, in consummation of such Acquisition, had such
holder exercised such Option immediately prior to such Acquisition. Appropriate
adjustments will also be made to the Option price payable per share, provided,
that the aggregate Option price payable for such securities will remain the
same. The class and number of securities available for issuance under the Plan
following the consummation of such Acquisition will be appropriately adjusted.
(e) Adjustments under this Section 8 will be made by the Committee in
accordance with the terms of this Section 8, and such determination of the
Committee as to what (if any) adjustments will be made and the extent thereof so
as to effectuate the intent of this Section 8 will be final, binding, and
conclusive. No fractional shares need be issued on account of any such
adjustments.
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue in the employ of or as a
consultant to the Company or any of its Subsidiaries or affect the right of the
Company or any Subsidiary to terminate the employment or consulting relationship
of any Participant at any time, with or without cause.
(b) No shares of Common Stock will be issued or transferred pursuant to an
Option or Restricted Stock Award unless and until all then applicable
requirements imposed by Federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges or securities quotations systems upon which the Common Stock may be
listed, have been fully met. As a condition precedent to the issuance of shares
pursuant to the grant or exercise of an Option or Restricted Stock Award, the
Company may require the Participant to take any reasonable action to meet such
requirements.
(c) No Participant and no beneficiary or other person claiming under or
through such Participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Option, except as to such shares of Common Stock, if any, that have been issued
or transferred to such Participant.
(d) The Committee may adopt rules regarding the withholding of federal,
state, or local taxes of any kind required by law to be withheld with respect to
payments and delivery of shares to Participants under the Plan.
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With respect to any Option not intended to qualify as an Incentive Stock Option,
the Committee, in its discretion, may permit the Participant to satisfy, in
whole or in part, any tax withholding obligation that may arise in connection
with the exercise of the nonqualified stock option by electing to have the
Company withhold shares of Common Stock having a Fair Market Value equal to the
amount of the tax withholding.
(e) With the consent of the Committee (given in its sole discretion, at
the time of grant or otherwise), Options and Restricted Stock Awards granted
under the Plan may be transferred by a Participant to family members and/or
trusts for their benefit for bona fide estate-planning purposes. Except for the
foregoing, no Option and no right under the Plan, contingent or otherwise, will
be transferable or assignable or subject to any encumbrance, pledge, or charge
of any nature except under such rules and regulations as the Committee may
establish, except that a beneficiary may be designated with respect to an Option
in the event of death of a Participant, and if such beneficiary is the executor
or administrator of the estate of the Participant, any rights with respect to
such Option may be transferred to the person or persons or entity (including a
trust) entitled thereto under the will of the holder of such Option.
(f) The Committee, with the consent of the relevant Participant, may
cancel all or a portion of any Option granted under the Plan and grant to the
Participant of a new Option for the same or a different number of shares as the
Option surrendered, or may require such voluntary surrender as a condition to a
grant of a new Option to such Participant. Subject to the provisions of Section
6(d), such new Option will be exercisable at such time or time, during such
periods, and for such numbers of shares, and in accordance with any other terms
or conditions, as are specified by the Committee at the time the new Option is
granted, without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.
(g) The written agreements or instruments evidencing Restricted Stock
Awards or Options granted under the Plan may contain such other provisions as
the Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the
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Option covering such shares, or by issuance or transfer to the Participant of
shares of Common Stock with a Fair Market Value at such time, equal to any such
excess, or by a combination of cash and shares. Upon any such payment of cash or
issuance of shares, (i) there will be charged against the aggregate limitations
set forth in Section 3(a) a number of shares equal to the number of shares so
issued plus the number of shares purchasable with the amount of any cash paid to
the Participant on the basis of the Fair Market Value as of the date of payment,
and (ii) the number of shares subject to the portion of the Option so canceled,
less the number of shares so charged against such limitations, will thereafter
be available for other grants.
10. AMENDMENT AND TERMINATION.
(a) The Board will have the power, in its discretion, to amend, modify,
suspend, or terminate the Plan at any time, subject to the rights of holders of
outstanding Options and Restricted Stock Awards on the date of such action.
(b) The Committee may make such modifications in the terms and conditions
of an Option or Restricted Stock Award held by a Participant as it deems
advisable; provided, that no such modification that adversely affects such
Participant's rights will be made without such Participant's consent.
(c) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, terminate, impair, or adversely affect any right or
obligation under any Option or Restricted Stock Award previously granted to such
Participant under the Plan.
11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The Plan first became effective upon its adoption by the Board and the
Company's stockholders as of May 4, 1998. Unless previously terminated, the
Plan will terminate on May 4, 2008.
<PAGE>
EXHIBIT 10.9
ROWECOM INC.
SECOND AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
Dated as of December 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE 1 3
INTERPRETATION 3
1.1 Definitions. 3
1.2 Headings 10
1.3 Construction. 10
1.4 Applicable Law 10
1.5 Severability 10
1.6 Currency 11
1.7 Entire Agreement 11
1.8 Amendment 11
1.9 Waiver 11
1.10 Time of Essence 12
1.11 Further Acts 12
1.12 Accounting Principles 12
1.13 Voting by Investors 12
1.14 Presumption of Exercise of Exchange Options 12
ARTICLE 2 12
TERM OF AGREEMENT 12
2.1 Term 12
ARTICLE 3 13
IMPLEMENTATION OF AGREEMENT 13
3.1 Stockholder Covenants 13
3.2 Conflict 13
3.3 Covenants by the Company 13
ARTICLE 4 14
COMPANY'S BUSINESS AND PURPOSE 14
4.1 Business and Purpose 14
ARTICLE 5 14
DIRECTORS AND STOCKHOLDERS 14
5.1 Number of Directors 14
5.2 Nomination and Election of Directors 14
5.3 Term of Office 16
5.4 Powers and Duties of Directors 16
5.5 Insurance 16
5.6 Board Meetings 16
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5.7 Committees 16
5.8 Senior Officers 16
5.9 Directors' Fees 17
5.10 Extraordinary Matters 17
5.11 Extraordinary Matters/Class A-1 Preferred Shares 19
5.12 Key Person Insurance 19
5.13 Dividends 20
ARTICLE 6 20
FINANCIAL AND ACCOUNTING PRACTICES 20
6.1 Financial Information 20
6.2 Maintain Books 22
6.3 Review of Books 22
6.4 Fiscal Year 22
6.5 Additional Items 22
6.6 Net Worth 22
ARTICLE 7 23
SALE AND ISSUANCE OF SHARES 23
7.1 Sale and Issue Restrictions 23
7.2 Offer 25
7.3 Tag-Along and Purchase Rights 25
7.4 Right of First Refusal 26
7.5 Transfer of Shares - Right of First Refusal Not Exercised 28
7.6 Drag-Along Rights 29
7.7 Put Option 29
7.8 Price Resolution 31
7.9 Substitute Purchaser 32
7.10 Exchange Options 33
7.11 Required Transfer 36
7.12 Reservation of Shares Issuable on Exercise of Exchange
Options 37
7.13 Conversion of Preferred Shares 37
7.14 Rights of Purchaser 37
7.15 Assignment to Permitted Transferees 37
7.16 Assignment to PV Securities Corp. 38
7.17 Assignment by Azalea Mall, L.L.C. 38
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ARTICLE 8 38
REPRESENTATIONS AND WARRANTIES 38
8.1 General 38
8.2 The Company 39
8.3 Representations and Warranties Pertaining to PV Securities Corp 39
ARTICLE 9 39
ADDITIONAL CAPITAL 39
9.1 Related Party Loans 39
9.2 Future Debt Financings 41
9.3 Future Equity Financings 42
9.4 Exceptions to Pre-Emptive Rights 43
ARTICLE 10 43
GENERAL MATTERS 43
10.1 Noncompetition Agreements 43
10.2 Amendment to Bylaws 43
10.3 No Agency or Partnership 43
10.4 Notice 43
10.5 Endorsement of Share Certificates 44
10.6 Assignment 44
10.7 Counterparts 44
10.8 Publicity 44
ARTICLE 11 45
CONFIDENTIALITY 45
11.1 Confidentiality 45
11.2 Survival 45
EXHIBIT A 9
COMPLIANCE CERTIFICATE 9
EXHIBIT B 11
NONCOMPETITION AGREEMENT 11
SCHEDULE II 12
MINORITY STOCKHOLDERS 12
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THIS SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"Agreement") is made as of the 11th day of December, 1998, among RoweCom Inc., a
corporation organized under the laws of Delaware (the "Company"), the persons
listed on Schedule I (the "Class C Investors," and each a "Class C Investor"),
Richard Rowe, an individual ("Rowe"), Highland Capital Partners III Limited
Partnership, a limited partnership organized under the laws of Delaware ("HCP"),
Highland Entrepreneurs' Fund III Limited Partnership, a limited partnership
organized under the laws of Delaware ("HEF"), Pai, Wei Ming Chung, an individual
("Chung"), Fu Kuan Investment Corp., a corporation incorporated under the laws
of Taiwan ("FKIC"), Puretech Profits Limited (BVI), a corporation incorporated
under the laws of the British Virgin Islands ("Puretech"), and the persons set
forth on Schedule II (the "Minority Stockholders," and each a "Minority
Stockholder"). Unless otherwise indicated herein, capitalized terms used herein
are defined in Section 1.1 hereof.
PRELIMINARY STATEMENTS:
A. Pursuant to a Stock Purchase Agreement, dated as of the date hereof among
the Class C Investors, the Company and RoweCan (the "Stock Purchase Agreement"),
the Class C Investors shall acquire Class C Preferred Shares.
B. The Stock Purchase Agreement provides that the purchase and sale
contemplated therein shall not take place unless the Stockholders enter into
this Agreement. The Parties hereto intend that this Agreement shall amend and
restate the Amended and Restated Stockholders' Agreement dated May 4, 1998 among
the Company, each of the Class B Investors, Rowe and each of the Minority
Stockholders (the "Amended and Restated Stockholders' Agreement").
C. The authorized capital of the Company is 57,000,000 Shares consisting of
34,000,000 Common Shares, 5,000,000 Class A Preferred Shares, 5,000,000 Class A-
1 Preferred Shares, 8,000,000 Class B Preferred Shares and 5,000,000 Class C
Preferred Shares.
D. On the date hereof, the capitalization of the Company is as set forth on
Schedule 3.1(d) to the Stock Purchase Agreement.
E. The Stockholders are the registered and beneficial owners of all the
outstanding Shares in the capital of the Company.
F. On the date hereof, all of the issued and outstanding shares in the capital
of PV Securities Corp. are legally and beneficially owned by and recorded on PV
Securities Corp.'s books in the name of Philippe Villers.
G. The Company and the Stockholders have entered into this Agreement to
establish their respective rights and obligations in respect of the issued and
unissued shares of the Company, the management and conduct of its business, and
various other matters hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
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ARTICLE 1
INTERPRETATION
1.1 Definitions. As used in this Agreement, the following terms have the
following meanings:
"Act" means the Delaware General Corporation Law as may be amended from
time to time, and shall be deemed to be any act substituted therefor;
"Affiliate" - a corporation or other entity shall be deemed to be an
Affiliate of another corporation or other entity if, but only if, one of them is
the Subsidiary of the other or both are Subsidiaries of the same corporation or
other entity or each of them is Controlled by the same Person;
"Agreement" means this agreement and all schedules attached hereto and any
and all amendments made hereto by written agreement among the parties hereto;
"Amended and Restated Stockholders' Agreement" shall have the meaning
ascribed to such term in the preliminary statements;
"Amended RoweCan Shareholders' Agreement" means the Amended and Restated
Shareholders' Agreement, dated May 4, 1998, among RoweCan, WV and Ronald Grigg.
"Ancillary Agreements" means all agreements, certificates and others
instruments delivered or given pursuant to the Stock Purchase Agreement
including, without limitation, this Agreement, the Second Amended and Restated
Registration Rights Agreement, of even date herewith, among the Company, RowCan
and the Investors, and the Stock Purchase Agreement, and the Amended Rowecan
Shareholders Agreement and "Ancillary Agreement" means any one of such
agreements, certificates or offer instruments;
"Annual Business Plan" has the meaning ascribed to such term in Section
6.1(b);
"Applicable Securities Legislation" means the Securities Act (Ontario) or
the Securities Act of 1933, as amended (U.S.);
"Appraiser" has the meaning ascribed to such term in Section 7.8;
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"Associate", where used to indicate a relationship with any Person, means
(i) any corporation of which such Person beneficially owns, directly or
indirectly, voting securities carrying more than 10% of the voting
rights attached to all voting securities of the corporation for the
time being outstanding,
(ii) any partner of that Person,
(iii) any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or
in a similar capacity,
(iv) any relative of that Person who resides in the same home as that
Person,
(v) any person of the opposite sex who resides in the same home as that
Person and to whom that person is married or with whom that Person
is living in a conjugal relationship outside marriage, or
(vi) any relative of a person mentioned in clause (v) who has the same
home as that Person;
"Bylaws" means the by-laws of the Company from time to time in force and
effect;
"Class A Exchange Option" means the right of WV to exchange its RoweCan
Class A Preferred Shares for Class A-1 Preferred Shares as described in Section
7.10.
"Class A Preferred Shares" means the shares of Class A Preferred Stock,
$.01 par value, of the Company;
"Class A-1 Preferred Shares" means the shares of Class A-1 Preferred Stock,
$.01 par value, of the Company;
"Class A-1 Investors" means WV;
"Class B Directors" has the meaning ascribed to such term in Section
5.2(a);
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"Class B Exchange Option" means the right of WV to exchange its RoweCan
Class B Preferred Shares for Class B Preferred Shares as described in Section
7.10;
"Class B Investors" means collectively CIVF, HCP, HEF, Chung, FKIC, BVI and
Puretech, and "Class B Investor" means any one of them individually;
"Class B Preferred Shares" means the shares of Class B Preferred Stock,
$.01 par value, of the Company;
"Class B Stock Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of May 4, 1998 among each of the Class B Investors and the Company;
"Class C Investors" and "Class C Investor" shall have the meaning ascribed
to each such term in the preliminary statements;
"Class C Preferred Shares" means the shares of Class C Preferred Stock,
$.01 par value, of the Company;
"Common Shares" means the shares of Common Stock, $.01 par value, of the
Company;
"Company's Business" has the meaning ascribed thereto in Section 4.1;
"Compounded Cash on Cash Return" means an annual return to WV on its
$4,000,000 investment in RoweCan Class A Preferred Shares calculated and
compounded annually from the date of investment to the date of actual return of
capital to WV as provided in Sections 7.10 and 7.11;
"Control" - a corporation, partnership, joint venture, limited liability
company, association or other business entity shall be deemed to be controlled
by another Person if, but only if:
(i) voting securities of such entity carrying more than 50% of the votes
for the election of directors are held, other than by way of security
only, by or for the benefit of such other Person, and
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(ii) the votes carried by such securities are sufficient, if exercised, to
elect, whether directly or indirectly, a majority of the board of
directors, partnership committee, board of managers or trustees or
other managerial body of such entity;
"Directors", "Board of Directors" and "Board" means the persons who are,
from time to time, duly elected as directors of the Company;
"Events of Non-Performance" shall mean (i) the failure of the Company to
perform, observe and comply with Section 5.10 herein; (ii) the sale, assignment,
disposition or transfer of any Shares other than pursuant to the terms of this
Agreement; (iii) the failure of the Company to comply with Section 6.6 herein;
(iv) if any representation or warranty made by the Company or RoweCan herein or
in any of the Ancillary Agreements or in any certificate, statement or report
furnished in connection with or pursuant to the Stock Purchase Agreement, the
Class B Stock Purchase Agreement, or the Original Purchase Agreement is found to
be false or incorrect in any way so as to make it materially misleading when
made or when deemed to have been made; (v) any breach of covenant of the Company
or of RoweCan herein (other than under clause (i), (ii) or (iii) above) or in
any of the Ancillary Agreements that shall continue for more than 15 days after
receipt of written notice from any Investor of such breach; and (vi) any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings relative to the Company or to its
property or assets, or any proceedings for voluntary liquidation, dissolution or
other winding-up of the Company, whether or not involving insolvency or
bankruptcy, or any marshaling of the assets and liabilities of the Company;
"Exchange Options" shall mean, collectively, the Class A Exchange Option
and the Class B Exchange Option.
"Expert" means a national accounting firm to be agreed upon by the Company
and a Majority in Interest or, if a Majority in Interest are unable to agree,
then "Expert" means PriceWaterhouseCoopers LLP, Chartered Accountants, or an
affiliate thereof, or if none of the foregoing is able or willing to accept an
appointment to undertake any valuation of Shares under and as contemplated in
this Agreement, then "Expert" shall mean Deloitte & Touche, Chartered
Accountants, or an affiliate thereof;
"Fair Market Value" means, for the purposes of valuation hereunder, the
highest cash price in terms of money which would be obtained as at the date
specified in the applicable Section hereof if all the Stockholders of the
Company sold all of their respective Shares in an open and unrestricted market
(recognizing that the Shares are securities of a corporation which cannot offer
its securities to the public) without compulsion to a willing and knowledgeable
purchaser and where in determining such Fair Market Value: (i) the value of each
Share is based on the value of all Shares; (ii) no diminution or accretion in
value is attributed to any majority or
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minority interest (other than in determining Fair Market Value for a purchase by
the Company from a trustee in bankruptcy); (iii) the value of any insurance on
the life of any shareholder or employee and the proceeds of such insurance shall
be excluded; and (iv) the value of all intangible and unrecorded assets is
included;
"Fully Diluted" means all outstanding Shares and all Shares issuable upon
exercise, conversion or exchange of any warrant, option, convertible or
exchangeable security, or other similar instruments or rights then outstanding,
including without limitation, the Exchange Options.
"Funded Indebtedness" means indebtedness of the Company which matures or
which (including each renewal or extension, if any, in whole or in part) remains
unpaid for more than 12 months after the date originally incurred and includes,
without limitation (a) any indebtedness (regardless of its maturity) if it is
renewable or refundable in whole or in part solely at the option of the Company
(in the absence of default) to a date more than one year after the date of
determination, (b) any capitalized lease, (c) any guarantee of long-term
indebtedness owed by another person or entity and (d) any long-term indebtedness
secured by a Lien encumbering any property owned or being acquired by the
Company even if the full faith and credit of the Company is not pledged to the
payment thereof.
"GAAP" means at any time, generally accepted accounting principles from
time to time approved by the Financial Accounting Standards Board or any
successor institute, applicable as at the date on which a given calculation is
made or required to be made in accordance with generally accepted accounting
principles;
"Guarantor" means any Person who enters into any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part).
"Independent" means, with respect to any member of the Board of Directors,
either of Thomas Lemberg or Jerome Rubin or a person who is not (i) a
shareholder of the Company or of RoweCan other than a director who has become a
shareholder through the exercise of options or rights granted to him as a result
of being a director, or (ii) a shareholder of an Affiliate of (i), or
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(iii) a professional adviser to, director, officer, employee of or party to any
written or oral contract with the Company, Rowe or RoweCan or a shareholder or
an Affiliate of any of them, or (iv) any person related by blood, adoption or
marriage to any of the foregoing;
"Initial Public Offering" means an underwritten public offering of Shares
pursuant to an effective registration statement or a receipted prospectus as
contemplated in the Applicable Securities Legislation;
"Investors" means collectively each of the Class A-1 Investors, the Class B
Investors and the Class C Investors, and "Investor" means any one of them
individually.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Company or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"License Agreement" means the marketing intangible license agreement
between the Company and RoweCan dated April 1, 1997;
"Majority in Interest" means more than 50% of the Class A-1 Preferred
Shares, the Class B Preferred Shares and the Class C Preferred Shares,
collectively, on a Fully Diluted basis;
"Management Directors" has the meaning ascribed to such term in Section
5.2(a);
"Marketing Agreement" means the marketing intangible development agreement
between the Company and RoweCan dated April 1, 1997;
"Minority Stockholders" has the meaning ascribed to such term in the
preamble to this Agreement.
"Net Income" means net income as determined in accordance with GAAP, after
taxes and after extraordinary items, but without giving effect to any gain
resulting from any reappraisal or write-up of any asset.
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"Net Worth" means the excess (as determined in accordance with GAAP) of the
value of the assets of the Company and its Subsidiaries as reflected on the
books and records of the Company (after deducting all applicable valuation
reserves) over Total Liabilities, all on a consolidated basis.
"Original Purchase Agreement" means the Share Purchase Agreement dated
April 1, 1997 among WV, RoweCan, and RoweCom LLC, a Delaware limited liability
company and predecessor of the Company.
"Original Stockholders' Agreement" shall mean the Unanimous Shareholders'
Agreement dated April 25, 1997 among the Company, WV and the other stockholders
of the Company at that time.
"Permitted Transferee" shall, in respect of a Person, mean:
(i) a corporation or other entity that (y) is an Affiliate of such
Person or (z) if such Person is an individual, all of the shares of
which are held by such Person and a member or members of such
Person's immediate family, provided such Person maintains Control of
such corporation or entity,
(ii) a trust, the beneficiaries of which are such Person and/or a member
or members of such Person's immediate family, the trustee of which
is (A) if such Person is an individual, such Person, or (B) if such
Person is a corporation, the Person which Controls such Person,
(iii) a member of such Person's immediate family upon the death of such
Person, or
(iv) in the case of a partnership or a limited liability company, the
partners or members of such entity and any of their respective
affiliates.
For the purposes of this Agreement, the phrase "members of such Person's
immediate family" shall mean such Person's spouse, brothers, sisters,
parents, children, grandchildren and nieces and nephews.
"Person" means an individual, partnership, corporation or other entity;
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"Preferred Shares" means, collectively, shares of Class A Preferred Shares,
Class A-1 Preferred Shares, Class B Preferred Shares and Class C Preferred
Shares;
"Purchaser" has the meaning ascribed thereto in Section 7.7;
"Put Option" has the meaning ascribed thereto in Section 7.7;
"Qualifying Public Offering"means an Initial Public Offering (i) at an
offering price to the public of $5.11 per share or greater and (ii) resulting in
gross proceeds to the Company of at least $20,000,000;
"Related Parties" means Stockholders and Persons which are Affiliates or
Associates of Stockholders; and "Related Party" shall mean any one of such
parties;
"Required Financing" has the meaning ascribed thereto in Section 9.2;
"Rowe" has the meaning ascribed to such term in the preamble to this
Agreement;
"RoweCan" means Rowe Communications Ltd., a corporation incorporated under
the laws of the Province of Ontario;
"RoweCan Class A Preferred Shares" means the Class A Preferred Shares of
RoweCan;
"RoweCan Class B Preferred Shares" means the Class B Preferred Shares of
RoweCan;
"Sale Event" has the meaning ascribed to such term in the Second Amended
Certificate of Incorporation.
"Second Amended Certificate of Incorporation" means the Second Restated and
Amended Certificate of Incorporation of the Company, as may be amended or
restated from time to time;
"Selling Investor" has the meaning ascribed to such term in Section 7.2(b);
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"Selling Stockholder" has the meaning ascribed to such term in Section
7.2(a);
"Senior Management Group" means Rowe, Ronald Grigg, Louis Hernandez and any
other employee of the Company or of RoweCan who earns in excess of $100,000 per
annum;
"Shares" means collectively the Exchange Options, Stock Options, the Common
Shares, the Warrants and the Preferred Shares;
"Stock Option" means an option to subscribe for Shares;
"Stock Purchase Agreement" has the meaning ascribed thereto in the
recitals;
"Stockholders" means, collectively, Rowe, each of the Minority
Stockholders, and each of the Investors, and any person to whom a Stockholder
transfers any Shares, or to whom Shares are issued, in accordance with the terms
of this Agreement and "Stockholder" means, individually, any one of them;
"Subsidiary" means, with respect to any Person, a corporation, partnership,
joint venture, limited liability company, association or other business entity
Controlled by such Person;
"Supermajority Interest" means, (i) as to the Common Shares, at least 75%
of such shares and (ii) as to any indicated class or classes or series of the
Preferred Shares, at least 75% of such shares, collectively, on a Fully Diluted
basis;
"Technology Agreement" means the technology license agreement between the
Company and RoweCan dated April 1, 1997;
"Total Liabilities" means the aggregate (without duplication) of all
liabilities of the Company and its Subsidiaries and includes, without
limitation, (a) any indebtedness which is secured by any Lien on any of their
property even if the full faith and credit of the Company or of any Subsidiary
is not pledged to the payment thereof, (b) any indebtedness for borrowed money
or Funded Indebtedness if the Company or any Subsidiary is a Guarantor thereof;
provided, that there shall be excluded any liability under a reimbursement
agreement relating to a letter of credit issued to finance the importation or
exportation of goods;
"Transfer" has the meaning ascribed thereto in Section 7.1;
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"Warrants" means the Stock Purchase Warrant, dated April 25, 1997 issued by
the Company to Philippe Villers and the Stock Purchase Warrant, dated April 25,
1997 issued by the Company to Jerome Rubin.
1.2 Headings. The division of this Agreement into Articles and Sections and
the insertion of headings are for convenience of reference only and shall not
affect the construction and interpretation of this Agreement.
1.3 Construction. Words importing the singular number only shall include the
plural and vice versa, and words importing the masculine gender shall include
the feminine gender and neuter.
1.4 Applicable Law. This Agreement shall be construed and governed by the laws
of the Commonwealth of Massachusetts.
1.5 Severability. Each provision of this Agreement is intended to be
severable. If any provision hereof is illegal or invalid, such provision shall
be deemed to be severed and deleted herefrom and such illegality and invalidity
shall not affect the validity or enforceability of the remainder hereof.
1.6 Currency. All references to dollars in this Agreement shall be to United
States dollars unless otherwise specified herein.
1.7 Entire Agreement. This Agreement (and, (i) with respect to the Company,
RoweCan, and the Class C Investors, the other Ancillary Agreements and (ii) with
respect to the Company, RoweCan, Ronald Grigg and the Class B Investors, the
Amended RoweCan Shareholders' Agreement and the Class B Purchase Agreement)
constitutes the entire agreement among the parties hereto with regard to the
subject matter hereof and supersedes all prior agreements, understandings,
representations or warranties, negotiations and discussions, whether oral or
written, among the parties hereto with respect thereto, including without
limitation the Original Stockholders' Agreement, the Amended and Restated
Stockholders' Agreement and any other agreements among the stockholders of the
Company entered into prior to the date hereof, which are hereby terminated.
Notwithstanding the foregoing or any other provision of this Agreement or of the
other agreements being executed in connection with the transactions contemplated
by the Stock Purchase Agreement, and for the avoidance of any doubt, the parties
hereby acknowledge and agree that the warrants held by Phillippe Villers or
Jerome Rubin, as listed in Schedule 3.1(e) to the Stock Purchase Agreement, will
not be affected by any of such agreements or transactions, and will continue in
full force and effect following the execution and delivery of
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such agreements and the consummation of such transactions and that any shares
received upon such exercise will be subject to this Agreement.
1.8 Amendment. No amendment of this Agreement shall be binding unless in
writing and signed by the Company, the holders of a majority of the Common
Shares and a Majority in Interest; provided, however, that (i) no amendment of
any provision that would disparately and negatively impact one or more classes
or series of Preferred Shares shall be made without the written consent of the
holders of a Supermajority Interest of each such class or series, (ii) no
provision granting rights specific to any holder can be amended without the
written consent of such holder, (iii) the obligations of any holder may not be
increased without the written consent of such holder and (iv) this Section 1.8
and Section 1.9 cannot be amended without the written consent of a Supermajority
Interest of each of the Class A-1 Preferred Shares, the Class B Preferred Shares
and the Class C Preferred Shares.
1.9 Waiver. No waiver by any party hereto of any breach of any of the
provisions of this Agreement shall take effect or be binding upon such party
unless such waiver was consented to in writing by such party; provided, however,
that with respect to rights of the Stockholders generally, the written consent
of the holders of a majority of the Common Shares and a Majority in Interest
shall be binding upon all of the Stockholders; provided further, however, that
(i) if the consent of the holders of a Supermajority Interest of any class of
Preferred Shares shall be required to exercise any right or enforce any
covenant, the consent of the holders of a Supermajority Interest of each such
class of Preferred Shares shall be required to bind the holders of such class of
Preferred Shares and (ii) if the waiver of any right or covenant will
disparately and negatively impact one or more classes of Preferred Shares, a
Supermajority Interest of each such class of Preferred Shares shall be required
to bind the holders of such class of Preferred Shares. No waiver of the rights
specific of any holder shall be binding upon such holder without the written
consent of such holder. Unless otherwise provided therein, such waiver shall
not limit or affect the rights of such party with respect to any other breach.
1.10 Time of Essence. Time shall be of the essence of this Agreement.
1.11 Further Acts. The parties hereto agree to execute and deliver such further
and other documents and perform and cause to be performed such further and other
acts and things as may be necessary or desirable in order to give full effect to
this Agreement and every part hereof.
1.12 Accounting Principles. References in this Agreement to generally accepted
accounting principles shall be deemed to be the generally accepted accounting
principles from time to time approved by the Financial Accounting Standards
Board or any successor institute, applicable as of the date on which such
calculation is made or required to be made in accordance with generally accepted
accounting principles.
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1.13 Voting by Investors. Unless otherwise required in this Agreement, the
exercise by the Investors of any rights to be exercised collectively under this
Agreement shall require the approval of a Majority in Interest.
1.14 Presumption of Exercise of Exchange Options. For purposes of the
exercising of any rights pursuant to this Agreement, it shall be presumed that
WV has exercised the Exchange Options.
ARTICLE 2
TERM OF AGREEMENT
2.1 Term. Subject to Section 11.2, this Agreement shall come into force and
effect on the date hereof and shall terminate (with the exception of the
Exchange Options and the obligations of WV under Section 7.11) on the earlier
of:
(a) the date on which only one Stockholder holds Shares;
(b) the date this Agreement is terminated by written agreement of the
holders of a majority of the Common Shares and a Supermajority
Interest of each class of Preferred Shares;
(c) the date upon which there shall occur a Qualifying Public Offering;
provided, that from and after the date on which there occurs any
Initial Public Offering (regardless of whether it is a Qualifying
Public Offering), the provisions of this Agreement will lapse and be
of no further force or effect with respect to Philippe Villers, Jerome
Rubin and PV Securities Corp., or any Permitted Transferee of any of
them; or
(d) the sale of all of the Shares of the Company to a third party in
compliance with this Agreement.
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ARTICLE 3
IMPLEMENTATION OF AGREEMENT
3.1 Stockholder Covenants. Each of the Stockholders covenants and agrees that
it shall vote or cause to be voted the Shares of the Company owned by it to
accomplish and give effect to the terms and conditions of this Agreement and
that it shall otherwise act in accordance with the provisions and intent of this
Agreement.
3.2 Conflict. Subject to the provisions of the Act, in the event of any
conflict between the provisions of this Agreement and the Second Amended
Certificate of Incorporation and the Bylaws, the provisions of this Agreement
shall govern. The parties hereto acknowledge and agree that, as the date
hereof, conflicts may exist between this Agreement and the Second Amended
Certificate of Incorporation and the Bylaws. Each of the Stockholders agrees to
vote or cause to be voted the Shares owned by it so as to cause the Second
Amended Certificate of Incorporation or the Bylaws to be amended to resolve each
such conflict, and any other conflicts, in favor of the provisions of this
Agreement.
3.3 Covenants by the Company. The Company consents to the terms of this
Agreement and hereby covenants with each of the other parties hereto that it
will at all times during the term of this Agreement be governed by the terms and
provisions hereof in carrying on its business and affairs, and shall duly comply
with, perform or otherwise satisfy all representations, warranties, covenants
and agreements contained in each of the Stock Purchase Agreement and the Class B
Stock Purchase Agreement on its part to be complied with, performed or otherwise
satisfied, and each of the Stockholders shall vote or cause to be voted their
respective Shares of the Company to cause the Company to fulfill its foregoing
covenants.
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ARTICLE 4
COMPANY'S BUSINESS AND PURPOSE
4.1 Business and Purpose. The business and purpose of the Company shall be the
provision of secure electronic commerce products and services (the "Company's
Business").
ARTICLE 5
DIRECTORS AND STOCKHOLDERS
5.1 Number of Directors. The Company shall, subject to Section 5.2, have eight
Directors who shall be nominated and elected as provided for in Section 5.2.
5.2 Nomination and Election of Directors.
(a) Nomination: The Board of Directors shall consist of (i) two
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individuals appointed by the holders of the Class B
Preferred Shares, one of whom shall be a representative from
CIVF and one of whom shall be a representative of HCP; (ii)
one individual appointed by WV (the Directors appointed
pursuant to clauses (i) and (ii) shall be referred to herein
as the "Class B Directors"); (iii) two individuals appointed
by the holders of Common Shares, one of whom shall be the
Chief Executive Officer of the Company (such Directors shall
be referred to herein as the "Management Directors"); (iv)
one individual appointed by at least sixty-six percent (66%)
of the Class C Preferred Shares (the "Class C Director") if,
and only if, the Company has not completed a Qualifying
Public Offering within one hundred twenty (120) days of the
date of this Agreement; and (v) two individuals, each of
whom shall be an Independent, proposed by the Management
Directors and approved by the unanimous approval of the
Class B Directors and any Class C Director, which approval
shall not be unreasonably withheld or delayed. Initially,
the Directors appointed pursuant to (A) clause (i) shall be
Stanley Fung and another person to be designated by HCP
subsequent to the date hereof, (B) clause (ii) shall be
James Whitaker, (C) clause (iii) shall be Richard Rowe and
Philippe Villers, (D) clause (iv) shall be a person
designated by Axiom (and provided that Axiom may
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replace such designee with another person affiliated with
Axiom at any time until such time as at least sixty-six
percent (66%) of the Class C Preferred Shares shall have
appointed a person not affiliated with Axiom as the Class C
Director in accordance with Section 5.2(b)), and (E) clause
(v) shall be Thomas Lemberg and Jerome Rubin. Each Investor
holding at least 250,000 Shares (subject to adjustment for
stock splits and stock combinations) shall be entitled to
have a representative attend Board meetings.
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(b) Replacement: The party or parties who appointed a
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Director shall have the right to appoint a replacement for
such Director, at any time and from time to time in
accordance with the requirements of subsection 5.2(a). Any
such party or parties who wishes to replace a Director may
have such Director replaced at any duly constituted meeting
of the Stockholders of the Company or shall forward a
written resolution to that effect, signed by that
Stockholder or those Stockholders, as the case may be, to
the Stockholders. Upon receipt of such written resolution,
the Stockholders shall execute the resolution and promptly
return it to the party initiating the same, who, upon
receipt thereof, shall forward the signed resolution to the
Company for filing in the corporate minute book. The
removal of a Director appointed in accordance with Section
5.2(a)(v) shall require the approval of the Management
Directors and the unanimous approval of the Class B
Directors and any Class C Directors, voting separately as a
group. The replacement for any such Director shall be
appointed in accordance with Section 5.2(a)(v).
(c) Sale of Shares: In the event that any Stockholder sells all of its
--------------
Shares in accordance with this Agreement, the Directors appointed by
such Stockholder shall resign and the purchaser shall be entitled to
the same rights, if any, to nominate Directors as such Stockholder
had.
(d) Indemnity: The Company hereby indemnifies each Director and his or
---------
her heirs and legal representatives against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil,
criminal or administrative proceeding to which he or she is made a
party by reason of being or having been a director of the Company
provided (i) he or she acted honestly and in good faith with a view to
the best interests of the Company; and (ii) in the case of a criminal
or administrative proceeding that is enforced by a monetary penalty,
he or she had reasonable grounds for believing that his or her conduct
was lawful.
(e) Event of Non-Performance: Notwithstanding anything to the contrary
------------------------
contained in this Section 5.2, upon the occurrence of any Event of
Non-Performance, the Board shall be increased by five Directors
(resulting in a Board of up to thirteen Directors), with each of (i)
WV, (ii) HCP and (iii) CIVF appointing one such Director, and a
majority of the Class C Preferred Shares appointing two such
Directors. The Company covenants to take all necessary action upon
any Event of Non-Performance to amend the Bylaws to increase the
maximum number of
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permitted Directors, if and as necessary. If, upon the occurrence of
any Event of Non-Performance, a Majority in Interest agree, then the
Put Option specified under Section 7.7 and the Substitute Purchaser
provision specified under Section 7.9 hereunder shall be triggered.
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5.3 Term of Office. The term of office of a Director shall commence on
the date of that individual's election to the Board and
shall terminate at the close of the next following annual
meeting of the Stockholders, or until their successors are
elected, or at any time prior thereto if the Stockholder
nominating a Director replaces such Director in accordance
with subsection 5.2(b) or otherwise in accordance with
subsection 5.2(a).
5.4 Powers and Duties of Directors. Subject to the Act and the provisions
hereof, the Directors shall manage or supervise the
Company's Business except as such authority may be delegated
by the Directors from time to time.
5.5 Insurance. The Company shall arrange director's insurance coverage
for the Directors of the Company on terms and conditions and
in an amount acceptable to a Majority in Interest of the
Investors.
5.6 Board Meetings. Until the date that is 18 months from the date
hereof, the Board shall meet at least once every six weeks,
and thereafter the Board shall meet at least once every
three months. Any Director shall be entitled to convene a
meeting of Directors upon the requisite notice as required
by the Second Amended Certificate of Incorporation.
5.7 Committees.
(a) Compensation Committee: The Board shall appoint a Compensation
----------------------
Committee and the Compensation Committee shall make recommendations to
the Board relating to compensation of all members of the Senior
Management Group to the Board. The Board shall vote on such
recommendations and, in order to be effective, such recommendations
must be approved by a majority of the Board, and the Board shall have
no other authority with respect to making decisions relating to
compensation of members of the Senior Management Group. The
Compensation Committee shall consist of three members, one of which
shall be appointed by HCP and one of which shall be appointed by WV.
In order to be effective, all recommendations of the Compensation
Committee shall be made by a majority vote of its members at a meeting
or in writing, with the exception that any changes to the compensation
of Rowe or any employee of the Company or of RoweCan related to Rowe
shall require the written approval of each of the Class B Investors.
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(b) Audit Committee: The Board shall appoint an Audit Committee that
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shall consist of three members, one of which shall be appointed by the
CIVF and one of which shall be appointed by WV.
5.8 Senior Officers. Throughout the term of this Agreement, members of
the Senior Management Group shall be compensated as set out
in Schedule 3.1(ac)(vii) to the Stock Purchase Agreement.
All changes to such compensation shall be made in accordance
with subsection 5.7(a) hereof.
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5.9 Directors' Fees. Any Director who is an Independent of the Company,
other than any Director who is an employee of an Investor or
any of its affiliates, shall be entitled to such
remuneration acceptable to the Board of Directors for each
meeting, plus reasonable expenses incurred in attending such
meeting, upon presentation of receipts therefor. Any
representative of an Investor that is permitted to attend
Board meetings or any Director who is a nominee of an
Investor shall be entitled to be reimbursed for any
reasonable expenses incurred in attending such meetings.
5.10 Extraordinary Matters. Notwithstanding any provision to the contrary
in the Second Amended Certificate of Incorporation, the
Bylaws or this Agreement, so long as at least 2,500,000
Class B Preferred Shares are issued and outstanding, which
Shares shall include Shares that would be issued upon
exercise of the Exchange Options or so long as at least
1,500,000 Class C Preferred Shares are issued and
outstanding, the following matters shall require the written
approval of a Majority in Interest, in addition to any
requirements required by law and/or this Agreement:
(a) the taking or institution of any proceedings for the liquidation,
winding up, reorganization or dissolution of the Company or any of its
Affiliates;
(b) the amalgamation, consolidation, merger of, or the entering into of
any agreement to amalgamate, consolidate or merge, the Company with
any corporation, partnership, joint venture or firm, or the
continuance or corporate reorganization of the Company of any kind or
the purchase of any securities of any Person;
(c) the sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company or of any of its Affiliates or any
sale, lease, exchange, or other disposition of any such assets out of
the ordinary course of business;
(d) the sale of any shares held by the Company in any of its Subsidiaries;
(e) the purchase or redemption by the Company of any Shares other than as
expressly provided in this Agreement;
(f) the declaration, payment or setting aside for payment of any dividend,
the distribution of any surplus or earnings, the return of any
capital, the repayment or
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retirement of any indebtedness of the Company to any Stockholder, or
any other payment or distribution of assets of the Company to any
Stockholder;
(g) the amendment of the Second Amended Certificate of Incorporation
(other than as contemplated by Section 3.2 hereof);
(h) the guarantee or indemnification by the Company of, or the grant of
security by the Company for, the debts or obligations of any
corporation, partnership, joint venture, firm or person;
(i) the making of any loans with, the granting of any other financial
assistance to or the entering into of any agreements with any
Stockholder or Associate of such Stockholder;
(j) any material change in the Company's Business or the taking of any
action which may lead to or result in such material change;
(k) the incorporation or acquisition of any corporation or other entity
that would be an Affiliate of the Company or the acquisition of assets
from any Person for consideration in excess of $50,000;
(l) the hypothecation, mortgage, pledge or any act otherwise encumbering
the Company's assets or any of them except as may be required by
bankers in connection with the Company's normal banking activities and
financing of capital expenditures in the normal course of business;
(m) the issuance or allotment of Shares or the granting of any right,
option or privilege to acquire any Shares, other than with respect to
the Exchange Options or the Stock Options set forth on Schedule 3.1(e)
to the Class B Stock Purchase Agreement and provided that
notwithstanding this subsection 5.10(m), the Company shall be
permitted to issue Stock Options to any of its or RoweCan's employees,
with the exception of Richard Rowe, without the approval required by
this Section 5.10, provided that (i) the Board of Directors has
approved such issuance, (ii) the number of Shares that may be acquired
on the exercise in full of such options (including options issued
prior to the date hereof) is not greater than 2,620,371 Common Shares,
and (iii) the vesting of options granted to such persons' after the
date hereof shall not be at a rate in excess of 25% per annum, unless
approved by all Directors, subject to acceleration upon a Sale Event
or a
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Qualified Public Offering in a manner and to the extent approved
by the Board of Directors.
(n) any change in the number of issued and outstanding shares in the
capital of the Company or any increase or reduction in the
capitalization of the Company, including, without limitation, by way
of any split, conversion or exchange of Shares or the issuance or sale
of any shares with any rights on parity with or senior to the rights
of the Preferred Shares, excluding the exercise of the Exchange
Options;
(o) the appointment of any firm-chartered accountants to act as auditor
other than PricewaterhouseCoopers, Chartered Accountants;
(p) the amendment or termination of any of the Marketing Agreement, the
License Agreement or the Technology Agreement;
(q) the creation or assumption at any time by the Company or any
Subsidiary of any indebtedness for borrowed money or any Funded
Indebtedness of any kind in excess of $25,000 on a per item basis to
the extent not provided for in the Annual Business Plan; and
(r) the creation of any material joint venture in which the Company is a
party.
The Company, WV and the other parties hereto agree that the foregoing
covenants shall also apply to RoweCan and that any such
actions shall not be taken by RoweCan without the prior
written approval of a Majority in Interest.
5.11 Extraordinary Matters/Class A-1 Preferred Shares. Notwithstanding
any provision to the contrary in the Second Amended
Certificate of Incorporation, the Bylaws or this Agreement,
so long as any Class A-1 Preferred Shares are deemed to be
issued and outstanding, the following matters shall require
the written approval of WV, in addition to any requirements
required by law and/or this Agreement:
(a) any change in the terms, rights or privileges attaching to the Class
A-1 Preferred Shares set forth in the Second Amended Certificate of
Incorporation, excluding
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any change to such rights or privileges in connection with the
issuance of securities that have rights or privileges that are on
parity with or senior to the Class C Preferred Shares, which change is
required in order to recognize the seniority to the Class A-1
Preferred Shares;
(b) the creation or issue of any class of shares which would rank junior
to the Class C Preferred Shares and senior to the Class A-1 Preferred
Shares; and
(c) any change to the conditions, rights or privileges attaching to the
Class B Preferred Shares or the Class C Preferred Shares set forth in
the Second Amended Certificate of Incorporation, the effect of which
would be to increase the dividend paid thereon, adjust the conversion
privilege, provide for a redemption privilege in favor of the Company
or retraction privilege in favor of the holder, the liquidation
provisions, or voting privileges.
5.12 Key Person Insurance. The Company covenants as between it and
RoweCan, that they will insure and keep insured the lives of
Rowe and Ronald Grigg under a policy of "key person life
insurance" in the amounts of $2,000,000 for Rowe and
$1,000,000 for Ronald Grigg with the Company or RoweCan, as
the case may be, as the sole beneficiary under such policy;
provided, however, that the Board of Directors by unanimous
vote may cease to insure the life of Ronald Grigg without
the consent of the Investors.
5.13 Dividends. As provided in the Second Amended Certificate of
Incorporation, the determination of whether a dividend shall
be payable in cash or in additional Shares shall be made in
the discretion of the Board of Directors. At any time and
from time to time after the third anniversary of the date
hereof, (i) the Investors holding a Supermajority Interest
of the Class A-1 Preferred Shares and the Class B Preferred
Shares, collectively, may determine whether dividends
declared on the Class B Preferred Shares and the Class A-1
Preferred Shares shall be payable in cash or in additional
Shares, and (ii) the Investors holding a Supermajority of
the Class C Preferred Shares may determine whether dividends
declared on the Class C Preferred Shares shall be payable in
cash or in additional Shares; provided, that the dividends
with respect to each of the Class B Preferred Shares and the
Class A-1 Preferred Shares must be payable in the same form.
