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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For the transition period from ______ to ______
Commission file number:
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ROWECOM INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3370008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 SOUTHWEST PARK, WESTWOOD, MA 02090
(Address of principal executive offices) (Zip Code)
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(617) 497-5800
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/
No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-X is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's common stock, $.01 par value
per share ("Common Stock"), held by non-affiliates of the registrant as of
March 10, 2000 was approximately $177,700,263 based on 8,641,748 shares held by
such non-affiliates at the closing price of a share of Common Stock of $20.563
as reported on the Nasdaq National Market on such date. Affiliates of the
Company (defined as officers, directors and owners of 10 percent or more of the
outstanding share of Common Stock) owned 1,750,841 shares of Common Stock
outstanding on such date. The number of outstanding shares of Common Stock of
the Company on March 10, 2000 was 10,392,589.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 31, 2000 are incorporated by reference into Part III hereof. With the
exception of the portions of such Proxy Statement expressly incorporated into
this Annual Report on Form 10-K by reference, such Proxy Statement shall not be
deemed filed as part of this Annual Report on Form 10-K.
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ROWECOM INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
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TABLE OF CONTENTS PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 25
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......... 26
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 27
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 38
Item 8. Financial Statements and Supplementary Data................. 39
PART III
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 84
Item 10. Directors and Executive Officers of the Registrant.......... 84
Item 11. Executive Compensation...................................... 84
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 84
Item 13. Certain Relationships and Related Transactions.............. 84
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 84
Signatures ............................................................ 89
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PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED BY REFERENCE
CONTAIN FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT ROWECOM'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN
ASSUMPTIONS MADE BY MANAGEMENT. IN SOME CASES YOU CAN IDENTIFY THESE STATEMENTS
BY FORWARD-LOOKING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "COULD," "ESTIMATE,"
"EXPECT," "INTEND," "MAY," "SHOULD," "WILL," AND "WOULD" OR SIMILAR WORDS. YOU
SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY DISCUSS
FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF FUTURE RESULTS OF OPERATIONS OR OF
FINANCIAL POSITION OR STATE OTHER "FORWARD-LOOKING" INFORMATION. THE IMPORTANT
FACTORS LISTED IN THE SECTION CAPTIONED "RISK FACTORS," AS WELL AS ANY
CAUTIONARY LANGUAGE IN THIS ANNUAL REPORT ON FORM 10-K, PROVIDE EXAMPLES OF
RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE THE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS.
YOU SHOULD BE AWARE THAT THE OCCURRENCE OF THE EVENTS DESCRIBED IN THESE RISK
FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K COULD HAVE AN ADVERSE
EFFECT ON THE BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL POSITION OF ROWECOM.
ANY FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K ARE NOT
GUARANTEES OF FUTURE PERFORMANCES, AND ACTUAL RESULTS, DEVELOPMENTS AND BUSINESS
DECISIONS MAY DIFFER FROM THOSE ENVISAGED BY SUCH FORWARD-LOOKING STATEMENTS,
POSSIBLY MATERIALLY. ROWECOM DISCLAIMS ANY DUTY TO UPDATE ANY FORWARD-LOOKING
STATEMENTS, ALL OF WHICH ARE EXPRESSLY QUALIFIED BY THE STATEMENTS IN THIS
SECTION.
COMPANY OVERVIEW
RoweCom is the leading business-to-business provider of e-commerce solutions for
purchasing and managing the acquisition of magazines, newspapers, journals and
e-journals, books and other printed sources of commercial, scientific and
general interest information and analysis. RoweCom refers to these products as
"knowledge resources." RoweCom offers its clients and their employees easy and
convenient access to the largest catalog of knowledge resources on the Internet.
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 business and financial
services; biomedical; academic and the federal government; and corporate and
professional services. RoweCom is headquartered in Westwood, Massachusetts.
RoweCom has several offices in North America and in Spain, France, the United
Kingdom and Australia.
RoweCom was organized as a Delaware corporation in April 1997 as the eventual
successor to a corporation that commenced operations in 1994. RoweCom's World
Wide Web site address is www.rowe.com. The information on RoweCom's Web site is
not incorporated by reference into this document.