If the Board of Directors declares dividends on the Class B
Preferred Shares in securities of
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the capital of the Company, it shall also declare dividends
in securities of the capital of the Company on the Class A-1
Preferred Shares. In addition, to the extent that a dividend
in any form other than securities in the capital of the
Company is declared on the Class A-1 Preferred Shares or the
Class B Preferred Shares at any time prior to the time that
WV has exercised the Exchange Options, the Company shall
cause RoweCan to pay a dividend to WV with respect to the
RoweCan Class A Preferred Shares or the RoweCan Class B
Preferred Shares, as applicable, in an amount equal to the
amount WV would have received from the Company had WV
exercised the Exchange Options prior to the declaration of
such dividends. As further provided in the Second Amended
Certificate of Incorporation, commencing on the date of
issuance of the Class C Preferred Shares, the holders of the
Class C Preferred Shares shall be entitled to a fixed,
preferential, cumulative dividend in the amount of $ .230
per annum for each Class C Preferred Share. Dividends on the
Class C Preferred Shares shall be payable only in the event
of a liquidation, dissolution or winding up of the Company
(as set forth in the Second Amended Certificate of
Incorporation), or if a dividend is to be paid on any other
Shares in which case such dividends on the Class C Preferred
Shares shall be payable in preference and prior to any
payment of any dividend on the Class A Preferred Shares,
Class A-1 Preferred Shares, or Class B Preferred Shares or
the payment of any dividend on the RoweCan Class A Preferred
Shares or the RoweCan Class B Preferred Shares.
ARTICLE 6
FINANCIAL AND ACCOUNTING PRACTICES
6.1 Financial Information.
(a) The Company shall deliver to each Investor holding at least 250,000
Shares within 90 days of the financial year end of the Company one
copy of its annual financial statements, which shall be prepared on a
consolidated basis and be audited by auditors from
PricewaterhouseCoopers or a successor thereto, and appointed pursuant
to subsection 5.10(o), including the balance sheet and statements of
income, retained earnings and statements of cash flows, together
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with all supporting schedules. Such financial statements shall be
signed by an authorized officer of the Company and shall be
accompanied by a detailed report of the auditors of the Company (which
report shall not be qualified). The Company shall furnish to each
Investor, with the annual consolidated financial statements, a
certificate signed by the chief financial officer of the Company or
another senior officer satisfactory to each of the Investors to the
effect that such annual financial statements have been prepared in
accordance with generally accepted accounting principles and present
fairly the financial position of the Company and its Subsidiaries at
the date thereof and to the effect that neither the Company nor its
Subsidiaries is in breach of any of the covenants or representations
and warranties contained herein, or, if such is not the case, detailed
particulars of all breaches of covenants or representations and
warranties, together in either case with reasonably detailed evidence
of compliance with all financial covenants contained herein.
(b) The Company shall furnish to each Investor holding at least 250,000
Shares, no later than 30 days prior to the end of each financial year,
the Annual Business Plan (which shall be acceptable to a Majority in
Interest, acting reasonably) for the next financial year which shall
consist of the detailed budget and capital expenditures budget for
such financial year. For the purposes of this Agreement, "Annual
Business Plan" means, for any financial year, monthly detailed pro
forma balance sheets, income statements, statements of cash flows for
the Company prepared in accordance with generally accepted accounting
principles on a consolidated basis each as approved by its Board of
Directors together with such explanations, notes and information
which, in the reasonable opinion of the Company, explain and
supplement the information so provided and a capital expenditure plan
indicating the nature and amount of capital expenditures proposed to
be incurred in such financial year.
(c) The Company shall provide in a form acceptable to each Investor
holding at least 250,000 shares a monthly financial report to each
Investor within 25 days after the end of each month consisting of the
monthly and year-to-date financial statements on a consolidated basis
in a form consistent with the Annual Business Plan and as normally
prepared by management for its own use, which shall contain a
comparison of budget to actual and to the prior year for the same
period.
(d) The Company shall provide to the Investors within 25 days of the end
of each financial quarter, a certificate signed by the duly appointed
president, vice-president or chief executive officer of the Company in
the form of Exhibit A. The Company shall provide to each Investor,
its representatives and agents, any other
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information concerning its financial position and business operations
which the Investors, their representatives and agents, may from time
to time request.
6.2 Maintain Books. The Company shall maintain accurate and complete
books and records of all transactions, receipts, expenses,
assets and liabilities of the Company in accordance with
generally accepted accounting principles, consistently
applied, as approved and adopted by the Board.
6.3 Review of Books. The Stockholders agree that the Investors shall, at
their expense unless otherwise agreed by the parties hereto,
be entitled to appoint a representative, agent or designee
to review, on reasonable notice, all books, documents and
records of the Company and shall be entitled to make copies
thereof for their own purposes. The Investors and their
representatives, agents and designees shall have the right
to discuss at any time with management personnel of the
Company such matters pertaining to the financial position,
operations, investments and financings as may be of interest
to the Investors or such representative, agent or designee
from time to time.
6.4 Fiscal Year. The fiscal year of the Company shall end on the 31st day
of December in each year, or such other date as is agreed to
by the Board.
6.5 Additional Items.
(a) The Company will promptly give written notice to each Investor of all
claims or proceedings pending or threatened against the Company which
may have a material adverse effect on the business or operations of
the Company and will supply each Investor with all information
reasonably requested in respect of any such claim.
(b) The Company will provide each Investor with 60 days' prior written
notice of any merger, combination, sale of assets out of the ordinary
course of business, or the Company's receipt of any serious inquiry
regarding any of the foregoing events, or any other events which might
reasonably prompt WV to exercise its Exchange Options.
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(c) The Company shall provide each Investor with copies of all
correspondence issued by any independent auditor to either of the
management of the Company and RoweCan relating to any examination of
books and records of the Company.
6.6 Net Worth. The Company will not suffer or permit Net Worth at any
time to be less than the required minimum amount in effect
at the time in question. The required minimum amount shall
be $500,000 for the calendar year 1998 and $7,500,000 for
the calendar year 1999; and with respect to each calendar
year thereafter, the required minimum Net Worth for each
calendar year shall be determined by a Majority in Interest.
Such determination shall be made after the Annual Business
Plan for the applicable year has been received and approved
in accordance with Section 6.1(b) but prior to January 1st
of the applicable calendar year and shall be delivered to
the Company in writing prior to January 1st of the
applicable calendar year; provided, however that such
determination of Net Worth shall not be greater than the Net
Worth that would be achievable by the Company if its actual
operations are consistent with the projections set forth in
the applicable Annual Business Plan approved in accordance
with Section 6.1(b).
ARTICLE 7
SALE AND ISSUANCE OF SHARES
7.1 Sale and Issue Restrictions.
(a) None of the Stockholders may sell, grant an option to sell, encumber,
pledge or create a security interest in or otherwise deal with (each a
"Transfer") any of its Shares in the Company; provided, however, that
(i) Shares may be pledged to the banker of the Company from time to
time as security for indebtedness of the Company owed to such
banker,and (ii) the foregoing restriction shall not apply to Transfers
made in accordance with the provisions of this Agreement.
(b) No proposed Transfer of any Shares (including the issuance thereof) in
violation of this Agreement shall be valid, and the Company shall not
record or Transfer any of the Shares dealt with in violation of this
Agreement in the records of the Company, nor shall any voting rights
attached to such Shares be exercised, nor
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shall any dividends be paid on such Shares during the period of such
violation. Such disqualification shall be in addition to and not in
lieu of any other remedies to enforce the provisions of this
Agreement.
(c) Notwithstanding anything else herein contained other than Section 7.6,
prior to May 4, 2003, no Shares held by Stockholders other than the
Investors may be Transferred without the prior written consent of a
Majority in Interest, which consent may be arbitrarily withheld;
provided, however, that the restrictions contained in this Section
7.1(c) shall terminate when both (i) the holders of Class B Preferred
Shares shall have redeemed or converted more than 3,000,000 Class B
Preferred Shares and (ii) the holders of Class C Preferred Shares
shall have redeemed or converted more than 2,750,000 Class C Preferred
Shares.
(d) Notwithstanding any provision in this Agreement to the contrary, no
Transfer of all or any portion of the Shares or any other equity
securities of the Company or rights or warrants exercisable,
exchangeable or convertible into any equity securities of the Company
may be made (i) to any third party, if such third party is engaged,
directly or indirectly, whether as an owner or an employee, in a
business that is similar to or in competition with the business of the
Company, (ii) unless the transferor provides, if required by the
Company, evidence and assurances satisfactory to the Company in its
reasonable discretion (which may include an opinion of counsel and/or
appropriate representations and warranties from the transferor and
transferee) that such Transfer is made in compliance with all
applicable securities laws and regulations promulgated thereunder, and
(iii) unless the transferee and the Company (on behalf of itself and
the Stockholders) execute and deliver a written instrument
acknowledging the receipt of a copy of the provisions and restrictions
contained in this Agreement agreeing to comply herewith and be bound
hereby. For greater certainty, but without limiting the foregoing,
each of the Stockholders shall be bound by the provisions of this
Agreement in respect of any Shares which may be acquired by such
Stockholder after the date hereof in accordance with the provisions of
this Agreement.
(e) Any transferee of Shares, other equity securities of the Company or
rights or warrants exercisable, exchangeable or convertible into
equity securities of the Company, by reason of such Transfer, shall
become a party to and be bound by this Agreement, as the same may be
amended from time to time, and if and when a transferee becomes the
owner of any Shares, this Agreement shall be amended by the
Stockholders in any reasonable manner required to continue to provide
the rights and protections contemplated herein in substantially the
same manner in which such rights and protections were provided prior
to such transferee becoming an owner of Shares. Any transferee of
Shares shall have all of the
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rights and obligations under this Agreement of the transferring
Stockholder that Transferred such Shares to that transferee.
(f) Notwithstanding anything else herein contained, on any Transfer of
Shares by the Investors pursuant to Section 7.7, each Investor shall
be required to represent and warrant only that (i) its Shares are
owned by it with a good and marketable title thereto, free and clear
of any liens, charges, mortgages and encumbrances and (ii) it has the
power to convey the Shares.
(g) The Company shall (i) cause all holders of Stock Options and Warrants
issued after the date hereof, and (ii) use its best efforts to cause
all holders of Stock Options or Warrants issued prior to the date
hereof, to execute and deliver a written instrument acknowledging the
receipt of a copy of the provisions and restrictions contained in this
Agreement and agreeing to comply herewith and be bound hereby.
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7.2 Offer.
(a) If at any time a Stockholder, other than an Investor, or group of
Stockholders other than a group of Investors, acting in concert
(hereinafter collectively referred to as the "Selling Stockholder"),
desires to Transfer to a third party all, but not less than all, of
the Shares of the Selling Stockholder, the Selling Stockholder shall
obtain from the third party a bona fide offer in writing, which offer
shall be irrevocable for a period of 60 days (hereinafter in this
Section 7.2 and Sections 7.3 and 7.4 referred to as the "Offer"),
which it is ready and willing to accept, to purchase all of the Shares
of the Selling Stockholder for the amount thereof set forth in the
Offer by cash or certified cheque and shall give notice in writing to
the other Stockholders of the receipt of the Offer within 10 days
thereof together with a copy thereof. The Offer may but need not also
provide for the purchase of indebtedness owed by the Company to the
Selling Stockholder.
(b) If at any time an Investor, or group of Stockholders including an
Investor, acting in concert (hereinafter collectively referred to as
the "Selling Investor"), desires to Transfer to a third party all, but
not less than all, of the Shares of the Selling Investor, the Selling
Investor shall obtain from the third party a bona fide offer in
writing, which offer shall be irrevocable for a period of 60 days
(hereinafter in this Section 7.2 and 7.4 referred to as the "Investor
Offer"), which it is ready and willing to accept, to purchase all of
the Shares of the Selling Investor for the amount thereof set forth in
the Investor Offer by cash or certified cheque and shall give notice
in writing to the other Investors of the receipt of the Investor Offer
within 10 days thereof together with a copy thereof. The Investor
Offer may but need not also provide for the purchase of indebtedness
owed by the Company to the Selling Investor.
7.3 Tag-Along and Purchase Rights. Each Investor shall have the right to
elect, by notice in writing to the Selling Stockholder,
within 30 days from the date of receipt of a copy of the
Offer, to:
(a) as a condition precedent to any Transfer of the Shares by the Selling
Stockholder, require the third party to amend the Offer to provide for
the purchase of that number of Shares (which shall include, for
greater certainty, in the case of WV, Shares acquired pursuant to the
exercise of the Exchange Options both before and after the receipt of
notice pursuant to Section 7.2) which are the subject matter of the
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Offer such that each of the Selling Stockholder and each Investor
exercising its rights pursuant to this Section 7.3 shall sell from
their respective holdings of Shares a fraction of the number of Shares
which are the subject matter of the Offer, which fractions shall have
as their numerators, in the case of the Selling Stockholder, the
number of Shares held by the Selling Stockholder, and in the case of
an Investor, the number of Shares held by such Investor, and the
denominator of both such fractions shall be the sum of the number of
Shares held by the Selling Stockholder and the Investors exercising
their rights pursuant to this Section 7.3, for the same price per
Share, and at the same time and on the same terms and conditions as
contained in the Offer, in which case such Investors shall become a
"Selling Stockholder" for purposes of this Article 7; or
(b) if the Selling Stockholder is Rowe, as a condition precedent to any
Transfer of the Shares by the Selling Stockholder, each Investor shall
have the right to require the third party to amend the Offer to
provide for the purchase of all of the Shares (or such Investor's pro
rata portion (determined by the quotient of the number of Shares held
by such Investor divided by the number of Shares held by all Investors
exercising their rights under this Section 7.3(b)) of such lesser
number as is the subject matter of the Offer) held by such Investor,
prior to any purchase of Rowe's Shares, for the same price per Share,
and at the same time and on the same terms and conditions as contained
in the Offer, in which case such Investor shall become a "Selling
Stockholder" for purposes of this Article 7.
The restrictions set forth in this Section 7.3 shall not apply to any
Transfer by an Investor.
7.4 Right of First Refusal.
(a) Except in the case where Section 7.6 shall apply, the Investors shall
have the irrevocable right, exercisable by written notice given to the
Selling Stockholder within 30 days after the giving of the notice by
the Selling Stockholder, to purchase all but not less than all of the
Shares of the Selling Stockholder or, if an Investor has exercised its
option set forth in Section 7.3, the number of Shares of the initial
Selling Stockholder and of such Investor which are the subject matter
of the Offer (in either case, the "Selling Stockholder Shares"), and,
if provided for in the Offer, indebtedness owed by the Company to the
Selling Stockholder on the terms and conditions and for the amount set
forth in the Offer by cash or certified cheque pro rata in proportion
to their respective holdings of Shares (or in such other proportions
as they may agree among themselves). In the event that one or more of
the Investors elects to purchase his or its pro rata proportion of the
Selling Stockholder Shares and, if applicable, indebtedness owed to
the Selling Stockholder and one or more of the Investors declines to
elect to so purchase, the Investor(s) electing to so purchase shall
have the further right and option, exercisable by notice in writing
within five days of being notified by the Selling
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Stockholder that one or more of the Investors has declined to so
purchase, to purchase the remaining Selling Stockholder Shares and, if
applicable, indebtedness owed to the Selling Stockholder, on the same
terms and conditions and for the amount set forth in the Offer by cash
or certified cheque pro rata in proportion to their respective
holdings of Shares of such Investors (or in such other proportions as
they may agree among themselves). The foregoing procedure shall be
repeated as often as is necessary until either one or more of the
Investors have elected to acquire all of the Selling Stockholder
Shares and, if applicable, the indebtedness owed to the Selling
Stockholder or until there remain Shares which no Investor has elected
to purchase. If there shall remain Shares which no Investor has
elected to purchase, the other Stockholders shall have the right and
option, exercisable by notice in writing within 15 days of being
notified by the Selling Stockholder that the Investors have declined
to purchase all of the Selling Stockholder Shares, to purchase the
remaining Selling Stockholder Shares and, if applicable, indebtedness
owed to the Selling Stockholder on the same terms and conditions and
for the amount set forth in the Offer by cash or certified cheque pro
rata in proportion to their respective holdings of Shares of such
Stockholders (or in such other proportions as they may agree among
themselves). Where one or more of the Investors and/or Stockholders
have elected to purchase all of the Selling Stockholder Shares, the
Offer of the Investors and/or the Stockholders so electing for the
Selling Stockholder Shares and, if applicable, the indebtedness owed
to the Selling Stockholder shall be completed in accordance with its
terms. If there shall remain Selling Stockholder Shares which no
Investor or Stockholder has elected to purchase, notwithstanding that
one or more Investors or Stockholders has elected to purchase Selling
Stockholder Shares pursuant to this Section 7.4, the right of any
Investor to acquire the Selling Stockholder Shares and, if applicable,
the indebtedness owed to the Selling Stockholder shall be null and
void and the provisions of Section 7.5 shall apply.
(b) Except in the case where Section 7.6 shall apply, the Investors shall
have the irrevocable right, exercisable by written notice given to the
Selling Investor within 30 days after the giving of the notice by the
Selling Investor, to purchase all but not less than all of the Shares
of the Selling Investor (the "Selling Investor Shares"), and, if
provided for in the Investor Offer, indebtedness owed by the Company
to the Selling Investor on the terms and conditions and for the amount
set forth in the Investor Offer by cash or certified cheque pro rata
in proportion to their respective holdings of Shares (or in such other
proportions as they may agree among themselves). In the event that
one or more of the Investors elects to purchase his or its pro rata
proportion of the Selling Investor Shares and, if applicable,
indebtedness owed to the Selling Investor and one or more of the
Investors declines to elect to so purchase, the Investor(s) electing
to so purchase shall have the further right and option, exercisable by
notice in writing within five
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days of being notified by the Selling Investor that one or more of the
Investors has declined to so purchase, to purchase the remaining
Selling Investor Shares and, if applicable, indebtedness owed to the
Selling Investor, on the same terms and conditions and for the amount
set forth in the Investor Offer by cash or certified cheque pro rata
in proportion to their respective holdings of Shares of such Investors
(or in such other proportions as they may agree among themselves). The
foregoing procedure shall be repeated as often as is necessary until
either one or more of the Investors have elected to acquire all of the
Selling Investor Shares and, if applicable, the indebtedness owed to
the Selling Investor or until there remain Shares which no Investor
has elected to purchase. Where one or more of the Investors have
elected to purchase all of the Selling Investor Shares, the Investor
Offer of the Investors so electing for the Selling Investor Shares
and, if applicable, the indebtedness owed to the Selling Investor
shall be completed in accordance with its terms. If there shall remain
Selling Investor Shares which no Investor has elected to purchase,
notwithstanding that one or more Investors has elected to purchase
Selling Investor Shares pursuant to this Section 7.4, the right of any
Investor to acquire the Selling Investor Shares and, if applicable,
the indebtedness owed to the Selling Investor shall be null and void
and the provisions of Section 7.5 shall apply.
7.5 Transfer of Shares - Right of First Refusal Not Exercised.
(a) If, following compliance with Section 7.4(a), there shall remain
Selling Stockholder Shares which no Stockholder has elected to
purchase, the Selling Stockholder shall accept the Offer and complete
the transaction with the said third party in accordance with the terms
and conditions of such third party's Offer and the parties hereby
agree to take all steps and proceedings required to have such third
party entered on the books of the Company as a shareholder and, if
applicable, as a debtholder of the Company, provided that if the
Transfer of such Shares to the third party is not completed, the
provisions of Article 7 shall again apply to any proposed Transfer of
Shares. The Selling Stockholder is hereby irrevocably appointed the
agent and attorney of the Stockholders and each of them for the
purposes of effecting registration of the third party as a Stockholder
of the Company. The Board of Directors or the Stockholders (including
the Selling Stockholder), as the case may be, before consenting to the
Transfer of the purchased Shares to the third party, shall require
proof that the Transfer took place in accordance with the third
party's Offer, and the Board of Directors shall refuse the recording
of the Transfer of the purchased Shares which may have been
Transferred otherwise than in accordance with the provisions of such
Offer and of this Agreement.
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(b) If following compliance with Section 7.4(b) there shall remain Selling
Investor Shares which no Investor has elected to purchase, the Selling
Investor shall accept the Investor Offer and complete the transaction
with the said third party in accordance with the terms and conditions
of such third party's Investor Offer and the parties hereby agree to
take all steps and proceedings required to have such third party
entered on the books of the Company as a shareholder and, if
applicable, as a debtholder of the Company, provided that if the
Transfer of such Shares to the third party is not completed, the
provisions of Article 7 shall again apply to any proposed Transfer of
Shares. The Selling Investor is hereby irrevocably appointed the
agent and attorney of the Investors and each of them for the purposes
of effecting registration of the third party as a Stockholder of the
Company. The Board of Directors or the Stockholders (including the
Selling Investor), as the case may be, before consenting to the
Transfer of the purchased Shares to the third party, shall require
proof that the Transfer took place in accordance with the third
party's Investor Offer, and the Board of Directors shall refuse the
recording of the Transfer of the purchased Shares which may have been
Transferred otherwise than in accordance with the provisions of the
Investor Offer and of this Agreement.
7.6 Drag-Along Rights. If any of the Stockholders receives a Take-Over
Bid, as hereinafter defined, which such Stockholder(s) wish
to accept, such recipient Stockholder(s) shall forthwith
provide a copy of the Take-Over Bid to the other
Stockholders together with a notice that he, she or it
wishes to invoke the provisions of this Section 7.6, in
which case if Stockholders holding not less than 75% of the
total number of the aggregate issued and outstanding Shares
(which shall include Shares which would be issued if the
Exchange Options were exercised), including a Supermajority
of each of the Class A-1 Preferred Shares, the Class B
Preferred Shares and the Class C Preferred Shares, wish to
accept such Take-Over Bid, such Stockholders shall have the
right to require the other Stockholders, on 10 days' notice
in writing to such other Stockholders, to sell all of the
Shares held by them to the third party pursuant to the terms
of the Take-Over Bid for the amount set forth in the Take-
Over Bid by cash or certified cheque; provided, however,
that, unless all of the holders of Preferred Shares agree
otherwise, the holders of Preferred Shares shall receive an
amount at least as great as the amount that such holders
would have received upon a liquidation of the Company
pursuant to Article V(B)(1) of the Second Amended
Certificate of Incorporation. The Company is hereby
irrevocably appointed the agent and attorney of all the
Stockholders and each of them for the purposes of effecting
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registration of the third party as a Stockholder and, if
applicable, debtholder of the Company in completing the sale
of the Shares of such other Stockholders to the third party
in accordance with this Section 7.6. For purposes hereof,
"Take-Over Bid" shall mean an offer for all of the Shares
made by a third party in which the liability of the
Stockholders under the purchase agreement including, without
limitation, liability for a breach of representation or
warranty or for a claim under an indemnity shall be several,
and not joint and several, and shall not, under any
circumstances, exceed the lesser of its pro rata proportion
of any claim and the purchase price payable to the
Stockholders.
7.7 Put Option. The Investors shall have the right to require the Company
to purchase from the Investors all, but not less than all,
of the Investors' Shares (the "Put Option") (which in the
case of WV shall include Shares which would be issued if the
Exchange Options were exercised) (A) at any time after the
date that is five years from the date hereof and before the
date that is seven years from the date hereof; or (B) at the
option of a Majority in Interest in accordance with Section
5.2(e), in the event there occurs an Event of Non-
Performance. If the Put Option is exercised, the Company
shall purchase the Investors' Shares at a purchase price
equal to the greater of (1) the Fair Market Value for such
Shares or (2) the purchase price paid to the Company by the
Investors for such Shares, plus all accrued but unpaid
dividends with respect to such Shares. Any purchase of the
Investors' Shares in accordance with this Section by the
Company, or, if the Stockholders elect in accordance with
subsection 7.7(c), by the Stockholders (such Stockholders or
the Company, as the case may be, being hereinafter referred
to in this Section as the "Purchaser(s)"), shall be subject
to the following terms and conditions, notwithstanding the
provisions of Sections 7.1(c), 7.1(d), 7.1(e) or 7.2:
(a) if Investors holding a Majority in Interest agree to exercise the Put
Option, the Put Option shall be exercised by such Investors giving to
the Company and each of the other Stockholders notice in writing (in
this Section 7.7 called the "Notice") of the Investors' intention to
exercise the Put Option;
(b) the Notice shall also set forth (i) such Investors' best estimate,
stated in dollars, of the Fair Market Value for their Shares and (ii)
the purchase price paid to the Company for their Shares, plus all
accrued but unpaid dividends with respect to
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their Shares; the greater of which, subject to Section 7.8, shall be
the purchase price payable by the Purchaser(s);
(c) the Stockholders other than the Investors shall have the option,
exercisable in writing, to purchase the Investors' Shares, in place of
or in addition to the Company, in such proportions as may be specified
in a notice given by the Stockholders other than the Investors to the
Investors and to the Company within 30 days of receipt of the Notice.
If the Stockholders other than such Investors so elect, such of them
who have elected to be Purchasers shall be obligated to purchase the
Investors' Shares, but the Company shall not thereby be relieved of
its obligation to purchase the Investors' Shares if the Stockholders
who are the Purchasers fail to complete the transaction in accordance
with this Section;
(d) the purchase price shall be payable in full in cash or by certified
cheque or bank draft at the time of completion of the transaction;
(e) upon the completion of the transaction, the Investors shall cause
their nominee(s) to resign from all offices and positions with the
Company;
(f) the completion of the transaction shall take place at the offices of
Bingham Dana LLP in Boston, Massachusetts (or such other firm which is
acting as counsel for the Company) before or on the date being 120
days after the date on which the Investors delivered the Notice; and
(g) subject to Section 7.9(d), in the event that the requisite Investors
exercise the Put Option and the Company cannot purchase, and the
Stockholders did not elect to purchase, all of the Investors' Shares
in accordance with this Section 7.7, (i) the Company shall purchase
all of the Class C Preferred Shares before it purchases any Class A-1
Preferred Shares or Class B Preferred Shares, and if the Company
cannot purchase all of the Class C Preferred Shares, it shall purchase
a pro rata portion from each holder of Class C Preferred Shares, (ii)
the Company shall purchase all of the Class B Preferred Shares before
it purchases any Class A-1 Preferred Shares, and if the Company cannot
purchase all of the Class B Preferred Shares, it shall purchase a pro
rata portion from each holder of Class B Preferred Shares, and (iii)
without prejudice to any other rights the Investors may have, the
provisions of Section 7.9 shall apply.
7.8 Price Resolution. In the event that the Purchasers holding more than
50 percent of the Shares held by all Purchasers (a
"Purchaser Majority")
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disagree with the Fair Market Value of such Shares contained
in the Put Notice given by the Investors under Section 7.7,
such Purchaser(s) shall have 15 days from the date the Put
Notice is received within which to give written notice of
such disagreement (in this Article called the "Dispute
Notice") to the Investors and any other Purchasers. If no
Dispute Notice is given by a Purchaser Majority within the
prescribed time period, each of the Purchasers shall be
deemed to have accepted the estimate of the Fair Market
Value for such Shares set forth in the Put Notice. If the
Investors receive a Dispute Notice within the prescribed
time period, then within 20 business days thereafter, a
Majority in Interest and a Purchaser Majority shall select a
nationally recognized investment banking firm or appraiser
(an "Appraiser") to determine the Fair Market Value of such
Shares. If either a Majority in Interest or a Purchaser
Majority shall fail to designate its Appraiser within said
20 business day period and thereafter shall fail to do so
within three business days after written notice by the other
party requesting such designation, then such Appraiser shall
be appointed by the office of the American Arbitration
Association or its successor. The two Appraisers shall
separately complete their determinations of Fair Market
Value of such Shares within 30 days after the date that the
later of them is designated. The two Appraisers shall then
meet together with the Investors and the Purchasers, or
their representatives, and at such meeting each firm shall
present to the other a sealed letter setting forth the
Appraiser's judgment as to the Fair Market Value of such
Shares and attempt to persuade all Investors and the
Purchasers to reach agreement as to the Fair Market Value of
such Shares. If a Majority in Interest and a Purchaser
Majority do not reach agreement, then the two Appraisers
shall designate a third Appraiser having the same minimum
qualifications as the first two. If the first two Appraisers
shall fail to agree upon the designation of a third
Appraiser, then the third Appraiser shall be appointed by
the American Arbitration Association. The third Appraiser
shall conduct such investigations and hearings as he shall
deem appropriate and within 30 days after his date of
designation shall choose either the amount set forth in the
letter of the Investor's Appraiser or that of the
Purchaser's Appraiser, and no other amount, as the Fair
Market Value of such Shares. The decision of the third
Appraiser shall be in writing and shall be binding upon all
the Investors and the Purchasers. The Company shall provide
each of the three Appraisers with identical information
regarding the Company and the Shares. All costs and expenses
relating to the
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valuation of the Shares by the Appraisers shall be borne by
the Company.
7.9 Substitute Purchaser. If at any particular time, the Investors have
exercised the Put Option and the transaction contemplated by
the Put Option has not been completed in accordance with the
terms thereof, (i) the Stockholders other than the Investors
shall lose their right to nominate any Director, (ii) the
Directors nominated by the Stockholders other than the
Investors shall immediately resign, (iii) the Investors
shall have the further right to nominate and have elected an
additional five Directors (one (1) to be appointed by WV,
one (1) to be appointed by HCP, one (1) to be appointed by
CIVF and two (2) to be appointed by a majority of the Class
C Preferred Shares), exercisable immediately, (iv) the
Investors shall not be bound by the provisions of Section
7.2 and may at the particular time proceed to sell their
Shares, and (v) a Majority in Interest may require the sale
of the Shares of the other Stockholders as follows:
(a) The Investors shall, at the Company's expense, retain an investment
adviser and instruct such investment adviser to solicit offers for all
of the shares or assets of the Company.
(b) All of the Stockholders shall (i) accept the first offer recommended
for acceptance by the investment adviser and approved by a Majority in
Interest within such period; (ii) execute and deliver the purchase and
sale agreement, in the form recommended by the investment adviser and
approved by the Investors holding a Majority in Interest, to such
purchaser who makes such offer; and (iii) execute and deliver all
other documents necessary to transfer the shares or assets of the
Company, as the case may be, to such purchaser.
(c) The Company is hereby irrevocably appointed the agent and attorney of
all of the Stockholders and each of them for the purposes of accepting
such offer, executing and delivering the sale agreement and executing
and delivering all other documents necessary to transfer the shares or
assets of the Company and effect registration of the purchaser as a
shareholder of the Company, if applicable, on the condition that the
Stockholders' portion of the purchase price is deposited in an account
in each Stockholder's name with the Company's banker.
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(d) In the event that the Company cannot purchase all of the Class C
Preferred Shares, the Class B Preferred Shares and the Class A-1
Preferred Shares as required under Section 7.7, then the provisions of
this Section 7.9 shall apply for a period of six months prior to any
purchase of the Class C Preferred Shares by the Company as provided
under Section 7.7(g). If a sale does not occur within such six month
period then the Company shall purchase the Class C Preferred Shares,
the Class B Preferred Shares and the Class A-1 Preferred Shares as
provided in Section 7.7(g). For greater certainty, without regard to
this Section 7.9(d), if the Company fails to purchase the Class C
Preferred Shares, the Class B Preferred Shares and the Class A-1
Preferred Shares, the provisions of this Section 7.9, except 7.9(d),
shall apply.
7.10 Exchange Options.
(a) WV shall have the right (subject to a pro rata adjustment if WV shall
have transferred any of its RoweCan Class A Preferred Shares or its
RoweCan Class B Preferred Shares, as applicable) at any time and from
time to time after the date hereof, to require the Company to exchange
all, but not less than all, of its:
(i) RoweCan Class A Preferred Shares into such number of fully paid
and non-assessable Class A-1 Preferred Shares as is determined in
accordance with the next sentence. The number of Class A-1
Preferred Shares that may be acquired as a result of such
exchange shall be the number of Class A-1 Preferred Shares that
WV would have held on the date of exchange assuming for such
purposes that WV were issued 3,163,306 Class A-1 Preferred Shares
on May 4, 1998 plus (to the extent that WV has not otherwise
received equivalent value as a result of its holdings of RoweCan
Class A Preferred Shares) any additional shares or assets
(including dividends, whether declared or accumulated) which WV
would have acquired (or subsequently received) had WV held such
number of Class A-1 Preferred Shares from May 4, 1998; and
(ii) RoweCan Class B Preferred Shares into such number of fully paid
and non-assessable Class B Preferred Shares as is determined in
accordance with the next sentence. The number of Class B
Preferred Shares that may be acquired as a result of such
exchange shall be the number of Class B Preferred Shares that WV
would have held on the date of exchange assuming for such
purposes that WV were issued 1,186,240 Class B Preferred Shares
on May 4, 1998 plus (to the extent that WV has not otherwise
received equivalent value as a result of its holdings of RoweCan
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Class B Preferred Shares) any additional shares or assets
(including dividends, whether declared or accumulated) which WV
would have acquired (or subsequently received) had WV held such
number of Class B Preferred Shares from May 4, 1998.
Notwithstanding the foregoing, WV may exchange a lesser amount of
RoweCan Class A Preferred Shares or RoweCan Class B
Preferred Shares, as applicable, in order to participate in
subsection 7.3(a).
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(b) If WV exercises the Class A Exchange Option, WV shall
transfer a total of 889,187 (subject to adjustment for stock
splits and stock combinations) Class A-1 Preferred Shares
(or any Common Shares received upon conversion thereof) in
the event that either one of the following events occurs:
(i) (A) prior to April 25, 2000, there is an Initial Public Offering
which public offering is made at a price per share which will
yield not less than $35,000,000 of gross proceeds to the Company,
Shares are listed on The Toronto Stock Exchange, New York Stock
Exchange, NASDAQ or other stock exchange acceptable to WV, and
the "market price" of such shares, as determined in accordance
with the Applicable Securities Legislation then in effect, would
yield to WV, if WV were to sell all of its Class A-1 Preferred
Shares at the time of such Initial Public Offering, or if WV were
to have converted such Class A-1 Preferred Shares at the time of
such Initial Public Offering, all of its Common Shares that WV
shall have acquired as a result of its conversion of its Class A-
1 Preferred Shares, a minimum 45% Compounded Cash on Cash Return
after taking into account the reduced number of Shares which
would be received by WV as a result of the application of this
Section; and (B) prior to April 25, 2002, Shares to be received
by WV as a result of the exercise of the Class A Exchange Option
are not subject to an underwriters' lock-up and are otherwise
freely tradeable (xx) in the United States either pursuant to
Rule 144 of the United States Securities Act of 1933, as amended,
without the requirement to file a registration statement, or as a
result of the fact that a registration statement qualifying the
WV Shares for trading shall have been filed by the Company,
whether voluntarily or at the request of WV, or (xy) in Canada by
reason of the Shares being listed and the requisite hold periods
having expired, and in either case, the "market price" of such
Shares, as determined in accordance with the Applicable
Securities legislation then in effect, would yield to WV, if WV
were then to sell all of its portion of such Shares, a minimum
45% Compounded Cash on Cash Return taking into account the
reduced number of Shares which would be received by WV as a
result of the application of this Section; or prior to April 25,
2000, there is a cash sale of either the combined assets of the
Company and RoweCan or the shares of the Company and/or RoweCan
which: (A) provides for payment in full of the purchase price in
cash or by certified cheque or bank draft at the closing of the
transaction; (B) provides for no continuing liability with
respect to either of the Company and RoweCan on the part of WV;
and (C) provides WV with proceeds with respect to its Class A-1
Preferred Shares, or if at the relevant time WV were to have
converted its Class A-1 Preferred Shares into Common
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Shares, with respect to its Common Shares, which are the greater
of (1) $8,000,000, or (2) a minimum 45% Compounded Cash on Cash
Return after taking into account the reduced number of Shares
which would be received by WV as a result of the application of
this Section; or
(ii) prior to April 25, 2000, there is a cash sale of either the
combined assets of the Company and RoweCan or the shares of the
Company and/or RoweCan which: (A) provides for payment in full of
the purchase price in cash or by certified cheque or bank draft
at the closing of the transaction; (B) provides for no continuing
liability with respect to either of the Company and RoweCan on
the part of WV; and (C) provides WV with proceeds with respect to
its Class A-1 Preferred Shares, or if at the relevant time WV
were to have converted its Class A-1 Preferred Shares into Common
Shares, with respect to its Common Shares, which are the greater
of (1) $8,000,000, or (2) a minimum 45% Compounded Cash on Cash
Return after taking into account the reduced number of Shares
which would be received by WV as a result of the application of
this Section.
The transfer of the 889,187 Shares (Class A-1 Preferred Shares or Common
Shares, as applicable) shall be for no additional consideration to the
Stockholders listed in Schedule 7.11 (and in such proportions noted in
Schedule 7.11).
(c) Any exercise of the Exchange Options shall be subject to the following
terms and conditions:
(i) each Exchange Option shall be exercised by WV, giving to the
Company and each of the other Stockholders, notice in writing
of WV's intention to exercise such Exchange Option;
(ii) on closing the Company shall be deemed to represent and warrant
that the Preferred Shares to be issued have been issued as
fully paid and non-assessable;
(iii) the completion of the transaction shall take place at the
offices of WV in Toronto, Ontario, on or before or on the date
being 10 days after the date on which WV exercises such
Exchange Option; and
(iv) upon the completion of the transaction, WV shall cause its
nominee(s) to resign from all offices and positions with
RoweCan.
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(d) In the event of (i) any liquidation, dissolution, winding up, or
merger of the Company or RoweCan or (ii) the vote of a majority of the
Directors (A) WV's RoweCan Class A Preferred Shares shall be exchanged
into that number of fully paid and non-assessable Class A-1 Preferred
Shares determined in accordance with Section 7.10(a), and (B) WV's
RoweCan Class B Preferred Shares shall be exchanged into that number
of fully paid and non-assessable Class B Preferred Shares determined
in accordance with Section 7.10(a); and such exchanges shall be
subject to the terms and conditions set forth in Sections 7.10(c)(ii),
7.10(c)(iii) and 7.10(c)(iv).
7.11 Required Transfer. If and only if WV has exercised the Class A
Exchange Option and the number of Shares which may be
acquired pursuant to the exercise thereof has not been
reduced by reason of the application of subsection 7.10(b)
and either of the following apply:
(a) (i) prior to April 25, 2000, there is an Initial Public Offering which
public offering is made at a price per share which will yield not less
than $35,000,000 of gross proceeds to the Company, Shares are listed
on the Toronto Stock Exchange, New York Stock Exchange, NASDAQ or
other stock exchange acceptable to WV, and the "market price" of such
shares, as determined in accordance with the Applicable Securities
Legislation then in effect, would yield to WV, if WV were to sell all
of its Class A-1 Preferred Shares at the time of such Initial Public
Offering, or if WV were to have converted such Class A-1 Preferred
Shares at the time of such initial Public Offering, all of its Common
Shares that WV shall have acquired as a result of its conversion of
its Class A-1 Preferred Shares, a minimum 45% Compounded Cash on Cash
Return after taking into account the reduced number of Shares which
would be received by WV as a result of the application of this
Section; and (ii) prior to April 25, 2002, Shares held by WV are not
subject to an underwriters' lock-up and are otherwise freely tradeable
(xx) in the United States either pursuant to Rule 144A of the United
States Securities Act of 1933, as amended, without the requirement to
file a registration statement, or as a result of the fact that a
registration statement qualifying the WV Shares for trading shall have
been filed by the Company, whether voluntarily or at the request of
WV, or (xy) in Canada by reason of the Shares being listed and the
requisite hold periods having expired, and in either case, the "market
price" of such Shares, as determined in accordance with the Applicable
Securities Legislation then in effect, would yield to WV, if WV were
then to sell all of its portion of such Shares, a minimum 45%
Compounded Cash on Cash Return after taking into amount the reduced
number of Shares which would be held by WV as a result of the
application of this Section, or
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(b) prior to April 25, 2000, there is either a cash sale of the combined
assets of the Company and RoweCan or the shares of the Company and/or
RoweCan which: (i) provides for payment in full of the purchase price
in cash or by certified cheque or money order at the closing of the
transaction; (ii) provides for no continuing liability with respect to
either of the Company and RoweCan on the part of WV; and (iii)
provides WV with proceeds with respect to its Class A-1 Preferred
Shares, or if at the relevant time WV were to have converted its Class
A-1 Preferred Shares into Common Shares, with respect to its Common
Shares, which are the greater of (A) $8 million, or (B) a minimum 45%
Compounded Cash on Cash Return after taking into account the reduced
number of Shares which would be held by WV as a result of the
application of this Section,
then WV will transfer a total of 889,187 (subject to adjustment for
stock splits and stock combinations) of its Shares (Class A-
1 Preferred Shares or Common Shares, as applicable) for no
additional consideration to the Stockholders listed in
Schedule 7.11 (and in such proportions noted in Schedule
7.11).
7.12 Reservation of Shares Issuable on Exercise of Exchange Options.
The Company at all times and from time to time shall reserve
and keep available, solely for issuance and delivery on the
exercise of the Exchange Options, a number of Shares equal
to the aggregate number of Shares issuable upon exercise of
the Exchange Options. If at any time the Company does not
have sufficient authorized Shares to comply with the
foregoing sentence, the Company promptly shall take all
steps necessary to amend its Second Amended Certificate of
Incorporation to provide a reserved number of Shares
sufficient to effect the exercise in full of the Exchange
Options.
7.13 Conversion of Preferred Shares. In accordance with Article
VI(A)(2) of the Second Amended Certificate of Incorporation,
the Class A Preferred Shares shall be converted into Common
Shares at the same time as any Class A-1 Preferred Shares,
Class B Preferred Shares or Class C Preferred Shares shall
be converted into Common Shares.
7.14 Rights of Purchaser. Any purchaser of Shares from any
Stockholder in accordance with the provisions of this
Agreement shall be entitled
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to all of the benefits accruing to such Stockholder
hereunder and shall be subject to the obligations of such
Stockholder hereunder.
7.15 Assignment to Permitted Transferees. Any Stockholder may assign
all, or any portion of, the Shares held by such Stockholder
to a Permitted Transferee, provided that:
(a) the Permitted Transferee which is a corporation or a trust has agreed,
in form and terms satisfactory to a Majority in Interest, acting
reasonably, that as long as it shall hold such Shares it shall (i)
remain a corporation or trust, as applicable, (ii) have no assets
other than the Shares, the rights attached to such Shares and any
dividend or interest paid in connection with such Shares, and (iii)
not conduct any business other than that of holding the Shares;
(b) the assignor has agreed prior to such assignment, in form and terms
satisfactory to a Majority in Interest, acting reasonably, that as
long as the Permitted Transferee holds such Shares the assignor shall
(i) not transfer to any Person the legal and/or beneficial ownership
of any issued and outstanding share, equity security or ownership,
participatory or profit interest in the Permitted Transferee or
otherwise deal with any interest, the effect of which would result in
a change in the Control of the Permitted Transferee by any mechanism
whatsoever, (ii) not be relieved of its obligations hereunder and
continue to be bound by this Agreement as if it continued to be a
Stockholder, (iii) represent the Permitted Transferee in all of the
Permitted Transferee's dealings with the Company and other
Stockholders, and (iv) jointly and severally with the Permitted
Transferee (each waiving the benefit of division and discussion) be
liable to the other Parties for the obligations of the Permitted
Transferee under this Agreement; and
(c) without limiting the generality of Section 7.1(e), the Permitted
Transferee shall first enter into an agreement with the other parties
hereto to be bound hereby.
7.16 Assignment to PV Securities Corp. PV Securities Corp. may
assign all (but not less than all) of the Shares held by it
to Philippe Villers, provided that, without limiting the
generality of Section 7.1(e), Philippe Villers shall first
enter into an agreement with the other parties hereto to be
bound hereby.
7.17 Assignment by Azalea Mall, L.L.C. Azalea Mall, L.L.C. may
assign the shares held by it to one or more of its
Affiliates, provided that,
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without limiting the generality of Section 7.1(e), such
Affiliates shall first enter into an agreement with the
other parties hereto to be bound hereby.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 General. Each Stockholder hereby represents and warrants to each
other Stockholder and to the Company that such Stockholder:
(a) is neither a party to nor bound by any agreement regarding the
ownership of its Shares, other than this Agreement, the Ancillary
Agreements or an agreement to effect a transfer of Shares in
accordance with the terms of this Agreement;
(b) is not a party to, bound by or subject to any indenture, mortgage,
lease, agreement, instrument, charter or bylaw provision, statute,
regulation, order, judgment, decree or law which would be violated,
contravened or breached by, or under which any default would occur as
a result of the execution and delivery by such Stockholder of this
Agreement or the performance by such Stockholder of any of the terms
hereof; and
(c) assuming the accuracy of the representations of the Company in Section
3.1(d) of the Stock Purchase Agreement, owns its Shares beneficially
and as of record with good and marketable title thereto free and clear
of all legal rights and encumbrances.
8.2 The Company. The Company hereby represents and warrants to each
Stockholder that, as at the date of this Agreement:
(a) there are no outstanding options or agreements by the Company to issue
securities in the capital of the Company and no understandings capable
of becoming such agreements other than those listed in Schedule 3.1(e)
of the Stock Purchase Agreement; and
(b) the recitals to this Agreement are true and correct.
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8.3 Representations and Warranties Pertaining to PV Securities Corp.
Philippe Villers represents and warrants that:
(a) the assets of PV Securities Corp. include shares in the capital of the
Company which are owned by PV Securities Corp. free and clear of all
Liens, charges and encumbrances; and
(b) Philippe Villers owns all of the outstanding shares of PV Securities
Corp. free and clear of all Liens, charges and encumbrances.
ARTICLE 9
ADDITIONAL CAPITAL
9.1 Related Party Loans. All loans to any Related Party shall be
made on commercially reasonable terms and conditions.
(a) Such loans are hereby expressly subordinated, to the extent and in the
manner provided in this Section 9.1, without any further action or
documentation whatsoever being necessary to give effect to such
subordination, in right of payment to the prior payment in full of all
other obligations of the Company for borrowed money, all charges and
security interests created thereby and all indebtedness, liabilities
and obligations secured thereby (collectively, the "Other
Indebtedness").
(b) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings
relative to the Company or to its property or assets, or in the event
of any proceedings for voluntary liquidation, dissolution or other
winding-up of the Company, whether or not involving insolvency or
bankruptcy, or any marshaling of the assets and liabilities of the
Company (collectively referred to as a "Proceeding"), the holders of
Other Indebtedness shall be entitled to receive payment in full of all
the Other Indebtedness before any lending Related Party shall be
entitled to receive any payment or distribution of any kind or
character, whether in cash, property or securities which may be
payable or deliverable in any such event in respect of his, her or its
Related Party loan.
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(c) Upon any payment or distribution of assets of the Company referred to
in this Section 9.1, any lending Related Party shall be entitled to
call for and rely upon a certificate, addressed to such lending
Related Party, of the person making any such payment or distribution
for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Other Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section 9.1.
(d) Subject to the payment in full of all Other Indebtedness, any lending
Related Party shall be subrogated to the rights of the holders of
Other Indebtedness to receive payments and distribution of assets of
the Company in respect of and on account of Other Indebtedness, to the
extent of the application thereto of moneys or other assets which
would have been received by such lending Related Party but for the
provisions of Section 9.1, until the principal of and interest on the
Other Indebtedness shall be paid in full. No payment or distribution
of assets of the Company to the lending Related Party which would be
payable or distributable to the holder of Other Indebtedness pursuant
to this Section 9.1 shall (to the extent paid over to or held for the
account of holders of Other Indebtedness), as between the Company, its
creditors (other than the holders of Other Indebtedness) and such
lending Related Party, be deemed to be a payment by the Company to or
on account of such lending Related Party, it being understood that the
provisions of this Section 9.1 are, and are intended, solely for the
purpose of defining the relative rights of the lending Related Party,
on the one hand, and the holders of the Other Indebtedness on the
other hand. Nothing contained in this Section 9.1 is intended to or
shall impair, as between the Company and its creditors (other than the
holders of Other Indebtedness and the lending Related Party), the
obligation of the Company, which is unconditional and absolute, to pay
to the lending Related Party the principal of and interest on his, her
or its Related Party loan and any other amounts payable under his, her
or its Related Party loan as and when the same shall become due and
payable in accordance with the terms hereof, or to affect the relative
rights of the lending Related Party and creditors of the Company,
other than the holders of the Other Indebtedness, nor shall anything
herein or therein prevent the lending Related Party from exercising
all remedies otherwise permitted by applicable law upon default under
his, her or its Related Party loan subject to the rights, if any under
this Section 9.1, of the holders of Other Indebtedness upon the
exercise of any such remedy.
(e) In the event that, notwithstanding the foregoing provisions of this
Section 9.1, the lending Related Party shall have received any payment
after a Proceeding has commenced before all Other Indebtedness has
been paid in full, the lending Related Party shall hold such payment
in trust for the benefit of the holders of
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Other Indebtedness and shall forthwith, upon the completion of the
Proceeding, pay such payment over to such holders of Other
Indebtedness for application against unpaid Other Indebtedness.
(f) For greater certainty, this Section 9.1 shall not be construed so as
to prevent the lending Related Party from receiving and retaining any
payments on account of his, her or its Related Party loan which are
made (i) in a manner that is consistent with the terms of his, her or
its Related Party loan and (ii) at any time when no event of default,
as defined in any Other Indebtedness or the instrument creating the
same, has occurred and is continuing and in respect of which notice
has been given by or on behalf of the holders of Other Indebtedness to
the Company and the Related Party. Until written notice shall be
given to the Related Party by or on behalf of any holder of any Other
Indebtedness of the occurrence of any default with respect to such
Other Indebtedness or the existence of any other facts which would
have the result that any payment with respect of any Related Party
loan would be in contravention of the provisions of this Section 9.1,
the lending Related Party shall be entitled to assume that no such
default has occurred, or that no such facts exist.
(g) The holders of Other Indebtedness shall be entitled to rely and shall
be third-party beneficiaries of the provisions of this Section 9.1.
(h) The provisions of this Section 9.1 shall have no application to loans
made by the Investors to the Company.
9.2 Future Debt Financings. If the Company requires additional
capital by way of debt, it shall first advise the Investors
of its requirements in writing (the "Required Financing").
Upon receiving such notice, each of the Investors shall have
45 days within which to notify the Company if they wish to
provide the Required Financing. If more than one Investor
elects to provide such financing to the Company, each such
Investor shall provide a portion of the Required Financing
which shall be determined by multiplying the amount of the
Required Financing by a fraction, the numerator of which is
the number of Shares held by such Investor and the
denominator of which is the number of Shares held by all
Investors who elect to provide the Required Financing. The
Required Financing shall be on the terms and conditions as
may be negotiated between such parties. During that time,
the Company shall provide to each of the Investors, at such
Investor's request, all such information as such
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Investor may reasonably require to make its determination.
In the event that the parties are unable to agree upon the
terms of the Required Financing within such 45 day period,
the Company shall deliver to the Investors, within 5 days
following the expiry of such 45 day period, a term sheet
outlining the terms and conditions upon which it would be
prepared to proceed with the Required Financing. The
Investors shall have a further period of 10 days within
which to accept or reject the terms of the Required
Financing. In the event that either all Investors reject the
terms of financing or fail to give notice within the
prescribed time period as aforesaid, the Company shall be
free to pursue obtaining its debt financing with other
Persons on terms no less favorable to the Company or more
favorable to such Persons than those set forth in the term
sheet provided to the Investors.
9.3 Future Equity Financings. (a) If the Company requires additional
capital by way of equity, the Company shall provide written
notice to the Stockholders specifying the terms and
conditions of the proposed equity issue including the amount
of financing to be raised, the type of security to be
issued, the price per security to be issued and the target
completion date. Each Stockholder shall have the
irrevocable right, exercisable by written notice given to
the Company within 30 days after the giving of the above
notice by the Company, to participate in the equity
financing on a pro rata basis (determined by the ratio of
the Stockholder's then existing holdings of Shares to the
total holdings of all Stockholders on a Fully Diluted basis)
on the terms and conditions set forth by the Company. In
the event that one or more Stockholders elects to subscribe
for his or its pro rata proportion of the proposed equity
issue and one or more Stockholders declines to so subscribe,
the Stockholder(s) electing to so subscribe shall have the
further right and option, exercisable by notice in writing
within five days of being notified by the Company that one
or more Stockholders has declined to so subscribe, to
subscribe for the remaining equity on the same terms and
conditions as set forth by the Company in proportion to
their respective holdings of Shares (or in such other
proportions as they may agree among themselves). The
foregoing procedure shall be repeated as often as is
necessary until the equity issue is fully subscribed or
until there remains equity which no Stockholder has elected
to subscribe for. If there remains equity which no
Stockholder has elected to subscribe for, the Company may
elect to proceed with the equity financing in an amount
equal
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to the amount subscribed for under this Section 9.3 or
decline to proceed and to pursue its equity capital
requirements through other sources on terms and conditions
no more favorable than the terms and conditions specified to
the Stockholders. Nothing contained in this Section 9.3
shall affect the requirement that requisite Investors
provide written approval to the proposed equity financing in
accordance with Section 5.10 of this Agreement.
(b) The parties hereto agree and acknowledge that the provisions
of this Section 9.3 and Section 9.2 of the Amended and
Restated Stockholders' Agreement do not apply to the
transactions contemplated by the Stock Purchase Agreement.
9.4 Exceptions to Pre-Emptive Rights. Notwithstanding Section 9.3
hereof, no Stockholder shall have any rights thereunder in
respect of:
(a) the issue of any options or shares of the Company pursuant to a stock
option plan for employees and other persons approved by the Board of
Directors and consented to in accordance with Section 5.10 hereof;
(b) shares issued as a stock dividend or pursuant to the exercise of
conversion privileges, options or rights previously granted by the
Company in accordance with Section 9.3;
(c) shares issued to WV pursuant to the Exchange Options;
(d) shares issued in connection with the Company's acquisition of another
Person; or
(e) shares offered to the public pursuant to a Qualifying Public Offering.
ARTICLE 10
GENERAL MATTERS
10.1 Noncompetition Agreements. The Company shall cause each current
and future vice-president of the Company to sign a
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Noncompetition Agreement in the form attached hereto as
Exhibit B.
10.2 Amendment to Bylaws. The Company shall not amend or restate the
Bylaws without the prior written consent of a Majority in
Interest.
10.3 No Agency or Partnership. Nothing contained in this Agreement
shall make or constitute any party the representative,
agent, principal or partner of any other party and it is
understood that no party has the capacity to make
commitments of any kind whatsoever or incur obligations or
liabilities binding upon any other party.
10.4 Notice. Any notice, request, consent or other communication
hereunder to any party will be in writing and will be either
personally delivered, or sent by certified mail, return
receipt requested, or sent by facsimile, confirmation of
receipt requested, or sent by reputable overnight courier
service (charges prepaid) to the address set forth below
such party's signature on the signature pages hereto.
Notices will be deemed to have been given hereunder when
delivered personally; five business days after deposit in
the mail; when confirmation of receipt is received; and one
day after deposit with a reputable overnight courier
service.
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10.5 Endorsement of Share Certificates. Any and all certificates
representing Shares now or hereafter beneficially owned by
the Stockholders during the term of this Agreement shall
have endorsed thereon, in bold type, the following legends
(or, in place of the first legend below, the legend required
by the Original Stockholders' Agreement or the Amended and
Restated Stockholders' Agreement):
"The securities evidenced by this certificate are subject to the terms
of, and disposition and transfer of such securities is restricted in
accordance with, the provisions of an agreement dated as of December
11, 1998 made between the Company and each and all of the holders of
shares. A copy of the said agreement, together with all amendments
and supplements thereto, is available for inspection from the
Secretary of the Company on request and without charge at its
registered office."
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws
of any state and may not be sold or otherwise disposed of except
pursuant to an effective registration statement under such Act and
applicable state securities laws or there is presented to the Company
an opinion of counsel to the effect that such registration is not
necessary."
10.6 Assignment. Neither this Agreement nor any rights or
obligations hereunder are assignable by the parties hereto
without the prior written consent of the other parties
hereto, subject to the rights of Stockholders to sell their
Shares pursuant to the terms of this Agreement and provided
that the purchaser of such Shares agrees to be bound hereby.
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs,
executors, legal personal representatives, successors and
permitted assigns.
10.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. This Agreement may be executed by any Party by
facsimile signature.
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10.8 Publicity. Notwithstanding Section 11.1, the Investors and the
Company shall be permitted reasonable publicity with regard
to the transactions contemplated herein. Such publicity
shall be reviewed and approved by the other Investors and
the Company prior to release.
ARTICLE 11
CONFIDENTIALITY
11.1 Confidentiality. The parties hereto agree to treat all
information, data, reports and other records ("information")
relating to the Company's Business as confidential and will
not disclose such information to any third party, other than
their legal advisors, Permitted Transferees or auditors
(and, in the case of WV, the auditors appointed under the
Labour Sponsored Venture Capital Corporations Act, 1992
(Ontario), as amended, and, in the case of Azalea Mall,
L.L.C. and its Affiliates, the National Association of
Insurance Commissioners) or any representative of any
partner or equity holder of any of the Investors, without
the prior written consent of the other parties; provided,
however, no Stockholder shall be liable for any such
disclosure if such information:
(a) becomes generally available to the public other than as a result of a
disclosure by a Stockholder or its representatives in violation of
this Agreement;
(b) was available to a Stockholder on a non-confidential basis without
violation of this Agreement prior to its disclosure by the Company or
its representatives;
(c) becomes available to a Stockholder on a non-confidential basis without
violation of this Agreement from a source other than the Company or
its representatives provided that such source is not bound by a
confidentiality agreement with the Company or a duty of
confidentiality to or in respect of the Company to the knowledge of
the Stockholder; or
(d) is required by law or regulatory authority to be disclosed, provided
that a Stockholder first notifies the Company that it believes it is
required to disclose
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<PAGE>
such information and, if possible, it allows the Company a reasonable
period of time to contest the disclosure of such information.
11.2 Survival. The terms of this Article 11 shall survive any
termination of this Agreement without limit as to time.
[Signature pages follow.]
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Amended and Restated Stockholders' Agreement
Signature Page 61
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the day and year first above written.
ROWECOM INC.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
725 Concord Avenue
Cambridge, Massachusetts
USA 02138
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: 617-497-6825
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Amended and Restated Stockholders' Agreement
Signature Page 62
WORKING VENTURES CANADIAN
FUND INC.
By:_____________________________________________
Name:
Title:
250 Bloor Street East, Suite 1600
Toronto, Ontario M4W 1E6
Facsimile: 416-929-2421
Attn: Graham Matthews and W. James Whitaker
AXIOM VENTURE PARTNERS II
LIMITED PARTNERSHIP
By Axiom Venture Associates II Limited Liability
Company, its General Partner
By:____________________________________________
Name:
Title:
CityPlace II - 17th Floor
185 Asylum Street
Hartford, CT 06103
Facsimile: 860-548-7797
Attn: Sam McKay
ZERO STAGE CAPITAL VI, L.P.
By Zero Stage Capital Associates VI, LLC, its
General Partner
By:____________________________________________
Name: Stanley Fung
Title: Managing Member
101 Main Street - 17th Floor
Cambridge, MA 02142
Facsimile: 617-876-1248
Attn: Stanley Fung
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Amended and Restated Stockholders' Agreement
Signature Page 63
Attn: Stanley Fung
[ADDITIONAL INVESTORS]
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP
By: Highland Management Partners III
Limited Partnership
Title: General Partner
By:____________________________________________
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn:
HIGHLAND ENTREPRENEURS' FUND III
LIMITED PARTNERSHIP
By: HEF III LLC
Title: General Partner
By:____________________________________________
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn:
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<PAGE>
Amended and Restated Stockholders' Agreement
Signature Page 64
PV SECURITIES CORP.
By:_____________________________________________
c/o: PHILIPPE VILLERS
20 Whits Ends
Concord, Massachusetts 01742
_____________________________________________________________
RICHARD ROWE JAMES COVELL
37 Golden Street 138 Parkview Drive
Belmont, Massachusetts 02138 Strathroy, Ontario N7G4A9
Canada
_____________________________________________________________
DONNA WOLFE JEROME S. RUBIN
47 Shavian Blvd. 606 Indian Field Road
London, Ontario N6G2P1 Mead Point
Canada Greenwich, Connecticut 06830
____________________________________________________________
RONALD GRIGG TOM LEMBERG
740 Froldfoot Lane, #1206 13 Gypsy Trail
London, Ontario NgH5H2 Weston, Massachusetts 02193
Canada
_____________________________________________________________
SIMON REISMAN DAVID TERHUNE
146 Roger Road Six Montchanin Court
Ottowa, Ontario K1H 5C8 Montchanin, Delaware 19720
Canada
_____________________________________________________________
FRANK ANGELETTI JACQUES RAIMAN
9 Shavian Court Aureus Castleman fur l' Auvignon
London, Ontario N6G2P1 32100 Gers
Canada France
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Amended and Restated Stockholders' Agreement
Signature Page 65
____________________________________________________________
ELIZABETH NACKLEY RANDY HEARN
39 Searle Road 287 Riverview Drive
West Roxbury, Massachusetts 02132 Strathroy, Ontario N7G264
Canada
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Amended and Restated Stockholders' Agreement
Signature Page 66
PAI, WEI MING CHUNG
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By: ______________________________
Name: Daniel Kellogg
Title:
2 FL, No. 420
Fu-husing N. Road
Taipei, Taiwan ROC
Facsimile: 011-886-22-517-6418
FU KUAN INVESTMENT CORP.
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By: ______________________________
Name: Daniel Kellogg
Title:
14FL, No. 22
Ai Kuo E. Road
Taipei, Taiwan ROC
Facsimile: 011-886-22-397-2106
Attn: Irene Su
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Amended and Restated Stockholders' Agreement
Signature Page 67
PURETECH PROFITS LIMITED (BVI)
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By: ______________________________
Name: Daniel Kellogg
Title:
c/o Mr. Y.L. Shen
Suite 2613
26FL
333 Keeiung Road
Sec. 1
Taipei, Taiwan ROC
Facsimile: 011-886-22-757-6931
Attn: Mr. Y.L. Shen
CRYSTAL INTERNET VENTURE FUND, L.P.
By: ______________________________
Name:
Title:
1120 Chester Avenue
Suite 310
Cleveland, Ohio 44114
Facsimile: 216-263-5518
Attn: Daniel Kellogg
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<PAGE>
EXHIBIT 10.10
ROWECOM INC.
ROWE COMMUNICATIONS LTD.
AND
THE PURCHASERS SET FORTH ON SCHEDULE 2.1
STOCK PURCHASE AGREEMENT
Dated as of December 11, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 INTERPRETATION 2
1.1 Defined Terms 2
1.2 Gender and Number 7
1.3 Headings, Etc. 7
1.4 Currency 7
1.5 Severability 7
1.6 Entire Agreement 8
1.7 Amendments 8
1.8 Waiver 8
1.9 Governing Law 8
1.10 Inclusion 8
1.11 Accounting Terms 8
1.12 Incorporation of Schedules and Exhibits 8
ARTICLE 2 PURCHASED SHARES 11
2.1 Purchase and Sale 11
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY AND OF ROWECAN 11
3.1 Representations and Warranties of the
Company and of RoweCan 11
3.2 Covenants of the Company and of RoweCan 26
3.3 Conduct of Business Prior to Closing 27
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 27
4.1 Representations and Warranties of the Purchasers 27
ARTICLE 5 CONDITIONS OF CLOSING 29
5.1 Conditions for the Benefit of the Purchasers 29
ARTICLE 6 MISCELLANEOUS 31
6.1 Notices 31
6.2 Time of the Essence 31
6.3 Brokers 31
6.4 Third Party Beneficiaries 32
6.5 Survival of Representations, Warranties and
Covenants 32
6.6 Expenses 32
6.7 Enurement 32
6.8 Counterparts 32
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of December 11, 1998, is by and
among RoweCom Inc., a corporation incorporated under the laws of Delaware (the
"Company"), Rowe Communications Ltd., a corporation incorporated under the laws
of the Province of Ontario ("RoweCan"), and the Purchasers listed on Schedule
2.1 hereto (each of whom individually is referred to herein as a "Purchaser" and
collectively referred to as the "Purchasers"). Unless otherwise indicated
herein, capitalized terms used herein are defined in Section 1.1 hereof.
PRELIMINARY STATEMENTS:
A. The Company has agreed to issue to the Purchasers and the Purchasers, in
reliance upon the representations and warranties of the Company and of
RoweCan contained herein and subject to certain conditions contained
herein, have agreed to take up and subscribe for an aggregate of 4,586,599
shares (the "Purchased Shares") of Class C Preferred Stock, $.01 par value,
of the Company (the "Class C Preferred Shares").
B. Simultaneously with the Closing, the Amended and Restated Shareholders'
Agreement, dated May 4, 1998, among the Company, Working Ventures Canadian
Fund Inc., a corporation incorporated under the laws of Canada ("WV") and
the Company's stockholders shall be amended and restated substantially in
the form of Exhibit A attached hereto (the "Second Amended Stockholders'
Agreement") and shall be entered into among the Purchasers, WV, the Company
and its stockholders.
C. Simultaneously with the execution of this Agreement, the Amended and
Restated Registration Rights Agreement, dated as of May 4, 1998, among
Highland Capital Partners III Limited Partnership, a limited partnership
organized under the laws of Delaware ("HCP"), Highland Entrepreneurs' Fund
III Limited Partnership, a limited partnership organized under the laws of
Delaware ("HEF"), Crystal Internet Venture Fund VI, L.P., a limited
partnership organized under the laws of Delaware ("CIVF"), Pai, Wei Ming
Chung, an individual ("Chung"), Fu Kuan Investment Corp., a corporation
incorporated under the laws of Taiwan ("FKIC"), Puretech Profits Limited
(BVI), a corporation incorporated under the laws of the British Virgin
Islands ("Puretech" and together with Chung, FKIC, CIVF, HEF and HCP, the
"Class B Purchasers" and each a "Class B Purchaser") WV, RoweCan and the
Company shall be amended and restated substantially in the form of Exhibit
C attached hereto (the "Second Amended Registration Rights Agreement") and
shall be among the Purchasers, the Class B Purchasers, WV, the Company and
RoweCan.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
<PAGE>
INTERPRETATION
1.1 Defined Terms. As used in this Agreement, the following terms have the
following meanings:
"Accounts Payable" means all accounts payable and accrued liabilities owed
by either of the Company or RoweCan in connection with the Business;
"Accounts Receivable" means all accounts receivable, notes receivable and
other debts due or accruing due to either of the Company or RoweCan in
connection with the Business;
"Agreement" means this stock purchase agreement and all schedules and
instruments in amendment or confirmation of it; "hereof", "hereto" and
"hereunder" and similar expressions mean and refer to this Agreement and not to
any particular Article, Section, Subsection or other subdivision; "Article",
"Section", "Subsection" or other subdivision of this Agreement followed by a
number means and refers to the specified Article, Section, Subsection or other
subdivision of this Agreement;
"Amended Articles of Incorporation" means the Articles of Incorporation of
RoweCan and the Articles of Amendment thereto;
"Amended RoweCan Shareholders' Agreement" means the Amended and Restated
Shareholders' Agreement, dated May 4, 1998, among the Company, WV, RoweCan and
Ronald Grigg;
"Ancillary Agreements" means all agreements, certificates and other
instruments delivered or given pursuant to this Agreement including, without
limitation, the Second Amended Stockholders' Agreement and the Second Amended
Registration Rights Agreement, and the Amended RoweCan Shareholders' Agreement;
and "Ancillary Agreement" means any one of such agreements, certificates or
other instruments;
"Assets" means all property and assets of each of the Company and RoweCan
of every kind and wheresoever situated;
"Authorization" means, with respect to any Person, any authorization,
order, permit, approval, grant, license, consent, right, franchise, privilege,
certificate, judgment, writ, injunction, award, determination, direction,
decree, or by-law, rule or regulation of any Governmental Entity, whether or not
having the force of law, having jurisdiction over such Person;
"Benefit Plans" means all employee benefit plans relating to the employees
of each of the Company and RoweCan, including profit sharing, pension and other
deferred compensation arrangements, phantom stock option, stock option, employee
stock purchase, bonus, severance, retirement, health or insurance plans or
arrangement (oral or written);
<PAGE>
"Books and Records" means all technical, business and financial and
accounting records, financial books and records of account, books, data,
reports, files, lists, drawings, plans, logs, briefs, customer and supplier
lists, deeds, certificates, contracts, surveys, title opinions or any other
documentation and information in any form whatsoever (including written,
printed, electronic or computer printout form) relating to the Business;
"Business" means, collectively, the Company's Business and the RoweCan
Business;
"Business Day" means any day other than Saturday, Sunday or a day on which
chartered banks are closed for business in New York, New York;
"Claim" means any claim or liability of any nature whatsoever, including
any demand, obligation, liability, debt, cause of action, suit, proceeding,
judgment, award, assessment or reassessment;
"Class A Exchange Option" means the right of WV to exchange its RoweCan
Class A Preferred Shares for Class A-1 Preferred Shares as set forth in the
Second Amended Stockholders' Agreement;
"Class B Exchange Option" means the right of WV to exchange its RoweCan
Class B Preferred Shares for Class B Preferred Shares as set forth in the Second
Amended Stockholders' Agreement;
"Class A Preferred Shares" means the shares of Class A Preferred Stock,
$.01 par value, of the Company;
"Class A-1 Preferred Shares" means the shares of Class A-1 Preferred Stock,
$.01 par value, of the Company;
"Class B Preferred Shares" means the shares of Class B Preferred Stock,
$.01 par value, of the Company;
"Class C Preferred Shares" has the meaning ascribed thereto in the
preliminary statements;
"Closing" means the completion of the transaction of purchase and sale of
the
Purchased Shares as contemplated in this Agreement;
"Closing Date" means, with respect to the Closing, any time prior to
December 11, 1998 or such other time as may be specified by all of the
Purchasers;
"Common Shares" means the shares of Common Stock, $.01 par value, of the
Company;
"Company's Business" means the business presently and heretofore carried on
by the Company, consisting of the provision of secure electronic commerce
products and services;
<PAGE>
"Consents" means the consents of contracting parties to any Contract or
Lease to the transactions contemplated in this Agreement, and "Consent" means
any one of such Consents;
"Contracts" means all contracts to which the Company or RoweCan is a party
including all contracts, leases of personal property, licenses, undertakings,
engagements or commitments of any nature, written or oral, to which either the
Company or RoweCan is entitled in connection with its Business including,
without limitation, unfilled purchase orders received by either the Company or
RoweCan, forward commitments by either the Company or RoweCan for supplies or
materials entered into in the ordinary course of the Business, all restrictive
agreements and negative covenant agreements which either the Company or RoweCan
may have with its employees, past or present and the Contracts listed in
Schedule 3.1(p);
"Corporate Records" means the corporate records of each of the Company and
RoweCan, including (i) all articles or similar constating documents, operating
agreements, by-laws, any stockholders' agreements and any amendments thereto;
(ii) all minutes of meetings and resolutions of stockholders, directors and any
committee thereof; and (iii) the stock certificate books, register of
stockholders, register of transfers and register of directors;
"Encumbrances" means any mortgage, lien, pledge, assignment, charge,
security interest, title retention agreement, hypothec, levy, execution,
seizure, attachment, garnishment, right of distress or other claim in respect of
property of any nature or kind whatsoever howsoever arising (whether consensual,
statutory or arising by operation of law or otherwise) and includes arrangements
known as sale and lease-back, sale and buy-back and sale with an option to buy-
back;
"Environmental Laws" means all applicable federal, provincial, state,
municipal or local laws, statutes, regulations or ordinances relating to the
environment, occupational safety, health, product liability and transportation;
"ERISA" means the Employee Retirement Income Security Act of 1974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time;
"Financial Statements" means, collectively, the balance sheets for each of
the Company and RoweCan for the fiscal years ending December 31, 1996 and
December 31, 1997 and the accompanying statements of income, retained earnings
and cash flows for the years then ended and all notes thereto as reported upon
by PricewaterhouseCoopers (or any of its predecessors);
"GAAP" means at any time, generally accepted accounting principles from
time to time approved by, in the case of RoweCan, the Canadian Institute of
Chartered Accountants, or any successor institute, and in the case of the
Company, the Financial Accounting Standards Board or any successor institute,
applicable as at the date on which a given calculation is made or required to be
made in accordance with generally accepted accounting principles;
<PAGE>
"Governmental Entity" means (i) any multinational, federal, provincial,
state, municipal, local or other governmental or public department, court,
commission, board, bureau, agency or instrumentality, domestic or foreign; (ii)
any subdivision, agent, commission, board, or authority of any of the foregoing;
or (iii) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing;
"Hazardous Substance" means any substance which is or is deemed to be,
alone or in any combination, hazardous, hazardous waste, toxic, radioactive, a
pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, whether or not such substance is
defined as hazardous under the Environmental Law;
"Intellectual Properties" means all right, title, interest and benefit of
each of the Company and RoweCan in and to any registered or unregistered
worldwide trademarks, trade or brand names, service marks, copyrights, copyright
applications, designs, inventions, patents, patent applications, patent rights,
licenses, sub-licenses, franchises, formulas, processes, know-how, technology,
computer rights and other intellectual or industrial property of the Company or
of RoweCan or pertaining to the Business, including the property listed in
Schedule 3.1(q);
"Interim Financial Statements" means, collectively, the unaudited balance
sheets of the Company and of RoweCan as at September 30, 1998 and the
accompanying statement of income for the nine-month period then ended;
"Laws" means all statutes, codes, ordinances, decrees, rules, regulations,
municipal by- laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
policies, voluntary restraints, guidelines, or any provisions of the foregoing,
including general principles of common and civil law and equity, binding on or
affecting the Person referred to in the context in which such word is used; and
"Law" means any one of them;
"Leased Properties" means the real properties forming the subject matter of
the Leases at the municipal addresses listed in Schedule 3.1(o);
"Leases" means all of the leases and subleases of real property to which
either the Company or RoweCan is a party, as listed and described in Schedule
3.1(o);
"Loss" means any loss whatsoever, including expenses, costs, damages,
penalties, fines, charges, claims, demands, liabilities, interest and any and
all legal fees and disbursements;
"Owned Properties" means, collectively, the land and premises listed on
Schedule 3.1(k) and the buildings, improvements and fixtures thereon;
"Parties" means the Purchasers, the Company, RoweCan and any other person
who may become a party to this Agreement; and "Party" means any one of them;
<PAGE>
"Permitted Encumbrances" means (i) Encumbrances for taxes, assessments or
governmental charges or levies not yet due and delinquent; (ii) easements,
rights-of-way or other minor imperfections of title which do not, individually
or in the aggregate, materially detract from the value of or impair the use or
marketability of any real property; (iii) restrictions on the transfer of shares
imposed by the Second Amended Certificate of Incorporation or the Amended
Articles of Incorporation and (iv) Encumbrances disclosed in Schedule 3.1(k);
"Person" means an individual, partnership, corporation, limited liability
company, trust, unincorporated association, joint venture or other entity or
Governmental Entity, and pronouns have a similarly extended meaning;
"Purchased Shares" has the meaning ascribed thereto in the preliminary
statements;
"Purchasers" has the meaning ascribed thereto in the preamble hereto;
"RoweCan Business" means the business presently and heretofore carried on
by RoweCan consisting of the provision of secure electronic commerce products
and services;
"RoweCan Common Shares" means the Common Shares of RoweCan;
"RoweCan Class A Preferred Shares" means the Class A Preferred Shares of
RoweCan;
"RoweCan Class B Preferred Shares" means the Class B Preferred Shares of
RoweCan;
"Second Amended Certificate of Incorporation" means the Second Restated and
Amended Certificate of Incorporation of the Company in the form attached hereto
as Exhibit B;
"Second Amended Registration Rights Agreement" has the meaning ascribed
thereto in the preliminary statements;
"Second Amended Stockholders' Agreement" has the meaning ascribed thereto
in the preliminary statements;
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder Loans" means any indebtedness owing by RoweCan or the Company,
directly or indirectly, to any of their shareholders, or to a person controlled
individually or in concert by their shareholders;
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, association or other business entity in
respect of which that Person owns securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors, partnership
committee, board of managers or trustees or other managerial
<PAGE>
body thereof, whether directly or indirectly through one or more of the other
Subsidiaries of that Person or a combination thereof; and
"Time of Closing" means 10:00 a.m. (Hartford, Connecticut time) on the
Closing Date or such later time as the Closing may occur.
1.2 Gender and Number. Any reference in this Agreement to gender shall include
all genders, and words importing the singular number only shall include the
plural and vice versa.
1.3 Headings, Etc. The provision of a table of contents, the division of this
Agreement into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall not affect
or be utilized in the construction or interpretation of this Agreement.
1.4 Currency. All references in this Agreement or any Ancillary Agreement to
dollars are expressed in United States currency.
1.5 Severability. Any Article, Section, Subsection or other subdivision of
this Agreement or any Ancillary Agreement or any other provision of this
Agreement or any Ancillary Agreement which is, or becomes, illegal, invalid or
unenforceable shall be severed from this Agreement and any Ancillary Agreement
and be ineffective to the extent of such illegality, invalidity or
unenforceability and shall not affect or impair the remaining provisions hereof
or thereof.
1.6 Entire Agreement. This Agreement together with the Ancillary Agreements
constitutes the entire agreement between the Parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties. Except as set forth
in this Agreement, the Second Amended Registration Rights Agreement and the
Second Amended Stockholders' Agreement, there are no representations,
warranties, conditions or other agreements, express or implied, statutory or
otherwise, between the Parties in connection with the subject matter of this
Agreement. If there is any conflict between the provisions of this Agreement
and the provisions of any Ancillary Agreement, the provisions of this Agreement
shall govern.
1.7 Amendments. This Agreement may be amended, modified or supplemented only
by a written agreement signed by the Company and Purchasers holding or
purchasing hereunder at least seventy-five percent (75%) of the Class C
Preferred Shares.
1.8 Waiver. No waiver of any of the provisions of this Agreement or any
Ancillary Agreement shall be deemed to constitute a waiver of any other
provision (whether or not similar), nor shall such waiver constitute a waiver or
continuing waiver unless otherwise expressly provided in writing duly executed
by the Party to be bound thereby; provided, however, that with respect to rights
of the holders of the Class C Preferred Shares, the written consent of the
holders of seventy-five percent (75%)of the Class C Preferred Shares shall be
binding upon all of the holders of the Class C Preferred Shares.
<PAGE>
1.9 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without regard to the choice of law provisions
thereof.
1.10 Inclusion. Where the word "including" or "includes" is used in this
Agreement it means including (or includes) without limitation.
1.11 Accounting Terms. All accounting terms not specifically defined in this
Agreement shall be construed in accordance with GAAP.
1.12 Incorporation of Schedules and Exhibits. The following are the schedules
and exhibits attached to and incorporated in this Agreement:
<TABLE>
<CAPTION>
Schedules
<S> <C>
Schedule 2.1 - Schedule of Purchasers
Schedule 3.1(c) - Jurisdictions in which RoweCan Business Carried On
Schedule 3.1(d) - Capitalization Schedule
Schedule 3.1(e) - Options
Schedule 3.1(f) - Dividends and Distributions
Schedule 3.1(k) - Owned Properties and Permitted Encumbrances
Schedule 3.1(o) - Leases and Leased Properties
Schedule 3.1(p) - Contracts
Schedule 3.1(q) - Intellectual Property Rights
Schedule 3.1(s) - Financial Statements as at December 31, 1996 and December 31,
1997 and Interim Financial Statements as at September 30, 1998
Schedule 3.1(t) - Accounts Payable and Accrued Liabilities
Schedule 3.1(u) - Cumulative Tax Losses
Schedule 3.1(z) - Environmental Compliance
Schedule 3.1(aa) - Authorizations
Schedule 3.1(ab)(iii) - Contingent Liabilities/Indebtedness
Schedule 3.1(ac)(iv) - Collective Agreements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule 3.1(ac)(vii) - Employee Matters and Designated Employees
Schedule 3.1(ac)(viii)- Employment Agreements
Schedule 3.1(ac)(xi) - Benefit Plans
Schedule 3.1(ad) - Insurance Policies
Schedule 3.1(ae) - Litigation
Schedule 3.1(af) - Shareholder Loans
Schedule 3.1(ai) - Conduct of Business
Schedule 3.2 - Source and Use of Funds
Schedule 5.1(g) - Persons Entering Into Noncompetition Agreements
Exhibits
Exhibit A - Second Amended Stockholders' Agreement
Exhibit B - Second Amended Certificate of Incorporation
Exhibit C - Second Amended Registration Rights Agreement
Exhibit D - ERISA Certificate
</TABLE>
<PAGE>
ARTICLE 2
PURCHASED SHARES
2.1 Purchase and Sale. Subject to the terms and conditions hereof, each
Purchaser hereby subscribes for and agrees to take up the number of the
Purchased Shares set forth opposite such Purchaser's name on Schedule 2.1 at a
price of $3.407 per Class C Preferred Share, for the aggregate subscription
price set forth opposite such Purchaser's name on Schedule 2.1.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE COMPANY AND OF ROWECAN
3.1 Representations and Warranties of the Company and of RoweCan. Each of the
Company and RoweCan jointly and severally represents and warrants as follows to
the Purchasers and acknowledges and confirms that the Purchasers are relying
upon such representations and warranties in connection with the purchase by the
Purchasers of the Purchased Shares:
Corporate Matters Relating to the Company and RoweCan
- -----------------------------------------------------
(a) Due Incorporation and Existence. The Company is a corporation duly
-------------------------------
organized, validly existing and in good standing under the laws of the
State of Delaware. RoweCan is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Ontario.
RoweCan is a "private company" within the meaning of the Securities Act
(Ontario).
(b) Corporate Power. Each of the Company and RoweCan has all requisite
---------------
corporate power and authority to own its property and to carry on its
business as now being conducted by it and as presently proposed to be
conducted by it.
(c) Extra-Territorial Qualification. The Company is duly qualified, licensed
-------------------------------
or registered to carry on business in the State of Delaware and in the
Commonwealth of Massachusetts. RoweCan is duly qualified, licensed or
registered to carry on business in the Province of Ontario pursuant to its
charter and in the jurisdictions listed in Schedule 3.1(c). The
jurisdictions listed in Schedule 3.1(c) include all jurisdictions (i) in
which the nature of the Assets or the Business make such qualifications
necessary except where the failure to be so qualified would not have a
material adverse effect on the affairs, assets, liabilities, business or
prospects, operations or conditions of either the Company or RoweCan or
their respective Business, financial or otherwise, or (ii) where either the
Company or RoweCan owns or leases any material properties or assets or
conducts any material business.
(d) Authorized Capital. The authorized capital of the Company consists of
------------------
34,000,000 Common Shares, 5,000,000 Class A Preferred Shares, 5,000,000
Class A-1 Preferred Shares,
<PAGE>
8,000,000 Class B Preferred Shares and 5,000,000 Class C Preferred Shares,
of which at the date hereof, and after giving effect to the issue of the
Purchased Shares, 4,372,382 Common Shares (and no more), 161,289 Class A
Preferred Shares (and no more), 0 Class A-1 Preferred Shares (and no more),
5,140,370 Class B Preferred Shares (and no more), and 4,586,599 Class C
Preferred Shares (and no more) shall be owned of record and beneficially as
reflected on Schedule 3.1(d) and shall be duly authorized, validly issued,
fully paid and nonassessable, and shall be issued in conformity with all
applicable state and federal securities laws. The authorized capital of
RoweCan consists of an unlimited number of RoweCan Common Shares, an
unlimited number of RoweCan Class A Preferred Shares and an unlimited
number of RoweCan Class B Preferred Shares of which, at the date hereof,
1,611,569 RoweCan Common Shares (and no more), 1,611,568 RoweCan Class A
Preferred Shares (and no more) and 1,186,240 RoweCan Class B Preferred
Shares (and no more) shall be owned of record and beneficially as reflected
on Schedule 3.1(d) and shall be duly authorized, validly issued, fully paid
and nonassessable, and shall be issued in conformity with all applicable
provincial, state and federal securities laws.
(e) Options, etc. Except for the Purchasers' rights hereunder, and under the
-------------
Class A Exchange Option with respect to the exchange of the RoweCan Class A
Preferred Shares into Class A-1 Preferred Shares and under the Class B
Exchange Option with respect to the exchange of the RoweCan Class B
Preferred Shares into Class B Preferred Shares, and except as disclosed in
Schedule 3.1(e), no Person has any option, warrant, right, call,
commitment, conversion right, right of exchange or other agreement or any
right or privilege (whether by law, pre-emptive or contractual) capable of
becoming an option, warrant, right, call, commitment, conversion right,
right of exchange or other agreement (i) for the purchase from the Company
or from RoweCan of any of the Purchased Shares; or (ii) for the purchase,
subscription, allotment or issuance of any of the unissued shares in the
capital of the Company or of RoweCan or of any securities of the Company or
of RoweCan.
(f) Dividends and Distributions. Except as disclosed on Schedule 3.1(f), since
---------------------------
the date of the Financial Statements, neither the Company nor RoweCan has,
directly or indirectly, declared or paid any dividends or declared or made
any other distribution on any of its shares of any class and has not,
directly or indirectly, redeemed, purchased or otherwise acquired any of
its shares of any class or agreed to do so.
(g) Subsidiaries. The Company has no Subsidiaries other than RoweCan or
------------
agreements of any nature to acquire any Subsidiary or acquire or lease any
other business operations. RoweCan has no Subsidiaries and has no
agreements of any nature to acquire any Subsidiary or acquire or lease any
other business operations.
(h) Corporate Records.
-----------------
(i) The Corporate Records of the Company are complete and accurate and all
corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all Laws and with the Second
Amended Certificate of Incorporation and by-laws of the Company, and
without limiting the generality of the foregoing, (i) the minute books
contain complete and accurate minutes of all meetings of the directors
and stockholders of the Company held since the
<PAGE>
incorporation of the Company, and all such meetings were duly called
and held; (ii) the minute books contain all written resolutions passed
by the directors and stockholders of the Company and all such
resolutions were duly passed; (iii) the stock certificate books,
register of stockholders and register of transfers of the Company are
complete and accurate, and all such transfers have been duly completed
and approved and any exigible tax payable in connection with the
transfer of any securities of the Company has been duly paid; and (iv)
the registers of directors and officers are complete and accurate and
all former and present directors and officers of the Company were duly
elected or appointed, as the case may be.
(ii) The Corporate Records of RoweCan are complete and accurate and all
corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all Laws and with the Amended
Articles of Incorporation and by-laws of RoweCan, and without limiting
the generality of the foregoing: (i) the minute books contain complete
and accurate minutes of all meetings of the directors and shareholders
of RoweCan held since the incorporation of RoweCan, and all such
meetings were duly called and held; (ii) the minute books contain all
written resolutions passed by the directors and shareholders of
RoweCan and all such resolutions were duly passed; (iii) the share
certificate books, register of shareholders and register of transfers
of RoweCan are complete and accurate, and all such transfers have been
duly completed and approved and any exigible tax payable in connection
with the transfer of any securities of RoweCan has been duly paid; and
(iv) the registers of directors and officers are complete and accurate
and all former and present directors and officers of RoweCan were duly
elected or appointed, as the case may be.
(i) Validity of Agreement. Each of the Company and RoweCan has all necessary
---------------------
corporate power to enter into and perform its obligations under this
Agreement and the Ancillary Agreements to which it is a party. The
execution and delivery and performance by each of the Company and RoweCan
of this Agreement and the Ancillary Agreements to which each is a party and
the consummation of the transactions contemplated thereby:
(i) have been duly authorized by all necessary corporate action on the
part of the Company and of RoweCan; and
(ii) do not (or would not with the giving of notice, the lapse of time or
the happening of any other event or condition) result in a violation
or a breach of, or a default under or give rise to a right of
termination, greater rights or increased costs, amendment or
cancellation or the acceleration of any obligation under (A) any
charter or by-law instruments of the Company or of RoweCan; (B) any
Contracts, instruments or other agreements to which either of the
Company or RoweCan is a party or by which either of them is bound; or
(C) any Laws applicable to either of the Company or RoweCan.
<PAGE>
Each of this Agreement and any Ancillary Agreement to which either the Company
or RoweCan is a party constitutes legal, valid and binding obligations of the
Company or of RoweCan enforceable against each of them in accordance with its
terms, subject only to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are
considered an adequate remedy; and
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting the enforceability of creditors' rights.
Except as set forth in the Second Amended Stockholders' Agreement and the
Amended RoweCan Shareholders' Agreement, no stockholder has any preemptive
rights or rights of first refusal by reason of or in connection with the
issuance of the Purchased Shares. The Purchased Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will be free of any Encumbrances. The Common Shares
issuable upon conversion of the Purchased Shares have been duly and validly
reserved (and are in addition to any other shares reserved for any other
purpose) and are not subject to any preemptive rights or rights of first refusal
and, upon such issuance, will be validly issued, fully paid and nonassessable.
(j) Restrictive Documents. Neither the Company nor RoweCan is subject to, or a
---------------------
party to, any charter or by-law restriction, any Law, any Claim, any
Contract, instrument or other agreement, any Encumbrance or any other
restriction of any kind or character which would prevent the consummation
of the transactions contemplated by this Agreement or any Ancillary
Agreement or compliance by the Company or of RoweCan with the terms,
conditions and provisions hereof or thereof or the continued operation of
the Business by the Company or of RoweCan after the date hereof on
substantially the same basis as heretofore operated or which would restrict
the ability of the Purchasers to acquire any of the Purchased Shares, in
each case except for:
(i) the necessity of obtaining the Consents; and
(ii) the necessity of passing the appropriate resolutions of the directors
and shareholders of the Company to permit the transfer of the
Purchased Shares.
Matters Relating to the Assets
- ------------------------------
(k) Title to the Assets. Except as set forth on Schedule 3.1(k), each of the
-------------------
Company and RoweCan has good title to all of its Assets and good and
marketable title in fee simple to its Owned Properties. Each of the
Company and RoweCan has legal and beneficial ownership of its
<PAGE>
Assets free and clear of all Encumbrances, except for Permitted
Encumbrances. Each of the Company and RoweCan has a valid leasehold title
to all of its Leases.
(l) No Options, etc. No Person has any written or oral agreement, option,
----------------
understanding or commitment, or any right or privilege capable of becoming
such for the purchase from the Company or of RoweCan of any of the Assets,
other than pursuant to purchase orders accepted by the Company or RoweCan
in the ordinary course of their Business.
(m) Accounts Receivable. All Accounts Receivable are bona fide, and, subject
-------------------
to an allowance for doubtful accounts taken in accordance with GAAP,
collectible without set-off or counterclaim.
(n) Real Property.
-------------
(i) Neither the Company nor RoweCan is the owner of, or under any
agreement or option to own, any real property or any interest therein,
other than the Leases; and
(ii) All of the buildings, improvements and fixtures on the Owned
Properties and the Leased Properties (A) were constructed in
accordance with all Laws and with all Authorizations validly issued
pursuant thereto; (B) are in good operating condition and in a state
of good maintenance and repair; and (C) are adequate and suitable for
the purposes for which they are presently being used; and with respect
to each (and to the Owned Properties and the Leased Properties), the
owner has adequate rights of ingress and egress for the operation of
the Business in the ordinary course. None of the Owned Properties,
the Leased Properties or the buildings and fixtures thereon, or the
use, operation or maintenance thereof for the purpose of carrying on
the Business, violates in any material respect, any restrictive
covenant or any provision of any Law or encroaches on any property
owned by any other Person. No condemnation or expropriation
proceeding is pending or, to the best knowledge of each of the Company
and RoweCan, threatened which would preclude or impair the use of any
such property or any part thereof for the purposes for which it is
currently used. There are no outstanding work orders with respect to
any of the Assets from or required by any municipality, police
department, fire department, sanitation, health or safety authorities
or from any other Person and there are no matters under discussion
with or by the Company or RoweCan relating to work orders.