RoweCom's kStore 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 240,000 magazines, journals and
newspapers from over 20,000 publishers, and millions of 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. We also
provide services through the kLibrary to provide a centralized source for
purchasing knowledge resources, rather than through the desktop.
On October 4, 1999, we acquired all of the issued and outstanding capital stock
of Dawson, Inc., a Delaware corporation and certain assets of United
Kingdom-based Dawson Information Services Group relating to subscription
services, a state-of-the-art, Web-based information searching and retrieval
tool,
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and library information management software and services. The acquired Dawson
group had total revenues in fiscal year ended October 2, 1999 of approximately
$400.6 million and includes over 20,000 clients, 500 employees and operations in
nine locations: Folkestone, UK; Paris, France; Madrid, Spain; London, Ontario;
Montreal, Quebec; Westwood, Massachusetts; Oregon, Illinois; Chantilly,
Virginia; and Carlsbad, California. We are in the process of transitioning those
organizations that are clients of the Dawson group to a desktop model of
knowledge resource purchasing through our kStore.
See also Note 15 "Operating Segment and Geographic Information" to Consolidated
Financial Statements on page 64.
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., United States 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 United States government census data and projections, RoweCom
believes that over the same period the number of United States professional
workers that depend on knowledge resources will increase from 37 million to
41 million. International Data Corporation, a market research company, 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. 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. 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.
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.
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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 240,000 magazines, newspapers, journals and e-journals from
over 20,000 publishers and millions of 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 and e-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;
- 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
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- a unique distribution channel which enables RoweCom to offer its clients
additional content at lower prices.
BUSINESS 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 and e-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 business and
financial services; biomedical; academic and the federal government; and
corporate and professional services. 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.
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 continued to add significant serial titles each month in connection with
acquisitions and 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.
DEVELOP STRATEGIC ALLIANCES. RoweCom has and intends to continue to enter into
strategic alliances to increase its channels of distribution and available
content. We recently entered into strategic alliances with NewsEdge, Absolute
Backorder Service, Ariba, Clarus, CommerceOne, Concur, Intelisys,
Magazineoutlet, office.com, Publications Resource Group, Requisite, RightWorks,
Sun-Netscape Alliance, TheStreet.com, Trilogy, 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 and new service offerings such as distance
learning, conferences and associations.
EXPAND INTERNATIONALLY. RoweCom intends to further expand its presence in
markets outside the United States by leveraging its international offices in
Canada, the United Kingdom, France, Spain and Australia. By adding foreign
language content and localizing and translating the kStore user interface, we
intend to enhance our ability to fully service United States-based clients that
have employees in other countries as well as non-United States clients. RoweCom
expects to carry out its international expansion by means of strategic alliances
and, possibly, the acquisition of local content providers. The acquisition of
Dawson represents an example of the execution of this strategy.
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 traditional advertising and attendance and
presentations at major trade shows and conferences. 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
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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.
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 and e-journals, newspapers, books
and other knowledge resources. The kStore can be customized for each client,
quickly and easily. RoweCom charges a nominal fee 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.
[CHART]
- 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. In some circumstances,
RoweCom will also invoice clients. 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 tailored to meet the needs of the
particular client, 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 and e-journals, books and other knowledge
resources on the Internet, with access to more than 240,000 magazines, journals
and e-journals, and newspapers from over 20,000 publishers, and millions of
books from its alliance with barnesandnoble.com. Of the 240,000 magazines,
journals, e-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
intends 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. RoweCom
increases its catalog of knowledge resources through strategic relationships
with publishers and resellers as well as in connection with acquisitions and 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. In some
circumstances, RoweCom will invoice clients for orders.
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
RoweCom is developing or has developed the following other significant
relationships:
- BARNESANDNOBLE.COM. In August 1998, RoweCom entered an agreement with
barnesandnoble.com 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 and e-journals, books and other knowledge resources on the
Internet. 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.
- 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 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.
- INTELISYS COMMERCE. In August 1998, RoweCom entered into an agreement with
Intelisys to sell magazines, newspapers, journals and e-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.
- PUBLICATIONS RESOURCE GROUP. In October 1998, RoweCom entered into an
agreement with Publications Resource Group, whereby RoweCom obtains an
additional distribution channel and
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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.
- 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
and e-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.
- CLARUS CORPORATION. In May 1999, RoweCom entered into an agreement with
Clarus Corporation, a provider of Web-based commerce applications that
enable organizations to gain control of their operational resources. Under
the agreement, RoweCom's kStore will be integrated with the Clarus
E-Procurement application resulting in the E-Procurement application being
delivered as a component of RoweCom's kStore offering.
- COMMERCE ONE. In May 1999, RoweCom entered into an agreement with Commerce
One, a provider of electronic commerce procurement solutions that
dynamically link buying and supplying organizations into real-time trading
companies. Under the terms of the agreement, RoweCom will become a
preferred supplier to Commerce One's BuySite customers by the integration
of the kStore into Commerce One's BuySite application, enabling BuySite
customers to access the kStore and make requisitions directly from their
desktops.
- CONCUR TECHNOLOGIES. In June 1999, RoweCom entered into an agreement with
Concur Technologies, a provider of Web-based employee-facing business
applications to automate costly and inefficient business processes among
employees, partners, suppliers and service providers. Under the terms of
the agreement, RoweCom will be the preferred provider of knowledge
products on Concur's EmployeeDesktop, which is used by Concur's clients to
order supplies, equipment and other nonproduction office goods.
- SUN-NETSCAPE ALLIANCE. In June 1999, RoweCom entered into an agreement
with the Sun-Netscape Alliance. Under the terms of the agreement,
RoweCom's kStore will be the knowledge products provider for customers of
Netscape BuyerXpert, which will give business the ability to order, pay
for and manage the procurement of knowledge resources thorough the
Sun-Netscape Alliance's Internet procurement solution.
- OFFICE.COM. In September 1999, RoweCom entered into an agreement with
office.com. Under the terms of the agreement, RoweCom will be the
preferred provider of knowledge products on office.com's destination Web
site for small to medium-sized business.
- ABSOLUTE BACKORDER SERVICE. In January 2000, RoweCom entered into an
agreement with Absolute Backorder Service. Under the terms of the
agreement, RoweCom and Absolute will seamlessly integrate their respective
services so that RoweCom's clients will be able to purchase back issues of
magazines and journals. In addition, Absolute's client base will have
direct access to RoweCom's kStore and its content offering on Absolute's
Web site and through all of its other services and distribution channels.
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- BOOKS24X7.COM. In February 2000, RoweCom entered into a strategic
partnership with Books24x7.com, an online provider of technology reference
materials for IT professionals. Books24x7.com's subscription-based online
service provides electronic access to reference materials on more than 100
technical topics, from nearly 500 online books and journals. The service
provides immediate access to the entire text of the offered technology
books from well-recognized publishers in a fully searchable format.
Books24x7.com differentiates itself from other online libraries by using
advanced, multi-tier searching techniques to sift through the entire
collection and quickly pinpoint relevant information. Under the agreement,
Books24x7.com has agreed to offer its online library of reference
materials to our kStore and kLibrary clients.
- NEWSEDGE. In March 2000, RoweCom entered an agreement with NewsEdge 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 and newspapers, journals and
e-journals, books, on-line news, current awareness services and other
knowledge resources on the Internet. Under the agreement, NewsEdge will
provide all on-line news and current awareness services ordered by either
party's business clients, and RoweCom will provide all magazine, journal,
books, and newspaper subscriptions ordered by either parties business
clients. NewsEdge will pay RoweCom a percentage of the NewsEdge gross
subscription revenue paid by either a New Enterprise Client or an Existing
Enterprise Client that signs a new contract, but only if the entity was a
RoweCom client prior to the execution of the NewsEdge contract and if the
contract was signed with substantial assistance from RoweCom. RoweCom will
pay NewsEdge a percentage of the RoweCom gross margin paid by either a New
RoweCom Client or an Existing RoweCom Client that signs a new contract,
but only if the entity was a NewsEdge client prior to the execution of the
RoweCom contract and if the contract was signed with substantial
assistance from NewsEdge. Users may access the NewsEdge and RoweCom
catalogs by means of links found in the NewsEdge and the kStore Web sites.