(o) Leases. Each Lease is in good standing, creates a good and valid leasehold
------
estate in the Leased Properties thereby demised and is in full force and
effect without amendment thereto, except as disclosed in Schedule 3.1(o).
With respect to each Lease, (i) all rents and additional rents due to the
date hereof have been paid, (ii) neither the lessor, to the best of the
knowledge of the Company or RoweCan, nor the lessee is in default
thereunder, (iii) no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor, (iv) there exists no
event of default or event, occurrence, condition or act (including the
purchase of the Purchased Shares hereunder) which, with the giving of
notice, the lapse of time or the happening
<PAGE>
of any other event or condition, would become a default under such Lease,
(v) neither the Company nor RoweCan has violated any of the terms or
conditions under any such Lease in any material respect, and (vi) to the
best knowledge of the Company and of RoweCan, all of the covenants to be
performed by any other party under any such Lease have been fully
performed. Each of the Leased Properties is in a state of good maintenance
and repair, normal wear and tear excepted, and is adequate and suitable for
the purposes for which it is currently being used and is presently proposed
to be used. True, correct and complete copies of the Leases have been
provided to the Purchasers. Schedule 3.1(o) contains a true, correct and
complete list of all of the Leases, together with a brief and accurate
description of each Lease, including a description of the leased premises,
the term of the Lease, the rental payments under the Lease (specifying any
breakdown of base rent and additional rents), any rights of renewal and the
term thereof, and any restrictions on assignment.
(p) No Breach of Contracts. Each of the Contracts listed in Schedule 3.1(p) is
----------------------
in full force and effect, unamended, and there exists no default or event
of default or event, occurrence, condition or act (including the purchase
of the Purchased Shares hereunder) which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would
become a default or event of default thereunder, except for the necessity
of obtaining the Consents, which Consents are listed in Schedule 3.1(p).
Neither the Company nor RoweCan has violated or breached, in any material
respect, any of the terms or conditions of any Contract, and to the best of
the knowledge of the Company and of RoweCan, all the covenants to be
performed by any other party thereto have been fully performed. True,
correct and complete copies of all Contracts listed in Schedule 3.1(p) have
been delivered to the Purchasers.
(q) Intellectual Property Rights. The Intellectual Properties used in whole or
----------------------------
in part in, or required for the carrying on of, the Business in the manner
heretofore carried on are set out in Schedule 3.1(q) (other than "off the
shelf" or standard products) and are owned by, or validly licensed to, the
Company or to RoweCan as indicated in Schedule 3.1(q). Except as otherwise
expressly stated in Schedule 3.1(q), the Company (i) has the exclusive
right to use such Intellectual Properties, (ii) is the owner of record of
such Intellectual Properties, and (iii) has not conveyed, assigned or
encumbered any of them. All registrations and filings necessary to
preserve the rights of the Company and of RoweCan in the Intellectual
Properties have been made and are in good standing. Except as disclosed on
Schedule 3.1(q), to the best of the knowledge of each of the Company and
RoweCan the conduct of the Business does not infringe upon the intellectual
properties of any other Person. Except as disclosed on Schedule 3.1(q),
there are no outstanding options, licenses or agreements of any kind
relating to the Intellectual Properties, nor is the Company or RoweCan
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and
processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard
products. Except as disclosed on Schedule 3.1(q), neither the Company nor
RoweCan has received any communications alleging that the Company or
RoweCan has violated or, by conducting its business as presently proposed,
would violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity. Except as disclosed on Schedule 3.1(q), neither the Company nor
<PAGE>
RoweCan is aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court of
administrative agency, that would materially interfere with their duties to
the Company or RoweCan or that would conflict with the Company's or
RoweCan's Business as presently proposed to be conducted. Except as
disclosed on Schedule 3.1(q), neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's and RoweCan's Businesses by
the employees of the Company, nor the conduct of the Company's and
RoweCan's Businesses as presently proposed, will, to the Company's or
RoweCan's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any Contract,
covenant or instrument under which any employee of the Company or RoweCan
is now obligated. Except as disclosed on Schedule 3.1(q), neither the
Company nor RoweCan believes it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or RoweCan, except
for inventions, trade secrets or proprietary information that have been
assigned to the Company or RoweCan employing such employee. Except as
disclosed on Schedule 3.1(q), each employee of the Company or RoweCan has
entered into an agreement with the Company or RoweCan, as the case may be,
assigning all of such employee's rights to Intellectual Property created in
the employ of the Company or RoweCan, as the case may be, to the Company or
RoweCan, respectively, and covenanting to maintain the confidentiality of
all Intellectual Property of the Company and RoweCan and to use the
Company's and RoweCan's Intellectual Property only as authorized by the
Company or RoweCan, respectively, and not for the benefit of employee or
any third party.
(r) Condition of Equipment. All tangible personal property forming part of the
----------------------
Assets, including furniture, and office and computer equipment, whether
owned or leased, are in good operating condition and are in a state of good
repair and maintenance having regard to the age and use thereof, reasonable
wear and tear and obsolescence excepted.
Financial Matters
- -----------------
(s) Financial Statements. The Financial Statements and the Interim Financial
--------------------
Statements have been prepared in accordance with GAAP applied on a basis
consistent with those of previous fiscal years and present fairly:
(i) the Assets, liabilities (whether denied, absolute, contingent or
otherwise) and financial position of each of the Company and RoweCan
as at the respective dates of the relevant statements; and
(ii) the sales and earnings of each of the Company and RoweCan during the
periods covered thereby.
The financial statements to be provided to the Purchasers pursuant to Section
3.2(2) shall contain no material variances from the financial information
previously provided to the Purchasers.
<PAGE>
As at the date hereof, there are no liabilities, absolute or contingent of the
Company and RoweCan save and except for liabilities set forth in the Interim
Financial Statements, liabilities set forth in the Contracts listed in Schedule
3.1(p) or in Contracts which, by the terms of Section 3.1 (ab) are not required
to be disclosed, liabilities incurred in the ordinary course since the date of
the Interim Financial Statements and liabilities set forth in the Accounts
Payable and Accrued Liabilities listed in Schedule 3.1(t).
True, correct and complete copies of the Financial Statements and the Interim
Financial Statements are attached as Schedule 3.1(s).
(t) Accounts Payable and Accrued Liabilities. The aggregate amount of Accounts
----------------------------------------
Payable for each of the Company and RoweCan as of September 30, 1998 does
not exceed the amount set out in Schedule 3.1(t).
(u) Taxes. As of the date hereof, each of RoweCan and the Company has filed or
-----
caused to be filed, within the times and within the manner prescribed by
Law, all federal, provincial, local, state and foreign tax returns and tax
reports which are required to be filed by or with respect to each of them.
The information contained in such returns and reports is correct and
complete and such returns and reports reflect accurately all liability for
taxes of the Company and of RoweCan for the periods covered thereby. As of
the date hereof, all federal, provincial, local, state and foreign income,
profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) that are or may become
payable by or due from each of the Company and RoweCan have been fully paid
or fully disclosed and fully provided for in the Books and Records, the
Financial Statements and the Interim Financial Statements. The federal
income tax liability of RoweCan has been assessed for all fiscal years to
and including its fiscal year ended December 31, 1997. As of the date
hereof, no examination of any tax return of either of the Company or
RoweCan is currently in progress, there are no outstanding agreements or
waivers extending the statutory period providing for an extension of time
with respect to the assessment or re-assessment of tax or the filing of any
tax return by, or any payment of any tax by either of the Company or
RoweCan, and there are no Claims now threatened or pending against either
of the Company or RoweCan in respect of taxes or any matters under
discussion with any Governmental Entity relating to taxes. As of the date
hereof, each of the Company and RoweCan has withheld from each payment made
by it the amount of all taxes and other deductions required to be withheld
therefrom and has paid the same to the proper taxing or other authority
within the time prescribed under any Law. The cumulative tax losses set
forth on Schedule 3.1(u) are true, correct and complete for the Company as
at the date hereof. The Company and RoweCan have withheld or collected
from each payment made to each of their employees, the amount of all taxes
(including, but not limited to, state income taxes, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes, and any Canadian withholding taxes) required to be withheld or
collected therefrom, and has paid the same to the proper tax receiving
officers or authorized depositaries.
Particular Matters Relating to RoweCan's Business
- -------------------------------------------------
(v) Eligibility.
-----------
<PAGE>
(i) RoweCan is a taxable Canadian corporation within the meaning of the
Income Tax Act (Canada);
(ii) RoweCan carries on no business other than the Business;
(iii) RoweCan has been in active business (as such term is defined in the
Income Tax Act (Canada)) for at least two years or, where RoweCan
has been carrying on business for less than two years, throughout
such shorter period of time;
(iv) at least 50% of RoweCan's full-time employees are employed
in Ontario;
(v) at least 50% of the wages and salaries paid by RoweCan are
paid to employees whose ordinary place of employment is a permanent
establishment of RoweCan located in Ontario;
(vi) not less than 90% of the fair market value of the property of
RoweCan is attributable to property used in RoweCan's Business;
(vii) RoweCan and all corporations related to it (as the term "related" is
defined in the Income Tax Act (Canada)) have 500 or fewer employees;
and
(viii) the carrying value of the total assets (determined in accordance
with GAAP on a consolidated or combined basis, where applicable) of
RoweCan and all corporations related to it (determined in accordance
with the Income Tax Act (Canada)) together with the amount of the
aggregate subscription price for the Purchased Shares does not
exceed $50,000,000.
(w) Sufficiency of Assets. The Assets include all rights and property
---------------------
necessary to the conduct of the Business by the Company and RoweCan
substantially in the manner currently carried on by each of them and
presently proposed to be conducted by them.
(x) No Material Adverse Change. Since the date of the Financial Statements
--------------------------
there has been no change in the affairs, assets, liabilities, business,
prospects, operations or conditions of any of the Company or RoweCan or the
Business, financial or otherwise, whether arising as a result of any
legislative or regulatory change, revocation of any license or right to do
business, fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation, act of God, public force or otherwise,
which has materially adversely affected or which will materially adversely
affect any of the Company, RoweCan or the Business.
(y) Compliance with Laws. Each of the Company and RoweCan is conducting its
--------------------
Business in compliance with all applicable Laws of each jurisdiction in
which its Business is carried on, except for acts of non-compliance which
in the aggregate are not material.
(z) Environmental Disclosure.
------------------------
<PAGE>
(i) Each of the Company and RoweCan has at all times received, handled,
generated, used, stored, deposited, labelled, treated, documented,
transported and disposed of any Hazardous Substances in compliance
with all applicable Environmental Laws, approvals or Authorizations,
except as set forth in Schedule 3.1(z).
(ii) None of the Owned Properties or Leased Properties has ever been used
by any Person as a landfill site, a waste disposal site or as a
location for the disposal of Hazardous Substance or waste and has
ever had urea formaldehyde foam insulation, asbestos, PCB waste,
radioactive substances or aboveground or underground storage
vessels, active or abandoned, located thereon.
(iii) Neither the Company nor RoweCan has been required by any
Governmental Entity to:
(A) alter its properties in a material way in order to be in
compliance with Environmental Laws;
(B) remove any material from any of the Leased Properties; or
(C) perform any remedial studies, investigations, closure,
decommissioning, rehabilitation, restoration and post-remedial
studies, investigations or monitoring on, about or in connection
with any of the Leased Properties.
(iv) The Assets of the Company and of RoweCan are capable of being
operated at maximum production levels in accordance with
Environmental Laws.
(aa) Authorizations. Each of the Company and RoweCan owns, holds, possesses or
--------------
lawfully uses in the operation of the Business all Authorizations which are
in any manner necessary for it to conduct the Business as presently or
previously conducted or for the ownership and use of the Assets, free and
clear of all Encumbrances and in compliance with all Laws applicable
thereto. All such Authorizations are listed and described in Schedule
3.1(aa) and neither the Company nor RoweCan is in default, nor has it
received any notice of any Claim in default, with respect to any such
Authorizations. All such Authorizations are renewable by their terms or in
the ordinary course of business without the need for the Company or RoweCan
to comply with any special qualification or procedures or to pay any
amounts other than routine filing fees. None of such Authorizations will
be adversely affected by the consummation of the transactions contemplated
hereby, except as set forth in Schedule 3.1(aa). Neither the Company or
RoweCan nor any affiliate of the Company or of RoweCan owns or has any
proprietary, financial or other interests (direct or indirect) in any
Authorization which the Company or RoweCan owns, possesses or uses in the
operation of the Business as now or previously conducted.
(ab) Material Contracts. Schedule 3.1(p) contains a list of all Contracts of
------------------
the Company and of RoweCan which involve the expenditure of more than
$25,000 or which have a term left to run of more than 2 years (the
"Material Contracts"). Except for the Benefit Plans set forth in
<PAGE>
Schedule 3.1(ac)(xi), the Leases set forth in Schedule 3.1(o), the
Intellectual Property Rights set forth in Schedule 3.1(q) and the Contracts
set forth in Schedule 3.1(p), neither the Company nor RoweCan is a party to
or bound by:
(i) any Benefit Plans or any collective agreements;
(ii) any agreement or commitment relating to the borrowing of money;
(iii) any guarantee or other contingent liability in respect of any
indebtedness or other liability or obligation of any other Person
(other than the endorsement of negotiable instruments for collection
in the ordinary course of the Business) other than those disclosed
on Schedule 3.1(ab)(iii);
(iv) any contract or commitment limiting the freedom of the Company or of
RoweCan to engage in any line of business or to compete with any
other Person;
(v) any licensing, distribution or other contract or commitment relating
to Intellectual Properties used by either the Company or of RoweCan
in the conduct of its Business;
(vi) any agreement or commitment not entered into in the ordinary course
of the Business; and
(vii) any agreement or arrangement with any Person with whom the Company
or RoweCan (or their present or former directors, officers and
employees) does not deal at arm's length within the meaning of the
Income Tax Act (Canada).
(ac) Employees.
---------
(i) Each of the Company and RoweCan is in compliance with all Laws
respecting employment and employment practices, terms and conditions
of employment, pay equity and wages and hours and has not and is not
engaged in any unfair labor practice;
(ii) No unfair labor practice, complaint or grievance against either the
Company or RoweCan is pending or, to the best of the knowledge of
the Company and RoweCan, threatened before any labor relations board
or similar Governmental Entity with respect to the Business;
(iii) There is no labor strike, dispute, slowdown or stoppage actually
pending or involving or, to the best of the knowledge of the Company
and of RoweCan, threatened against either of the Company or RoweCan
with respect to its Business;
(iv) No union representation question exists respecting the employees of
either the Company or RoweCan in connection with its Business and no
collective
<PAGE>
bargaining agreement is in place or currently being negotiated by
the Company or by RoweCan except as disclosed in Schedule
3.1(ac)(iv);
(v) No grievance which might have an adverse effect upon either of the
Company or RoweCan or the conduct of its Business exists, no
arbitration proceeding arising out of or under any collective
agreement is pending, and no claim therefor has been asserted;
(vi) No notice has been received by the Company or RoweCan of any
complaint which has not been resolved filed by any of its employees
claiming that RoweCan or the Company has violated any applicable
employee or human rights or similar legislation, or of any
complaints or proceedings which have not been resolved of any kind
involving the Company or RoweCan or, to the Company's or RoweCan's
knowledge, after due inquiry, any of the employees of the Company or
RoweCan before any labor relations board. There are no outstanding
orders or charges against the Company or RoweCan under any
applicable health and safety legislation. All levies, assessments
and penalties made against the Company or RoweCan pursuant to any
applicable workers' compensation legislation have been paid by the
Company or RoweCan, as applicable, and the Company and RoweCan have
not been reassessed under any such legislation except such as has
been resolved;
(vii) Schedule 3.1(ac)(vii) contains a complete list of all permanent and
full time employees of each of the Company and RoweCan, their
salaries and wage rates, bonus arrangements, benefits, positions and
length of service. Schedule 3.1(ac)(vii) provides a correct and
complete list showing all amounts due or accrued due for all salary,
wages, bonuses, commissions, vacation with pay, pension benefits or
other employee benefits relating to all employees;
(viii) Except as set forth in Schedule 3.1(ac)(viii), no employee of the
Company or of RoweCan has any agreement as to length of notice
required to terminate his or her employment, other than such as
results by law from the employment of an employee without agreement
as to such notice or as to length of employment;
(ix) All vacation pay (including all banked vacation pay), bonuses,
commissions and other employee benefit payments are reflected and
have been accrued in the Books and Records of the Company and of
RoweCan, as applicable;
(x) The aggregate amount of salaries, pensions, bonuses, or other
remuneration of any nature paid or payable by each of the Company
and RoweCan to or for its present or former officers, directors,
shareholders, employees or Persons not dealing at arm's length (as
such term is defined in the Income Tax Act (Canada)) with them
during the year ended on the date of the Financial Statements, are
as set out in Schedule 3.1(ac)(vii) and, since that date, such
payments have been made at no greater rates;
<PAGE>
(xi) The only benefit plans existing in respect of the employees of the
Company and of RoweCan are the Benefit Plans disclosed on Schedule
3.1(ac)(xi). True, correct and complete copies of all written
Benefit Plans and related documentation have been provided to the
Purchasers and any oral or written Benefit Plans are accurately
described on Schedule 3.1(ac)(xi). The Benefit Plans are duly
registered where required by, and are in good standing under, all
applicable Laws. All required employer and employee contributions
and premiums under the Benefit Plans to the date hereof have been
made, the respective fund or funds established under the Benefit
Plans are funded in accordance with applicable Laws, and no past
service funding liabilities exist thereunder;
(xii) None of the Benefit Plans, nor any trust created thereunder, nor any
trustee or administrator thereof, has engaged in any "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of
the Internal Revenue Code. The 401k plan of the Company (the "401k
Plan") is (A) "qualified" within the meaning of Section 401(a) of
the Internal Revenue Code; (B) no facts or circumstances exist which
would adversely affect the qualified status of the 401k Plan; and
(C) the trust established pursuant to the 401k Plan is tax exempt
under section 501(a) of the Internal Revenue Code. No matter
relating to any of the Benefit Plans is pending before any court or
government agency. Each of the Benefit Plans which is group health
plans, as defined in Section 4980(B) of the Internal Revenue Code,
is in compliance with the requirements of Internal Revenue Code
Section 4980(B) and Part 6 of Subtitle B of Title I of ERISA; and
(xiii) No payments have been made or authorized since the date of the
Financial Statements by either the Company or RoweCan to its
officers, directors, former directors, shareholders or employees or
to any Person not dealing at arm's length (as such term is defined
in the Income Tax Act (Canada)) with any of the foregoing, except in
the ordinary course of the Business and at the regular rates payable
to them of salary, pension, bonuses, rents or other remuneration of
any nature.
(ad) Insurance. Each of the Company and RoweCan maintains insurance policies
---------
with responsible insurers as are appropriate to the Business and Assets in
such amounts and against such risks as are customarily carried and insured
against by prudent owners of comparable businesses and assets. All such
policies of insurance coverage are in full force and effect. Neither the
Company nor RoweCan is in default with respect to any of the provisions
contained in any such insurance policy and has not failed to give any
notice or present any claim under any such insurance policy in due and
timely fashion. A summary of such policies is contained in Schedule
3.1(ad).
(ae) Litigation. Other than as set forth in Schedule 3.1(ae) there is no
----------
action, suit or proceeding, at law or in equity, by any Person, nor any
arbitration, administrative or other
<PAGE>
proceeding by or before (or, to the best of the knowledge of the Company
and of RoweCan, any investigation by) any Governmental Entity pending, or,
to the best of the knowledge of the Company and of RoweCan, threatened
against or affecting either of the Company or RoweCan or any of its
properties or rights or any of the Assets, and neither the Company nor
RoweCan knows of any valid basis for any such action, suit, proceeding,
arbitration or investigation. Neither the Company nor RoweCan is subject to
any judgment, order or decree entered in any lawsuit or proceeding.
(af) Shareholder Loans. Schedule 3.1(af) contains a true, correct and complete
-----------------
list of all Shareholder Loans including the amount owing and the terms
applicable thereto.
(ag) No Insolvency Proceeding. Neither the Company nor RoweCan has made any
------------------------
assignment for the benefit of its creditors nor has any receiving order
been made against it under any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws, nor has any petition for such
an order been served upon it, nor has it attempted to take the benefit of
any legislation with respect to financially distressed debtors, nor, after
giving effect to this financing, is an insolvent person within the meaning
of the Bankruptcy and Insolvency Act (Canada) or under any applicable
bankruptcy legislation.
(ah) Full Disclosure. Neither this Agreement nor any Ancillary Agreement or any
---------------
certificate or statement in writing which has been supplied by or on behalf
of the Company or RoweCan or by any of the directors, officers or employees
of the Company or of RoweCan in connection with the transactions
contemplated hereby contains any untrue statement of a material fact, or
omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact
known to the Company or to RoweCan which materially and adversely affects
the affairs, businesses, prospects, operations or conditions of the Company
or of RoweCan, financial or otherwise, or the Business or the Assets, which
has not been set forth in this Agreement.
(ai) Conduct of Business. Except as disclosed on Schedule 3.1(ai), since the
-------------------
date of the Financial Statements the Business has been carried on in the
ordinary course and neither the Company nor RoweCan has, other than
disclosed in writing to the Purchasers:
(i) incurred any liability, obligation or expenditure of any nature
(whether accrued, absolute, contingent or otherwise) or committed to
make or perform any capital expenditures or maintenance or repair
projects, except for (A) liabilities, obligations or expenditures
incurred or made in the ordinary course of the Business or deferred
income taxes or income tax credits; and (B) capital expenditures or
maintenance or repair projects that do not exceed $25,000 on a per-
item basis or $100,000 in the aggregate;
(ii) made any bonus or profit sharing distribution or payment of any
kind;
(iii) drawn down on any operating line, increased its indebtedness for
borrowed money or made any loan to any Person;
<PAGE>
(iv) written off as uncollectible any notes or Accounts Receivable
exceeding $25,000 in the aggregate;
(v) cancelled or waived any claims or rights of the Company or of
RoweCan having a value greater than $25,000;
(vi) granted any increase in the rate of wages, salaries, bonuses or
other remuneration to any executive or other employee;
(vii) entered into any transaction with a Person not dealing at arm's
length;
(viii) made any change in any method of accounting or auditing practice;
(ix) agreed, whether or not in writing, to do any of the foregoing.
(aj) Small Business Concern. The Company is a "small business concern" within
----------------------
the meaning of the federal Small Business Investment Act of 1958, as
amended, and the regulations thereunder, and Part 121 of Title 13 of the
United States Code of Federal Regulations. The information set forth on
SBA Forms 480, 652 and 1031 furnished by the Company to the Purchasers that
are Small Business Investment Companies ("SBICs") is complete and correct
in all material respects. Furthermore, as long as any SBIC is an investor
in the Company, the Company will provide the SBIC any information that is
reasonably requested by the SBA. The Company will provide SBA examiners
access to its books and records for SBA audit purposes in accordance with
normal SBA procedures.
3.2 Covenants of the Company and of RoweCan.
(1) The Company hereby covenants that in addition to the restrictions
contained in the Second Amended Stockholders' Agreement, it will not use and
does not intend to use the proceeds received from the Purchasers as the
subscription price for the purpose of investment in land (except land that is
incidental and ancillary to the Company's Business).
(2) Unless the Company shall have closed a Qualified IPO (as defined in the
Second Amended Certificate of Incorporation) within ninety days from the date
hereof, each of the Company and/or RoweCan shall provide the audited
consolidated and unconsolidated financial statements for the year ended December
31, 1998 to the Purchasers no later than ninety days from the date hereof.
(3) The Company shall use funds received from the Purchasers in
satisfaction of the subscription price substantially in the manner set forth in
Schedule 3.2.
3.3 Conduct of Business Prior to Closing. Prior to the Closing Date, each of
the Company and RoweCan shall conduct the Business in the ordinary course
thereof unless the Company or
<PAGE>
RoweCan, as the case may be, has been given the prior written consent of all of
the Purchasers to do otherwise. Without limiting the generality of the
foregoing:
(a) Each of the Company and RoweCan will continue to maintain and service
the Assets used in the conduct of the Business in the same manner as has been
its consistent past practice.
(b) Each of the Company and RoweCan shall use its best efforts to keep
available the services of the present employees and agents of the Business and
to maintain the relations and goodwill with the suppliers, customers,
distributors and any others having business relations with the Business.
(c) Each of the Company and RoweCan shall use its best efforts to conduct
the Business in such a manner that on the Closing Date the representations and
warranties of the Corporation and of RoweCom contained in this Agreement shall
be true, correct and complete as if such representations and warranties were
made on and as of such date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
4.1 Representations and Warranties of the Purchasers. Each Purchaser
represents and warrants, severally and not jointly, as follows to the Company
and to RoweCan and acknowledges and confirms that the Company and RoweCan are
relying on such representations and warranties in connection with the sale by
the Company and by RoweCan of the Purchased Shares:
(a) Due Incorporation and Existence. Such Purchaser, if not a natural person,
-------------------------------
is duly formed or organized, validly existing and in good standing under
the laws of the jurisdiction of its organization or formation.
(b) Validity of Agreement. Such Purchaser has all requisite power and
---------------------
authority to enter into and to perform its obligations under this Agreement
and the Ancillary Agreements to which it is a party. The execution,
delivery and performance by such Purchaser of this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all
necessary action on the part of such Purchaser. This Agreement and the
Ancillary Agreements to which it is a party constitute legal, valid and
binding obligations of such Purchaser enforceable against it in accordance
with their respective terms, subject only to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are
considered an adequate remedy; and
<PAGE>
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting the enforceability of creditors' rights.
Such Purchaser is an "accredited investor" within the meaning of that term as
defined in Rule 501(a) promulgated under the Securities Act.
(c) Restrictive Documents. Such Purchaser is not subject to, or a party to,
---------------------
any charter or by- law restriction, any Law, any Claim, any contract or
instrument, any Encumbrance or any other restriction of any kind or
character which would prevent consummation of the transactions contemplated
by this Agreement.
(d) Investment. The Purchased Shares purchased by such Purchaser will be
----------
acquired for investment for such Purchaser's own account and not with a
view to the distribution of any part thereof. Such Purchaser does not have
any contract, undertaking, agreement or arrangement with any Person to
sell, transfer or grant participations to such Person or to any third
person, with respect to any of the Purchased Shares.
(e) Restricted Securities. Such Purchaser understands that the Purchased
---------------------
Shares may not be sold, transferred or otherwise disposed of without
registration under the Securities Act, or an exemption therefrom, and that
in the absence of an effective registration statement covering the
Purchased Shares or an available exemption from registration under the
Securities Act, the Purchased Shares must be held indefinitely. In the
absence of an effective registration statement covering the Purchased
Shares such Purchaser will sell, transfer, or otherwise dispose of the
Purchased Shares only in a manner consistent with its representations and
agreements set forth herein.
(f) Financial Condition. Such Purchaser's financial condition is such that it
-------------------
is able to bear the risk of holding the Purchased Shares for an indefinite
period of time and can bear the loss of its entire investment in its
Purchased Shares.
(g) Experience. Such Purchaser has such knowledge and experience in financial
----------
and business matters and in making high risk investments of this type that
it is capable of evaluating the merits and risks of the purchase of its
Purchased Shares.
(h) Receipt of Information. Such Purchaser has been furnished access to the
----------------------
business records of the Company and such additional information and
documents as such Purchaser has requested and has been afforded an
opportunity to ask questions of and receive answers from representatives of
the Company concerning the terms and conditions of this Agreement, the
purchase of the Purchased Shares, the Company's business, operations,
market potential, capitalization, financial condition and prospects, and
all other matters deemed relevant by such Purchaser, without prejudice to
the representations and warranties of the Company in this Agreement.
<PAGE>
(i) Brokerage. No broker, agent or other intermediary acted for such Purchaser
---------
in connection with the sale of the Purchased Shares and such Purchaser
shall indemnify and save harmless the Company and the other Purchasers from
and against any Claims whatsoever for any commission or other remuneration
payable or alleged to be payable to any broker, agent or other intermediary
who purports to act or have acted for such Purchaser.
ARTICLE 5
CONDITIONS OF CLOSING
5.1 Conditions for the Benefit of the Purchasers. The purchase and sale of the
Purchased Shares is subject to the following conditions to be fulfilled or
performed at or prior to the Closing Date, which conditions are for the
exclusive benefit of the Purchasers and may be waived in whole or in part by
agreement of all of the Purchasers:
(a) Truth of Representations and Warranties of each of RoweCan and the Company.
--------------------------------------------------------------------------
The representations and warranties of each of RoweCan and the Company
contained in this Agreement or in any Ancillary Agreement shall be true and
correct as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of such date.
(b) Performance of Covenants by each of RoweCan and the Company. RoweCan and
-----------------------------------------------------------
the Company shall have fulfilled or complied with all covenants contained
in Section 3.2 to be performed or caused to be performed by them at or
prior to the Time of Closing.
(c) Second Amended Stockholders' Agreement. Each of the Company, the
--------------------------------------
Purchasers and the other stockholders of the Company shall have entered
into the Second Amended Stockholders' Agreement.
(d) Second Amended Registration Rights Agreement. Each of the Company,
--------------------------------------------
RoweCan, the Purchasers and the other holders of registration rights from
the Company shall have entered into the Second Amended and Restated
Registration Rights Agreement.
(e) Deliveries. The Company or RoweCan, as applicable, shall have delivered or
----------
caused to be delivered to each of the Purchasers the following in form and
substance satisfactory to the Purchasers:
(i) share certificates representing the Purchased Shares duly made out
in the name of the Purchasers, together with evidence satisfactory
to the Purchasers that the Purchasers have been duly entered upon
the books of the Company as the holders of the Purchased Shares;
<PAGE>
(ii) certified copies of (A) the charter documents and the by-laws of the
Company and of RoweCan; (B) all resolutions of the stockholders, the
board of directors or any duly authorized committee thereof, of the
Company and of RoweCan approving the entering into of this Agreement
and the Ancillary Agreements and the completion of all transactions
contemplated hereunder and thereunder; and (C) all other instruments
evidencing necessary corporate action of the Company and of RoweCan
and of Authorizations, if any, with respect to such matters;
(iii) certificates of the Secretary or an Assistant Secretary of the
Company and of RoweCan certifying the names and true signatures of
their respective officers authorized to sign this Agreement and the
other instruments to be delivered hereunder;
(iv) a certificate of status, compliance, good standing or like
certificate with respect to the Company and RoweCan, issued by
appropriate government officials of the jurisdiction of their
incorporation and of each jurisdiction in which the Company and
RoweCan carries on business as listed in Schedule 3.1(c);
(v) certificates of the President of the Company and and of RoweCan
attesting to the matters set forth in subsections 5.1(a), (b) and
(h);
(vi) an opinion of counsel to the Company and to RoweCan, in form and
substance reasonably satisfactory to the Purchasers and their
counsel, and such other documents as the Purchasers may request;
(vii) the Company's current and complete business plan; and
(viii) the certificate executed by the Company in the form of Exhibit D.
(f) Second Amended Certificate of Incorporation. The Company shall have
-------------------------------------------
obtained the requisite board of director and stockholder approval to amend
and restate its certificate of incorporation in the form of the Second
Amended Certificate of Incorporation and shall have filed the Second
Amended Certificate of Incorporation with the Secretary of State of the
State of Delaware.
(g) Noncompetition Agreements. The Company shall have entered into
-------------------------
Noncompetition Agreements, reasonably acceptable to the Purchasers, with
those Persons set forth on Schedule 5.1(g).
(h) No Material Adverse Change. Neither the Company nor RoweCan shall have
--------------------------
experienced a material adverse change since the date hereof.
<PAGE>
ARTICLE 6
MISCELLANEOUS
6.1 Notices. Any notice, request, consent or other communication hereunder to
any party will be in writing and will be either personally delivered, or sent by
certified mail, return receipt requested, or sent by facsimile, confirmation of
receipt requested, or sent by reputable overnight courier service (charges
prepaid) to the address set forth below such party's signature on the signature
pages hereto. Notices will be deemed to have been given hereunder when
delivered personally; five business days after deposit in the mail; when
confirmation of receipt is received; and one day after deposit with a reputable
overnight courier service.
6.2 Time of the Essence. Time shall be of the essence of this Agreement.
6.3 Brokers. It is understood and agreed that no broker, agent or other
intermediary acted for the Company or for RoweCan in connection with the sale of
the Purchased Shares and the Company and RoweCan shall indemnify and save
harmless the Purchasers from and against any Claims whatsoever for any
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for the Company or
for RoweCan.
6.4 Third Party Beneficiaries. Each Party hereto intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
Person, other than the Parties hereto, and no Person, other than the Parties
hereto, shall be entitled to rely on the provisions hereof in any action, suit,
proceeding, hearing or other forum.
6.5 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein or contained in any
Ancillary Agreement, or made in writing by any Person in connection herewith,
will survive the execution and delivery of this Agreement, regardless of any
investigation made by the Company or any Purchaser or on their behalf.
6.6 Expenses. All fees and expenses of legal counsel and accounting firms
engaged by the Purchasers incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Company regardless of
whether the transactions contemplated hereby are consummated; provided, however,
that the Company shall not be required to pay for any fees of legal counsel and
accounting firms engaged by the Purchasers in excess of $30,000, plus all out-
of-pocket expenses incurred by such counsel or accounting firms.
6.7 Enurement. This Agreement shall enure to the benefit of and be binding
upon the Parties, their successors and any permitted assigns.
6.8 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same agreement.
<PAGE>
[Signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
ROWECOM INC.
By: /s/ Dr. Richard Rowe
-------------------------------------
Name:
Title:
By: /s/ Louis Hernandez, Jr.
-------------------------------------
Name:
Title:
725 Concord Avenue
Cambridge, Massachusetts 02138
Attn: Dr. Richard Rowe, Louis Hernandez, Jr.
Facsimile: (617) 497-6825
<PAGE>
WORKING VENTURES CANADIAN FUND INC.
By: /s/ James Whittaker
-------------------------------
Name:
Title:
250 Bloor Street East, Suite 1600
Toronto, Ontario M4W 1E6
Facsimile: 416-929-2421
Attn: Graham Matthews and James Whittaker
CRYSTAL INTERNET VENTURE FUND, L.P.
By: Crystal Venture, Ltd.
Title: General Partner
By: /s/ Daniel Kellogg
-------------------------------
Name:
Title: Vice President
1120 Chester Avenue
Suite 310
Cleveland, Ohio 44114
Facsimile: 216-263-5518
Attn: Daniel Kellogg
<PAGE>
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP
By: Highland Management Partners III
Limited Partnership
Title: General Partner
By: /s/ Daniel Nova
---------------------------------------
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn: Daniel Nova
HIGHLAND ENTREPRENEURS' FUND III
LIMITED PARTNERSHIP
By: HEF III LLC
Title: General Partner
By: /s/ Daniel Nova
---------------------------------------
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn:
AXIOM VENTURE PARTNERS II
LIMITED PARTNERSHIP
By Axiom Venture Associates II Limited Liability
Company, its General Partner
By: /s/ Sam McKay
---------------------------------------
Name:
Title:
CityPlace II - 17th Floor
185 Asylum Street
Hartford, CT 06103
Facsimile: 860-548-7797
Attn: Sam McKay
<PAGE>
ZERO STAGE CAPITAL VI, L.P.
By Zero Stage Capital Associates VI, LLC, its
General Partner
By: /s/ Stanley Fung
--------------------------------------
Name: Stanley Fung
Title: Managing Member
101 Main Street - 17th Floor
Cambridge, MA 02142
Facsimile: 617-876-1248
Attn: Stanley Fung
[ADDITIONAL INVESTORS]
<PAGE>
EXHIBIT 10.11
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made as of this 11th day of December, 1998, by and among RoweCom
Inc., a corporation incorporated under the laws of Delaware (together with any
successor corporation thereto, the "Company"), Rowe Communications Ltd., a
corporation incorporated under the laws of Ontario ("RoweCan"), each of the
persons listed on Schedule I (the "Class B Investors," and each a "Class B
Investor") and each of the persons listed on Schedule II (the "Class C
Investors," and each a "Class C Investor," and, together with the Class B
Investors, the "Investors," and each an "Investor").
PRELIMINARY STATEMENTS
- ----------------------
A. The Class B Investors have purchased an aggregate of 5,140,371
shares of the Class B Preferred Stock, $.01 par value of the Company ("Class B
Preferred Shares"), pursuant to the terms of that certain Stock Purchase
Agreement, dated May 4, 1998, among the Company, RoweCan and the Class B
Investors (the "Class B Stock Purchase Agreement").
B. Working Ventures Canadian Fund ("WV") has purchased 1,186,240 of
the Class B Preferred Shares of RoweCan (the "RoweCan Class B Preferred Shares")
pursuant to the terms of the Class B Stock Purchase Agreement and WV has
purchased 1,611,568 of the Class A Preferred Shares of RoweCan (the "RoweCan
Class A Preferred Shares") pursuant to the terms of that certain Share Purchase
Agreement, dated April 1, 1997 among RoweCan, the Company and WV.
C. Pursuant to the terms of the Stock Purchase Agreement dated the
date hereof among the Class C Investors, the Company and RoweCan (the "Class C
Stock Purchase Agreement"), the Class C Investors have purchased an aggregate of
4,586,598 shares of the Class C Preferred Stock, $.01 par value of the Company
("Class C Preferred Shares").
D. The Company, RoweCan and the Class B Investors entered into a
Registration Rights Agreement, dated as of May 4, 1998 (the "Amended and
Restated Registration Rights Agreement") which shall be amended and restated by
this Agreement.
E. Pursuant to the Second Amended and Restated Stockholders'
Agreement dated the date hereof among the Company, RoweCan, the Investors and
the Company's stockholders, WV has certain rights to exchange the RoweCan Class
A Preferred Shares and the RoweCan Class B Preferred Shares for securities of
the Company (the "Exchange Options").
<PAGE>
F. It is a condition precedent to the consummation by the Class C
Investors of all of their respective obligations under the Class C Stock
Purchase Agreement that RoweCan, the Company and the Investors enter into this
Agreement.
<PAGE>
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"Amended and Restated Registration Rights Agreement" shall have the
meaning ascribed to such term in the preliminary statements.
"Class B Preferred Shares" shall have the meaning ascribed to such
term in the preliminary statements.
"Class C Preferred Shares" shall have the meaning ascribed to such
term in the preliminary statements.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean the common stock, $.01 par value, of the
Company (or capital stock of any successor corporation to the Company).
"Designated Preferred Shares" shall mean, collectively, shares of
Class B Preferred Shares and Class C Preferred Shares.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended.
"Exchange Options" shall have the meaning ascribed to such term in the
preliminary statements.
"IPO" shall mean the initial public offering of securities of the
Company.
"Long-Form Registration" shall have the meaning ascribed to such term
in Section 2.1.
"Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
"Registrable Shares" shall mean any or all securities of the Company
issued to the Investors or issuable to WV upon exercise of the Exchange Options;
provided, however, that such securities shall be converted into Common Stock
- -------- -------
prior to any registration.
<PAGE>
"RoweCan A Preferred Shares" shall have the meaning ascribed to such
term in the preliminary statements.
"RoweCan B Preferred Shares" shall have the meaning ascribed to such
term in the preliminary statements.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
2. DEMAND REGISTRATION RIGHTS.
2.1. Registration Upon Request. Subject to the provisions of Section
2.4 below, at any time, and from time to time after, the earlier of (a) January
31, 2003 or (b) the date that is six months after the IPO, if the holders of (x)
at least a majority of the Registrable Shares, (y) at least 60% of the Class B
Preferred Shares or (z) at least 60% of the Class C Preferred Shares provide the
Company with a written request for registration under the Securities Act of any
of their Registrable Shares on Form S-1 or any similar long-form registration
("Long-Form Registration"), which request specifies the approximate number of
Registrable Shares requested to be registered and the anticipated per share
price range for such offering and must result in aggregate proceeds of at least
$10,000,000, then within 10 days after receipt of any such request, the Company
shall give written notice of such requested registration to all other Investors
and shall include in the registration all Registrable Shares with respect to
which the Company has received written requests for inclusion therein within 15
days after the receipt of the Company's notice. Thereafter, subject to the
conditions, limitations and provisions set forth below in Sections 2.3, 2.4 and
5, the Company shall promptly prepare and file, and use its best efforts to
prosecute to effectiveness, an appropriate filing with the Commission of a
registration statement covering all of those Registrable Shares with respect to
which registration under the Securities Act has been requested by the Investors
as provided herein. Subject to the provisions of Section 2.3 below, the Company
may include in any registration pursuant to this Section 2.1 additional shares
of Common Stock for sale for its own account or for the account of any other
Person.
2.2. Selection of Underwriters. If the holders initiating a
registration pursuant to Section 2.1 intend to distribute the Registrable Shares
by means of an underwriting, they shall so advise the Company in their request.
In such event, the right of other holders to participate shall be conditioned on
such holder's participation in such underwriting. If a registration pursuant to
Section 2.1 involves an underwritten offering, the underwriter or underwriters
thereof shall be selected, after consultation with the Company, by Investors
holding a majority of the Registrable Securities requested by the Investors to
be registered, provided that such underwriter
--------
<PAGE>
or underwriters shall be acceptable to the Company. The Company covenants that
it shall not unreasonably withhold its acceptance of any such underwriter or
underwriters.
2.3. Priority of Demand Registration. If a registration pursuant to
Section 2.1 involves an underwritten offering, and the managing underwriter
shall advise the Company in writing that, in its opinion, the number of shares
of Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering, the Company shall include in such
registration, to the extent of the number of shares of Common Stock that the
Company is so advised can be sold in such offering, (i) first, the number of
Registrable Shares requested to be included in such registration by the
Investors whose Designated Preferred Shares shall have been converted into
Common Shares, (ii) second, the number of Registrable Shares requested to be
included in such registration by the Investors whose Class A-1 Preferred Shares
shall have been converted into Common Shares and (iii) third, the other shares
of Common Stock of the Company proposed to be included in such registration, in
accordance with the priorities, if any, then existing among the Company and the
holders of such other securities.
2.4. Limitation on Requests. Notwithstanding anything in this
Section 2 to the contrary, the Investors may not request a registration pursuant
to Section 2.1 during the 180-day period following (i) the closing of the IPO,
(ii) the effective date of any registration statement filed in connection with a
registration pursuant to Section 2.1 or 4.1 or (iii) the effective date of any
registration statement filed in connection with a registration pursuant to
Section 3. The Investors shall be entitled to request no more than four demand
registrations pursuant to Section 2; provided that (i) at least one of such
registrations must be requested by the holders of at least 60% of the Class B
Preferred Shares (a "Required Class B Interest"); (ii) at least one of such
registrations must be requested by the holders of at least 60% of the Class C
Preferred Shares (a "Required Class C Interest"); and (iii) each of a Required
Class B Interest and a Required Class C Interest may request no more than two
such registrations that are not requested by the other of them. A registration
shall not count as one of the permitted registrations pursuant to Section 2
until it has become effective. For purposes of this Agreement, a registration
shall be deemed to have been effected by the Company if the registration
statement relating thereto has been declared effective by the Commission or if
such registration statement, after having been filed with the Commission, is
subsequently withdrawn at the request of the Investors and such request is not
due to a material change in the Company's business or prospects.
3. PIGGYBACK REGISTRATION RIGHTS.
3.1. Registration. If at any time after the IPO, the Company
proposes to register any of its Common Stock under the Securities Act, whether
for its own account or for the account of any stockholder of the Company or
pursuant to registration rights granted to holders of other securities of the
Company (but excluding in all cases any registrations pursuant to Sections 2 or
4 hereof or any registrations to be effected on Forms S-4 or S-8 or any
applicable successor Forms), the Company shall, each such time, give to the
Investors written notice of its intent to do so. Within 20 days of the receipt
of such notice, the Investors shall have the right to give notice pursuant to
Section 2.1 or 4.1 in which event, the notice given pursuant to this
<PAGE>
Section 3.1 shall be null and void and the notice pursuant to Section 2.1 or 4.1
as the case may be shall be proceeded with. Upon the written request of an
Investor to register its Registrable Shares pursuant to this Section 3.1 given
within 20 days after the giving of any such notice by the Company, the Company
shall use its best efforts to cause to be included in such registration the
Registrable Shares of such Investor, to the extent requested to be registered,
subject to Section 3.2; provided that such Investor agrees to sell those of its
--------
Registrable Shares to be included in such registration in the same manner and on
the same terms and conditions as the other shares of Common Stock which the
Company purposes to register.
3.2. Priority of the Company Shares. In connection with any offering
involving an underwriting of shares being issued by the Company or being sold
pursuant to any demand registration rights of any stockholder of the Company,
the Company shall not be required under Section 3.1 to include the Registrable
Shares of any Investor therein unless such Investor accepts and agrees to the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company, and then only in such quantity as will
not, in the opinion of the underwriters, jeopardize the success of the offering
by the Company. If the total number of shares of Common Stock which all selling
stockholders of the Company (including, without limitation, the Investors)
request to be included in any offering exceeds the number of shares which the
underwriters believe to be compatible with the success of the offering, then (A)
if the offering is the IPO, the Company shall include in such registration, to
the extent of the number of shares of Common Stock that the Company is so
advised can be sold in such offering, (i) first, the number of shares of Common
Stock the Company proposes to include in such offering, (ii) second, the number
of Registrable Shares requested to be included in such registration by the
Investors whose Designated Preferred Shares shall have been converted into
Common Shares, (iii) third, the number of Registrable Shares requested to be
included in such registration by the Investors whose Class A-1 Preferred Shares
shall have been converted into Common Shares and (iv) fourth, the other shares
of Common Stock of the Company proposed to be included in such registration by
the holders of such other securities; and (B) if the offering is an offering
other than the IPO, the Company shall include in such registration, to the
extent of the number of shares of Common Stock that the Company is so advised
can be sold in such offering, (i) first, 20% of the number of Registrable Shares
requested to be included in such registration by the Investors whose Designated
Preferred Shares shall have been converted into Common Shares, (ii) second, 20%
of the number of Registrable Shares requested to be included in such
registration by the Investors whose Class A-1 Preferred Shares shall have been
converted into Common Shares, (iii) third, the number of shares of Common Stock
the Company proposed to include in such offering, (iv) fourth, the remaining 80%
of the number of Registrable Shares requested to be included in such
registration by the Investors whose Designated Preferred Shares shall have been
converted into Common Shares, (v) fifth, the remaining 80% of the number of
Registrable Shares requested to be included in such registration by the
Investors whose Class A-1 Preferred Shares shall have been converted into Common
Shares and (vi) sixth, the other shares of Common Stock of the Company proposed
to be included in such registration by the holders of such other securities.