On March 7, 2000 RoweCom and NewsEdge Corporation jointly announced that
they have agreed by mutual consent to terminate their acquisition
agreement. Under the terms of the merger agreement, which was announced on
December 7, 1999, RoweCom would have exchanged .26 shares of its common
stock for each share of NewsEdge common stock. The companies have chosen
instead to move forward with a partnership detailed above.
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 business and financial services; biomedical;
academic and the federal government; and corporate and professional services. 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, who are responsible for developing new
client relationships, primarily in the United States. RoweCom intends to
significantly increase the number of national account managers over the next
12 months, all of whom will initially focus on RoweCom's targeted markets. As of
December 31, 1999, there were 36 national account managers. We have also
expanded our telesales efforts in order to focus our direct sales efforts to
small and mid-size businesses, academic institutions and government agencies and
to continue to grow its telesales distribution.
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Once a client relationship has been established, a client is assigned an account
executive 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 executives serve as the primary client contact after the initial sale
and are responsible for maintaining the on-going relationship with the client,
working with the client to maximize the number of employees using the kStore to
purchase knowledge resources and to increase the number of purchases per
employee. 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 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 business and
financial services; biomedical; academic and the federal government; and
corporate and professional services. At December 31, 1999, RoweCom had over
20,000 clients, of which approximately 50% were corporate accounts and 50% were
academic and non-profit organizations. The following is a representative list of
clients of RoweCom, by industry sector.
<TABLE>
<S> <C>
BIOMEDICAL ACADEMIC
Aurora Healthcare Johns Hopkins University
Massachusetts General Hospital Ohio University
National Institutes of Health University of California at San
Francisco
FINANCIAL SERVICES CORPORATE AND PROFESSIONAL SERVICES
First Chicago NBD BASF Corporation
First Union Corporation Hewlett Packard Company
Blue Cross/Blue Shield Association Lawrence Livermore National Laboratory
Prudential Securities Owens Corning
Charles Schwab Arthur Andersen LLP
Dun & Bradstreet Ernst & Young LLP
John Hancock PricewaterhouseCoopers LLP
KPMG
</TABLE>
COMPETITION
The market for the sale of magazines, newspapers, journals and e-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 service for purchasing and managing the acquisition of
subscriptions and books with management control features comparable to those of
the kStore. However, we expect that such competition may develop in the near
future 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;
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- 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 and e-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;
- 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 mark "Knowledge
Acquisition Manager" which has been preliminarily approved by U.S. Patent and
Trademark Office. RoweCom also has pending registration applications for the
marks "rowe.com," "websubscribe," "kLibrary," "kStore," "knowledgeStore," and
"kWorld," "Knowledge World" and "Knowledge For Your Business Needs." 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. In
connection with the Dawson acquisition, RoweCom acquired some of the trademarks
and service marks of Dawson and is in the process of evaluating the status of
those marks and to what extent it will pursue registration.
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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
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 Electronic
Data Interchange 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 46 individuals as of December 31, 1999, 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, for example, corporate clients, corporate
libraries, educational institutions, public libraries, and consumers.
EMPLOYEES
As of December 31, 1999, RoweCom had 670 full-time and 35 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.
BUSINESS--ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS, ALONG WITH THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN FORM 10-K. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES, WHICH MAY AFFECT ROWECOM.
ADDITIONAL RISKS AND UNCERTAINTIES MAY ALSO ADVERSELY AFFECT ROWECOM'S BUSINESS
AND OPERATIONS. IF ANY OF THE FOLLOWING EVENTS ACTUALLY OCCURS, BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER, POSSIBLY
MATERIALLY.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS OF START-UP
COMPANIES.
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 a 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 and e-journals,
books and other knowledge resources;
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- 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.
WE HAVE A HISTORY OF LOSSES AND WILL PROBABLY CONTINUE TO INCUR NET 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. At December 31, 1999, we had an accumulated deficit of
$29.3 million. Although we have experienced revenue growth in recent periods,
including through the completion of acquisitions, 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.
OUR QUARTERLY REVENUES ARE LIKELY TO FLUCTUATE, WHICH MAY HAVE AN IMPACT ON OUR
STOCK PRICE.
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:
- our ability to enhance our relationships with 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."
OUR GROWTH IN REVENUE 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
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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.
WE CURRENTLY RECEIVE SUBSTANTIALLY ALL OF OUR REVENUES FROM A SINGLE PRODUCT.
We currently derive substantially all of our revenues from the sale of knowledge
resources, which we sell a portion of through our kStore. Currently, some of the
companies we have acquired do not yet have a comparable product to the kStore,
however, they are no less dependent upon the sale of knowledge resources for
their revenues. Any of a decline in demand for knowledge resources, an inability
to integrate the kStore sales model into the companies we have recently acquired
to efficiently sell knowledge resources, or an 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.
WE DEPEND IN PART 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 strategic relationships, many of which have not yet
generated significant amounts of revenue, are 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 service for purchasing and managing the
acquisition of subscriptions and books, or market such services developed by a
competitor, our business, results of operations and financial condition would be
materially and adversely affected.
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.
WE MAY HAVE DIFFICULTY IN MANAGING GROWTH.
Our business has grown rapidly in the last five years and must continue to do so
in order for us to become profitable. Total revenues have increased from
$324,000 in 1995 to $307.6 million in 1999. The number of our employees has
grown from nine at December 31, 1995 to 705 at December 31, 1999, and the scope
of our operating and financial systems has expanded significantly. This recent
rapid
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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.
AN INABILITY TO SUCCESSFULLY INTEGRATE OUR DAWSON ACQUISITION COULD ADVERSELY
AFFECT OUR CURRENT OPERATIONS AND SUBJECT US TO ADDITIONAL FOREIGN REGULATION.
On October 4, 1999, we acquired all of the issued and outstanding capital stock
of Dawson, Inc., a Delaware corporation, and certain assets of U.K.-based Dawson
Information Services Group from its publicly held parent, Dawson Holdings Plc.
Dawson is engaged in the subscription services business, Web-based electronic
information delivery and library information management software and services
business. Integrating any newly acquired business or technologies is expensive
and time-consuming. The acquired business had over 500 employees, an extensive
customer base and a broad content offering. Accordingly, we cannot assure you
that we will be able to integrate Dawson's business and operations successfully
into our own. In order to manage our changing business, Dawson's management and
other key employees must be assimilated into our own existing structure.
However, we cannot assure you that we will be successful in retaining and
integrating Dawson's key employees. Our success depends largely on the ability
of our officers and key employees to operate effectively, both independently and
as a group, and this ability may be impeded by the diversion of management's
attention from other business concerns due to the Dawson acquisition. In
addition, we cannot assure you that our systems, procedures and controls will be
adequate to support the expansion and integration of our operations. In
connection with the Dawson acquisition, we intend to convert all of Dawson's
clients to our kStore or kLibrary from their existing services. We cannot assure
you that we will not lose a substantial number of Dawson clients in the
transition, which could lead to a decrease in Dawson's revenues.
We may not be able to operate the acquired business profitably, if at all.
Because Dawson is based in the United Kingdom with operations in France, Canada
and Spain, we will become subject to the laws and regulations of various
countries. We may not always be able to operate the international Dawson
business if we cannot comply with changes in tax and regulatory policies. Even
if we are able to comply, such compliance may be cost prohibitive, and may
result in the cessation of some or all of Dawson's international operations.
Any failure to successfully integrate Dawson into our business could materially
delay or prevent our ability to operate profitably.
WE MAY HAVE TROUBLE OPERATING SUCCESSFULLY INTERNATIONALLY AS WE INTEGRATE OUR
FOREIGN ACQUISITIONS.
A part of our strategy is to continue to expand into foreign markets. We have
only recently begun to develop localized versions of our services and have
little experience 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 have made strategic acquisitions and entered into relationships
with foreign business partners. In the third and fourth quarters of 1999, we
acquired certain operations of two foreign companies, Dawson Holdings Plc and
International Subscription Agencies Pty. Ltd., and have become an international
organization in a very short period of time. 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.
For a description of the risks associated with potentially rapid growth, see the
risk factors captioned "FUTURE ACQUISITIONS COULD HARM OUR BUSINESS" and "WE MAY
HAVE DIFFICULTY IN MANAGING GROWTH." In addition, we do not currently have the
content necessary to conduct
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operations in many foreign markets. We are 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 additional
acquisitions.