4. FORM S-3 REGISTRATION.
<PAGE>
4.1. Registration Upon Request. The Company shall use its best
efforts to qualify and remain qualified for the use of Form S-3 (or any
applicable successor form) for the registration of its securities under the
Securities Act. At any time that the Company is so qualified, in the event that
the Company shall receive from the Investors holding (a) at least 20% of the
Registrable Shares (b) at least 35% of the shares of Common Stock converted from
the Class B Preferred Shares or (c) at least 35% of the shares of Common Stock
converted from the Class C Preferred Shares a written request that the Company
effect a registration on Form S-3 (or any applicable successor Form), which
request specifies the approximate number of Registrable Shares requested to be
registered and the anticipated per share price range for such offering, which
offering shall provide an aggregate offering price of at least $1,000,000, then
within 10 days after receipt of any such request, the Company shall give written
notice of such requested registration to all other Investors and shall include
in the registration all Registrable Shares with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. Thereafter, subject to the conditions, limitations and
provisions set forth below in Section 4.2, 4.3 and 5, the Company shall promptly
prepare and file, and use its best efforts to prosecute to effectiveness,
appropriate filing with the Commission of a registration statement covering all
of those Registrable Shares with respect to which registration under the
Securities Act has been requested by the Investors as provided herein. Subject
to Section 4.3, the Company may include in any registration pursuant to this
Section 4.1 additional shares of Common Stock for sale for its own account or
for the account of any other Person.
4.2. Selection of Underwriters. If the holders initiating a
registration pursuant to Section 4.1 intend to distribute the Registrable Shares
by means of an underwriting, they shall so advise the Company in their request.
In such event, the right of other holders to participate shall be conditioned on
such holder's participation in such underwriting. If a registration pursuant to
Section 4.1 involves an underwritten offering, the underwriter or underwriters
thereof shall be selected, after consultation with the Company, by Investors
holding a majority of the Registrable Securities requested by the Investors to
be registered, provided that such underwriter or underwriters shall be
--------
acceptable to the Company. The Company covenants that it shall not unreasonably
withhold its acceptance of any such underwriter or underwriters.
4.3. Priority of Demand Registrations. If a registration pursuant to
Section 4.1 involves an underwritten offering, and the managing underwriter
shall advise the Company in writing that, in its opinion, the number of shares
of Common Stock requested to be included in such registration exceeds the number
which can be sold in such offering, the Company shall include in such
registration, to the extent of the number of shares of Common Stock that the
Company is so advised can be sold in such offering, (i) first, the number of
Registrable Shares requested to be included in such registration by the
Investors whose Designated Preferred Shares were converted into Common Shares,
(ii) second, the number of Registrable Shares requested to be included in such
registration by the Investors whose Class A-1 Preferred Shares were converted
into Common Shares and (iii) third, the other shares of Common Stock of the
Company proposed to be included in such registration, in accordance with the
priorities, if any, then existing among the Company and the holders of such
other securities.
<PAGE>
4.4. Limitation on Requests. Notwithstanding anything in this
Section 4 to the contrary, the Investors may not request (a) more than one
registration pursuant to Section 4.1 in any six month period or (b) a
registration pursuant to Section 4.1 during the 180-day period following (i) the
closing of the IPO, (ii) the effective date of any registration statement filed
in connection with a registration pursuant to Section 2.1 or 4.1 or (iii) the
effective date of any registration statement filed in connection with a
registration pursuant to Section 3.
5. DEFERRAL. Notwithstanding anything to the contrary contained in
this Agreement, the Company's obligation to file a registration statement
pursuant to Section 2, 3 or 4 shall be deferred for a period not to exceed 90
days in any 12-month period if the Company, in the good faith judgment of its
Board of Directors, reasonably believes that the filing thereof at the time
requested would materially adversely affect a pending or proposed public
offering of Common Stock, or an acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction, or any negotiations,
discussions or pending proposals with respect thereto.
6. ADDITIONAL OBLIGATIONS OF THE COMPANY.
Whenever the Company is required under Section 2, 3 or 4 to use its
best efforts to effect the registration of any of the Registrable Shares, the
Company shall promptly:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective; provided, however
--------
that the Company shall in no event be obligated to cause any such
registration to remain effective for more than 180 days;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep the registration statement
effective for the period referred to in Section 6(a) and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Investors such number of copies of the registration
statement, each amendment and supplement thereto, the prospectus included
in the registration statement (including each preliminary prospectus), each
in conformity with the requirements of the Securities Act, and such other
documents as the Investor may reasonably request in order to facilitate the
disposition of such Registrable Shares;
(d) Use its best efforts to register and qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions
as shall be reasonably appropriate in the opinion of the Company and the
managing underwriters and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Investor to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such
Investor, provided that the Company shall not be required in connection
--------
<PAGE>
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
and provided further that (anything in Section 8 to the contrary
----------------
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification therein of the
securities be borne by selling stockholders, then the Investors shall, to
the extent required by such jurisdiction, pay its pro rata share of selling
--- ----
expenses;
(e) Notify each holder of Registrable Shares, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such holder,
the Company shall prepare a supplement or amendment to the prospectus so
that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus shall not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading;
(f) Promptly notify the holders of Registrable Shares and the
underwriters, if any, of the following events and (if requested by any such
Persons) confirm such notification in writing: (i) the filing of the
prospectus or any prospectus supplement and the registration statement and
any amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the
declaration of the effectiveness of such document; (ii) any requests by the
Commission for amendments or supplements to the registration statement or
the prospectus or for additional information; (iii) the issuance or threat
of issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose; and (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation or threat
of initiation of any proceeding for such purpose;
(g) Use its best efforts to cause all such Registrable Shares to be
listed on each securities exchange on which similar securities issued by
the Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, used its best efforts to secure designation of all such Registrable
Shares covered by the registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure NASDAQ authorization for such Registrable Shares
and, without limiting the generality of the foregoing, to arrange by its
best efforts for at least two market makers to register as such with
respect to such Registrable Shares with the NASD;
(h) Provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
<PAGE>
(i) Enter into such customary agreements (including, without
limitation, underwriting agreements in customary form) and take all such
other actions as the holders of a majority of the Registrable Shares being
sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Shares (including,
without limitation, effecting a stock split or a combination of shares);
(j) Make available, subject to an applicable non-disclosure or
confidentiality agreement, for inspection by any holder of Registrable
Shares, any underwriter participating in any disposition pursuant to the
registration statement and any attorney, accountant or other agent retained
by any such holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such holder,
underwriter, attorney, accountant or agent in connection with the
registration statement;
(k) Otherwise endeavor to comply with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(l) Permit any holder of Registrable Shares to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to the Company in writing, which in
the reasonable judgment of the holder and its counsel should be included;
(m) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and, in the
event of the issuance of any such stop order, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any security included in such registration statement for
sale in any jurisdiction, the Company shall use its best efforts promptly
to obtain the withdrawal of such order;
(n) Endeavor to cause such Registrable Shares covered by the
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
holders thereof to consummate the disposition of such Registrable Shares;
(o) Cooperate with the selling holders of Registrable Shares and the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Shares to be sold and not bearing any
restrictive legends, and enable such Registrable Shares to be in such lots
and registered in such names as the
<PAGE>
underwriters may request at least two business days prior to any delivery
of Registrable Shares to the underwriters;
(p) Provide a CUSIP number for all Registrable Shares not later than
the effective date of the registration statement; and
(q) Prior to the effectiveness of the registration statement and any
post- effective amendment thereto and at each closing of an underwritten
offering, (i) make such representations and warranties to the selling
holders of such Registrable Shares and the underwriters, if any, with
respect to the Registrable Shares and the registration statement as are
customarily made by issuers to underwriters in primary underwritten
offerings, (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and which opinions shall be reasonably satisfactory
to the underwriters, if any, and to the holders of a majority of the
Registrable Shares being sold) addressed to each selling holder and the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such holders and underwriters or their counsel,
(iii) obtain "cold comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to the selling holders
of Registrable Shares and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary
underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the holders of a majority of the Registrable
Shares being sold and by the underwriters, if any, to evidence compliance
with clause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
7. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 that
the Investors shall furnish to the Company such information regarding the
Investors and the shares of Common Stock held by the Investors as the Company
shall reasonably request and as shall be reasonably required in order to effect
any such registration by the Company.
8. EXPENSES. The Company shall pay all expenses related to the first
four registration statements filed by the Company on a Long-Form Registration
pursuant to Section 2.1, the first eight registrations filed pursuant to Section
4 and all registrations filed pursuant to Section 3, including, without
limitation, all registration and filing fees (including all expenses incident to
filing with the Commission and any applicable national securities exchange or
the National Association of Securities Dealers, Inc.), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
disbursements of the Company's certified independent accounting firm and fees
and disbursements of counsel, including the reasonable fees and disbursements
(in no event in excess of $10,000) of one legal counsel selected by the
Investors holding a majority of the Registrable Shares requested by the
Investors to be registered to represent the Investors as selling stockholder(s)
thereunder (all, collectively, "Registration
<PAGE>
Expenses"); provided, however, that all other expenses of counsel to the sellers
-------- -------
as selling stockholders and underwriting discounts and selling commissions
applicable to the Registrable Shares covered by registrations effected pursuant
to Section 2.1, 3.1 or 4.1 shall be borne by the seller or sellers thereof, in
proportion to the number of Registrable Shares sold by such seller or sellers.
Notwithstanding anything in this Section 8 to the contrary, the Investors
requesting registration shall be required to pay all Registration Expenses
relating to or arising out of the Company being required to effect more than
four registrations on Form S-1 or eight registrations on Form S-3 (or any
applicable successor Forms) pursuant to the provisions of Section 2.1 or 4.1, as
applicable.
9. INDEMNIFICATION. In the event that any Registrable Share of any
Investor is included in a registration statement pursuant to this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless such Investor, its affiliates and their respective officers,
directors, employees and agents, as the case may be, and each Person, if
any, who controls the Investor within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to
which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading; and will reimburse such Investor, its
affiliates and their respective officers, directors, employees and agents
or controlling Person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
-------- -------
agreement contained in this Section 9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, damage, liability or action to the extent that
it arises out of or is based upon an untrue statement or alleged untrue
statement or omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information
furnished to the Company in an instrument duly executed by the Investor or
its officer, director, partner or controlling Person and stated to be
specifically for use in the registration statement, preliminary prospectus,
final prospectus or amendments or supplements thereto.
(b) To the extent permitted by law, the Investor will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed such registration statement and each Person, if any, who
controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling Person may become subject to,
<PAGE>
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary
prospectus contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished to the Company in an instrument duly executed
by such Investor and stated to be specifically for use in such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto; and the Investor will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer
or controlling Person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
-------- -------
indemnity agreement contained in this Section 9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of such Investor
against which the request for indemnity is being made (which consent shall
not be unreasonably withheld); and provided, further, that the obligation
-------- -------
to indemnify shall be individual to such Investor and shall be limited to
the net amount of proceeds received by such Investor from the sale of
Registrable Shares pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party pursuant to this
Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party pursuant to this Section 9, (i) notify the indemnifying
party in writing of the commencement thereof and (ii) unless, in such
indemnified party's reasonable judgement, a conflict of interest between
such indemnified and indemnifying parties exists or is reasonably likely to
arise with respect to such claim, give the indemnifying party the right to
participate in and, to the extent the indemnifying party desires, jointly
with any other indemnifying party similarly noticed, to assume at its
expense the defense thereof with counsel mutually satisfactory to the
parties.
10. LOCKUP. Each Investor hereby agrees that, at the written request
of the Company or any managing underwriter of the initial underwritten public
offering of securities of the Company, if at the time of such initial
underwritten public offering such Investor owns at least 1% of the outstanding
Common Stock of the Company (on an as-if converted basis), such Investor shall
not, without the prior written consent of the Company or such managing
underwriter, sell, make any short sale of, loan, grant any option for the
purchase of, pledge, encumber, or otherwise dispose of or exercise any
registration rights with respect to, any Common Stock (other than publicly
traded shares of Common Stock issued in such initial underwritten public
offering or otherwise) during the period (not to exceed 180 days) requested by
the managing underwriter; provided, that each officer or director of the Company
and each holder of at least one percent of its Common Stock (for this purpose,
calculated on a fully diluted
<PAGE>
basis assuming full exercise of all outstanding options, warrants, and other
rights to acquire shares of Common Stock and full conversion or exchange of all
securities that are convertible into or exchangeable for shares of Common Stock)
shall have entered into a similar agreement.
11. GENERAL.
11.1. Remedies. In case that any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by any party
hereto, the party or parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce its or their rights, either by
suit in equity and/or action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement. The
rights, powers and remedies of the parties to this Agreement are cumulative and
not exclusive of any other right, power or remedy which such parties may have
under any other agreement or law. No single or partial assertion or exercise of
any right, power or remedy of a party hereunder shall preclude any other or
further assertion or exercise thereof.
11.2. Assignment. All covenants and agreements in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto, whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of each
Investor are also for the benefit of, and enforceable by, any subsequent holder
of such Investor's Registrable Shares who consents in writing to be bound by
this Agreement.
11.3. Survival. The rights and obligations of the parties hereto set
forth herein shall survive indefinitely, unless and until, by their respective
terms, they are no longer applicable.
11.4. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous arrangements or understandings with respect thereto;
including, without limitation, the Amended and Restated Registration Rights
Agreement which is hereby terminated.
11.5. Notices. Any notice, request, consent or other communication
hereunder to any party will be in writing and will be either personally
delivered, or sent by certified mail, return receipt requested, or sent by
facsimile, confirmation of receipt requested, or sent by reputable overnight
courier service (charges prepaid) to the address set forth below such party's
signature on the signature pages hereto. Notices will be deemed to have been
given hereunder when delivered personally; five business days after deposit in
the mail; when confirmation of receipt is received; and one day after deposit
with a reputable overnight courier service.
11.6. Amendments and Waivers. Any provision of this Agreement may be
amended, modified or terminated, and the observance of any provision of this
Agreement may be waived (either generally or in a particular instance and either
retrospectively or prospectively), with, but only with, the written consent of
the Company and the Investors holding at least 80% of
<PAGE>
the Registrable Shares held by all Investors; provided that any such amendment
or waiver shall affect all Investors in the same manner.
11.7. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.8. No Waiver of Future Breach. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof. No assent, express or implied, by any party
hereto to any breach in or default of any agreement or condition herein
contained on the part of any other party hereto shall constitute a waiver of or
assent to any succeeding breach in or default of the same or any other agreement
or condition hereof by such other party.
11.9. No Implied Rights or Remedies; Third Party Beneficiaries.
Except as otherwise expressly provided in this Agreement, nothing herein
expressed or implied is intended or shall be construed to confer upon or to give
any Person, firm or corporation, other than the parties hereto and their
respective successor and assigns, any rights or remedies under or by reason of
this Agreement. Except as otherwise expressly provided in this Agreement, there
are no intended third party beneficiaries under or by reason of this Agreement.
11.10. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
11.11. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
11.12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
excluding choice of law rules thereof.
11.13. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
<PAGE>
[Signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
ROWECOM INC.
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
725 Concord Avenue
Cambridge, Massachusetts 02138
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: (617) 497-6825
ROWE COMMUNICATIONS LTD.
By:_______________________________________
Name:
Title:
100 Collip Circle
London, Ontario
N6G 4X8
Attn: Dr. Richard Rowe, Mr. Louis Hernandez
Facsimile: (519) 858-5107
<PAGE>
WORKING VENTURES CANADIAN FUND INC.
By:_______________________________
Name:
Title:
250 Bloor Street East, Suite 1600
Toronto, Ontario M4W 1E6
Facsimile: 416-929-2421
Attn: Graham Matthews and James Whittaker
CRYSTAL INTERNET VENTURE FUND, L.P.
By: Crystal Venture, Ltd.
Title: General Partner
By:_______________________________________
Name:
Title: Vice President
1120 Chester Avenue
Suite 310
Cleveland, Ohio 44114
Facsimile: 216-263-5518
Attn: Daniel Kellogg
PAI, WEI MING CHUNG
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By:_______________________________________
Name: Daniel Kellogg
Title: Vice President
<PAGE>
2 FL, No. 420
Fu-husing N. Road
Taipei, Taiwan ROC
Facsimile: 011-886-22-517-6418
FU KUAN INVESTMENT CORP.
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By:_______________________________________
Name: Daniel Kellogg
Title: Vice President
14FL, No. 22
Ai Kuo E. Road
Taipei, Taiwan ROC
Facsimile: 011-886-22-397-2106
Attn: Irene Su
PURETECH PROFITS LIMITED (BVI)
By: CIVF Management, Ltd.,
attorney in fact pursuant to Power
of Attorney dated _________, 1998
By:_______________________________________
Name: Daniel Kellogg
Title: Vice President
c/o Mr. Y.L. Shen
Suite 2613
26FL
333 Keeiung Road
Sec. 1
Taipei, Taiwan ROC
Facsimile: 011-886-22-757-6931
<PAGE>
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP
By: Highland Management Partners III
Limited Partnership
Title: General Partner
By:_______________________________________
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn:
HIGHLAND ENTREPRENEURS' FUND III
LIMITED PARTNERSHIP
By: HEF III LLC
Title: General Partner
By:_______________________________________
Name:
Title:
Two International Place
Boston, Massachusetts 02110
Facsimile: 617-531-1550
Attn:
AXIOM VENTURE PARTNERS II
LIMITED PARTNERSHIP
By Axiom Venture Associates II Limited Liability
Company, its General Partner
By:______________________________________
Name:
Title:
CityPlace II - 17th Floor
185 Asylum Street
Hartford, CT 06103
<PAGE>
Facsimile: 860-548-7797
Attn: Sam McKay
ZERO STAGE CAPITAL VI, L.P.
By Zero Stage Capital Associates VI, LLC, its
General Partner
By:______________________________________
Name: Stanley Fung
Title: Managing Member
101 Main Street - 17th Floor
Cambridge, MA 02142
Facsimile: 617-876-1248
Attn: Stanley Fung
[ADDITIONAL INVESTORS]
<PAGE>
EXHIBIT 10.16
ELECTRONIC COMMERCE REFERRAL AND
REVENUE SHARING AGREEMENT
This Electronic Commerce Referral And Revenue Sharing Agreement (the
"Agreement") is made as of this 24th Day of August, 1998 (the "Effective Date")
--------- --------------
by and between INTELISYS ELECTRONIC COMMERCE LLC ("Intelisys") and RoweCom,
---------
("RoweCom") (Intelisys and RoweCom each a "Party" and, collectively, the
------- -----
"Parties").
-------
WHEREAS, Intelisys is engaged in the business of providing software
(the "Intelisys Software") and services ("Intelisys Services") to entities
------------------ ------------------
("Intelisys Licensees") engaged in the business of buying and selling goods and
-------------------
services via the Internet;
WHEREAS, RoweCom is engaged in the business of providing business-to-
business electronic commerce services to businesses and not-for-profit
institutions interested in purchasing subscriptions, books and other knowledge
products and services of a professional nature (the "Knowledge Products") and,
------------------
in connection therewith, RoweCom collaborates with such entities to enhance
existing intranet networks to enable such entities to purchase the Knowledge
Products via their intranets (the "RoweCom Services"); and
----------------
NOW, THEREFORE, for and in consideration of the agreements of the
Parties set forth below, Intelisys and RoweCom agree as follows:
ARTICLE 1. OBLIGATIONS OF THE PARTIES
- ---------- --------------------------
1.01 Intelisys Referrals. Within 30 days after the Effective Date and from
-------------------
time to time during the term of this Agreement, Intelisys shall provide RoweCom
Literature to Qualified Intelisys Licensees. "Qualified Intelisys Licensee"
----------------------------
means any Intelisys customer that, to the knowledge of Intelisys, has or may
have a need or desire to purchase Knowledge Products and could use RoweCom
Services in order to enhance their use of Intelisys Software to purchase such
Knowledge Products; provided that Intelisys customers that are already RoweCom
-------------
customers at the time of the referral shall not be considered Qualified
Intelisys Licensees. "RoweCom Literature" means brochures, specifications, sales
------- ----------
materials and form contracts provided by RoweCom.
1.02 RoweCom Referrals. Within 30 days after the Effective Date and from time
-----------------
to time during the term of this Agreement, RoweCom shall provide Intelisys
Literature to Qualified RoweCom Licensees. "Qualified RoweCom Licensee" means
--------------------------
any RoweCom customer that, to the knowledge of RoweCom, could use Intelisys
Software or Intelisys Services in order to enhance their use of RoweCom
Services; provided that RoweCom customers that are already Intelisys customers
at the time of the referral shall not be considered Qualified RoweCom Licensees.
"Intelisys Literature" means brochures, specifications, sales materials and form
--------------------
contracts provided by Intelisys.
1.03 Implementation Plan. As soon as is practicable, but no later than ninety
-------------------
(90) days after the Effective Date:
(a) Intelisys agrees to (i) list RoweCom as a partner on its web site and, as it
deems appropriate, in its
<PAGE>
advertising and promotional materials; (ii) provide, as part of the Intelisys
Software and Intelisys Services, a hyperlink to the web site or web sites
designated by RoweCom; (iii) advise Intelisys Licensees that RoweCom is the
preferred provider of Knowledge Products for the Intelisys Services and list
RoweCom as the default supplier for Knowledge Products in Intelisys Licensees'
directories; (iv) train its sales force regarding the features and benefits of
the Knowledge Products and the RoweCom Services, and represent the Knowledge
Products and the RoweCom Services to Intelisys' clients and prospects as
Intelisys deems appropriate; and (v) facilitate introductions and accompany
RoweCom sales people on sales calls to Intelisys customers as Intelisys deems
appropriate.
(b) RoweCom agrees to (i) list Intelisys as a partner on its web site and, as
RoweCom deems appropriate, in its advertising and promotional materials; and
(ii) provide a hyperlink on such web site to the web site or web sites
designated by Intelisys; and (iii) to train its sales force regarding the
features and benefits of the Intelisys Services, and represent the Intelisys
Services to RoweCom's clients and prospects as RoweCom deems appropriate; and
(iv) facilitate introductions and accompany Intelisys sales people on sales
calls to RoweCom customers as RoweCom deems appropriate.
Any purchases of Knowledge Products made by Qualified Intelisys Licensees
through RoweCom hyperlinks installed in Intelisys Software, Intelisys Services
or Intelisys' web site will qualify for revenue sharing, as described in
Section 2.01. Any Qualified RoweCom Licensee referral generated by the RoweCom
direct sales force will be eligible for revenue sharing as described in
Section 2.01 (a referral from the sales force must include the company name,
contact name and phone number).
1.04 Promotional and Advertising Materials. Each party shall submit to the
-------------------------------------
other for its written approval all advertising and promotional copy prepared
by or on behalf of either party pursuant to Section 1.03 hereof, via overnight
delivery not less than ten (10) days prior to release for use or distribution.
Any submission in response to which the reviewing party shall have delivered
notice of disapproval to the submitting party within such ten (10) day period
shall be deemed disapproved, and the submitting party shall not release such
materials for use or distribution but shall be permitted to resubmit such
samples and/or advertising and promotional materials for approval as necessary
1.05 Service Agreements. RoweCom and Intelisys shall use their best efforts to
------------------
commence negotiations with and enter into an agreement to provide their
respective Services to each of their respective Licensees that requests those
services.
1.06 Development Plan. Intelisys agrees to provide to RoweCom, a description
----------------
of how the Intelisys system integrates with suppliers and a description of the
workflow, along with all documentation necessary for RoweCom to become compliant
with the Intelisys Services. As soon as practicable, but no later than ninety
(90) days after the Effective Date, the parties agree to develop a formula for
metering web site click-through traffic for the purposes of determining Revenue
Sharing Fees (as defined herein) and such formula shall be initialed by both
parties and attached hereto as Exhibit C and shall form part of this Agreement.
------- -
1.07 Software License. Intelisys grants to RoweCom, at no extra charge and
----------------
subject to the terms set forth in the Intelisys Software License Agreement
attached hereto as Exhibit A, a non-exclusive, royalty-free right and license to
------- -
use the Intelisys tool kit software (the "Tool Kit Software"), for the purpose
of modifying the RoweCom Services as required to make such services compliant
with the
-2-
<PAGE>
Intelisys Services. RoweCom will be responsible for its own development costs in
implementing links to the Intelisys Services but may request assistance from
Intelisys if, in RoweCom's reasonable judgment, such assistance is required.
Intelisys shall not charge RoweCom for such assistance but shall be reimbursed
for out of pocket expenses incurred in delivering such assistance.
ARTICLE 2. REVENUE SHARING AND PAYMENTS
- ---------- ----------------------------
2.01 Revenue Sharing.
---------------
(a) RoweCom shall pay to Intelisys, revenue sharing fees in accordance with
Section 2.03 (the "Revenue Sharing Fees") in respect of purchases and
--------------------
licenses of products from, and on-line access or transaction charges for,
services provided by RoweCom that are placed by Qualified Intelisys
Licensees pursuant to RoweCom customer agreements.
(b) Intelisys shall pay to RoweCom, Revenue Sharing Fees in respect of
purchases and license of products from, and on-line access or transaction
charges for services provided by, Intelisys that are placed by Qualified
RoweCom Licensees pursuant to Intelisys customer agreements.
2.02 Quarterly Statements. Within 15 days after the end of each calendar
--------------------
quarter after the Effective Date and for as long as any amounts are due in
accordance with this Article, each Party shall submit to the other a detailed
statement ("Quarterly Statement") that sets forth:
-------------------
(1) In the case of RoweCom as reporting party, each Qualified Intelisys
Licensee that executes a RoweCom customer agreement and, in the case of
Intelisys as reporting party, each Qualified RoweCom Licensee that signs
an Intelisys customer agreement (in each case, a "Customer Agreement");
and
(2) The payments received by such Party during such quarter under all of its
Customer Agreements, irrespective of whether such Customer Agreements were
executed during such quarter.
2.03 Payment. During the Initial Term and any Renewal Term:
-------
(1) RoweCom shall pay Intelisys, upon delivery of each Quarterly Statement, a
Revenue Sharing Fee equal to ***/1/ shown on the Quarterly Statement
delivered by Intelisys. The Fee Revenue used for calculating such payments
shall be determined as set forth on Exhibit B.
------- -
(2) Intelisys shall pay RoweCom, upon delivery of each Quarterly Statement, a
Revenue Sharing Fee equal to ***/2/ shown on the Quarterly Statement
delivered by RoweCom. The Fee Revenue used for calculating such payments
shall be determined as set forth on Exhibit B.
------- -
- --------------------
/1/ Confidential treatment has been requested for this potion of this exhibit.
A complete copy of this exhibit, including the redacted potion, has been
file with the Securities and Exchange Commission separately.
/2/ Confidential treatment has been requested for this potion of this exhibit.
A complete copy of this exhibit, including the redacted potion, has been
file with the Securities and Exchange Commission separately.
-3-
<PAGE>
2.04 Taxes. The amounts payable pursuant to this Article are exclusive of any
-----
tariffs, duties or taxes, however designated, levied or based on this Agreement,
including, without limitation, any sales and use taxes and any state and local
privilege or excise taxes based on either Party's gross revenue. Each party
agrees to pay and be responsible for all sales, use or excise taxes and levies
that pertain to it with respect to this Agreement.
2.05 Retention of Records and Audit Rights.
-------------------------------------
(1) For a period of not less than two years after the termination of this
Agreement, each Party shall maintain, at its own cost, all material data,
files and records pertaining to such Party's performance under this
Agreement and to charges and costs paid or payable by either Party under
this Agreement.
(2) Upon reasonable notice from either Party, the other party shall provide
access to such financial records and supporting documentation as may be
reasonably requested by to audit the Quarterly Statements and any amounts
payable pursuant to Article 2 to verify compliance with the terms of this
---------
Agreement. If, as a result of such audit, either party determines that any
amounts are due, then the auditing Party shall notify the other Party of
such amount and the other Party shall promptly pay such amount, plus
interest at the rate of one half percent per month, but in no event to
exceed the highest lawful rate of interest, calculated from the date of
receipt of such notice. In the event any such audit reveals that either
Party owes an amount in excess of five percent of the actual Revenue
Sharing Fees due, that Party shall reimburse the other Party for the cost
of such audit.
2.06 Late Payments. Payments made after they are due in accordance with
-------------
Section 2.03 shall be subject to an interest equal to one half of one percent
- ------------
per month in respect of the outstanding amount.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
- ---------- ------------------------------
3.01 By Intelisys. Intelisys represents and warrants to RoweCom that:
------------
(1) it is a limited liability company duly organized and validly existing
under the laws of the State of Delaware.
(2) it has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement;
(3) it is financially solvent, able to pay its debts as they mature and
possessed of sufficient working capital to perform all of its duties and
obligations under this Agreement;
(4) it is duly licensed, authorized or qualified to do business and is in good
standing in every jurisdiction in which a license, authorization or
qualification is required for the ownership or leasing of its assets or
the transaction of business of the character transacted by it, except
where the failure to be so licensed, authorized or qualified would not
have a material adverse effect on Intelisys' ability to fulfill its
obligations under this Agreement; and
-4-
<PAGE>
(5) there is no outstanding litigation, arbitrated matter or other dispute to
which Intelisys is a party which would be reasonably expected to have a
potential or actual material adverse effect on Intelisys' or RoweCom's
ability to fulfill its respective obligations under this Agreement.
3.02 By RoweCom. RoweCom represents and warrants to Intelisys that:
----------
(1) it is a corporation duly organized and validly existing under the laws of
the State of Delaware;
(2) it has all requisite power and authority to execute, deliver and perform
its obligations under this Agreement;
(3) it is financially solvent, able to pay its debts as they mature and
possessed of sufficient working capital to perform all of its duties and
obligations under this Agreement;
(4) it is duly licensed, authorized or qualified to do business and is in good
standing in every jurisdiction in which a license, authorization or
qualification is required for the ownership or leasing of its assets or
the transaction of business of the character transacted by it, except
where the failure to be so licensed, authorized or qualified would not
have a material adverse effect on RoweCom's ability to fulfill its
obligations under this Agreement; and
(5) there is no outstanding litigation, arbitrated matter or other dispute to
which RoweCom is a party which would be reasonably expected to have a
potential or actual material adverse effect on RoweCom or Intelisys's
ability to fulfill its respective obligations under this Agreement.
ARTICLE 4. TRADEMARK LICENSE
- --------- -----------------
(1) RoweCom grants to Intelisys a royalty-fee, non-exclusive license to use
and display the logos trademarks and trade names associated with the
RoweCom Services (the "RoweCom Trademarks") solely in connection with the
transactions contemplated by this Agreement. Intelisys shall not use the
RoweCom Trademarks without RoweCom's prior written consent to each such
use. Intelisys acknowledges that the provisions of this Section 4 do not
convey to Intelisys any right, title or ownership interest in the RoweCom
Trademarks.
(2) Intelisys grants to RoweCom a royalty-fee, non-exclusive license to use
and display the logos trademarks and trade names associated with the
Intelisys Software and the Intelisys Services (the "Intelisys Trademarks")
solely in connection with the transactions contemplated by this Agreement.
RoweCom shall not use the Intelisys Trademarks without Intelisys' prior
written consent to each such use. RoweCom acknowledges that the provisions
of this Section 4 do not convey to RoweCom any right, title or ownership
interest in the Intelisys Trademarks.
ARTICLE 5. COVENANTS
- ---------- ---------
5.01 By Intelisys. Intelisys covenants that it shall comply with all federal,
------------
state and local laws and regulations applicable to Intelisys and shall obtain
and maintain all applicable permits and licenses
-5-
<PAGE>
required of Intelisys in connection with its obligations under this Agreement.
5.02 By RoweCom. RoweCom covenants that it shall comply with all federal,
----------
state and local laws and regulations applicable to RoweCom and shall obtain and
maintain all applicable permits and licenses required of RoweCom in connection
with its obligations under this Agreement.
ARTICLE 6. INDEMNITIES
- ---------- -----------
6.01 By Intelisys. Intelisys shall indemnify RoweCom and its officers,
------------
directors, members and employees (the "RoweCom Indemnitees"), from and shall
-------------------
defend the RoweCom Indemnitees against, any damage, liability, loss or expense
(including attorneys' fees and expenses) (collectively, "Damages") relating to
-------
or arising out of any claim:
(1) Relating to the inaccuracy or untruthfulness of any representation or
warranty made by Intelisys under this Agreement.
(2) Relating to any duties or obligations of Intelisys, its employees or
agents accruing after the Effective Date with respect to a third party.
(3) Relating to personal injury or tangible property damage arising out of the
performance of Intelisys under this Agreement, to the extent caused by
Intelisys or its agents.
(4) Any misrepresentation of the Knowledge Products or RoweCom Services to the
extent caused by Intelisys or its agents.
(5) Relating to its violation of any applicable laws or regulations in
performing its obligations hereunder.
(6) Relating to any amounts, including taxes, interest and penalties, assessed
against RoweCom which are the obligation of Intelisys pursuant to
Section 2.06.
------------
Intelisys shall indemnify the RoweCom Indemnitees from any costs and expenses
incurred in connection with the enforcement of this Section.
6.02 By RoweCom. RoweCom shall indemnify Intelisys, and its officers,
----------
directors, employees and members (the "Intelisys Indemnitees"), from, and shall
---------------------
defend the Intelisys Indemnitees against, any Damages relating to or arising out
of any claim:
(1) Relating to the inaccuracy or untruthfulness of any representation or
warranty made by RoweCom under this Agreement.
(2) Relating to any duties or obligations of RoweCom, its employees or agents
accruing after the Effective Date with respect to a third party.
(3) Relating to personal injury or tangible property damage arising out of the
performance of RoweCom under this Agreement, to the extent caused by
RoweCom or its agents.
-6-
<PAGE>
(4) Any misrepresentation of the Intelisys Software or the Intelisys Services
to the extent caused by RoweCom or its agents.
(5) Relating to its violation of any applicable laws or regulations in
performing its obligations hereunder.
(6) Relating to any amounts, including taxes, interest and penalties, assessed
against Intelisys which are the obligation of RoweCom pursuant to
Section 2.05.
------------
RoweCom shall indemnify the Intelisys Indemnitees from any costs and expenses
incurred in connection with the enforcement of this Section.
6.03 Indemnification Procedures.
--------------------------
(1) If any third party makes a claim against a RoweCom Indemnitee or Intelisys
Indemnitee (each, an "Indemnitee"), with respect to which the Indemnitee
----------
intends to seek indemnification under Section 6.01 or Section 6.02, the
------------ ------------
Indemnitee shall give prompt notice of such claim to the other Party
(each, an "Indemnifying Party"), including a brief description of the
------------------
amount and basis therefor, if known.
(2) Upon receipt of notice from the Indemnitee, the Indemnifying Party shall
defend Indemnitee against such claim, and the Indemnitee shall cooperate
fully with, and assist, the Indemnifying Party in its defense of such
claim.
(3) The Indemnifying Party shall keep the Indemnitee fully apprised at all
times as to the status of the defense.
(4) The Indemnitee shall have the right to employ its own separate counsel in
any such action, but the fees and expenses of such counsel shall be at the
expense of the Indemnitee; provided that if (a) the Parties agree that it
is advantageous to the defense for the Indemnitee to employ its own
counsel or (b) the Indemnitee reasonably concludes that there may be a
conflict of interest between the Indemnifying Party and the Indemnitee in
the conduct of the defense of such claim (in which case, the Indemnifying
Party shall not have the right to direct or participate in the defense of
such claim on behalf of the Indemnitee), then, in each such instance, the
reasonable fees and expenses of counsel for the Indemnitee shall be
equally shared by the Parties. Neither the Indemnifying Party nor the
Indemnitee shall be liable for any settlement of any action or claim
effected without its consent.
(5) Until (a) the Indemnitee receives notice from the Indemnifying Party that
it will defend and (b) the Indemnifying Party assumes such defense, the
Indemnitee may, at any time after 10 days from the date of the notice to
the Indemnifying Party of the claim, resist the claim or, after
consultation with and the consent of the Indemnifying Party, settle or
otherwise compromise or pay the claim. The Indemnifying Party shall pay
all costs of the Indemnitee arising out of or relating to such defense and
any such approved settlement, compromise or payment. The Indemnitee shall
keep the Indemnifying Party fully apprised at all times as to the status
of the defense. Following indemnification, the Indemnifying Party shall be
-7-
<PAGE>
subrogated to all rights of the Indemnitee with respect to the matters for
which indemnification has been made. Notwithstanding the foregoing, the
Indemnitee shall retain, assume or reassume sole control over, and all
expenses relating to, every aspect of the defense that it believes is not
the subject of such indemnification.
ARTICLE 7. TERM AND TERMINATION
- ---------- --------------------
7.01 Initial Term. The term of this Agreement shall commence on the Effective
------------
Date and continue until 11:59 p.m. (Eastern Standard Time) 24 months thereafter,
unless terminated earlier pursuant to Section 7.03 or Section 7.04 (the "Initial
------------ ------------ -------
Term").
- ----
7.02 Expiration and Renewal. This Agreement will automatically renew for
----------------------
additional 24 month periods (each, a "Renewal Term"), in accordance with the
------------
terms of this Section, upon the expiration of the Initial Term or any Renewal
Term. Either Party shall notify the other party 90 days prior to the expiration
of the Initial Term or any Renewal Term if such Party wishes to cancel this
Agreement. If (a) either Party provides the other Party with notice pursuant to
this Section that such Party desires to renew this Agreement and (b) Intelisys
and RoweCom have not agreed upon the applicable terms and conditions in respect
of the renewal of this Agreement prior to the expiration of the Initial Term or
the Renewal Term then in effect, this Agreement may be extended by either Party
upon notice to the other Party for up to six additional months, from the date of
expiration of the Initial Term or the Renewal Term then in effect (the
"Extension Period"), at the fees, terms and conditions set forth in this
----------------
Agreement. If, during the Extension Period, Intelisys and RoweCom are unable to
reach agreement on the terms and conditions that will apply for the next Renewal
Term, this Agreement shall expire at the end of the Extension Period.
7.03 Termination for Cause. If a Party defaults in the performance of any of
---------------------
its material obligations under this Agreement, the non-defaulting Party may give
the defaulting Party written notice of such failure. Within 30 days of receipt
of such notice, the defaulting Party shall remedy the default specified in the
notice. In the event that the defaulting Party fails to remedy such default
within such 30-day period, the non-defaulting Party may terminate this Agreement
upon written notice to the defaulting Party.
7.04 Effect of Termination. Except as otherwise provided in this Agreement,
---------------------
upon termination or expiration of this Agreement each Party's rights and
obligations hereunder shall terminate provided that each of RoweCom and
Intelisys shall pay to each other any Revenue Sharing Fees owing to the other
Party for Fees collected post-termination in respect of Customer Agreements
entered into through the date of termination.
ARTICLE 8. CONFIDENTIALITY
- ---------- ---------------
All confidential or proprietary information relating to a Party (the
"Confidential Information") shall be held in confidence by the other Party.
------------------------
Neither Party shall disclose, publish, release, transfer, or otherwise make
available Confidential Information of the other Party in any form to, or for the
use or benefit of, any person or entity without the other Party's approval.
Each Party
-8-
<PAGE>
shall, however, be permitted to disclose relevant aspects of the other Party's
Confidential Information to its officers, employees and professional advisors,
to the extent that such disclosure is reasonably necessary for the performance
of their duties and obligations under this Agreement; provided that such Party
shall take all reasonable measures to ensure that the Confidential Information
of the other Party is not disclosed or duplicated in contravention of the
provisions of this Agreement by such officers, employees or professional
advisors. The obligations in this Article 8 shall not restrict any disclosure by
either Party pursuant to any applicable law or by order of any court or
government agency and shall not apply with respect to information that is
independently developed by the other Party, becomes part of the public domain
(other than through unauthorized disclosure); or of which either Party gained
knowledge or possession free of any obligation of confidentiality to the
disclosing party. For the purposes of this Agreement, all pricing, fee or
customer information and contacts shall be deemed Confidential Information and
the Parties agree that the title to any customer information, including but not
limited to the name, address, and e-mail address of the customer shall be owned
solely by the Party disclosing such information.
ARTICLE 9. LIMITATIONS ON DAMAGES
- ---------- ----------------------
9.01 Direct Damages. Each Party shall be liable to the other Party for any
--------------
direct damages arising out of relating to its performance or failure to perform
under this Agreement provided that the liability of either Party to the other
Party shall not exceed the aggregate Revenue Sharing Fees received by such Party
under this Agreement at the time such liability is finally determined.
9.02 Consequential Damages. Neither Party shall be liable for, nor shall the
---------------------
measure of damages include, any indirect, incidental, special or consequential
damages or amounts for loss of income, profits or savings arising out of or
relating to its performance or failure to perform under this Agreement, whether
based on an action or claim in contract, equity, negligence, tort or otherwise.
9.03 Exclusions. The limitations or exculpations of liability set forth in
----------
Section 9.01 and Section 9.02 are not applicable to (1) breaches of Article 8,
- ------------ ------------ ---------
(2) liability resulting from the gross negligence or other intentional acts of a
Party or (3) indemnification claims set forth in Section 6.01 and Section 6.02.
------------ ------------
ARTICLE 10. MISCELLANEOUS PROVISIONS
- ----------- ------------------------
10.01 Representatives. Each of the Parties shall designate one or more
---------------
representatives to act on its behalf in dealings with the other Party on matters
relating to this Agreement (each, a "Designated Representative"). Either Party
-------------------------
may at any time change its Designated Representative by giving the other Party
notice of a change of Designated Representative. The name of each Designated
Representative as of the Effective Date is:
For RoweCom:
Louis Hernandez, Jr.
Executive Vice President and Chief Financial Officer
RoweCom, Inc.
725 Concord Avenue
Cambridge, MA 02138
-9-
<PAGE>
For Intelisys:
Robert Kramer
Chief Financial Officer
Intelisys Electronic Commerce
55 Water Street, Room 600
New York, NY 10041
10.02 Survival. The terms of Section 2.02, Section 2.04, Section 2.05,
-------- ------------ ------------ ------------
Section 2.06, Article 3, Article 6, Article 8, Article 9, this Section, Section
- ------------ --------- --------- --------- --------- -------
10.08 and Section 10.13 shall survive any termination of this Agreement.
- ----- -------------
10.03 Assignment. Neither Party shall, without the consent of the other Party,
----------
assign this Agreement, except that either Party may assign this Agreement
pursuant to a merger or corporate reorganization of such Party without such
consent. The consent of a Party to any assignment of this Agreement shall not
constitute such Party's consent to further assignment. This Agreement shall be
binding on the Parties and their respective successors and permitted assigns.
Any assignment in contravention of this Section shall be void.
10.04 No Waivers. No failure or delay on the part of either Party to exercise
----------
and no delay in exercising any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by a Party of any right
or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right.
10.05 Partial Invalidity. In the event that any of the provisions of this
------------------
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby.
10.06 Notices. All notices, designations, approvals, consents, requests,
-------
acceptances, rejections or other communications required or permitted by this
Agreement shall be in writing and shall be delivered or sent to the Parties at
their respective addresses as follows:
If to RoweCom:
-------------
RoweCom, Inc.
725 Concord Avenue
Cambridge, MA 02138
Attn: Louis Hernandez, Jr.
Chief Financial Officer
Fax No.: 617-497-6825
-10-
<PAGE>
If to Intelisys:
---------------
Intelisys Electronic Commerce LLC
55 Water Street, Room 600
New York, NY 10041
Att.: Robert Kramer
Chief Financial Officer
Fax No.: 212-638-8478
Either Party may at any time, by notice to the other Party delivered or mailed
in such manner, change the address to which communications to it are to be sent.
10.07 Relationship. The performance by each Party of its duties and obligations
------------
under this Agreement shall be that of an independent contractor and nothing
contained in this Agreement shall create or imply an agency relationship between
Intelisys and RoweCom. This Agreement shall not be deemed to constitute a joint
venture or partnership between the Parties.
10.08 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
10.09 Covenant of Further Assurances. The Parties covenant and agree that,
------------------------------
subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the Parties shall execute and deliver any
further legal instruments and perform any acts which are or may become necessary
to effectuate the purposes of this Agreement.
10.10 Entire Understanding. This Agreement and the Exhibits to this Agreement
--------------------
represents the entire understanding of the Parties with respect to its subject
matter and supersedes all previous writings, correspondence and memoranda with
respect thereto between the Parties, and no representations, warranties,
agreements or covenants, express or implied, of any kind or character whatsoever
with respect to such subject matter have been made by either Party to the other,
except as expressly set forth in this Agreement.
10.11 Amendments. This Agreement may be modified or amended only by a document
----------
duly executed on behalf of each Party.
10.12 Third Party Beneficiaries. Each Party intends that this Agreement shall
-------------------------
not benefit or create any right or cause of action in or on behalf of any person
or entity other than RoweCom and Intelisys.