OUR PROSPECTS DEPEND ON OUR ABILITY TO SUCCEED AGAINST INTENSE COMPETITION IN
THE KNOWLEDGE RESOURCE SALES MARKET.
The market for the sale of magazines, newspapers, journals and e -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 service for purchasing and managing the acquisition of subscriptions and books
with management control features comparable to those of the kStore. However, we
expect that such competition will develop in the near future 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 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 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.
WE DEPEND ON REED ELSEVIER TO SUPPLY US WITH A SUBSTANTIAL NUMBER OF THE
KNOWLEDGE RESOURCES WE SELL.
The primary supplier of the magazines and journals whose subscriptions we sell
is Reed Elsevier, which supplied titles accounting for 23.3% and 15.8% of our
sales for the year ended December 31, 1998 and 1999, 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 another supplier. 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.
WE MAY NOT BE ABLE TO EXPAND OUR CATALOG OF KNOWLEDGE RESOURCES.
One of the key elements of our strategy is to continue to expand our catalog of
knowledge resources. We gain content through acquisitions, 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.
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WE MAY NOT BE ABLE TO ESTABLISH OUR BRAND NAME.
We believe that establishing and maintaining the goodwill associated with our
brand name 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 name 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 the value of our brand name. If we are unable to provide high
quality services, or otherwise fail to promote and maintain our brand name, or
if we incur excessive expenses in an attempt to improve our services, or promote
and maintain our brand name, our future results of operations and financial
condition could be materially and adversely affected.
OUR FUTURE SUCCESS CURRENTLY DEPENDS ON THE SERVICES OF A SMALL NUMBER OF 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 R. 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:
- Eileen Bergquist, Vice President of Human Development and Chief People
Officer;
- Paul Burmeister, Senior Vice President and Chief Financial Officer;
- Walter Crosby, Vice President and Chief Technical Officer;
- Ronald Grigg, Vice President, Design and Development;
- James Krzywicki, Senior Vice President and Chief of Knowledge Resources;
and
- Jeffrey Sands, Vice President of Business Development.
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.
WE MAY LOSE CLIENTS IF OUR SYSTEMS FAIL.
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 nature, 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
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<PAGE>
our operations from a natural disaster or system failure at our London facility.
We currently anticipate that we will be establishing redundant systems in our
Westwood, Massachusetts headquarters, or elsewhere. We cannot assure you,
however, that any such back-up systems will be online in the near future, or at
all.
OUR REVENUES ARE SEASONAL IN NATURE.
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. As a
result of the seasonal nature of our cash flows, we will have to rely on bank
financing and lines of credit to cover current operating expenses. Given these
seasonal cash flow imbalances, if there was to be an unexpected demand for
liquid capital, or if financing was not available on commercially reasonable
terms, or at all, it would have a material adverse effect on our future results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Selected Quarterly Results of
Operations."
OUR SUCCESS DEPENDS ON OUR ABILITY TO CONTINUOUSLY ENHANCE OUR PRODUCT
OFFERINGS.
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. Risks typical of e-commerce companies.
THE POSSIBLE SLOW ADOPTION OF INTERNET AND INTRANET SOLUTIONS BY BUSINESSES MAY
HARM OUR PROSPECTS.
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 using 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,
WHICH COULD LIMIT POSSIBLE GROWTH IN OUR REVENUES.
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
20
<PAGE>
already invested substantial resources in traditional methods of procurement may
be reluctant to adopt a new strategy.
THE INTERNET MAY NOT BE ABLE TO ACCOMMODATE GROWTH IN E-COMMERCE FOR COMPANIES
SUCH AS ROWECOM.
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 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 ON E-COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
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 Internet
commerce are under consideration by federal, state, local and foreign
governments and, as a result, a number of laws or regulations may be adopted
with respect to Internet user privacy, taxation, pricing, quality of products
and services and intellectual property ownership. There is also uncertainty as
to how existing laws will be applied to the Internet in areas such as property
ownership, copyright, trademark, trade secret, obscenity and defamation.
THE IMPOSITION OF SALES TAX AND OTHER TAX OBLIGATIONS ON E-COMMERCE COULD AFFECT
OUR FINANCIAL PERFORMANCE AND LIMIT OUR GROWTH.
We do not currently collect sales or other similar taxes with respect to our
marketing of products and services, although we are currently reviewing the
necessity of collecting sales taxes on certain of the products and services sold
through our kStore. 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. In addition, any requirement that we remit sales taxes for
prior periods could have a material adverse effect on our financial condition
and results of operations.
A number of proposals have been made at the federal, state and local levels that
would impose taxes on the sale of goods and services through the Internet in
circumstances where no tax or tax collection responsibility is presently thought
to be imposed. Such proposals, if adopted, could substantially impair the growth
of e-commerce and could adversely affect our future results of operation and
financial condition.
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<PAGE>
There is currently in effect in the United States a three-year moratorium
expiring on October 26, 2001 on new state and local taxes on Internet access and
"multiple or discriminatory" taxes on e-commerce. Sales or use taxes imposed on
those buying or selling products or services over the Internet are not generally
affected by this moratorium. The full effect of this moratorium on our business
is not clear. To the extent that the moratorium provides a material benefit, its
expiration on October 20, 2001 could have a material adverse effect on our
financial condition and results of operations.
POSSIBLE E-COMMERCE SECURITY BREACHES COULD HARM OUR BUSINESS.
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 COULD HARM OUR BUSINESS.
Legal standards relating to the protection of intellectual property rights in
Internet-related industries are uncertain and still evolving. As a result, the
future viability or value of our intellectual property rights, as well as those
of other companies in the Internet industry, is unknown. We cannot be certain
that the steps we have taken to protect our intellectual property rights will be
adequate or that third parties will not infringe or misappropriate our
proprietary rights. Any such infringement or misappropriation could have a
material adverse effect on our future financial results. In addition, we cannot
be certain that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us.
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<PAGE>
EXECUTIVE OFFICERS & DIRECTORS
The following sets forth certain information with respect to the directors and
executive officers of RoweCom as of December 31, 1999.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
- -------------------------------- -------- ------------------------------------------
<S> <C> <C>
Dr. Richard R. Rowe....................... 66 Chairman of the Board of Directors,
President, Chief Executive Officer and
Director
Eileen Bergquist.......................... 56 Vice President, Human Development & Chief
People Officer
Paul Burmeister(1)........................ 47 Senior Vice President and Chief Financial
Officer
Walter Crosby............................. 41 Vice President and Chief Technology
Officer
Ronald Grigg.............................. 48 Vice President, Design and Development
James Krzywicki........................... 47 Senior Vice President & Chief of Knowledge
Resources
Jeffrey Sands............................. 55 Vice President, Business Development
Stephen Vozella........................... 53 Vice President, Fulfillment
Stanley Fung(2)(3)........................ 42 Director
John Kennedy(2)........................... 41 Director
Thomas Lemberg(2)(3)...................... 53 Director
Donald A.B. Lindberg, M.D. ............... 66 Director
Jerome Rubin.............................. 74 Director
Philippe Villers(3)....................... 64 Director
</TABLE>
- ------------------------
(1) Mr. Burmeister was appointed Senior Vice President and Chief Financial
Officer on February 2, 2000.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
DR. RICHARD R. ROWE, 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.
EILEEN BERGQUIST has served as Vice President, Human Development and Chief
People Officer of RoweCom since August 1999. Prior to joining RoweCom, from
October 1997 to August 1999, Ms. Bergquist served as Vice President of Human
Resources and Organizational Development at The Frontier Group. From
October 1985 to October 1997, Ms. Bergquist served in several senior level roles
23
<PAGE>
in leadership assessment and coaching for Motorola Information System Group and
Banyan Systems Inc.
PAUL BURMEISTER has served as Senior Vice President and Chief Financial Officer
since February 2000. Prior to joining RoweCom, Mr. Burmeister served in various
senior management roles at Fidelity Investments since 1992, most recently as CFO
for Fidelity Investments Systems Company. From 1981 to 1992, Mr. Burmeister
served in several senior financial management positions with the Dun &
Bradstreet Corporation. Prior to that, Mr. Burmeister served with Estee Lauder,
American Can and Pepsi Co.