10.13 Publicity. Each Party shall (1) submit to the other all advertising,
---------
written sales promotions, press releases and other publicity matters relating to
this Agreement in which the other Party's name or mark is mentioned or which
contains language from which the connection of said name or mark may be inferred
or implied and (2) not publish or use such advertising, sales promotions, press
releases or publicity matters without the other Party's consent, which consent
will not be unreasonably withheld; provided that, notwithstanding any other
-------------
provision of this Agreement, no consent shall be required in the event that
either Party is engaged in an initial public offering or other
-11-
<PAGE>
transaction that requires, in the reasonable judgment of that Party, the
provision of such information to third parties, including without limitation,
disclosing the relationship between the Parties, or the transactions
contemplated by this Agreement or the filing of a copy of this Agreement as part
of its registration statement.
10.14 Force Majeure. Neither Party shall be liable, or be deemed to be in
-------------
default, to the other Party hereunder by reason or account of any delay or
omission caused by epidemic, action of the elements, strikes, lockouts, sabotage
(except as caused by a Party's employees or agents), labor disputes,
governmental law, regulations, ordinances, order of a court of competent
jurisdiction, executive decree or order, act of God or public enemy, war, riot,
civil commotion, earthquake, flood, explosion, casualty, embargo or any other
similar cause beyond the control of such Party (each, a "Force Majeure Event").
-------------------
The time of performance of each Party's obligations under this Agreement shall
be extended for so long as such Force Majeure Event continues; provided that in
the event such period of extended delay exceeds 30 days in respect of a Party,
the other Party may terminate this Agreement upon notice to such Party.
-12-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representative as of the date first written
above.
INTELISYS ELECTRONIC COMMERCE LLC ROWECOM, INC.
By: /s/ Dr. Richard R. Rowe, Ph.D. By: /s/ Robert W. Kramer
----------------------------------- ------------------------------------
Name: Dr. Richard R. Rowe, Ph.D. Name: Robert W. Kramer
--------------------------------- ----------------------------------
Title: President and CEO Title: CFO
-------------------------------- ---------------------------------
Date: Date:
--------------------------------- ----------------------------------
-13-
<PAGE>
EXHIBIT A
INTELISYS SOFTWARE LICENSE AGREEMENT
-14-
<PAGE>
EXHIBIT B
FEES
FEE REVENUE
(a) For purposes of calculating payments due Intelisys under Section 2.03, Fee
Revenue means amounts billed by RoweCom to customers that purchase Knowledge
Products as a result of Intelisys' referrals (as documented by a Customer
Agreement) in respect of RoweCom Services, ***/3/
(b) For purposes of calculating payments due RoweCom under Section 2.03, Fee
Revenue means license fees billed by Intelisys to customers that purchase
Intelisys Software or Intelisys Services as a result of RoweCom's referrals (as
documented by a Customer Agreement), ***/4/.
- -------------------------------------
/3/ Confidential treatment has been requested for this potion of this exhibit. A
complete copy of this exhibit, including the redacted potion, has been file with
the Securities and Exchange Commission separately.
/4/ Confidential treatment has been requested for this potion of this exhibit. A
complete copy of this exhibit, including the redacted potion, has been file with
the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT C
WEB SITE METERING FORMULA
2
<PAGE>
AMENDMENT NO. 1 TO THE ELECTRONIC COMMERCE REFERRAL
AND REVENUE SHARING AGREEMENT
This Amendment No. 1 ("Amendment") to the Electronic Commerce Referral and
---------
Revenue Sharing Agreement is entered into between RoweCom Inc., a Delaware
corporation ("RCI") and Intelisys Electronic Commerce LLC), a Delaware limited
---
liability corporation ("Intelisys") and amends the Electronic Commerce Referral
and Revenue Sharing Agreement dated as of August 24, 1998 (the "Agreement") by
---------
and between RCI and Intelisys. This Amendment No. 1 is intended to clarify the
parties' respective obligations with respect to the time period in which the
Development Plan referred to in Section 1.06 of this Agreement is to be agreed
upon. Capitalized terms used in this Amendment No. 1 and not otherwise defined
herein are used with the meanings ascribed to them in the Agreement.
In consideration of the mutual promises and covenants contained in the
Agreement, and for other good and valuable consideration, the parties hereby
agree that the Agreement shall be amended as follows:
1. In accordance with Section 10.11 of the Agreement, Section 1.06 of the
Agreement is hereby amended by deleting the words, "Effective Date" and
substituting in lieu thereof the words, "January 1, 1999."
Except as expressly modified by this Amendment No. 1, all terms and
conditions of the Agreement shall remain in full force and effect as originally
constituted.
IN WITNESS WHEREOF the parties have caused this Amendment No. 1 to the Agreement
to be executed by their authorized representatives as an instrument under seal
as of November 24, 1998.
ROWECOM, INC. INTELISYS ELECTRONIC
COMMERCE LLC
By: /s/ Dr. Richard R. Rowe, Ph.D. By: /s/ Robert W. Kramer
------------------------------- ------------------------------
Name: Dr. Richard R. Rowe, Ph.D. Name: Robert W. Kramer
----------------------------- ----------------------------
Title: President and CEO Title: CFO
---------------------------- ---------------------------
<PAGE>
EXHIBIT 10.17
MARKETING AND INTEGRATION AGREEMENT BETWEEN
ROWECOM INC. AND BARNESANDNOBLE.COM INC.
<PAGE>
MARKETING AND INTEGRATION AGREEMENT
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This MARKETING AND INTEGRATION AGREEMENT dated as of August 20, 1998,
between RoweCom Inc., a Delaware corporation ("RCI"), and barnesandnoble.com
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inc., a Delaware corporation ("BN").
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W I T N E S S E T H:
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WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature (the "RCI Products") and, in connection therewith, RCI collaborates with
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such entities to enhance existing intranet networks (each, a "RCI Intranet") to
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enable such entities to purchase Subscriptions, books and other knowledge
products and services via their intranets (the "RCI Service"); and
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WHEREAS, each RCI Intranet contains a home page created by RCI (the "RCI
---
Service Home Page"); and
- -----------------
WHEREAS, RCI operates a web site on the World Wide Web having the URL,
www.rowe.com," which describes RCI's business and the products and services it
offers to the public (the "RCI Site"); and
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WHEREAS, BN, among other things, has implemented a Business Solutions
Program (the "Business Solutions Program") pursuant to which BN has created a
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unique web site (the "Business Solutions Site") (the RCI Site and the Business
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Solutions Site, each individually a "Site") which is accessible solely by the
intranets of Business Solutions Program participants (the "BN Intranets" and,
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together with the RCI Intranets, the "Intranets") and such Business Solutions
Site, among other things, sells and provides information regarding books,
software and Subscriptions (the "BN Products") to users of BN Intranets; and
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WHEREAS, the parties hereto desire to join their efforts with respect to
the offering of products in the Intranets via the Business Solutions Site and
the RCI Service and, at RCI's option, via the RCI Site, by, among other things,
creating links between the Business Solutions Site and the RCI Service,
exchanging product databases, and, if the parties hereto so agree, ultimately,
launching a single fully integrated service for all of the business-to-business
services of both parties, including any related web sites (the "Integrated
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Service"), all on the terms and conditions set forth herein.
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<PAGE>
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS For purposes of this Agreement, the following terms have the
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respective meanings set forth below:
AGGREGATE REVENUE shall mean the total payment made by one party to the
other with respect to the revenue sharing terms and conditions of this
Agreement.
BN AFFILIATES PROGRAM shall mean the BN program whereby links are
established from the web sites of certain third parties to the BN Site in
connection with the sale of books and other BN Products.
BNSITE shall mean the web site on the World Wide Web operated by BN and
having the URL, "www.bamesandnoble.com."
BUSINESS SUBSCRIPTION shall mean a Subscription which is a business to
business or professional Subscription, or personal subscription purchased
at a business location, whether or not such Subscription is currently
offered by RCI.
CONSUMER SUBSCRIPTION shall mean a Subscription which is not a business to
business or professional Subscription.
CURRENT CUSTOMERS shall mean customers of BN and RCI who are customers of
BN or RCI, as the case may be, as of the date hereof.
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and BN
regarding the provision of the Integrated Service as described in Section
3(b)(v) hereof.
E-NEWS shall mean Electronic Newsstand, Inc., a Delaware company.
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Schedule 1.
LEVELS refers to the initial services provided by BN and RCI that are
described in Section 2 of this Agreement.
NET SALES PRICE shall mean the price of a book sold to a customer
<PAGE>
by BN less any amounts added for ***1.
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NEW CUSTOMERS shall mean any customers of BN or RCI who become customers of
BN or RCI, as the case may be, after the date hereof
PHASES shall mean the three stages of development, promotion, cross-
branding, and integration of Sites as more fully described in Section 4
hereof
SUBSCRIPTION means any magazines, serials, or other publications, embodied
in paper or digital media.
TRADEMARK means names, trademarks, service marks, trade names, labels,
logos, designs or other designations.
Each of the following terms have the meanings ascribed to it in the section
set forth opposite such term:
BN Preamble
BN Business Solutions Site Preamble
BN Database Section 4(b)(i)(1)
BN Intranets Preamble
BN Products Preamble
BN Trademarks Section 3(a)(i)
Business Solutions Program Preamble
Change of Control Section 8(c)
E-News Subscriptions Section 3(b)(iii)(1)
Integrated Service Preamble
Intranets Preamble
Level One Service Section 2(b)
Level Two Service Section 2(c)
RCI Preamble
RCIDatabase Section 4(b)(i)(2)
RCI Intranet Preamble
RCI Products Preamble
RCI Service Preamble
RCI Service Home Page Preamble
RCI Site Preamble
RCI Trademarks Section 3(a)(ii)
____________________
1 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
Site Preamble
2. DESCRIPTION OF SERVICES
a. GENERAL DESCRIPTION The services that are covered by this Agreement
include services which are currently provided by one of the parties
and services which may be jointly developed by the parties as a result
of this and subsequent agreements between them. Current services
include Level One and Level Two. Future services may include if the
parties so agree, the Integrated Service.
b. LEVEL ONE SERVICE. Level One service is currently provided by BN for
its business to business clients. This service is marketed as the BN
Business Solutions Program. It includes the ability to order and pay
for books, magazine subscriptions and software through the BN Business
Solutions Site (and may include any other consumer oriented products
or services which may become available to users of the BN Site at any
time after the date hereof, including, without limitation, article and
document search and delivery services, customized recommendations and
related value added services). Through this service BN shall continue
its practice of utilizing (i) a number of payment options for its
participants which shall include credit cards, debit cards, purchasing
cards, purchase orders and letters of credit for foreign purchasers,
and (ii) tracking and reporting systems which provide users the
ability to understand and manage their purchases. Level One service
will be enhanced under this Agreement to include a comprehensive
catalog of subscription titles provided by RCI. The Level One service
will be offered by both BN and RCI, but shall be implemented solely by
BN. BN shall not create any solely business-to-business enhancements
on the Level One service without the prior written consent of RCI.
c. LEVEL TWO SERVICE. Level Two service is currently provided by RCI for
its business to business clients. This service is marketed as the
RCI's kStore service. It includes comprehensive catalogs of
Subscriptions, books, and other knowledge products, and enables users
to order and pay for these items using RCI's kStore web site. Level
Two service will be enhanced under this Agreement to include catalogs
of books and software titles provided by BN. Participants of this
service shall receive all of the benefits of Level One
<PAGE>
service participants and will have the option of receiving the
additional benefits of Level Two services offered by RCI which shall
include enhanced management and payment controls with respect to such
clients' intranet users. The Level Two service will be offered by both
BN and RCI, but shall be implemented solely by RCI.
d. INTEGRATED SERVICE. The Integrated Service may be implemented by
mutual agreement of the parties hereto. If implemented, the Integrated
Service will integrate the Level One and Level Two services into a
family of services offered in a joint integrated site supported by
both parties. The anticipated structure and characteristics of the
Integrated Service are described in Section 4(c) hereof.
e. COMPETITION BETWEEN SERVICES. Level One and Level Two services are
designed to be complementary in nature, responding to different client
preferences and requirements. Both services will be offered by both
parties to this Agreement with revenue from both services shared as
provided in Schedule 1 attached hereto. It is anticipated that,
ultimately, subject to subsequent agreement between the parties, these
two services will be fully integrated into the Integrated Service
which will be jointly developed and offered by both parties. Until
such time BN will refrain from enhancing the Level One service to
include any control mechanism whereby a corporate participant can
state authorization levels or any permission requirement matrix.
3. LICENSE & MARKETING ARRANGEMENTS
--------------------------------
a. License
i Subject to the terms and conditions of this Agreement, including,
but not limited to, the provisions of Section 9 hereof, BN hereby
grants to RCI a non-exclusive, non-transferable, royalty-free
right and license (excluding the right to sublicense) (i) to use,
copy, distribute, display and allow third parties to access the
BN Database and the BN books search engine and Business Solutions
software solely to market and promote books and the BN Products
to business-to-business clients as described more fully in this
Agreement, and (ii) to reproduce and display all Trademarks
relating to BN (the "BN Trademarks")
<PAGE>
solely for the purposes described herein; provided, however, that
in performing hereunder RCI shall not make any specific use of
any BN Trademark without first submitting a sample of the same to
BN and obtaining BN's prior consent, which consent shall not be
unreasonably withheld or delayed. Such license shall terminate
upon the effective date of the expiration or termination of this
Agreement.
(ii) Subject to the terms and conditions of this Agreement, including,
but not limited to, the provisions of Section 9 hereof, RCI
hereby grants to BN a non-exclusive, non-transferable, royalty-
free right and license (excluding the right to sublicense) (i) to
use, copy, distribute, display, allow third parties to access the
RCI Database and the RCI Subscription search engine and related
transaction software solely to market and promote RCI Products,
RCI services, and Subscriptions to business-to-business clients
as described more fully in this Agreement, and (ii) to reproduce
and display all Trademarks relating to RCI (the "RCI Trademarks")
solely for the purposes described herein; provided, however, that
in performing hereunder BN shall not make any specific use of any
RCI Trademark without first submitting a sample of the same to
RCI and obtaining RCI's prior consent, which consent shall not be
unreasonably withheld or delayed. Such license shall terminate
upon the effective date of the expiration or termination of this
Agreement.
b. MARKETING ARRANGEMENTS
i. Marketing Arrangements. The parties hereby agree to implement the
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marketing, promotion, and sales efforts described below in accordance
with the Development Plan described in Section 3(b)(v) hereof.
ii Exclusivity of BN. During the Term, RCI agrees that it will not in any
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area of the Integrated Service, the RCI Service, the RCI Site, or the
RCI Service Home Page (or any similar customized home pages of RCI
Intranets) or the RCI Products promote or link to the web site of any
third party booksellers, nor will it permit any other person or entity
to sell books online in any area of the Integrated Service, the
<PAGE>
RCI Service, the RCI Site, or the RCI Service Home Page, provided that
the parties understand and agree that the customer owning such
intranet cannot be restricted in any way from having relationships
with or links to the web sites of third party booksellers. RCI shall
notify BN if it intends to enter into any market where it would offer
non-English language books, and if BN either offers such non English
language books or agrees to carry such non-English language books then
the parties shall work together in good faith to enter into an
agreement covering such non-English language books. If BN does not
then offer such non-English language books and does not agree to carry
such non-English language books, RCI may enter into an agreement with
a third party vendor to provide such non-English language books.
iii Exclusivity of RCI Except as set forth in clause (2) below, during
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the Term, BN agrees that it will not in any area of the Integrated
Service, the BN Site, the BN Business Solutions Site (or any BN
customized home pages of BN Intranets), or the BN Products promote or
link to the web site of any third party Subscription providers, nor
will it permit any other person or entity to sell Subscriptions online
in any area of the BN Site, the BN Business Solutions Site (or any BN
customized home pages of BN Intranets), or the BN Products, provided
that the parties understand and agree that (A) the customer owning
such intranet cannot be restricted in any way from having
relationships with or links to the web sites of third party
Subscription providers; and (B) BN currently has an agreement to buy
and to offer to its Current Customers certain Consumer Subscriptions
(the "E-News Subscriptions") through the BN Site, which Subscriptions
shall not be subject to the terms of this Agreement for the duration
of BN's agreement with E-News. All Subscriptions other than the E-
News Subscriptions shall be subject to the exclusive marketing
arrangement set forth in this Section 3(b)(iii)(1). BN shall notify
RCI if it intends to enter into any market where it would offer non-
English language Subscriptions, and if RCI either offers such non-
English language Subscriptions or agrees to carry such non-English
language Subscriptions then the parties shall work together in good
faith to enter into an agreement covering such non-English language
Subscriptions. If RCI does not then offer such non-English language
Subscriptions and does not agree to carry such non-English language
<PAGE>
Subscriptions, BN may enter into an agreement with a third party
vendor to provide such non-English language Subscriptions.
iv. Future Sales Activities of the Parties. To the extent that BN enetrs
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into any new third party relationships with respect to the sale or
promotion of its services in geographic locations not yet undertaken
by BN, BN agrees that during the Term BN will, in good faith, use its
best efforts to include the RCI Products as part of such undertaking.
In addition, to the extent that RCI enters into any new third party
relationships with respect to the sale or promotion of RCI Services in
geographic locations not yet undertaken by RCI, RCI agrees that during
the Term RCI will, in good faith, use its best efforts to include the
BN Products as part of such undertaking.
v. Development Plan - No later than November 1, 1998, RCI and BN, shall
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agree upon a Development Plan that will include a technology and sales
strategy and budget for the balance of 1998 and the full calendar year
1999. The Development Plan will include a specific process and
timetable within the calendar year 1999 for the parties to decide
whether or not to develop jointly the Integrated Service. The parties
shall determine whether to proceed with Phase Three within
approximately twelve months following the date hereof or at such other
time as the parties shall otherwise agree.
c. During the 60 day period following the date of this Agreement the parties
agree to work together in good faith to enter into another agreement with
respect to the consumer market which agreement will cover the parties
relationship with respect to the BN Site and the RCI Site. Until such
agreement is reached, neither party shall be precluded from working with
third party vendors of books and/or Subscriptions on the BN Site or the RCI
Site, as the case may be.
4. PHASES OF DEVELOPMENT, MARKETING & INTEGRATION
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A. PHASE ONE - LINKING AND PROMOTIONS
i Internet Links to Other Party's Home Page
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(1) knowledgeStore and knowledgeLibrary Link to
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<PAGE>
the Business Solutions Program. As promptly as practicable
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after the date hereof, RCI will place a hyperlink from the
knowledgeStore and knowledgeLibrary sections of the RCI Site
to the home page of the BN Business Solutions Site. Such
link shall contain a reference to the Business Solutions
Program and shall otherwise contain text and be in a format
agreed upon by the parties hereto.
(2) RCI Banner Advertisement on the Business Solutions Home
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Page. As promptly as practicable after the date hereof, BN
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will place a banner advertisement (which shall include a
hyperlink) on the home page of the BN Business Solutions
Site that shall link to the knowledgeStore area of the RCI
Site. Such link shall contain a reference to RCI services
and shall otherwise contain text and be in a format mutually
agreed upon by the parties hereto.
ii. Joint Sales Efforts.
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(1) As promptly as practicable after the date hereof, each of BN
and RCI will begin coordinating their marketing and selling
efforts (as described below) with respect to the services of
both parties. The officers of each party (whose primary
responsibilities involve marketing and sales) will be
responsible for active coordination by both parties in order
to maximize the combined revenue of both parties. The
parties' respective responsibilities will be as follows:
(A) Enterprise Sales. RCI and BN shall be responsible for
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managing the process of soliciting business from
prospective and existing clients who may be interested
in implementing on their respective Intranets the Level
One or Level Two services (such services are described
in Section 2 hereof).
(B) Third Party Sales. BN and RCI shall approach
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publishers, authors, web site owners and operators and
other third
<PAGE>
parties with whom RCI and BN have existing business
relationships to generate customer leads in order to
gain participation in both of their services.
(C) Sales Support. Every Level One and Level Two Account
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will be assigned an account team made up of BN and RCI
personnel. BN will be responsible for merchandising
support for book sales, and RCI will be responsible for
merchandising support for Subscription sales. The BN
representative will head the account team for Level One
accounts and the RCI representative will head the
account team for Level Two accounts.
(D) Sales Channels. In the event that any third party
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sales channel (e.g., Intellysis) facilitates the
participation of any Level One or Level Two service
corporate client, then the parties agree to renegotiate
(and equitably adjust) the terms of consideration set
forth in Schedule I hereto to take into consideration
any commission payment which may be due to such third
party sales channel.
b. PHASE TWO - EXCHANGE OF DATABASES. As promptly as practicable after
the parties shall have commenced Phase One, the parties will perform
the following obligations:
i Delivery of Respective Databases.
--------------------------------
(1) BN will deliver to RCI, in a format to be mutually agreed
upon by the parties, BN's then existing database of books.
At such time, BN will use its commercially reasonable best
efforts to increase its book inventory to include additional
products which pertain to the areas of Health Services,
Financial Services, Professional Services, Academia and High
Technology, devoting particular attention to obtaining
scientific, technical and medical books. Thereafter, no
later than the first day of each week, BN shall
<PAGE>
deliver to RCI any updates to such database. (The database
described in this clause (1) and all updates thereto are
hereinafter referred to as the "BN Database".) BN agrees to
consider all customer requests for books not included in the
BN Database and to obtain such books to the extent
practicable; provided, that inclusion of such book does not
violate any BN internal policy. Notwithstanding Section
3(b)(ii) hereof, if BN is unable to supply a requested book
in a timely manner, RCI may, at its option and upon prompt
advance notice to BN, obtain the book from a third party.
(2) RCI will deliver to BN, in a format to be agreed upon by the
parties, RCI's then existing database of Subscriptions.
Thereafter, no later than the first day of each week, RCI
shall deliver to BN any updates to such database. (The
database described in this clause (2) and all updates
thereto are hereinafter referred to as the "RCI Database.")
RCI agrees to consider all customer requests for
Subscriptions not included in the RCI Database and to obtain
such Subscriptions to the extent practicable; provided, that
inclusion of such Subscriptions does not violate any RCI
internal policy. RCI further agrees to actively assist BN in
identifying new book titles in connection with BN's
obligations described in clause (1) above. Notwithstanding
Section 3(b)(iii) hereof, if RCI is unable to supply a
requested Subscription in a timely manner, BN may, at its
option and upon prompt advance notice to RCI, obtain the
Subscription from a third party.
ii. BN Business Solutions Site Link to the Magazine Area. BN will
----------------------------------------------------
continue its current practice of placing a link on the home page
of the BN Business Solutions Site accessing the area of the BN
Business Solutions Site where Subscriptions can be purchased.
iii. RCI Link to the Book Area. RCI shall place a link on the RCI
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Service Home Page accessing the area of the RCI Service where
books can be purchased.
<PAGE>
iv. Joint Sales Efforts. The parties shall continue to perform their
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selling obligations as described in Section 4(a)(ii) hereof.
v. Orders and Product Fulfillment. All products purchased through
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the BN Business Solutions Site other than Subscriptions shall be
processed and fulfilled by BN. All products purchased through the
RCI Service other than books shall be processed and fulfilled by
RCL Book orders purchased through the RCI Service shall be
transmitted to BN by RCI and shall include all payment and
customer information related thereto. BN shall then process such
orders and ship the products to the customer. Subscription orders
purchased through the BN Business Solutions Site shall be
transmitted to RCI by BN and shall include all payment and
customer information related thereto. RCI shall then process such
orders and cause the products to be shipped to the customer.
c. PHASE THREE - IMPLEMENTATION OF THE INTEGRATED SERVICE. In accordance
with the timetable set forth in the Development Plan, the parties
shall determine whether to proceed with Phase Three. If they so agree
explicitly and in writing (pursuant to an amendment to this Agreement
or otherwise), then, as promptly as practicable thereafter, the
parties will merge their heretofore parallel sites into a single
Integrated Service provided through a single web site all on the terms
and conditions as the parties shall mutually agree.
5. FEES AND PAYMENTS
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a. FEE STRUCTURE. No later than fifteen (15) days after the end of each
calendar month, each party shall remit to the other party an amount
equal to such party's payment as specified in the Fee Schedule
attached hereto as Schedule I.
b. DISCOUNTS. From time to time, the parties acknowledge that BN may
offer a ***2 discount to Business Solutions Program customers in
-
accordance with the terms and conditions of
- -----------------------
2 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted
portion, has been filed with the Securities and Exchange Commission
separately.
<PAGE>
the Business Solutions Program. In the event that BN does not offer
such standard discount to Business Solutions Program customers, then
with respect to book purchases, ***3 as specified in the Fee Schedule.
-
c. RCI STANDARD FEE. In the event that RCI increases or decreases the
***4 per Subscription fee that RCI currently charges its Subscription
-
customers, then the fees due to BN for Subscription purchases as
specified in the Fee Schedule shall be increased or decreased in
proportion to the increase or decrease in the Subscription customers
fee.
d. SALES OF ADDITIONAL PRODUCTS. In the event that (i) BN offers for
sale products other than the BN Products, or (ii) RCI offers for sale
products other than the RCI Products, then the parties shall at such
time determine amounts, if any, to be shared between them with respect
to revenues received in connection therewith. Nothing herein shall be
deemed to obligate either party to participate in any such future
revenue sharing.
e. RENEGOTIATION OF THE TERMS OF CONSIDERATION. The parties hereby agree
that on or about ***5 after the date hereof and, thereafter, on or
-
about each ***6 of the date hereof, the parties will review the fee
-
structure set forth in this Section 5 and the Fee Schedule and will,
in good faith, renegotiate the terms of consideration hereunder to the
extent necessary, if at all, to create a more equitable financial
relationship between the parties. In connection therewith, the
parties will execute an amendment to this Agreement substantially in
the form attached hereto as Schedule 2. Except as expressly modified
therein, the terms of consideration herein shall remain in full
force and effect.
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3 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
4 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
5 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
6 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
in the form attached hereto as Schedule 2. Except as expressly
modified therein, the terms of consideration herein shall remain in
full force and effect.
f. PURCHASES MADE VIA THE RCI SITE. In the event that after the date
hereof RCI enhances the RCI Site so that customers can purchase books
and/or Subscriptions directly from the RCI Site, then RCI may become a
member of BN's Affiliates Program pursuant to which ***7 on the BN
-
Site pursuant to a link from the RCI Site to the BN Site.
6. REPRESENTATIONS AND WARRANTIES
------------------------------
A. AUTHORIZATION, ETC. Each party hereby represents and warrants to the
other that: (i) it has the requisite power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby; and (ii) this Agreement has been duly authorized,
executed and delivered by such party, constitutes the legal, valid and
binding obligation of such party and is enforceable against such party
in accordance with its terms, except to the extent such enforceability
may be limited by bankruptcy, reorganization, insolvency or similar
laws of general applicability governing the enforcement of the rights
of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
B. PROPRIETARY INFORMATION. Each party hereby represents and warrants to
the other party that: (a) the provision by such party of proprietary
information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly
inform the other party in the event that such party becomes aware that
any third party has filed or threatened to file any suit based on any
alleged violation of any such proprietary or intellectual property
rights of such party; and (c) each party holds title or license rights
sufficient to permit it to grant the licenses granted under Section 3
hereof.
C. THIRD PARTY RIGHTS. Each party represents and warrants to
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7 Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
the other party that: (a) it is not bound by any agreement or
obligation (and will not enter into any agreement or obligation) that
could materially interfere with the performance of its obligations
under this Agreement; and (b) no approval, authorization or consent of
any governmental or regulatory authority is required to be obtained or
made by it in order for it to enter into and perform its obligations
under this Agreement.
7. POLICIES AND CUSTOMER INFORMATION
---------------------------------
a. All customers will be deemed to be customers of the party that accepts
and processes the product order. Accordingly, all of such party's
rules, policies and operating procedures concerning customer orders,
customer service and book sales will apply to those customers. Each
party may change its policies and operating procedures at any time;
provided that, to the extent practicable, it promptly notifies the
other party of such changes. The parties hereto hereby agree that
title to any customer information, including but not limited to the
name, address, and e-mail address of the customer, shall be owned
solely by the party accepting and processing the applicable customer
order; it being understood that overlaps may exist with respect to
customer information to the extent that customers purchase products
from BN and/or RCI through more than one method (i.e., via the
Internet and Intranets) or purchase products from one party which are
then processed by the other party.
b. CURRENT CUSTOMER LISTS. Upon execution of this Agreement, each party
is delivering to the other party A list setting forth such party's
intranet Current Customers as of the date hereof. The list of Current
BN Customers is attached hereto as Schedule 3 and the list of Current
RCI Customers is attached hereto as Schedule 4. This information shall
be considered confidential and shall be subject to Section 10 hereof.
BN and RCI each agree not to market or sell to each other's current
customers.
c. BOOKS AND RECORDS. Each party will maintain true and correct books of
account containing a record of all information necessary to calculate
Net Sales for a period of one (1) year following the date of each
transaction subject to this Agreement. Subject to Section 10 hereof,
each party or each party's agent shall be entitled to review, at such
party's
<PAGE>
cost, during the other party's regular business hours and upon not
less than three business days notice, such books and records for the
purpose of verifying the accuracy of such calculation and the amount
of payments due hereunder. Any such review will be made not more than
once each year during the term of this Agreement. If any such review
indicates that during the period reviewed the other party has
underpaid amounts to the reviewing party by more than ten percent
(10%) of the amounts actually paid during the period reviewed, then
such party shall reimburse the reviewing party for all costs and
expenses incurred by the reviewing party in performing the review.
8. TERM, TERMINATION
-----------------
a. The term of this Agreement shall commence on the date hereof and shall
continue for a period of five years, unless earlier terminated by
either party as hereinafter provided (the "Term"). Thereafter, this
Agreement shall be automatically renewable for successive one year
periods until either party notifies the other party of its intention
to terminate this Agreement at least ninety (90) days prior to the
expiration of the then current term.
b. Either party shall have the right to terminate this Agreement by
delivery of written notice of termination to the other party hereto in
the event such other party materially breaches any representation,
warranty, covenant or agreement made by it hereunder or otherwise
fails to perform any of its material obligations hereunder and such
breach or failure is not cured within fifteen (15) days after delivery
of such notice; provided, however, that each party shall be entitled
to terminate this Agreement effective upon delivery of notice in the
event of a breach by the other party of the provisions of Sections 10
or 11 hereof. Failure to reach agreement upon a Development Plan by
November 1, 1998, or failure to implement the Development Plan in good
faith and in a timely manner will be considered a material breach.
c. Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided, that the party subject to such Change of Control notifies
the other party of such event no later than the effective date
thereof. Change of Control
<PAGE>
shall mean a merger or consolidation of the company with or into
another entity (other than a merger or reorganization involving only a
change in the state of the incorporation of the company, or the
acquisition by the company of other businesses where the company
survives as a going concern), the sale of all or substantially all of
a party's assets to any other person, or the issuance of shares of
capital stock of the company in a transaction or series of related
transactions in which the persons acquiring such shares acquire more
than 50% voting control of the company. Notwithstanding the foregoing,
an initial public offering shall not be deemed to be a Change of
Control.
d. Effective on the basis of the first quarter of 1999 and all subsequent
calendar year quarters, either party may terminate this Agreement upon
six months written notice to the other party if the Aggregate Revenue
received by BN in respect of Subscriptions sold during any quarter is
less than ***/8/, or if the Aggregate Revenue received by RCI in
respect of books sold during any quarter is less than ***/9/.
-
e. Except as otherwise provided in this Agreement, upon such effective
date of termination, each party's rights and obligations hereunder
shall terminate; provided, however, that the rights and obligations of
the parties hereto under Section 9 through 14 hereof shall survive
such expiration and termination.
9. TRADEMARKS
----------
Each party hereby covenants and agrees that the Trademarks of the other
party are and shall remain the sole and exclusive property of that party
and neither party shall hold itself out as having any ownership rights with
respect thereto or except as specifically granted hereunder, any other
rights therein. Any and all goodwill associated with any such rights shall
inure directly and exclusively to the benefit of the owner thereof. Each
party agrees to use the Trademarks of the other party in the manner
requested by the owner of such marks and shall include all legends, symbols
or other identifying matter as the owner of such Trademark may reasonably
request from time to time.
10. CONFIDENTIALITY
---------------
Except as otherwise provided in this Agreement or with the
- -----------------------
/8/ Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted
portion, has been filed with the Securities and Exchange Commission
separately.
/9/ Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redated
portion, has been filed with the Securities and Exchange Commission
separately.
<PAGE>
consent of the other party hereto, each of RCI and BN agrees that all
information including, without limitation, the terms of this Agreement,
business and financial information, customer and vendor lists and pricing
and sales information, concerning BN or RCI, respectively, or any of its
affiliates provided by or on behalf of any of them shall remain strictly
confidential and secret and shall not be utilized, directly or indirectly,
by such party for its own business purposes or for any other purpose except
and solely to the extent that any such information is generally known or
available to the public through a source or sources other than such party
hereto or its affiliates. Notwithstanding the foregoing, each party is
hereby authorized to deliver and file a copy of any such information (a) to
any person pursuant to a subpoena issued by any court or administrative
agency, (b) to its accountants, attorneys or other agents on a confidential
basis and (c) otherwise as required by applicable law, rule, regulation or
legal process including, without limitation, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
11. PUBLICITY
---------
a. Notwithstanding the provisions of Section 10 hereof, promptly after
the execution of this Agreement, the parties shall jointly create and
approve a press release and communications strategy describing the
terms of the relationship between the parties that has been
established by this Agreement.
b. Subject to Section 10 hereof and clause (a) above, neither party shall
(i) create, publish, distribute or permit any written material which
makes reference to the other party hereto without first submitting
such material to the other party and receiving the prior written
consent of such party, which consent shall not be unreasonably
withheld or delayed, nor (ii) disclose to the public or any third
party the relationship between them or the transactions contemplated
by this Agreement without receiving the prior written consent of the
other party, which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, no consent shall be required
in the event that either party is engaged in an initial public
offering or other transaction which, in the reasonable opinion of such
party after consultation with their counsel, requires the provision
<PAGE>
of such information to third parties; provided, that such party must
still give the other party prior notice of such disclosure.
12. INDEMNIFICATION
---------------
a. Each party (the "Indemnifying Party") hereby agrees to indemnify and
hold harmless the other party and its subsidiaries and affiliates, and
their respective directors, officers, employees, agents, shareholders,
partners, members and other owners, against any and all claims,
actions, demands, liabilities, losses, damages, judgments,
settlements, costs and expenses (including reasonable attorneys' fees)
(any or all of the foregoing hereinafter referred to as "Losses")
insofar as such Losses (or actions in respect thereof arise out of or
are based on any representation or warranty made by the Indemnifying
Party being untrue or any breach by the Indemnifying Party of any
covenant or agreement made by it herein
b. Except to the extent that either party provides or otherwise licenses
materials to the other party as required hereunder, each party will
indemnify and hold the other party harmless from all Losses relating
to the development, operation, maintenance and Content (as defined
below) of the Indemnifying Party's Site or Intranet program, as the
case may be.
c. For purposes herein, "Content" shall mean BN Content or RCI Content,
as the case may be, as defined below.
i. "BN Content" shall mean proprietary content of BN contained on
----------
the BN Business Solutions or BN Site and shall include only that
content created by BN, its employees or other persons
contractually bound to BN to create such content. In no event
shall the term BN Content be deemed to include any content
created or transmitted by users of the BN Business Solutions
Site, BN Site or BN Intranets.
ii. "RCI Content" shall mean proprietary content of RCI contained on
-----------
RCI Sites and RCI Service Home Pages and shall include only that
content created by RCI, its employees or other persons
contractually bound to RCI to create such content. In no event
shall the term RCI
<PAGE>
Content be deemed to include any content created or transmitted
by users of the RCI Site or RCI Intranets.
13. LIMITATION OF LIABILITY
-----------------------
a. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES,
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF REVENUE OR LOST
PROFITS, ARISING FROM ANY PROVISION OF THIS AGREEMENT, EVEN IF SUCH
PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
b. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
14. MISCELLANEOUS
-------------
a. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the
conflict of law principles thereof.
b. This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes any and all
prior agreement, written and oral, with respect thereto. No change,
amendment or modification of any provision of this Agreement shall be
valid unless set forth in a written agreement signed in counterparts
or otherwise by both parties.
c. Any and all notices and other communications to either party hereunder
shall be in writing and deemed delivered (i) upon receipt if by hand,
overnight courier or telecopy (provided that in the event of a
telecopy, concurrently therewith a copy is mailed in accordance with
clause (ii) hereof) and (ii) three days after mailing by first class,
certified mail, postage prepaid, return receipt requested (1) if to
RCI to 725 Concord Ave., Cambridge, Ma 02138, attention: Louis
Hernandez; telecopier number: 617-497-
<PAGE>
6800, and (2) if to BN to 76 Ninth Avenue, New York, New York 10011,
attention: Vice President, New Business Development, telecopier no.:
212-414-6120, or to such other address for a party as shall be
specified by like notice.
d. This Agreement does not constitute either party an agent, legal
representative, joint venturer, partner or employee of the other
for any purpose whatsoever and neither party is in any way authorized
to make any contract, agreement, warranty or representation or to
create any obligation, express or implied, on behalf of the other
party hereto.
e. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and together which shall constitute
one and the same instrument.
f. This Agreement and the provisions hereof shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and
their permitted assigns. Neither party may assign its rights or
obligations under this Agreement without the consent of the other
party (which consent shall not be unreasonably withheld or delayed),
except to the extent permitted under Section 8(c) hereof.
g. Each provision of this Agreement shall be considered severable and if,
for any reason, any provision hereof is determined to be invalid and
contrary to, or in conflict with, any existing or future law or
regulation of any court or agency having valid jurisdiction, such
shall not impair the operation or affect the remaining provisions of
this Agreement; and the latter shall continue to be given full force
and effect and bind the parties hereto and such invalid provisions
shall be deemed not to be a part of this Agreement.
h. Neither party shall be liable to fulfill its obligations hereunder, or
for delays in performance, due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions
of civil or military authority, fires, strikes, floods, epidemics,
riots or acts of war.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ROWECOM,
By: /s/ Louis Hernandez
----------------------------------
Louis Hernandez
Executive Vice President
Chief Financial Officer
BARNESANDNOBLE.COM
By: /s/ Carl Rosendorf
--------------------------------
Carl Rosendorf
Vice President Marketing, Sales
Business Development
<PAGE>
Schedule I
----------
Fee Schedule
------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
New Customers Accessing Current RCI Customer Current BN
the BN or RCI Service Orders Customer
Orders
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOOKS BN PROVIDES BOOK TO CUSTOMER BN provides book to Current BN provides book to
Customer Current Customer
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
BN pays ***/10/ of Net Sales BN pays ***/11/ of Net ***/12/
- -- --
Price to RCI Sales Price to RCI,
pursuant to Section 5B
- ---------------------------------------------------------------------------------------------------
CONSUMER RCI PROVIDES SUBSCRIPTION TO RCI PROVIDES RCI PROVIDES
SUBSCRIPTIONS CUSTOMER SUBSCRIPTION TO SUBSCRIPTION TO
CURRENT CUSTOMER CURRENT CUSTOMER
RCI pays ***/13/ of RCI Net
--
Sales Price per Subscription RCI retains ***/14/ of all RCI pays ***/15/ of
-- --
to BN* revenue from sales RCI Net Sales Price per
Subscription to BN*
- ---------------------------------------------------------------------------------------------------
BUSINESS RCI PROVIDES SUBSCRIPTION RCI PROVIDES SUBSCRIPTION RCI PROVIDES
SUBSCRIPTIONS TO CUSTOMER TO CURRENT SUBSCRIPTION TO
- ---------------------------------------------------------------------------------------------------
</TABLE>
/10/ Confidential treatment has been requested for this portion of this
-
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/11/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/13/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/14/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/15/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CUSTOMER CURRENT CUSTOMER
RCI pays ***/16/ of RCI retains ***/17/ RCI pays ***/18/ per
-- -- --
per Subscription to BN of all revenue sales Subscription to BN
- ----------------------------------------------------------------------------------------------------
</TABLE>
* In the event that RCI sources these titles directly from the publisher, and
their margins change significantly, RCI will adjust its payment to BN
proportionately
______________
/16/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/17/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
/18/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
SCHEDULE 2
----------
FORM OF AMENDMENT
AMENDMENT NO. _____
This Amendment No. ______ is entered into between RoweCom Inc., a Delaware
corporation ("RCI"), and barnesandnoble.com inc., a Delaware corporation ("BN")
---
pursuant to the terms of Section 5(d) of that certain Marketing and Integration
Agreement dated as of August ___, 1998 between RCI and BN (the "Marketing
---------
Agreement"). This Amendment No. ______ is intended to supplement the Marketing
- ---------
Agreement by specifying the percentage of the Net Sales Price or per
Subscription payment applicable to the sales of books or Subscriptions, as
applicable. Capitalized terms used in this Amendment No. ____ and not otherwise
defined herein are used with the meanings ascribed to them in the Marketing
Agreement.
In consideration of the mutual promises and covenants contained in the
Marketing Agreement, the parties hereby agree that the Marketing Agreement is
amended as follows:
1. The Fee Schedule attached to the Marketing Agreement as Schedule I is
hereby amended in its entirety as follows:
[TO BE SUPPLIED]
Except as expressly modified by this Amendment No. ____ all terms and
conditions of the Marketing Agreement shall remain in full force and effect.
This Amendment No. ____ is subject to all of the terms and conditions set forth
in the Marketing Agreement.
IN WITNESS WHEREOF the parties have caused this Amendment to be
executed by their authorized representatives as an instrument under seal as of
ROWECOM, INC. BARNESANDNOBLE.COM INC.
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
<PAGE>
SCHEDULE 3
----------
CURRENT BN CUSTOMERS
***/19/
--
_______________________
/19/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
SCHEDULE 4
----------
CURRENT RCI CUSTOMERS
BASF
Lawrence Livermore Nat. Laboratory
Arthur Andersen LLP
PriceWaterhouse LLP
Blue Cross/Blue Shield - Florida
Johns Hopkins University
Ohio University
Univer. of California - San Fran. Med.
Aurora Healthcare Corporation (St. Luke)
Mass. General Hosp.
National Institutes of Health - NIH
Hewlett Packard End Users
Hewlett Packard/Burnaby
Hewlett Packard/Cupertino
Hewlett Packard/Fort Collins
Hewlett Packard/Fort Collins - End Users
Hewlett Packard/Palo Alto
Hewlett Packard/San Jose
Hewlett Packard/Santa Rosa
***/20/
--
- ------------
/20/ Confidential treatment has been requested for this portion of this
--
exhibit. A complete copy of this exhibit, including this redacted portion, has
been filed with the Securities and Exchange Commission separately.
<PAGE>
AMENDMENT NO. 2
TO
MARKETING AND INTEGRATION AGREEMENT
AMENDMENT NO. 2 TO MARKETING AND INTEGRATION AGREEMENT (the "Amendment
No. 2") dated as of December 15, 1998 by and between RoweCom, Inc., a Delaware
corporation ("RCI"), and barnesandnoble.com llc, a Delaware limited liability
company ("BN").
W I T N E S S E T H:
--------------------
WHEREAS, the parties hereto previously have entered into a Marketing and
Integration Agreement (the "Original Agreement") dated as of August 20, 1998 and
an Amendment No. 1 to the Original Agreement dated as of December 23, 1998
("Amendment No. 1," together with the Original Agreement, the "Agreement"),
which, among other things, sets forth the terms and conditions of a joint effort
by the parties to offer products to consumers via corporate intranets and the
internet; and
WHEREAS, pursuant to the terms of the Agreement the parties are obligated to
develop jointly a development plan detailing a technology and sales strategy and
budget regarding the joint offering of products;
WHEREAS, the parties hereto desire to amend the Agreement to extend the date
on which the parties are obligated to agree upon a development plan;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants set forth herein below, the parties hereto hereby agree
as follows:
1. Terms not defined herein shall have the meanings ascribed to them in the
Agreement.
2. The first sentence of Section 3(b)(v) of the Agreement is hereby amended
to delete the text included therein in its entirety and, in lieu thereof, the
following shall appear:
No later than February 18, 1999, RCI and BN shall agree upon a
Development Plan that will include a technology and sales strategy and
budget for the calendar year 1999.
3. Except as herein provided the Agreement shall remain in full force and
effect without amendment or modification. This Amendment No. 2 supersedes any
prior understandings or written or oral agreements amongst the parties hereto,
or any of them, respecting the subject matter herein and contains the entire
understanding amongst the parties hereto with respect thereto.
<PAGE>
4. Other than as set forth herein, neither party by execution of this
Amendment No. 2 shall be deemed to have waived any of its rights or remedies at
law or in equity in connection with such party's enforcement of the provisions
of the Agreement or the provisions of any other agreement executed in connection
with the transactions out of which the Agreement arose.
5. For the convenience of the parties hereto, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, and all of which taken together shall constitute
one agreement.
6. This Amendment No. 2 shall be governed by the laws of the State of
New York without giving effect to the conflict of law principles thereof.
7. The parties hereto covenant and agree that they will execute such
other and further instruments and documents as are or may become necessary or
desirable to effectuate and carry out this Amendment No. 2.
IN WITNESS WHEREOF, this Amendment No. 2 has been executed as of the day
and year first above written by the parties hereto.
ROWECOM INC.
By: /s/ Dr. Richard R. Rowe, Ph.D.
-------------------------------
Name: Dr. Richard R. Rowe, Ph.D.
Title: President and CEO
BARNESANDNOBLECOM LLC
By: /s/ Carl Rosendorf
-------------------
Name: Carl Rosendorf
Title: Vice President
2
<PAGE>
EXHIBIT 10.18
CONTENT AND CO-MARKETING AGREEMENT
THIS AGREEMENT (AGREEMENT) is dated as of the 28th day of September 1998
(the EFFECTIVE DATE), by and between ROWECOM INC. ("RCI"), a Delaware
---
corporation, and NEWSUB SERVICES, INC. ("NSS"), a Connecticut corporation.
---
PREAMBLE
--------
WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature and, in connection therewith, RCI collaborates with such entities to
enhance existing intranet networks to enable such entities to purchase
Subscriptions, books and other knowledge products and services via their
intranets; and
WHEREAS, NSS markets and sells magazines and other services to consumer-
based affinity groups; and
WHEREAS, RCI and NSS desire to develop, market and sell publications and
services through the other party's distribution channels.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1.0 DEFINITIONS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms have the
respective meanings set forth below:
AUTOMATED RENEWAL ORDER means an order placed by a customer for a second
year of uninterrupted service on an RCI Title using RCI's automated renewal
feature.
CONTINUOUS SERVICE ORDER means an order received by NSS whereby the client
agrees in advance to be billed on a continuous basis for such Title.
<PAGE>
-2-
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and NSS
regarding the provision of an integrated electronic service and payment process,
as described in Section 2.6 below.
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Exhibits A and B.
-------- - -
GROSS FEE means the aggregate billed gross fee received by any party
pursuant to an RCI Title Order or an NSS Title Order under this Agreement***/1/.
---
GUARANTEED LOWEST PRICE shall mean ***/2/
---
HANDLING CHARGE means the fee charged by RCI to its customers, as adjusted
from time to time, but shall exclude any fees payable by RCI to merchants or
credit card companies in connection with the sale of Titles to customers.
MERCHANT FEE means the fee charged by a credit card company or other
merchant (other than the Handling Charge) in connection with the sale of Titles
to a customer.
NSS CATALOG means the list of NSS Titles, as updated from time to time,
attached hereto as Exhibit C.
------- -
NSS CHANNEL means all distribution channels for NSS Titles, including the
NSS Online Channel(s), as agreed to by the parties from time to time.
NSS ONLINE CHANNEL means any electronic distribution channel for NSS Titles
(including America On-Line's internet web site, and NSS' internet web site)
customarily utilized by NSS as of the date
- -----------------------------
/1/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/2/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-3-
hereof, as well as such additional electronic distribution channels that are
utilized by NSS at any time during the Term.
NSS TITLE means any Title authorized for sale through NSS Online Channels
by a publisher, and listed on the NSS Catalog, as updated from time, but
excluding any Titles listed on the RCI Catalog.
NSS TITLE ORDER means any order received by RCI for NSS titles which is not
a Continuous Service Order.
PROPRIETARY INFORMATION means all patents, trade secrets, copyrights,
trademarks, industrial designs and other intellectual property specified or
supplied by each party to market, sell or use the RCI Catalog or NSS Catalog.
RENEWAL FEE means the aggregate billed gross fee received by any party
pursuant to any Automated Renewal Order or Continuous Service Order under this
Agreement ***./3/
---
RCI CATALOG means the list of RCI Titles, as updated from time to time, and
attached hereto as Exhibit D.
------- -
RCI CHANNEL means all distribution channels for RCI Titles, including the
RCI Intranet Channel(s), as agreed to by the parties from time to time.
RCI INTRANET CHANNEL means any intranet distribution channel for RCI Titles
(including knowledgeStore(TM) and knowledgeLibrary(TM)) customarily utilized by
RCI as of the date hereof, as well as such additional intranet distribution
channels that are utilized by RCI at any time during the Term.
RCI TITLE means any Title authorized for sale through RCI Intranet Channels
by a publisher, and listed in the RCI Catalog, as updated from time to time, but
excluding any Titles listed on the NSS Catalog.
- -----------------------------
/3/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-4-
RCI TITLE ORDER means any order received by NSS for an RCI title which is
not a Automated Renewal Order.
TERM means the period beginning on the Effective Date and ending upon
termination of this Agreement.
TERRITORY means the United States of America and military bases overseas.
TITLES means any magazines, subscriptions, serials, books, or other
publications, embodied in paper or magnetic media.
TRADEMARK means names, trademarks, services marks, trade names, labels,
logos, designs or other designations and all goodwill associated therewith.
1.2 OTHER DEFINED TERMS. Each of the following terms have the meanings ascribed
to it in the section set forth opposite such term:
AGREEMENT Preamble
AUDITING PARTY Section 4.4
AUDITED PARTY Section 4.4
CHANGE OF CONTROL Section 7.2(c)
CLAIMANT Section 8.2(b)
CONFIDENTIAL INFORMATION Section 6.1
CONTINUOUS SERVICE Section 4.1(b)
DISCLOSER Section 6.1
EFFECTIVE DATE Preamble
NSS Preamble
INDEMNITOR Section 8.2(a)
INDEMNITEES Section 8.2(a)
INITIAL TERM Section 7.1
LOSSES Section 8.2(a)
RCI Preamble
RECIPIENT Section 6.1
2.0 MARKETING, DEVELOPMENT, AND DISTRIBUTION
2.1 NSS PROMOTION OF RCI TITLES.
(a) APPOINTMENT. During the Term hereof and subject to the terms of this
Agreement, RCI hereby retains and authorizes NSS to market, promote,
and sell any RCI Title to NSS customers through NSS Online Channels
in the
<PAGE>
-5-
Territory. Subject to the terms of this Agreement, NSS will purchase
RCI Titles exclusively from RCI,***/4/.
---
(b) LIMITED AGENCY. NSS' authority to act on behalf of RCI shall be
limited to the activities and services set forth in this Section 2.1.
(c) LICENSE. Subject to the terms set forth herein, RCI hereby grants to
NSS a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the RCI Catalog in the
Territory to (i) offer RCI Titles to NSS customers through NSS Online
Channels; (ii) take orders from NSS customers for RCI Titles; (iii)
maintain the database containing information regarding such customer
orders; (iv) bill and collect from such customers the amount of the
order; and (v) fulfill the order by remitting to the publisher the
amount due for such order. NSS may use the RCI Catalog and the
information contained therein only in connection with the marketing
and promoting of RCI Titles as described in this Section 2.1. In
addition, RCI hereby grants to NSS a non-exclusive, non-assignable,
royalty-free right and license (excluding the right to sublicense) to
use the RCI Trademarks in the Territory to promote and market the RCI
Titles solely in accordance with the terms of this Agreement. NSS
agrees that, upon reasonable notice from RCI, NSS shall permit RCI to
visit all locations where NSS delivers services using the RCI
Trademarks to ensure that (i) such services are delivered in a manner
consistent with the service standards employed by RCI and (ii) the
RCI Trademarks used in connection with such services are in
compliance with the specifications provided to NSS from time to time.
It is understood that, under certain circumstances, NSS may need
third party consents to effectuate the visitation by RCI. In such
circumstances,
- -----------------------------
/4/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-6-
RCI will work with NSS to facilitate the review of the usage of the
NSS Trademarks.
(d) MARKETING SERVICES PROVIDED BY NSS. Subject to the terms set forth
herein, NSS hereby agrees ***/5/ to (1) market, promote, and sell RCI
---
Titles in the Territory through NSS Online Channels; (2) market and
promote the RCI Trademarks in the Territory through all NSS Online
Channels; (3) provide NSS Titles to RCI customers at the Guaranteed
Lowest Price; (4) provide to RCI, upon mutual agreement by the
parties, without charge, an introduction to any then current NSS
customer for the purpose of promoting and marketing RCI Titles. NSS
shall inform RCI if NSS is unable to provide the Guaranteed Lowest
Price on any NSS Title pursuant to Section 2.1(d)(2) hereof. Upon
such notification, RCI may purchase such NSS Title from a third party
vendor if available from such third party vendor at a lower price,
provided that, RCI has provided NSS with 30 days prior written notice
-------- ----
thereof, and NSS is unable to offer such Title at such lower price
within 30 days of notification by RCI thereof.
It is understood and agreed that NSS operates direct mail marketing
and other non-electronic marketing channels but that NSS believes
that such non-electronic channels may not be appropriate for certain
RCI Titles. Accordingly, NSS is not obligated to market, promote or
sell RCI Titles in the Territory except through the NSS Online
Channels. The parties shall, however, from time to time review the
appropriateness of marketing, promoting and selling of selling RCI
Titles on such NSS non-electronic channels, and if they mutually
agree that certain of such NSS non-electronic channels are
appropriate for certain RCI Titles, they shall amend this Agreement
to include such NSS non-electronic channels
- -----------------------------
/5/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-7-
as NSS Online Channels and such added channel(s) shall be subject to the
provisions of this Agreement.
2.2 RCI PROMOTION OF NSS TITLES.
(a) APPOINTMENT. During the Term hereof, subject to the terms of this
Agreement, NSS hereby retains and authorizes RCI to exclusively
market, promote, and sell any NSS Title to RCI customers through RCI
Intranet Channels in the Territory. Subject to the terms of this
Agreement, RCI will purchase NSS Titles exclusively from NSS, ***/6/
---
(b) LIMITED AGENCY. RCI's authority to act on behalf of NSS shall be
limited to the activities and services set forth in this Section 2.2.
(c) LICENSE. Subject to the terms set forth herein, NSS hereby grants to
RCI the non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) during the Term of this Agreement
to use the NSS Catalog in the Territory to (i) offer NSS Titles to
RCI customers through RCI Intranet Channels; (ii) take orders from
RCI customers for NSS Titles; (iii) maintain the database containing
information regarding such customer order; (iv) bill and collect from
such customers the amount of the order; and (v) fulfill the order by
remitting to the publisher the amount due for such order. RCI may use
the NSS Catalog and the information contained therein only in
connection with the marketing and promoting of NSS Titles as
described in this Section 2.2. In addition, NSS hereby grants to RCI
a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the NSS Trademarks in the
Territory to promote and market the NSS Titles solely in accordance
with the terms of this Agreement. RCI agrees, that upon
- -----------------------------
/6/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-8-
reasonable notice from NSS, RCI shall permit NSS to visit all
locations where RCI delivers services using the NSS Trademarks and to
ensure that (i) such services are delivered in a manner consistent
with the service standards employed by NSS and (ii) the NSS
Trademarks used in connection with such services are in compliance
with the specifications provided to RCI from time to time. It is
understood that, under certain circumstances, NSS may need third
party consents to effectuate the visitation by RCI. In such
circumstances, RCI will work with NSS to facilitate the review of the
usage of the NSS Trademarks.
(d) MARKETING SERVICES PROVIDED BY RCI. Subject to the terms set forth
herein, RCI hereby agrees to use best reasonable efforts to (1)
market, promote, and sell NSS Titles in the Territory through RCI
Intranet Channels; (2) market and promote the NSS Trademarks in the
Territory through all RCI Intranet Channels; and (3) market and
promote NSS Titles as the Guaranteed Lowest Price on such Titles
provided however, that NSS shall provide to RCI customers NSS Titles
-------- -------
at the Guaranteed Lowest Price.
It is understood and agreed that RCI may operate other marketing
channels and that such other channels may not be appropriate for
certain NSS Titles. Accordingly, RCI will not be obligated to market,
promote or sell NSS Titles in the Territory except through the RCI
Intranet Channel. The parties shall, however, from time to time
review the appropriateness of marketing, promoting and selling NSS
Titles on such other RCI Channels, and if they mutually agree that
certain of such other RCI Channels are appropriate for certain NSS
Titles, they shall amend this Agreement to include such other RCI
Channels as a RCI Intranet Channel and such added channel(s) shall be
subject to the provisions of this Agreement.
2.3 UPDATES ON CATALOGS. From time to time during the Term, each party shall
promptly notify in writing the other party of any corrections,
enhancements, revisions, updates, upgrades and similar changes in each
party's catalog. Upon such notification, the other party shall have 5 days
in which to object in writing to the inclusion of such Title. If such party
does not object to the inclusion of such Title within 5 days, such title
shall be included
<PAGE>
-9-
in the notifying party's catalog and made available to the other party
under this Agreement.
2.4 PUBLICITY; USE OF NAMES.
(a) Neither party shall originate or allow to be issued any publicity or
news release or otherwise make any public announcement or statements,
written or oral, with respect to this Agreement or the terms hereof
or the transactions contemplated hereby unless mutually agreed by the
parties in writing, which release shall not be unreasonably withheld,
except as required under securities laws or other applicable laws
(including in connection with an initial public offering). Neither
party shall use the name of the other party or any adaptation thereof
or any of such other party's Trademarks in any advertising,
promotional or sales literature, or in any other form of publicity
without prior written consent (which consent will not be unreasonably
withheld or delayed) obtained from the other party in each case.
(b) Each party agrees to protect from disclosures to any third party any
and all information received from the other party that identifies an
individual customer, including but not limited to names, telephone
numbers, e-mail addresses, postal addresses, and user names. Each
party agrees to remove, upon request by the other party, from its
databases and all other records, electronic or otherwise, such
customer identifying information, subject to each party's ability to
maintain a copy of such customer information for purposes of
complying with such party's obligations under this Agreement.
2.5 INTELLECTUAL PROPERTY. Subject to the terms hereof, each party shall take
such actions as are reasonably required to maintain their respective
Trademarks in effect, and shall inform the other party of any changes in or
additions to the Trademarks. Each party shall use commercially reasonable
efforts to correctly reference the other party's Trademarks and other
proprietary rights in any marketing, advertising, promotional materials,
sales literature or other publicity, as required by law or as reasonably
requested by the other party. Each party's Trademarks and other proprietary
rights shall remain the sole and exclusive property of such party and the
other party shall
<PAGE>
-10-
have no rights thereto, except as otherwise provided herein, and the
goodwill associated therewith shall inure to the benefit of the owner of
such Trademark. Upon any expiration or termination of this Agreement, the
license to use the Trademarks shall terminate. Except as otherwise provided
herein, nothing contained in this Agreement shall be deemed to transfer
ownership of copyrightable material from one party to the other.
2.6 DEVELOPMENT PLAN. No later than January 1, 1999, RCI and NSS, shall, in
accordance with the Development Plan and implementation schedule, jointly
develop an integrated electronic system for processing customer orders
received by NSS or RCI and effecting payments in respect of the same,
including a seamless catalog accessible from the internet. Each party shall
bear its own costs related to such development efforts, as set forth in the
Development Plan. Either party may terminate this Agreement upon 30 days
written notice if the parties fail to agree upon a Development Plan by
January 1, 1999.
2.7. SALES COLLATERAL. Each party shall furnish at no cost to the other party
reasonable quantities of promotional materials, such as sales literature
and similar promotional material relating to the RCI Catalog and the NSS
Catalog, including such information as is necessary or appropriate for each
party to formulate any marketing materials used in connection with
marketing activities under Sections 2.1 and 2.2 respectively. Each party
hereby grants to the other party a license to reproduce and use such
promotional materials, provided that, neither party shall edit, modify or
-------- ----
otherwise alter the form or content of such promotional materials; and
provided, further, that each party may convert such promotional materials
--------
into analog or digital format as required to make use of them.
- -----------------------------
<PAGE>
-11-
3.0 SALES AND CUSTOMER SERVICE.
3.1 SALES AND CUSTOMER SERVICE PROCEDURES. Sales of Titles to customers shall
be made as follows:
(a) If the Title is distributed through an RCI Channel, RCI will
(i) sell the Title to the customer and initiate the order;
(ii) RCI will maintain the database containing information
regarding the publisher and customer's order;
(iii) RCI will close the sale for the Title ordered by the customer
and bill the customer the Gross Fee or Renewal Fee, as
applicable (such fee may include the Handling Charge and/or
Merchant Fee). For NSS Titles, RCI will electronically
transmit the customer's order to NSS for fulfillment by NSS.
The NSS Catalog shall include a price list for each NSS Title.
RCI may determine any additional fees that may be charged to
RCI customers for NSS Titles provided however that, RCI shall
--------
(1) clearly identify to RCI customers a list of any additional
fees or charges for its services imposed by RCI above and
beyond the NSS authorized list price for such NSS Title
contained in the NSS Catalog; and (2) provide upon request by
NSS, a reasonable justification for any additional fees or
charges imposed by RCI for its services above and beyond the
NSS authorized list price contained in the NSS catalog.
(iv) RCI or NSS (as the case may be) shall fulfill the order once
received by such party by collecting all amounts due from the
customer and remitting electronically to the publisher and the
other party the amount due to such party pursuant to the terms
of the Fee Schedule no more than ten (10) days upon receipt of
any payments from the customer;
(v) RCI shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has
<PAGE>
-12-
been placed through an RCI Channel. Once received, all
customer questions, complaints, and requests pertaining to NSS
Titles shall be promptly transmitted electronically to NSS for
resolution. RCI shall bear no further responsibility for
customer questions, complaints, and requests pertaining to NSS
Titles. Customer questions, complaints, and requests
pertaining to RCI Titles are the responsibility of RCI. Each
party shall bear its own expenses in resolving any such
customer inquiries; and
(vi) RCI shall provide to NSS information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to NSS
electronically at the address specified in Section 9.4 hereof
(b) If the Title is distributed through an NSS Online Channel, NSS will
(i) sell the Title to the customer and initiate the order;
(ii) NSS will maintain the database containing information
regarding the customer's order;
(iii) NSS will close the sale for the Title ordered by the customer
and bill the customer a Gross Fee or Renewal Fee, as
applicable. The NSS Catalog shall include a price list for
each NSS Title. NSS may, upon reasonable approval by RCI,
determine any additional fees that may be charged to NSS
customers for RCI Titles provided however that, NSS shall (1)
--------
provide to NSS customers a list of any additional fees or
charges imposed by NSS above and beyond the RCI authorized
list price contained in the RCI Catalog; and (2) provide, upon
request by RCI, a reasonable justification for any additional
fees or charges imposed by NSS above and beyond the RCI
authorized list price contained in the RCI catalog. For RCI
Titles, NSS will electronically transmit the customer's order
to RCI for fulfillment by RCI;
<PAGE>
-13-
(iv) RCI or NSS (as the case may be) shall fulfill the order by
collecting all amounts due from the customer and remitting
electronically to the publisher and the other party the amount
due to such party pursuant to the terms of the Fee Schedule no
more than ten (10) days upon receipt of any payments from the
customer;
(v) NSS shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has been placed through an NSS Online
Channel. Once received, all customer questions, complaints,
and requests pertaining to RCI Titles shall be promptly
transmitted electronically to RCI for resolution. NSS shall
bear no further responsibility for customer questions,
complaints, and requests pertaining to RCI Titles. Customer
questions, complaints, and requests pertaining to NSS Titles
are the responsibility of NSS. Each party shall bear its own
expenses in resolving any such customer inquiries; and
(vi) NSS shall provide to RCI information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to RCI
electronically at the address specified in Section 9.4 hereof.
3.2 CONTACT PERSONS. Each party shall designate a contact person to coordinate
the transfer of information between RCI and NSS and to be available to respond
to inquiries during the normal business hours of such party.
3.3 CHANGE IN SERVICES The parties agree and acknowledge that (a) the sales and
customer service procedures set forth in Section 3.1 hereof reflect the complete
understanding of the parties as to sales, order fulfillment, billing, and
customer service; and (b) any changes to the provisions, if reasonable,
regarding order processing, fulfillment, or customer service set forth in
Section 3.1 shall be negotiated in good faith by both parties with a
corresponding change in the Fee Schedule.
<PAGE>
-14-
3.4. REFUNDS AND CANCELLATIONS NSS guarantees to RCI that it will provide a
refund to the consumer of the Gross Fee on any cancellation of any NSS Titles in
accordance with NSS' then current policy. RCI guarantees to NSS that RCI will
honor the policy regarding cancellations and refunds provided by the publisher
of the applicable RCI Title. Each party shall inform the other party within a
reasonable time of any changes to such party's internal refund policy or to a
publisher's refund policy (upon notification by such publisher), as applicable.
4.0 PAYMENT & AUDITS
4.1 PAYMENTS PURSUANT TO THE FEE SCHEDULE.
(a) Within ten (10) days of receipt of any payments by a customer for RCI Title
Orders or NSS Title Orders, each party shall make payments to the other
party in an amount equal to the percentage of Gross Fee or Handling Charge
(as applicable) as set forth on the Fee Schedule attached hereto as Exhibit
-------
A. Within ten (10) days of receipt of any payments by a customer for
-
Automated Renewal Orders and Continuous Service Orders, each party shall
make payments to the other party in an amount equal to the percentage of
Renewal Fee or Handling Charge (as applicable) as set forth on the Fee
Schedule attached hereto as Exhibit B, provided however, that all payments
------- - --------
for Continuous Service Orders and for Automated Renewal Orders for the
first year of service of such order shall be subject to the Fee Schedule
set forth in Exhibit A. Each party shall make payments required pursuant
------- -
to this Agreement electronically and in immediately-available funds
delivered to the other party at the address set forth in Section 9.5.
(b) It is acknowledged by the parties that RCI currently charges certain RCI
customers less than the Handling Charge of ***/8/ set
---
- -----------------------------
/8/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-15-
forth on Exhibits A and B hereto. It is understood and agreed by the
-------- - -
parties that RCI may at its sole discretion charge less than the current
Handling Charge of ***/9/ to current RCI customers, certain non-profit
---
organization, and libraries.
(c) In the event that NSS and RCI mutually agree to offer RCI clients special
promotions to purchase NSS Titles, ***/10/. If gross revenue (less any
----
amounts refunded to customers less any applicable taxes assessed thereon)
collected for NSS titles that are the subject of such special promotion
falls between ***/11/, commission due to RCI shall be ***/12/ of the gross
---- ----
fee. If gross revenue collected for NSS titles falls below ***/13/, the
----
commission due to RCI shall be ***/14/. The parties shall negotiate in
----
good faith the procedure by which the amounts due to the other party
pursuant to this Section 4.1(c) shall be collected and remitted.
4.2 LATE PAYMENTS. In the event that any payment due to a party under this
Agreement is not made when due, the amount due shall
- -----------------------------
/9/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/10/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/11/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/13/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/14/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-16-
accrue interest at a rate of one-and-a-half percent (1.5%) per month from the
due date until the entire amount, including interest, shall be paid. Interest,
including payment and acceptance of interest, shall not negate or waive the
right of a party to any other remedy, legal or equitable, to which it may be
entitled because of the delinquency of any payment.
4.3 RECORDS. Each party shall keep and maintain, during the term of this
Agreement and for a period of at least two (2) years following any termination
or expiration thereof, records (prepared in accordance with generally accepted
accounting principles, consistently applied) sufficient to determine the amounts
of revenue and payments due under this Agreement. Within thirty (30) days
following each March 31, June 30, September 30 and December 31 during which
payments are due under this Agreement, commencing December 31, 1998, each party
shall provide the other party with a report including at least (a) the number
and names of the other party's Titles sold to customers through such party's
distribution channel during the immediately preceding quarter; (b) the monetary
amount collected with respect to such Titles; (c) the name of the party
fulfilling the order for each such Title; and (d) the calculation of the
payments due to such other party in respect of each sale. A report shall be
submitted to the other party whether or not any Title have been sold to
customers during such period.
4.4 AUDITS. Each party (for purposes of this Section 4.4 only, the "Auditing
--------
Party") shall have the right, not more than once in any twelve (12)-month
- -----
period, to have the relevant books and records of the other party (the "Audited
-------
Party") audited by an independent certified public accountant of the Auditing
- -----
Party's choosing, to ascertain the accuracy of the Audited Party's reports under
this Agreement. Such audits shall be scheduled within thirty (30) days following
delivery of a notice by the Auditing Party to the Audited Party, and conducted
during normal business hours, in a manner that does not unreasonably interfere
with the Audited Party's normal business activities. In the event that any audit
determines that the reported payments paid to the Auditing Party under this
Agreement was less than the amount due to the Auditing Party, the Audited Party
shall pay the Auditing Party the amount of such underpayment and all accrued
interest thereon from the date that such payment was due. In addition, if any
audit determines that the reported payments paid to the Auditing Party under
this Agreement was less than ninety percent (90%) of the actual amount due to
the Auditing Party for the
<PAGE>
-17-
period in question, the actual out-of-pocket cost of such audit shall be borne
by the Audited Party; otherwise, the cost of the audit shall be borne by the
Auditing Party.
4.5 TAXES. All taxes and charges that may be imposed by any governmental taxing
authority on any sales of Titles pursuant to this Agreement shall be paid by the
party assessed such taxes or charges.
5.0 REPRESENTATIONS AND WARRANTIES
5.1 AUTHORIZATION, ETC. Each party hereby represents and warrants to the other
that: (a) it has the requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby;
(b) this Agreement has been duly authorized, executed and delivered by such
party, constitutes the legal, valid and binding obligation of such party and is
enforceable against such party in accordance with its terms, except to the
extent such enforceability may be limited by bankruptcy, reorganization,
insolvency or similar laws of general applicability governing the enforcement of
the rights of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity); and (c) to the best of
its knowledge, it has provided the other party with the information known to it
that materially affects the other party's ability to perform the other party's
obligations under this Agreement;.
5.2 PROPRIETARY INFORMATION. Each party hereby represents and warrants to the
other party that: (a) the provision by such party of Proprietary
Information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly inform the
other party in the event that any third party files or threatens any suit
based on any alleged violation of any such proprietary or intellectual
property rights of such party in respect of the Proprietary Information;
and (c) each party holds title or license rights to the Proprietary
Information sufficient to permit it to grant the license granted under
Section 2 hereof.
5.3 THIRD PARTY RIGHTS. Each party represents and warrants to the other party
that: (a) it is not bound by any agreement or obligation (and will not
enter into any agreement or obligation) that could materially interfere
with the performance of its obligations under this Agreement; and (b) no
approval, authorization or consent of any governmental or regulatory
<PAGE>
-18-
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement;
5.4 DISCLAIMER. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 5, EACH
PARTY DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE PRODUCTS AND SERVICES
CONTEMPLATED UNDER THIS AGREEMENT, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
6.0 CONFIDENTIALITY
6.1 DEFINITION. CONFIDENTIAL INFORMATION means all financial, business,
marketing, operations, technical, and economic information, whether
tangible or intangible, that is disclosed by either party (the DISCLOSER)
or any of Discloser's suppliers, employees, contractors or customers to the
other party (the RECIPIENT), if such information is disclosed (i) in
writing or by way of any other media that is marked as confidential or (ii)
orally or visually, provided that, such oral or visual disclosure is
-------- ----
followed by written confirmation by the Discloser within 3 days of such
disclosure; provided that (A) Confidential Information excludes any
--------
information or portion thereof that (1) was known to the Recipient before
receipt thereof under this Agreement; (2) is disclosed to the Recipient by
a third person who has a right to make such disclosure without any
obligation of confidentiality to the Discloser; (3) is or becomes generally
known in the trade without violation of this Agreement by the Recipient;
(4) is independently developed by the Recipient or Recipient's employees to
whom the Discloser's information was not disclosed; or (5) is approved in
writing by the Discloser for release; (B) only the specific information
that meets the exclusions shall be excluded, and not any other information
that happens to appear in proximity to such excluded portions (for example,
a portion of a document may be excluded without affecting the confidential
nature of those portions that do not themselves qualify for exclusion) and
(C) Confidential Information includes summaries and other materials
prepared by or on behalf of a Recipient that restate, summarize or
otherwise use any Confidential Information of a Discloser. Notwithstanding
anything to the contrary, Confidential Information shall specifically
include the RCI Catalog, the NSS
<PAGE>
-19-
Catalog, and information supplied by a party regarding RCI Channels and NSS
Channels.
6.2 NONDISCLOSURE & LIMITATIONS ON USE. Each Recipient agrees (a) to keep
secret and maintain the Confidential Information as confidential and to
hold the Confidential Information in trust for the exclusive benefit of the
Discloser; (b) to use or copy the Confidential Information solely to
perform its obligations under this Agreement; (c) to segregate the
Confidential Information from the Recipient's other information and from
that of third parties; (d) not to copy the Confidential Information unless
necessary to perform services under this Agreement; (e) to notify promptly
the Discloser upon learning about any court order or other legal
requirement that purports to compel disclosure of any Confidential
Information and to cooperate with the Discloser in the exercise of the
Discloser's right to protect the confidentiality of the Confidential
Information before any tribunal or governmental agency; (f) not to disclose
the Confidential Information to any person or entity not a party to this
Agreement other than such of Recipient's contractors, agents or employees
who (i) have a need to know the Confidential Information for a purpose
permitted hereunder; and (ii) are apprised of the confidential nature of
the Confidential Information; and (g) to return promptly to the Discloser
at any time upon the Discloser's request, any and all materials pertaining
to or containing any Information. Each party shall (1) promptly notify the
other party of any actual or suspected unauthorized use or disclosure of
the other party's Confidential Information of which it has knowledge and
will cooperate in the investigation of such unauthorized use or disclosure;
(2) be liable for breaches of confidentiality by its employees, contractors
or agents; and (3) include the other party's reasonable proprietary rights
notices on any media or products embodying the other party's Confidential
Information, including partial copies thereof. Nothing contained herein
shall prevent a Recipient from disclosing Confidential Information to any
tribunal or governmental agency, so long as the notice in this Section 6.2
is promptly given; provided that such disclosure shall not alter the status
of such information hereunder for all other purposes as Confidential
Information unless and until such information is actually made public by
the tribunal or agency.
<PAGE>
-20-
7.0 TERM AND TERMINATION
7.1 TERM. This Agreement shall commence upon the Effective Date and, subject to
early termination pursuant to Section 7.2, shall continue in effect until the
second anniversary of the Effective Date (the INITIAL TERM) and shall be
automatically renewed for successive one (1) year periods after the expiration
of the Initial Term unless either party provides the other party with written
notice of its intent not to renew this Agreement at least ninety (90) days prior
to the expiration of the then current term.
7.2 TERMINATION.
(A) BREACH. Either party may terminate this Agreement upon thirty (30)
days' written notice to the other party if the other party breaches
any of its material obligations under this Agreement and such breach
remains uncured for a period of 30-days after receipt of such notice.
For purposes of this Section 7.2(a), NSS' material obligations shall
mean its material obligations under Sections 2, 3.1(b), 3.2, 3.3, 3.4,
4, 5, 6, 7.3, and 8, and RCI's material obligations shall mean its
material obligations under Sections 2, 3.1(a), 3.2, 3.3, 3.4, 4, 5, 6,
7.3 and 8.
(B) Either party may terminate this Agreement upon 30 days written notice,
if the parties are unable to agree upon a Development Plan as set
forth in Section 2.6 hereto.
(C) Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided, that the party subject to such Change of Control notifies
the other party of such event no later than the effective date
thereof. Change of Control shall mean a merger or consolidation of
the Company with or into another entity (other than a merger or
reorganization involving only a change in the state of the
incorporation of the company, or the
- -----------------------------
<PAGE>
-21-
acquisition by the company of other businesses where the company
survives as a going concern), the sale of all or substantially all of
a party's assets to any other person, or the issuance of shares of
capital stock of the company in a transaction or series of related
transactions in which the persons acquiring such shares acquire more
than 50% voting control of the company. Notwithstanding the foregoing,
an initial public offering shall not be deemed to be a Change of
Control.
(D) Any notice given pursuant to this Section 7.2(a) must set forth with
specifically the alleged material obligations breached by the other
party.
7.3. EFFECT OF TERMINATION.
(A) THEN CURRENT ORDERS. Upon termination of this Agreement, the
provisions of Section 2.1 and 2.2 regarding the obligations of each
party shall terminate, provided however, that the parties will
-------- -------
continue to perform all obligations on pending orders for the purchase
of Titles and customer services on such Titles in accordance with the
terms of this Agreement.
(B) CONFIDENTIAL INFORMATION. Promptly after all obligations to existing
customers are performed pursuant to clause (a) hereof, each party
shall return to the other party or certify in writing to the other
party that it has destroyed all documents and other tangible items it
or its employees or agents have received or created pertaining,
referring or relating to the Confidential Information of the other
party.
(C) OTHER OBLIGATIONS. The provisions of Section 6 (Confidentiality),
Section 7 (Termination), Section 8 (Risk Allocation) and Section 9
(Miscellaneous) shall survive any expiration or termination of this
Agreement.
7.4 TERMINATION/NONRENEWAL RIGHTS ABSOLUTE. It is expressly understood and
agreed that the rights of termination and nonrenewal set forth in this
Section 7 are absolute, and that the parties have considered the
possibility of such termination or nonrenewal and the possibility of loss
and damage resulting therefrom, in making expenditures pursuant to the
performance of this Agreement. It is the express intent and agreement of
the
<PAGE>
-22-
parties that neither shall be liable to the other for damages or otherwise
by reason of the termination of this Agreement as hereinabove provided. The
parties expressly agree that the notice periods in this Agreement are
reasonable under the contemplated circumstances.
8.0 RISK ALLOCATION
8.1 LIMITATION OF LIABILITY. EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE
OBLIGATIONS UNDER SECTION 6 (CONFIDENTIALITY), IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR SIMILAR DAMAGES OF ANY KIND, WHETHER SUCH LIABILITY IS
PREDICATED ON CONTRACT, STRICT LIABILITY, STATUTE, REGULATION, OR ANY OTHER
THEORY.
8.2 INDEMNIFICATION.
(A) OBLIGATION. Subject to the provisions of this Section 8.2 each party (each
an INDEMNITOR) hereby agrees to indemnify, defend and hold the other party
and its affiliates, directors, officers, employees, contractors and agents
(each an INDEMNITEE) harmless, from, against and in respect of any and all
assessments, damages, deficiencies, judgments, losses, obligations and
liabilities, including costs of collection and reasonable attorneys' fees
and expenses (collectively, LOSSES) incurred by the Indemnitee(s) arising
from or directly related to any breach by Indemnitor under this Agreement.
(B) DEFENSE OF CLAIMS. Indemnitor may assume the defense of any claim for
Losses. If Indemnitor assumes the defense of any claim for Losses, then,
at Indemnitor's expense, the Indemnitee and its counsel shall cooperate
fully in the defense against, or compromise of, at Indemnitor's option,
such asserted liability. The Indemnitee shall have the right to employ
separate counsel in any such action or claim, but the fees and expenses of
such counsel shall not be an expense of Indemnitor unless employment of
such counsel has been specifically authorized by Indemnitor. If there is a
final judgment in any such action, or if there is a settlement of any such
action effected with the consent of Indemnitor, Indemnitor shall indemnify
and hold harmless the Indemnitee from and against any loss or liability by
reason of such judgment or settlement.
<PAGE>
-23-
8.3 INSURANCE COVERAGE. No later than November 30, 1998, Each party shall have
and maintain at all times during the term of this Agreement, at its sole
cost and expense, insurance under general liability and errors and
omissions policies in the amount of $2,000,000 per claim and $5,000,000 in
the aggregate. Each such policy shall be consistent in form, content and
coverage with industry standards for the activities contemplated by this
Agreement, including such party's indemnification obligations under Section
8.2. It is understood that such insurance shall not be construed to create
a limit of such party's liability with respect to its indemnification
obligations under Section 8.2. Each party shall provide the other party
with written evidence of such insurance upon request. Each party shall
provide the other party with written notice at least fifteen (15) days
prior to the cancellation, non-renewal or material change in such
insurance. If such party does not obtain replacement insurance or take
other measures that allow it to provide comparable coverage within such
fifteen (15) day period, the other party shall have the right to terminate
this Agreement effective at the end of such fifteen (15) day period upon
without notice or any additional waiting periods or to pay the premium and
be reimbursed hereunder.
8.4 DISPUTE RESOLUTION
(A) MEDIATION. Any dispute among or between the parties or any of them arising
under or in connection with this Agreement and the transactions and
relationship between the parties contemplated hereby will first be mediated
by a telephone conference or meeting, in which counsel for the respective
parties will attempt to aid the parties in negotiating a mutually
acceptable resolution.
(B) ARBITRATION. If mediation pursuant to the foregoing paragraph fails to
resolve any dispute arising or in connection with this Agreement and the
transactions and relationship between the parties contemplated hereby,
either party may provide 30 days prior written notification to the other
party of such failure to resolve the dispute. Upon such notification, the
parties shall enter into arbitration pursuant to this Section 8.3(b). Such
dispute will be finally settled by a single arbitrator, having at least
five years of experience as an arbitrator and otherwise mutually acceptable
to the parties to such dispute, in arbitration administered by American
Arbitration Association in
<PAGE>
-24-
accordance with its commercial arbitration rules then in effect and the
internal laws of the State of New York. Any demand for arbitration
hereunder must be made before the running of the legal statute of
limitations applicable to the claim at issue. Any such arbitration will
take place in New York, New York, unless otherwise agreed by the parties.
The arbitrator will not have any right, power, or authority to award any
punitive or exemplary damages or other damages in excess of purely
compensatory damages. Each of the disputing parties will be responsible for
an equal portion of the fees and expenses of the arbitrator, and all of
such party's own costs and expenses, in connection with any such
arbitration. Judgment upon any award rendered by the arbitrator, if such
award is in accordance with applicable law and the terms of this Agreement,
may be entered in any court of competent jurisdiction.
9.0 MISCELLANEOUS
9.1 INDEPENDENT CONTRACTORS. For all purposes of this Agreement, each party
shall be and act as an independent contractor or and not as partners, joint
venturers, employees or agents of the other. No franchise is created hereby.
Neither party shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other party or to bind
the other party to any other contract, agreement or undertaking with any third
party except as specifically provided for herein.
9.2 FORCE MAJEURE. Neither party shall be liable or responsible in any manner
for failure or delay in performance of any obligation under this Agreement when
such failure or delay is due to the result, in whole or in substantial part, to
any cause beyond the reasonable control of the party whose performance is
delayed or rendered impossible thereby if reasonable steps are taken to resolve
the reason for such failure or delay and the reason for such failure or delay is
promptly transmitted to the other party. If the delay exceeds one hundred twenty
(120) days from the initial occurrence each party shall have the right to
terminate this agreement upon 30 days prior written notice to the other party.
9.3 ASSIGNMENT. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
successors and assigns. Neither party may assign, transfer, or sublicense its
- --------------
rights or obligations under this
<PAGE>
-25-
Agreement without the prior written consent of the other party (which consent
shall not be unreasonably withheld or delayed.
9.4 NOTICES. Any notices, waivers and other communications required or
permitted hereunder shall be in writing and shall be deemed to be fully given
when delivered by hand or dispatched (with reasonable evidence of receipt) by
telex, telegraph or other means of facsimile transmission, or twenty-four (24)
hours after being dispatched by recognized overnight courier or mail service,
addressed to the party to whom the notice is intended to be given at the
following or such other address as either party may designate by like notice:
RCI: RoweCom, Inc.
725 Concord Ave.
Cambridge, MA 02138
Attention: Louis Hernandez
Fax: 617-497-6825
NSS: NewSub Service, Inc.
Four High Ridge Park
Stamford, CT
Attention: Michael Loeb
Fax: 203-595-8252
9.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with substantive laws of the State of New York, without regard for
any choice or conflict of law rule or principle that would result in the
application of the substantive law of any other jurisdiction.
9.6 SEVERABILITY. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provisions to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected, and each term and provision
of this Agreement shall be valid and be enforced to the fullest extent permitted
by law.
9.7 NO THIRD-PARTY BENEFICIARIES. No person(s) not a party to this Agreement is
an intended beneficiary of this Agreement, and no person(s) not a party to this
Agreement shall have any right to enforce any term of this Agreement.
<PAGE>
-26-
9.8 WAIVER. No provision of this Agreement shall be deemed to have been waived
unless such waiver is in writing signed by the waiving party. No failure by any
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right to remedy consequent upon a breach thereof, shall
constitute a waiver of any other provision of this Agreement or a waiver of such
provision with respect to any subsequent breach, unless expressly provided in
writing.
9.9 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
the parties relating to the subject matter hereof and supersedes all prior or
contemporaneous oral or written agreements on the same subject matter. This
Agreement may not be amended, supplemented, or otherwise modified except by an
agreement in writing signed by both parties.
9.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
9.11 FURTHER ASSURANCES. Each of the party's covenants and agrees that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, it will execute and deliver any further legal
instruments and perform any acts which are or may become reasonably necessary to
effectuate the purposes of this Agreement.
9.12 CAPTIONS. Titles and headings in this Agreement are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
<PAGE>
-27-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
ROWECOM, INC. NEWSUB SERVICES, INC.
By: /s/ Dr. Richard R. Rowe, Ph.D. By: /s/ Michael Loeb
--------------------------------- --------------------------------
Name: Dr. Richard R. Rowe, Ph.D. Name: Michael Loeb
------------------------------- ------------------------------
Title: President and CEO Title: President
------------------------------ -----------------------------
<PAGE>
EXHIBIT A
---------
FEE SCHEDULE
------------
RCI TITLE ORDERS AND NSS TITLE ORDERS
-------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- -------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI NSS
---------- -------- ------- --- ---
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. RCI RCI RCI RCI RCI RCI RCI ***/15/ ***/16/
-- --
- -----------------------------------------------------------------------------------------------
2. RCI NSS RCI RCI RCI NSS RCI ***/17/ ***/18/
-- --
- -----------------------------------------------------------------------------------------------
3. NSS RCI NSS NSS NSS RCI NSS ***/19/ ***/20/
-- --
- -----------------------------------------------------------------------------------------------
4. NSS NSS NSS NSS NSS NSS NSS ***/21/ ***/22/
-- --
- -----------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
/15/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/16/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/17/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/18/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/19/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/20/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/21/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-29-
* Represents ***/23/
----
(A) Includes ***/24/
----
- ------------------------------
(footnote continued from previous page)
/22/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/23/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/24/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT B
---------
FEE SCHEDULE
------------
AUTOMATED RENEWAL AND CONTINUOUS SERVICE ORDERS
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- -------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI NSS
---------- ----- ------- --- ---
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. RCI RCI RCI RCI RCI RCI RCI ***/25/ ***/26/
-- --
- -------------------------------------------------------------------------------------------------
2. RCI NSS RCI RCI RCI NSS RCI ***/27/ ***/28/
-- --
- -------------------------------------------------------------------------------------------------
3. NSS RCI NSS NSS NSS RCI NSS ***/29/ ***/30/
-- --
- -------------------------------------------------------------------------------------------------
4. NSS NSS NSS NSS NSS NSS NSS ***/31/ ***/32/
-- --
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
/25/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/26/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/27/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/28/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/29/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/30/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/31/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
-31-
Represents ***/33/ Charge
----
(A) Includes ***/34/
---
- -----------------------
(footnote continued from previous page)
/32/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/33/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
/34/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion of this exhibit,
has been filed with the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT C
---------
NSS CATALOG
-----------
Provided electronically to RCI.
<PAGE>
EXHIBIT D
---------
RCI CATALOG
-----------
Provided electronically to NSS
<PAGE>
EXHIBIT 10.19
CONTENT AND CO-MARKETING AGREEMENT
THIS AGREEMENT (AGREEMENT) is dated as of the 23rd day of October 1998 (the
EFFECTIVE DATE), by and between ROWECOM INC. ("RCI"), a Delaware corporation,
---
and PUBLICATIONS RESOURCE GROUP, INC. ("PRG"), a Massachusetts corporation.
---
PREAMBLE
--------
WHEREAS, RCI provides business-to-business electronic commerce services to
businesses and not-for-profit institutions interested in purchasing
Subscriptions, books and other knowledge products and services of a professional
nature and, in connection therewith, RCI collaborates with such entities to
enhance existing intranet networks to enable such entities to purchase
Subscriptions, books and other knowledge products and services via their
intranets; and
WHEREAS, PRG markets and sells market research reports, newsletters and
other services to consumer-based affinity groups; and
WHEREAS, RCI and PRG desire to develop, market and sell publications and
services through the other party's distribution channels, including through the
Internet.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1.0 DEFINITIONS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms have the
respective meanings set forth below:
DEVELOPMENT PLAN means the plan to be jointly prepared by RCI and PRG
regarding the provision of an integrated electronic service and payment process,
as described in Section 2.6 below.
<PAGE>
-2-
FEE SCHEDULE means the payments payable to each party as set forth on the
chart attached hereto as Exhibit A.
------- -
GROSS FEE means the ***/1/
---
HANDLING CHARGE means the fee charged by RCI to its customers, as adjusted
from time to time, but shall exclude any fees payable by RCI to merchants or
credit card companies in connection with the sale of Titles to customers.
MERCHANT FEE means the fee charged by a credit card company or other
merchant (other than the Handling Charge) in connection with the sale of Titles
to a customer.
PRG CATALOG means the list of PRG Titles and list prices, as updated from
time to time, attached hereto as Exhibit B.
------- -
PRG CHANNEL means all distribution channels for PRG Titles, including but
not limited to PRG online web site(s), (including but not limited to the hyper
link to the RoweCom web page) direct marketing channels, and catalogs, as agreed
to by the parties from time to time.
PRG TITLE means any Title authorized for sale through PRG Channels by a
publisher, and listed on the PRG Catalog, as updated from time, but excluding
any Titles listed on the RCI Catalog.
PRG TITLE ORDER means any order received by RCI for PRG Titles.
PROPRIETARY INFORMATION means all patents, trade secrets, copyrights,
trademarks, industrial designs and other intellectual property specified or
supplied by each party to market, sell or use the RCI Catalog or PRG Catalog.
RCI CATALOG means the list of RCI Titles, as updated from time to time, and
attached hereto as Exhibit C.
------- -
- --------------------------------
/1/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-3-
RCI CHANNEL means all distribution channels for RCI Titles, including but
not limited to the internet and intranet distribution channels for RCI Titles,
as agreed to by the parties from time to time.
RCI TITLE means any Title authorized for sale through RCI Channels by a
publisher, and listed in the RCI Catalog, as updated from time to time, but
excluding any Titles listed on the PRG Catalog.
RCI TITLE ORDER means any order received by PRG for RCI Titles.
TERM means the period beginning on the Effective Date and ending upon
termination of this Agreement.
TERRITORY means the United States of America.
TITLES means any magazines, subscriptions, serials, books, or other
publications, embodied in paper or magnetic media.
TRADEMARK means names, trademarks, services marks, trade names, labels,
logos, designs or other designations and all goodwill associated therewith.
1.2 OTHER DEFINED TERMS. Each of the following terms have the meanings ascribed
to it in the section set forth opposite such term:
AGREEMENT Preamble
AUDITING PARTY Section 5.4
AUDITED PARTY Section 5.4
CHANGE OF CONTROL Section 8.2(c)
CLAIMANT Section 9.2(b)
CONFIDENTIAL INFORMATION Section 7.1
CONTINUOUS SERVICE Section 5.1(b)
DISCLOSER Section 7.1
EFFECTIVE DATE Preamble
HOME PAGE Section 3.2
IMAGE Section 3.1
PRG Preamble
PRG KSTORE Section 3.1
INDEMNITOR Section 9.2(a)
INDEMNITEES Section 9.2(a)
INITIAL TERM Section 8.1
LOSSES Section 9.2(a)
RCI Preamble
<PAGE>
-4-
RECIPIENT Section 7.1
URL Section 3.2
2.0 MARKETING, DEVELOPMENT, AND DISTRIBUTION
2.1 PRG PROMOTION OF RCI TITLES.
(a) APPOINTMENT. During the Term hereof and subject to the terms of this
Agreement, RCI hereby retains and authorizes PRG to market, promote,
and sell any RCI Title to PRG customers through PRG Channels in the
Territory.***/2/
---
(b) LIMITED AGENCY. PRG's authority to act on behalf of RCI shall be
limited to the activities and services set forth in this Section 2.1.
(c) LICENSE. Subject to the terms set forth herein, RCI hereby grants to
PRG a non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) to use the RCI Catalog in the
Territory to (i) offer RCI Titles to PRG customers through PRG
Channels; (ii) take orders from PRG customers for RCI Titles; (iii)
maintain the database containing information regarding such customer
orders; (iv) bill and collect from such customers the amount of the
order; and (v) fulfill the order by remitting to RCI the amount due
for such order. PRG may use the RCI Catalog and the information
contained therein only in connection with the marketing and promoting
of RCI Titles as described in this Section 2.1. In addition, RCI
hereby grants to PRG a non-exclusive, non-assignable, royalty-free
right and license (excluding the right to sublicense) to use the RCI
Trademarks in the Territory to promote and market the RCI Titles
solely in accordance with the terms of this Agreement. PRG agrees
that, upon reasonable notice from RCI, PRG shall permit RCI to visit
all locations
- ------------------------------
/2/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-5-
where PRG delivers services using the RCI Trademarks to
ensure that (i) such services are delivered in a manner consistent
with the service standards employed by RCI and (ii) the RCI Trademarks
used in connection with such services are in compliance with the
specifications provided to PRG from time to time. It is understood
that, under certain circumstances, PRG may need third party consents
to effectuate the visitation by RCI. In such circumstances, RCI will
work with PRG to facilitate the review of the usage of the PRG
Trademarks.
(d) MARKETING SERVICES PROVIDED BY PRG. Subject to the terms set forth
herein, PRG hereby agrees to ***/3/ to (1) market, promote, and sell
---
RCI Titles in the Territory through PRG Channels; (2) market and
promote the RCI Trademarks in the Territory through all PRG Channels;
(3) provide to RCI, upon mutual agreement by the parties, without
charge, an introduction to any then current PRG customer for the
purpose of promoting and marketing RCI Titles.
2.2 RCI PROMOTION OF PRG TITLES.
(a) APPOINTMENT. During the Term hereof, subject to the terms of this
Agreement, PRG hereby retains and authorizes RCI to exclusively
market, promote, and sell any PRG Title to RCI customers through RCI
Channels in the Territory. It is understood and agreed by the parties
that RCI may purchase PRG Titles from a third party from time to time.
(b) LIMITED AGENCY. RCI's authority to act on behalf of PRG shall be
limited to the activities and services set forth in this Section 2.2
- ------------------------------
/3/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-6-
(c) LICENSE. Subject to the terms set forth herein, PRG hereby grants to
RCI the non-exclusive, non-assignable, royalty-free right and license
(excluding the right to sublicense) during the Term of this Agreement
to use the PRG Catalog in the Territory to (i) offer PRG Titles to RCI
customers through RCI Channels; (ii) take orders from RCI customers
for PRG Titles; (iii) maintain the database containing information
regarding such customer order; (iv) bill and collect from such
customers the amount of the order; and (v) fulfill the order by
remitting to PRG the amount due for such order. RCI may use the PRG
Catalog and the information contained therein only in connection with
the marketing and promoting of PRG Titles as described in this Section
2.2. In addition, PRG hereby grants to RCI a non-exclusive, non-
assignable, royalty-free right and license (excluding the right to
sublicense) to use the PRG Trademarks in the Territory to promote and
market the PRG Titles solely in accordance with the terms of this
Agreement. RCI agrees, that upon reasonable notice from PRG, RCI
shall permit PRG to visit all locations where RCI delivers services
using the PRG Trademarks and to ensure that (i) such services are
delivered in a manner consistent with the service standards employed
by PRG and (ii) the PRG Trademarks used in connection with such
services are in compliance with the specifications provided to RCI
from time to time. It is understood that, under certain circumstances,
PRG may need third party consents to effectuate the visitation by RCI.
In such circumstances, RCI will work with PRG to facilitate the review
of the usage of the PRG Trademarks.
(d) MARKETING SERVICES PROVIDED BY RCI. Subject to the terms set forth
herein, RCI hereby agrees to use best reasonable efforts to (1)
market, promote, and sell PRG Titles in the Territory through RCI
Channels; (2) market and promote the PRG Trademarks in the Territory
through all RCI Channels.
2.3 UPDATES ON CATALOGS. From time to time during the Term, PRG shall promptly
notify RCI in writing of any corrections, enhancements, revisions, updates,
upgrades and similar changes PRG's catalog. Upon such notification, RCI,
may at its sole discretion, include any such newly added PRG Titles in RCI
<PAGE>
-7-
Channels. The parties acknowledge and agree that RCI may, at its sole
discretion, make corrections, enhancements, revisions, updates, or other
similar changes to the RCI Catalog, and that such changes shall become a
part of the RCI Catalog as provided to PRG customers from time to time.
2.4 PUBLICITY; USE OF NAMES.
(a) Neither party shall originate or allow to be issued any publicity or
news release or otherwise make any public announcement or statements,
written or oral, with respect to this Agreement or the terms hereof or
the transactions contemplated hereby unless mutually agreed by the
parties in writing, which release shall not be unreasonably withheld,
except as required under securities laws or other applicable laws
(including in connection with an initial public offering). Neither
party shall use the name of the other party or any adaptation thereof
or any of such other party's Trademarks in any advertising,
promotional or sales literature, or in any other form of publicity
without prior written consent (which consent will not be unreasonably
withheld or delayed) obtained from the other party in each case.
(b) Each party agrees to protect from disclosures to any third party any
and all information received from the other party that identifies an
individual customer, including but not limited to names, telephone
numbers, e-mail addresses, postal addresses, and user names. Each
party agrees to remove, upon request by the other party, from its
databases and all other records, electronic or otherwise, such
customer identifying information, subject to each party's ability to
maintain a copy of such customer information for purposes of complying
with such party's obligations under this Agreement.
2.5 INTELLECTUAL PROPERTY. Subject to the terms hereof, each party shall take
such actions as are reasonably required to maintain their respective
Trademarks in effect, and shall inform the other party of any changes in or
additions to the Trademarks. Each party shall use commercially reasonable
efforts to correctly reference the other party's Trademarks and other
proprietary rights in any marketing, advertising, promotional materials,
sales literature or other publicity, as required by law or as
<PAGE>
-8-
reasonably requested by the other party. Each party's Trademarks and other
proprietary rights shall remain the sole and exclusive property of such
party and the other party shall have no rights thereto, except as otherwise
provided herein, and the goodwill associated therewith shall inure to the
benefit of the owner of such Trademark. Upon any expiration or termination
of this Agreement, the license to use the Trademarks shall terminate.
Except as otherwise provided herein, nothing contained in this Agreement
shall be deemed to transfer ownership of copyrightable material from one
party to the other.
2.6 DEVELOPMENT PLAN. No later than December 31, 1998, RCI and PRG, shall, in
accordance with the Development Plan and implementation schedule, jointly
develop an electronic system for processing customer orders received by PRG
or RCI and effecting payments in respect of the same. Each party shall bear
its own costs related to such development efforts, as set forth in the
Development Plan. Either party may terminate this Agreement upon 30 days
written notice if the parties fail to agree upon a Development Plan by
December 31, 1998.
2.7. SALES COLLATERAL. Each party shall furnish at no cost to the other party
reasonable quantities of promotional materials, such as sales literature
and similar promotional material relating to the RCI Catalog and the PRG
Catalog, including such information as is necessary or appropriate for each
party to formulate any marketing materials used in connection with
marketing activities under Sections 2.1 and 2.2 respectively. Each party
hereby grants to the other party a license to reproduce and use such
promotional materials, provided that, neither party shall edit, modify or
-------- ----
otherwise alter the form or content of such promotional materials; and
provided, further, that each party may convert such promotional materials
--------
into analog or digital format as required to make use of them.
3.0 LINKING ARRANGEMENTS.
3.1. SITE LINKS. Subject to the terms of this Agreement, PRG will place a
hypertext link to web page co-branded by both RCI and PRG (the "PRG kStore")in a
----------
prominent position on the Home Page (as defined below) and index page to PRG's
Web Site. Textual and graphic content of these links will be in the form
specified in the Development
<PAGE>
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Plan, and will be provided to RCI by PRG as a computer readable file in a
compatible HTML file format (such file is the "Image").
-----
3.2. LOCATION. The Image shall appear on the home or default result page
("Home Page") of PRG's Web Site, which is the page that any user's web browser
---------
will generate as the result of requesting the following Uniform Resource Locator
("URL"): http//www.prgguide.com or any new URL with which linking party replaces
---
the above-stated URL.
3.3. WEB SITE CHANGES. PRG shall notify RCI of any significant changes to the
content or structure of PRG's Web Site within five (5) days following such
change. RCI may terminate this Agreement within fifteen (15) days prior written
notice to PRG following any such change in the event that RCI reasonable
believes that the change is adverse to its interests or reputation.
3.4. LICENSE. Subject to the terms of this Agreement, RCI hereby grants the PRG
a non-exclusive right and license to establish a link to RCI's web page, as
described more fully in this Section 3 and PRG hereby grants to RCI a
non-exclusive right and license to use in connection with such web link the
intellectual property rights (if any) embodied in the Image file delivered by
the PRG under Section 3.1. Such license is limited to the purposes of
establishing the link described in this Section 3.
3.5. EXPENSES. Each party shall pay its expenses in performing its obligations
under this Agreement and neither party shall be responsible for payment of any
portion of the other party's expenses.
4.0 SALES AND CUSTOMER SERVICE.
4.1 SALES AND CUSTOMER SERVICE PROCEDURES. Sales of Titles to customers shall
be made as follows:
(a) If the Title is distributed through an RCI Channel, RCI will
(i) sell the Title to the customer and initiate the order;
(ii) RCI will maintain the database containing information
regarding the publisher and customer's order;
<PAGE>
-10-
(iii) RCI will close the sale for the Title ordered by the customer
and bill the customer the Gross Fee (such fee may include the
Handling Charge and/or Merchant Fee). For PRG Titles, RCI will
electronically transmit the customer's order to PRG for
fulfillment by PRG. The PRG Catalog shall include a price list
for each PRG Title. RCI may determine any additional fees that
may be charged to RCI customers for PRG Titles, including but
not limited to the Handling Charge and the Merchant Fee,
provided however that, PRG shall pay for all Merchant Fees in
-------- ----
connection with an order placed though an RCI Channel, and
provided further that, such Merchant Fees shall not be
included in the calculation of the Commission payable to RCI
pursuant to Section 4 and Schedule A hereto.
----------
(iv) RCI shall fulfill the order once received by such party by
collecting all amounts due from the customer and remitting
electronically to PRG (in the case of a PRG Title) the amount
due to PRG pursuant to the Fee Schedule, less any amounts
----
attributable to commissions payable to RCI. All amounts due
and payable by RCI pursuant to Section 4 and the Fee Schedule
shall be paid by RCI to PRG on or about the last day of each
calendar month.
(v) RCI shall provide the "front-end" (i.e., the initial contact
with a customer) customer service and support, as required, to
customers whose order has been placed through an RCI Channel.
Once received, all customer questions, complaints, and
requests pertaining to PRG Titles shall be promptly
transmitted electronically to PRG for resolution. RCI shall
bear no further responsibility for customer questions,
complaints, and requests pertaining to PRG Titles. Customer
questions, complaints, and requests pertaining to RCI Titles
are the responsibility of RCI. Each party shall bear its own
expenses in resolving any such customer inquiries; and
<PAGE>
-11-
(vi) RCI shall provide to PRG information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to PRG
electronically at the address specified in Section 10.4 hereof
(b) If the Title is distributed through a PRG Channel:
(i) PRG shall sell the Title to the customer and initiate the order;
(ii) PRG shall maintain the database containing information regarding
the customer's order unless such order is placed through the PRG
kStore, in which case the database shall be maintained by RCI);
(iii) on an order placed through a PRG Channel other than the PRG
kStore, PRG shall close the sale for the Title ordered by the
customer and bill the customer a Gross Fee. For RCI Titles, PRG
will electronically transmit the customer's order to RCI for
fulfillment by RCI. PRG shall fulfill the order by collecting all
amounts due from the customer and remitting electronically to RCI
(in the case of an RCI Title) the amount due to such party, less
----
any amount attributable to commissions payable to PRG pursuant to
the Fee Schedule. All amounts due and payable by PRG pursuant to
Section 4 and the Fee Schedule shall be paid by PRG to RCI on or
about the last day of each calendar month;
(iv) on an order placed through the PRG kStore, RCI shall close the
sale for the RCI Title and follow the procedures set forth in
Section 4(a)(iii) and 4(a)(iv) hereto regarding order fulfillment
and remittance;
(v) PRG shall provide the "front-end" (i.e., the initial contact with
a customer) customer service and support, as required, to
customers whose order has been placed through an PRG Channel.
Once received, all customer questions, complaints, and requests
pertaining to RCI Titles shall be promptly
<PAGE>
-12-
transmitted electronically to RCI for resolution. PRG shall bear
no further responsibility for customer questions, complaints, and
requests pertaining to RCI Titles. Customer questions,
complaints, and requests pertaining to PRG Titles are the
responsibility of PRG. Each party shall bear its own expenses in
resolving any such customer inquiries; and
(vi) PRG shall provide to RCI information regarding each customer
order, order processing and fulfillment, and amount billed per
order by promptly transmitting such information to RCI
electronically at the address specified in Section 9.4 hereof.
4.2 CONTACT PERSONS. Each party shall designate a contact person to coordinate
the transfer of information between RCI and PRG and to be available to respond
to inquiries during the normal business hours of such party.
4.3 CHANGE IN SERVICES The parties agree and acknowledge that (a) the sales and
customer service procedures set forth in Section 4.1 hereof reflect the complete
understanding of the parties as to sales, order fulfillment, billing, and
customer service; and (b) any changes to the provisions, if reasonable,
regarding order processing, fulfillment, or customer service set forth in
Section 4.1 shall be negotiated in good faith by both parties with a
corresponding change in the Fee Schedule.
4.4. REFUNDS AND CANCELLATIONS Each party guarantees to the other party that it
will honor the policy regarding cancellations and refunds provided by the
publisher of the applicable Title. Each party shall inform the other party
within a reasonable time of any changes to such party's internal refund policy
or to a publisher's refund policy (upon notification by such publisher), as
applicable.
5.0 PAYMENT & AUDITS
5.1 PAYMENTS PURSUANT TO THE FEE SCHEDULE. On or about the last day of each
calendar month, each party shall make payments to the other party in an amount
equal to the percentage of Gross Fee or Handling Charge (as applicable) as set
forth on the Fee Schedule attached hereto as Exhibit A. Each party shall make
------- -
payments
<PAGE>
-13-
required pursuant to this Agreement electronically and in immediately-available
funds delivered to the other party at the address set forth in Section 10.4.
5.2 LATE PAYMENTS. In the event that any payment due to a party under this
Agreement is not made when due, the amount due shall accrue interest at a rate
of one-and-a-half percent (1.5%) per month from the due date until the entire
amount, including interest, shall be paid. Interest, including payment and
acceptance of interest, shall not negate or waive the right of a party to any
other remedy, legal or equitable, to which it may be entitled because of the
delinquency of any payment.
5.3 RECORDS. Each party shall keep and maintain, during the term of this
Agreement and for a period of at least two (2) years following any termination
or expiration thereof, records (prepared in accordance with generally accepted
accounting principles, consistently applied) sufficient to determine the amounts
of revenue and payments due under this Agreement. Within thirty (30) days
following each March 31, June 30, September 30 and December 31 during which
payments are due under this Agreement, commencing December 31, 1998, each party
shall provide the other party with a report including at least (a) the number
and names of the other party's Titles sold to customers through such party's
distribution channel during the immediately preceding quarter; (b) the monetary
amount collected with respect to such Titles; (c) the name of the party
fulfilling the order for each such Title; and (d) the calculation of the
payments due to such other party in respect of each sale. A report shall be
submitted to the other party whether or not any Title have been sold to
customers during such period.
5.4 AUDITS. Each party (for purposes of this Section 5.4 only, the "Auditing
--------
Party") shall have the right, not more than once in any twelve (12)-month
- -----
period, to have the relevant books and records of the other party (the "Audited
-------
Party") audited by an independent certified public accountant of the Auditing
- -----
Party's choosing, to ascertain the accuracy of the Audited Party's reports under
this Agreement. Such audits shall be scheduled within thirty (30) days following
delivery of a notice by the Auditing Party to the Audited Party, and conducted
during normal business hours, in a manner that does not unreasonably interfere
with the Audited Party's normal business activities. In the event that any audit
determines that the reported payments paid to the Auditing Party under this
Agreement was less than the amount due to the Auditing Party, the Audited Party
shall pay the Auditing Party the amount of such underpayment and all accrued
interest thereon from the date that such payment was due. In addition, if any
audit determines that the reported payments paid to the Auditing Party under
this Agreement
<PAGE>
-14-
was less than ninety five percent (95%) of the actual amount due to the Auditing
Party for the period in question, the actual out-of-pocket cost of such audit
shall be borne by the Audited Party; otherwise, the cost of the audit shall be
borne by the Auditing Party.
5.5 TAXES. All taxes and charges that may be imposed by any governmental taxing
authority on any sales of Titles pursuant to this Agreement shall be paid by the
party assessed such taxes or charges.
6.0 REPRESENTATIONS AND WARRANTIES
6.1 AUTHORIZATION, ETC. Each party hereby represents and warrants to the other
that: (a) it has the requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby;
(b) this Agreement has been duly authorized, executed and delivered by such
party, constitutes the legal, valid and binding obligation of such party and is
enforceable against such party in accordance with its terms, except to the
extent such enforceability may be limited by bankruptcy, reorganization,
insolvency or similar laws of general applicability governing the enforcement of
the rights of creditors or by the general principles of equity (regardless of
whether considered in a proceeding at law or in equity); and (c) to the best of
its knowledge, it has provided the other party with the information known to it
that materially affects the other party's ability to perform the other party's
obligations under this Agreement;.
6.2 PROPRIETARY INFORMATION. Each party hereby represents and warrants to the
other party that: (a) the provision by such party of Proprietary
Information hereunder does not violate any proprietary or intellectual
property right of any third party; (b) each party shall promptly inform the
other party in the event that any third party files or threatens any suit
based on any alleged violation of any such proprietary or intellectual
property rights of such party in respect of the Proprietary Information;
and (c) each party holds title or license rights to the Proprietary
Information sufficient to permit it to grant the license granted under
Section 2 hereof.
<PAGE>
-15-
6.3 THIRD PARTY RIGHTS. Each party represents and warrants to the other party
that: (a) it is not bound by any agreement or obligation (and will not
enter into any agreement or obligation) that could materially interfere
with the performance of its obligations under this Agreement; and (b) no
approval, authorization or consent of any governmental or regulatory
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement;
6.4 DISCLAIMER. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 6, EACH
PARTY DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE PRODUCTS AND SERVICES
CONTEMPLATED UNDER THIS AGREEMENT, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
7.0 CONFIDENTIALITY
7.1 DEFINITION. CONFIDENTIAL INFORMATION means all financial, business,
marketing, operations, technical, and economic information, whether
tangible or intangible, that is disclosed by either party (the DISCLOSER)
or any of Discloser's suppliers, employees, contractors or customers to the
other party (the RECIPIENT), if such information is disclosed (i) in
writing or by way of any other media that is marked as confidential or (ii)
orally or visually, provided that, such oral or visual disclosure is
-------- ----
followed by written confirmation by the Discloser within 3 days of such
disclosure; provided that (A) Confidential Information excludes any
--------
information or portion thereof that (1) was known to the Recipient before
receipt thereof under this Agreement; (2) is disclosed to the Recipient by
a third person who has a right to make such disclosure without any
obligation of confidentiality to the Discloser; (3) is or becomes generally
known in the trade without violation of this Agreement by the Recipient;
(4) is independently developed by the Recipient or Recipient's employees to
whom the Discloser's information was not disclosed; or (5) is approved in
writing by the Discloser for release; (B) only the specific information
that meets the exclusions shall be excluded, and not any other information
that happens to appear in proximity to such excluded portions (for example,
a portion of a document may be excluded without affecting the confidential
nature of those portions that do not themselves qualify for exclusion) and
(C) Confidential Information includes summaries and other materials
prepared
<PAGE>
-16-
by or on behalf of a Recipient that restate, summarize or otherwise use any
Confidential Information of a Discloser. Notwithstanding anything to the
contrary, Confidential Information shall specifically include the RCI
Catalog, the PRG Catalog, and information supplied by a party regarding RCI
Channels and PRG Channels.
7.2 NONDISCLOSURE & LIMITATIONS ON USE. Each Recipient agrees (a) to keep
secret and maintain the Confidential Information as confidential and to
hold the Confidential Information in trust for the exclusive benefit of the
Discloser; (b) to use or copy the Confidential Information solely to
perform its obligations under this Agreement; (c) to segregate the
Confidential Information from the Recipient's other information and from
that of third parties; (d) not to copy the Confidential Information unless
necessary to perform services under this Agreement; (e) to notify promptly
the Discloser upon learning about any court order or other legal
requirement that purports to compel disclosure of any Confidential
Information and to cooperate with the Discloser in the exercise of the
Discloser's right to protect the confidentiality of the Confidential
Information before any tribunal or governmental agency; (f) not to disclose
the Confidential Information to any person or entity not a party to this
Agreement other than such of Recipient's contractors, agents or employees
who (i) have a need to know the Confidential Information for a purpose
permitted hereunder; and (ii) are apprised of the confidential nature of
the Confidential Information; and (g) to return promptly to the Discloser
at any time upon the Discloser's request, any and all materials pertaining
to or containing any Information. Each party shall (1) promptly notify the
other party of any actual or suspected unauthorized use or disclosure of
the other party's Confidential Information of which it has knowledge and
will cooperate in the investigation of such unauthorized use or disclosure;
(2) be liable for breaches of confidentiality by its employees, contractors
or agents; and (3) include the other party's reasonable proprietary rights
notices on any media or products embodying the other party's Confidential
Information, including partial copies thereof. Nothing contained herein
shall prevent a Recipient from disclosing Confidential Information to any
tribunal or governmental agency, so long as the notice in this Section 7.2
is promptly given; provided that such disclosure shall not alter the status
of such information hereunder for all
<PAGE>
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other purposes as Confidential Information unless and until such
information is actually made public by the tribunal or agency.
8.0 TERM AND TERMINATION
8.1 TERM. This Agreement shall commence upon the Effective Date and, subject to
early termination pursuant to Section 8.2, shall continue in effect until the
second anniversary of the Effective Date (the INITIAL TERM) and shall be
automatically renewed for successive one (1) year periods after the expiration
of the Initial Term unless either party provides the other party with written
notice of its intent not to renew this Agreement at least ninety (90) days prior
to the expiration of the then current term.
8.2 TERMINATION.
(A) BREACH. Either party may terminate this Agreement upon thirty (30)
days' written notice to the other party if the other party breaches
any of its material obligations under this Agreement and such breach
remains uncured for a period of 30-days after receipt of such notice.
(B) Either party may terminate this Agreement upon 30 days written notice
if the parties are unable to agree upon a Development Plan as set
forth in Section 2.6 hereto.
(C) Either party may terminate this Agreement upon six months prior
written notice to the other party given at any time within six months
following the occurrence of a Change of Control of the other party;
provided that, the party subject to such Change of Control notifies
-------- ----
the other party of such event no later than the effective date
thereof. Change of Control shall mean a merger or consolidation of the
Company with or into another entity (other than a merger or
reorganization involving only a change in the state of the
incorporation of the company, or the acquisition by the company of
other businesses where the company survives as a going concern), the
sale of all or substantially all of a party's assets to any other
person, or the issuance of shares of capital stock of the company in a
transaction or series of related transactions in which the persons
acquiring such shares acquire more than 50% voting control of the
company. Notwithstanding the
<PAGE>
-18-
foregoing, an initial public offering shall not be deemed to be a
Change of Control.
(D) Any notice given pursuant to this Section 8.2(a) must set forth with
specifically the alleged material obligations breached by the other
party.
8.3. EFFECT OF TERMINATION.
(A) THEN CURRENT ORDERS. Upon termination of this Agreement, the
provisions of Section 2.1 and 2.2 regarding the obligations of each
party shall terminate, provided however, that the parties will
-------- -------
continue to perform all obligations on pending orders for the purchase
of Titles and customer services on such Titles in accordance with the
terms of this Agreement.
(B) CONFIDENTIAL INFORMATION. Promptly after all obligations to existing
customers are performed pursuant to clause (a) hereof, each party
shall return to the other party or certify in writing to the other
party that it has destroyed all documents and other tangible items it
or its employees or agents have received or created pertaining,
referring or relating to the Confidential Information of the other
party.
(C) OTHER OBLIGATIONS. The provisions of Section 7 (Confidentiality),
Section 8 (Termination), Section 9 (Risk Allocation) and Section 10
(Miscellaneous) shall survive any expiration or termination of this
Agreement.
8.4 TERMINATION/NONRENEWAL RIGHTS ABSOLUTE. It is expressly understood and
agreed that the rights of termination and nonrenewal set forth in this
Section 8 are absolute, and that the parties have considered the
possibility of such termination or nonrenewal and the possibility of loss
and damage resulting therefrom, in making expenditures pursuant to the
performance of this Agreement. It is the express intent and agreement of
the parties that neither shall be liable to the other for damages or
otherwise by reason of the termination of this Agreement as hereinabove
provided. The parties expressly agree that the notice periods in this
Agreement are reasonable under the contemplated circumstances.
<PAGE>
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9.0 RISK ALLOCATION
9.1 LIMITATION OF LIABILITY. EXCEPT IN RESPECT OF THE PARTIES' RESPECTIVE
OBLIGATIONS UNDER SECTION 7 (CONFIDENTIALITY), IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR SIMILAR DAMAGES OF ANY KIND, WHETHER SUCH LIABILITY IS
PREDICATED ON CONTRACT, STRICT LIABILITY, STATUTE, REGULATION, OR ANY OTHER
THEORY.
9.2 INDEMNIFICATION.
(A) OBLIGATION. Subject to the provisions of this Section 9.2 each party (each
an INDEMNITOR) hereby agrees to indemnify, defend and hold the other party
and its affiliates, directors, officers, employees, contractors and agents
(each an INDEMNITEE) harmless, from, against and in respect of any and all
assessments, damages, deficiencies, judgments, losses, obligations and
liabilities, including costs of collection and reasonable attorneys' fees
and expenses (collectively, LOSSES) incurred by the Indemnitee(s) arising
from or directly related to any breach by Indemnitor under this Agreement.
(B) DEFENSE OF CLAIMS. Indemnitor may assume the defense of any claim for
Losses. If Indemnitor assumes the defense of any claim for Losses, then, at
Indemnitor's expense, the Indemnitee and its counsel shall cooperate fully
in the defense against, or compromise of, at Indemnitor's option, such
asserted liability. The Indemnitee shall have the right to employ separate
counsel in any such action or claim, but the fees and expenses of such
counsel shall not be an expense of Indemnitor unless employment of such
counsel has been specifically authorized by Indemnitor. If there is a final
judgment in any such action, or if there is a settlement of any such action
effected with the consent of Indemnitor, Indemnitor shall indemnify and
hold harmless the Indemnitee from and against any loss or liability by
reason of such judgment or settlement.
9.3 DISPUTE RESOLUTION
(A) MEDIATION. Any dispute among or between the parties or any of them arising
under or in connection with this Agreement and the transactions and
relationship between the parties
<PAGE>
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contemplated hereby will first be mediated by a telephone conference or
meeting, in which counsel for the respective parties will attempt to aid
the parties in negotiating a mutually acceptable resolution.
(B) ARBITRATION. If mediation pursuant to the foregoing paragraph fails to
resolve any dispute arising or in connection with this Agreement and the
transactions and relationship between the parties contemplated hereby,
either party may provide 30 days prior written notification to the other
party of such failure to resolve the dispute. Upon such notification, the
parties shall enter into arbitration pursuant to this Section 9.2(b). Such
dispute will be finally settled by a single arbitrator, having at least
five years of experience as an arbitrator and otherwise mutually acceptable
to the parties to such dispute, in arbitration administered by American
Arbitration Association in accordance with its commercial arbitration rules
then in effect and the internal laws of the Commonwealth of Massachusetts.
Any demand for arbitration hereunder must be made before the running of the
legal statute of limitations applicable to the claim at issue. Any such
arbitration will take place in the Commonwealth of Massachusetts, unless
otherwise agreed by the parties. The arbitrator will not have any right,
power, or authority to award any punitive or exemplary damages or other
damages in excess of purely compensatory damages. Each of the disputing
parties will be responsible for an equal portion of the fees and expenses
of the arbitrator, and all of such party's own costs and expenses, in
connection with any such arbitration. Judgment upon any award rendered by
the arbitrator, if such award is in accordance with applicable law and the
terms of this Agreement, may be entered in any court of competent
jurisdiction.
10.0 MISCELLANEOUS
10.1 INDEPENDENT CONTRACTORS. For all purposes of this Agreement, each party
shall be and act as an independent contractor or and not as partners, joint
venturers, employees or agents of the other. No franchise is created hereby.
Neither party shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other party or to bind
the other party to any other contract, agreement or undertaking with any third
party except as specifically provided for herein.
<PAGE>
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10.2 FORCE MAJEURE. Neither party shall be liable or responsible in any manner
for failure or delay in performance of any obligation under this Agreement when
such failure or delay is due to the result, in whole or in substantial part, to
any cause beyond the reasonable control of the party whose performance is
delayed or rendered impossible thereby if reasonable steps are taken to resolve
the reason for such failure or delay and the reason for such failure or delay is
promptly transmitted to the other party. If the delay exceeds one hundred twenty
(120) days from the initial occurrence each party shall have the right to
terminate this agreement upon 30 days prior written notice to the other party.
10.3 ASSIGNMENT. This Agreement and the provisions hereof shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
successors and assigns. Neither party may assign, transfer, or sublicense its
rights or obligations under this Agreement without the prior written consent of
the other party (which consent shall not be unreasonably withheld or delayed.
10.4 NOTICES. Any notices, waivers and other communications required or
permitted hereunder shall be in writing and shall be deemed to be fully given
when delivered by hand or dispatched (with reasonable evidence of receipt) by
telex, telegraph or other means of facsimile transmission, or twenty-four (24)
hours after being dispatched by recognized overnight courier or mail service,
addressed to the party to whom the notice is intended to be given at the
following or such other address as either party may designate by like notice:
RCI: RoweCom, Inc.
725 Concord Ave.
Cambridge, MA 02138
Attention: Louis Hernandez
Fax: 617-497-6825
PRG: 121 Union Street
North Adams, MA 01247
Attention: Mr. Osmin Alvarez
Fax: (413) 664-9343
10.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with substantive laws of the Commonwealth of Massachusetts, without
regard for any choice or conflict of law rule or principle that would result in
the application of the substantive law of any other jurisdiction.
<PAGE>
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10.6 SEVERABILITY. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provisions to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected, and each term and provision
of this Agreement shall be valid and be enforced to the fullest extent permitted
by law.
10.7 NO THIRD-PARTY BENEFICIARIES. No person(s) not a party to this Agreement is
an intended beneficiary of this Agreement, and no person(s) not a party to this
Agreement shall have any right to enforce any term of this Agreement.
10.8 WAIVER. No provision of this Agreement shall be deemed to have been waived
unless such waiver is in writing signed by the waiving party. No failure by any
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right to remedy consequent upon a breach thereof, shall
constitute a waiver of any other provision of this Agreement or a waiver of such
provision with respect to any subsequent breach, unless expressly provided in
writing.
10.9 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
the parties relating to the subject matter hereof and supersedes all prior or
contemporaneous oral or written agreements on the same subject matter. This
Agreement may not be amended, supplemented, or otherwise modified except by an
agreement in writing signed by both parties.
10.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
10.11 FURTHER ASSURANCES. Each of the party's covenants and agrees that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, it will execute and deliver any further legal
instruments and perform any acts which are or may become reasonably necessary to
effectuate the purposes of this Agreement.
10.12 CAPTIONS. Titles and headings in this Agreement are for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
ROWECOM, INC. PUBLICATION RESOURCE
GROUP, INC.
By: /s/ Dr. Richard R. Rowe, Ph.D. By: /s/ Osmin F. Alvarez
------------------------------- ---------------------------
Name: Dr. Richard R. Rowe, Ph.D. Name: Osmin F. Alvarez
----------------------------- -------------------------
Title: President and CEO Title: President
---------------------------- ------------------------
<PAGE>
EXHIBIT A
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FEE SCHEDULE
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<TABLE>
<CAPTION>
RCI TITLE ORDERS AND PRG TITLE ORDERS
- ---------------------------------------------------------------------------------------------------------------------
CHANNEL TITLE ORDER DATABASE BILL FULFILL/ CUSTOMER COMMISSION COMMISSION
------- ----- ----- ------- ---- -------- -------- ---------- ----------
INITIATION REMIT SERVICE RCI PRG
---------- ----- ------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1. RCI RCI RCI RCI RCI RCI RCI ***/4/ ***/5/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
2. RCI PRG RCI RCI RCI RCI RCI ***/6/ ***/7/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
3. PRG RCI PRG PRG PRG RCI PRG ***/8/ ***/9/
--- ---
- ---------------------------------------------------------------------------------------------------------------------
4. PRG PRG PRG PRG PRG PRG PRG -- ***/10/
----
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents ***/11/
----
/4/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/5/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/6/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/7/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/8/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/9/ Confidential treatment has been requested for this portion of this exhibit.
- ---
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/10/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
-25-
(A) Includes ***/12/
----
- --------------------------
(footnote continued from previous page)
/11/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
/12/ Confidential treatment has been requested for this portion of this exhibit.
- ----
A complete copy of this exhibit, including the redacted portion, has been filed
with the Securities and Exchange Commission separately.
<PAGE>
EXHIBIT B
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PRG CATALOG
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<PAGE>
EXHIBIT C
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RCI CATALOG
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[PROVIDED ELECTRONICALLY TO PRG]
<PAGE>
AMENDMENT NO. 1
TO
CONTENT AND CO-MARKETING AGREEMENT
AMENDMENT NO. 1 TO CONTENT AND CO-MARKETING AGREEMENT (the "Agreement")
dated as of January 15, 1999 by and between RoweCom, Inc., a Delaware
corporation ("RCI"), and Publications Resource Group, Inc. ("PRG"), a
Massachusetts corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto previously have entered into a Content and
Co-Marketing Agreement (the "Original Agreement") dated as of October 23, 1998
which, among other things, sets forth the terms and conditions to develop,
market and sell publications and service through the other party's distribution
channels, including through the Internet; and
WHEREAS, pursuant to the terms of the Original Agreement the parties are
obligated to develop jointly a development plan detailing the joint development
of an electronic system for processing customer orders received by PRG or RCI
and effecting payments in respect of the same;
WHEREAS, the parties hereto desire to amend the Original Agreement to
extend the date on which the parties are obligated to agree upon a development
plan.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements and covenants set forth herein below, the parties hereto
hereby agree as follows:
1. Terms not defined herein shall have the meanings ascribed to them
in the Original Agreement.
2. The first sentence of Section 2.6 of the Original Agreement is
hereby amended to delete the text included therein in its entirety and, in lieu
thereof, the following shall appear:
No later than February 15, 1999 RCI and PRG shall, in accordance
with the Development Plan and implementation schedule, jointly
develop an electronic system for processing customer orders
received by PRG or RCI and effecting payments in respect of the
same.
3. Except as herein provided the Original Agreement shall remain in
full force and effect without amendment or modification. This Agreement
supersedes any prior understandings or written or oral agreements amongst the
parties hereto, or any of them, respecting the within subject matter and
contains the entire understanding amongst the parties hereto with respect
thereto.
<PAGE>
4. Other than as set forth herein, neither party by execution of this
Agreement shall be deemed to have waived any of its rights or remedies at law or
in equity in connection with such party's enforcement of the provisions of the
Original Agreement or the provisions of any other agreement executed in
connection with the transactions out of which the Original Agreement arose.
5. For the convenience of the parties hereto, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, and all of which taken together shall constitute
one agreement.
6. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without giving effect to the conflict of law principles thereof.
7. The parties hereto covenant and agree that they will execute such
other and further instruments and documents as are or may become necessary or
desirable to effectuate and carry out this Agreement.
IN WITNESS WHEREOF, This Agreement has been executed as of the day and
year first above written by the parties hereto.
ROWECOM, INC.
By: /s/ Dr. Richard Rowe, Ph.D. Date: 1-10-99
---------------------------- --------
Name: Dr. Richard Rowe, Ph.D.
Title: President and CEO
PUBLICATIONS RESOURCE GROUP, INC.
By: /s/ Osmin F. Alvarez Date: 1-18-99
--------------------- --------
Name: Osmin F. Alvarez
Title: President
<PAGE>
EXHIBIT 10.22
EXCHANGE OPTION EXERCISE AGREEMENT
This Exchange Option Exercise Agreement (this "Agreement") dated as of
February 3, 1999, is by and between RoweCom Inc. ("RoweCom"), a Delaware
corporation; and Working Ventures Canadian Fund Inc. ("WV"), a corporation
organized under the laws of Canada.
WV owns certain shares of the capital stock of Rowe Communications Ltd.
("RoweCan"), a corporation incorporated under the laws of the Province of
Ontario, Canada. WV and RoweCom and certain others are parties to a Second
Amended and Restated Stockholders' Agreement dated as of December 11, 1998 (such
agreement, as it may be amended and/or restated with the consent of, among
others, WV and the Company, and in effect from time to time, the "Stockholders'
Agreement"), pursuant to which RoweCom granted to WV certain options to exchange
its shares of RoweCan's capital stock for shares of RoweCom's capital stock.
Capitalized terms used and not otherwise defined in this Agreement have the
respective meanings ascribed to them in the Stockholders' Agreement.
WV and RoweCom now desire that WV exercise these exchange options,
effective as of the closing of a contemplated initial public offering of
RoweCom's Common Shares; and accordingly, the parties hereby agree as follows:
1. Exercise of Exchange Options. Subject to the provisions of the
following proviso and of Section 6 hereof, WV hereby irrevocably agrees to and
does exercise each of the Exchange Options, such exercise to be effective
immediately prior to the closing (the "IPO Closing") of RoweCom's first
underwritten public offering of shares of its Common Stock registered in an
effective registration statement filed pursuant to the Securities Act of 1933,
as amended, if the equity valuation of the Corporation immediately before such
offering is at least $80 million, and the aggregate gross proceeds from the
offering are at least $20,000,000 (for this purpose, equity valuation means the
product of the initial per-share price at which Common Shares are offered to the
public in the offering multiplied by the number of Common Shares that are
outstanding, or that are issuable upon conversion of Preferred Shares that are
outstanding, immediately before the offering); provided, that such exercise will
not be effective unless the IPO Closing occurs before the termination of this
Agreement in accordance with Section 6 hereof.
<PAGE>
- 2 -
2. Stockholders' Agreement. The parties acknowledge and agree that the
exercise of the Exchange Options hereunder will occur in accordance with all of
the relevant provisions of the Stockholders' Agreement.
3. Timing. All of the transactions contemplated hereby, including without
limitation WV's exercise of the Exchange Options and the resulting exchange of
shares of RoweCan's capital stock for shares of RoweCom's capital stock, will
occur and for all purposes be deemed to occur immediately prior to the IPO
Closing.
4. Representations and Warranties.
(a) Of WV. WV hereby represents and warrants as follows:
(i) The shares of RoweCan's capital stock that are to be transferred
by WV to RoweCom hereunder are, and when transferred to RoweCom will be,
free and clear of all liens, charges, mortgages, and encumbrances (other
than restrictions on transfer arising by reason of the issuance and sale of
such shares without registration under the Securities Act of 1933, as
amended).
(ii) The representations and warranties of WV set forth in Section
4.1 of the Stock Purchase Agreement dated as of May 4, 1998, by and among
WV, the Company, and certain others, were true and correct when made and
are true and correct on the date hereof as though made as of the date
hereof.
(b) Of RoweCom. RoweCom hereby represents and warrants that the shares of
RoweCom's capital stock issuable to WV hereunder have been duly authorized, and
when issued to WV in accordance with this Agreement, will be validly issued,
fully paid, and non-assessable and free and clear of liens, charges, mortgages,
and encumbrances (other than restrictions on transfer arising by reason of the
issuance and sale of such shares without registration under the Securities Act
of 1933, as amended).
5. Miscellaneous. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be an
original, but all of which together will constitute one and the same agreement.
This Agreement will bind and inure to the benefit of the parties hereto and
their respective heirs, successors, and permitted assigns. Nothing in this
Agreement is intended to or will confer and rights or remedies on any person
other than the parties hereto and their respective
<PAGE>
- 3 -
heirs, successors, and permitted assigns. This Agreement is an agreement under
seal governed by and to be interpreted and construed in accordance with the
internal laws of the Commonwealth of Massachusetts, without reference to
principles of conflicts or choices of law.
6. Termination. This Agreement will terminate and be of no further force
or effect (and the Exchange Options will NOT be exercised hereby) if the IPO
Closing does not occur by 5:00 p.m. (Boston time) on March 31, 1999.
[The rest of this page is intentionally left blank.]
<PAGE>
- 4 -
Executed and delivered under seal as of the date first above written.
ROWECOM INC.
By /s/ Dr. Richard R. Rowe
----------------------------
Name: Dr. Richard R. Rowe
Title: President and CEO
WORKING VENTURES CANADIAN
FUND INC.
By /s/ Scott Clark
----------------------------
Name: Scott Clark
Title: V.P. Investments
CONSENT OF ROWE COMMUNICATIONS LTD.
Rowe Communications Ltd. hereby consents to the transactions contemplated
by the foregoing agreement.
ROWE COMMUNICATIONS LTD.
By /s/ Dr. Richard R. Rowe
----------------------------
Name: Dr. Richard R. Rowe
Title: President and CEO
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 1 to Form S-1 (File No. 333-68761) of
our report dated January 15, 1999 (except for the information presented in
Notes 12 and 15 for which the date is February 8, 1999) relating to the
consolidated financial statements of RoweCom Inc., which appears in such
Prospectus. We also consent to the use of our report dated January 15, 1999 on
the Financial Statement Schedule for the three years ended December 31, 1998
listed under Item 16(a) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report. We
also consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
YEAR END FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCAIL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 691,358 16,050,826
<SECURITIES> 0 0
<RECEIVABLES> 254,256 1,981,530
<ALLOWANCES> 0 60,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,763,367 19,559,730
<PP&E> 235,386 632,155
<DEPRECIATION> 56,528 199,293
<TOTAL-ASSETS> 2,108,041 20,284,385
<CURRENT-LIABILITIES> 1,578,059 4,112,836
<BONDS> 0 0
0 0
4,298,210 28,422,817
<COMMON> 15,441 15,261
<OTHER-SE> (3,783,669) (12,266,529)
<TOTAL-LIABILITY-AND-EQUITY> 2,108,041 20,284,385
<SALES> 12,889,988 19,052,639
<TOTAL-REVENUES> 12,889,988 19,052,639
<CGS> (12,701,290) (18,735,846)
<TOTAL-COSTS> (3,369,519) (8,009,336)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,652 172,051
<INCOME-PRETAX> (3,117,169) (7,520,492)
<INCOME-TAX> (136,352) (109,000)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,253,521) (7,629,492)
<EPS-PRIMARY> (2.22) (5.45)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
VERONIS, SUHLER & ASSOCIATES INC.
350 Park Avenue
New York, N.Y. 10022
Phone 212-935-4990
Fax 212-935-0877
To: Louis Hernandez
RoweCom Inc.
The undersigned hereby consents to the references to the undersigned included
in the Registration Statement on Form S-1 of RoweCom Inc. and any amendment
thereto.
Veronis, Suhler and Associates Inc.
/s/ Leo Kivijarv
Dr. Leo Kivijarv
Director of Research
<PAGE>
EXHIBIT 99.2
December 9, 1998
To:Louis Hernandez
RoweCom, Inc.
The undersigned hereby consents to the references to the undersigned included
in the Registration Statement on Form S-1 of RoweCom Inc. and any amendment
thereto.
International Data Corporation
By: /s/ Alexa McClowghton
Title: Group Vice President
<PAGE>
EXHIBIT 99.3
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Richard Rowe, Louis
Hernandez and Brian Keeler, each of them severally, as such person's true and
lawful attorneys-in-fact, with full power of substitution or resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign on such person's behalf, individually and in each capacity
stated below, any and all amendments, including post-effective amendments to
this Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities of the Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<S> <C> <C>
/s/ John Kennedy Director February 8, 1999
______________________________________
John Kennedy
</TABLE>