WALTER CROSBY has served as Vice President and Chief Technical Officer of
RoweCom 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.
RONALD GRIGG has served as Vice President, Design and Development of RoweCom
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.
JAMES KRZYWICKI has served as Senior Vice President and Chief of Knowledge
Resources of RoweCom since September 1999. Prior to joining RoweCom, from
April 1999 to September 1999, Mr. Krzywicki served as the worldwide executive
for distributed learning at IBM. From July 1992 to March 1999, Mr. Krzywicki
served first as Vice President of Lotus Education and Certification and then as
Vice President of Lotus Customer Support. Prior to joining Lotus, Mr. Krzywicki
held a number of financial, operational, and international assignments at Prime
Computer, Inc. and General Electric.
JEFFREY SANDS has served as Vice President, Business Development of RoweCom
since November 1999. Prior to joining RoweCom, from June 1996 to November 1999,
Mr. Sands served as Director of Business Development for EMC Corporation From
June 1980 to June 1996, Mr. Sands held a number of senior-level positions in
sales, marketing, and product development with Digital Equipment Corp.
STEPHEN VOZELLA has served as Vice President, Fulfillment of RoweCom 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.
STANLEY FUNG has served as a director of RoweCom since December 1998. Mr. Fung
has been a managing director of Zero Stage Capital Company, a venture capital
firm, since 1992. Prior to joining Zero Stage in 1992, Mr. Fung was an
investment manager in Advent International, an international venture capital
firm. Mr. Fung is also a director of Silknet Software, Inc.
JOHN KENNEDY has served as a director of RoweCom since February 1999.
Mr. Kennedy is Director of Sales 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.
THOMAS LEMBERG has served as a director of RoweCom since May 1996. Mr. Lemberg
is Senior Vice President, Global Alliances 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.
24
<PAGE>
DONALD A.B. LINDBERG, M.D. has served as a director of RoweCom since
December 1999. Dr. Lindberg has been the director of the National Library of
Medicine, the world's largest biomedical library, since 1984. From 1992-1995,
Dr. Lindberg served in a concurrent position as founding director of the
National Coordination Office for High Performance Computing and Communications
in the Office of Science and Technology Policy, Executive Office of the
President. In 1996, Dr. Lindberg was named by the Health and Human Services
Secretary to be the U.S. Coordinator for the G-7 Global Healthcare Applications
Project.
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.
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.
ITEM 2. PROPERTIES
RoweCom is headquartered in Westwood, Massachusetts where it occupies
approximately 40,000 square feet. 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 the following
locations, where it owns or leases office space.
<TABLE>
<CAPTION>
APPROXIMATE SPACE,
LOCATION: IN SQUARE FEET: TERMS:
- --------- ------------------ -------------------------------------
<S> <C> <C>
London, Ontario, Canada.............. 20,000 Owns property
Outremont, Quebec, Canada............ 10,000 Lease, 5 month term
Folkestone, Kent, UK................. 73,000 Lease, 1 year term
Cedex, France........................ 30,000 Owns property
Madrid, Spain........................ 1,500 Lease, 6 month term
Carlsbad, California................. 16,500 Lease, 6 month term
Chantilly, Virginia.................. 4,800 Lease, 5 year term
Oregon, Illinois..................... 25,000 Owns property
Cambridge, Massachusetts............. 7,600 Lease, 7 year term
Montvale, New Jersey................. 4,500 Lease, 2 year term
Brisbane, Australia.................. 5,000 Lease, 2 year term
Brisbane, Australia.................. 2,500 Lease, 1 year term
</TABLE>
These facilities are used for research and development, technical support and
content acquisition.
25
<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last quarter
of the year ended December 31, 1999.
26
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The common stock is traded on the Nasdaq National Market under the symbol
"ROWE". The following table sets forth the high and low closing prices for the
common stock for the periods indicated, as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Year Ended December 31, 1999
First Quarter (from March 8, 1999)...................... $43.625 $25.500
Second Quarter.......................................... $49.250 $14.000
Third Quarter........................................... $30.875 $14.938
Forth Quarter........................................... $50.375 $26.125
</TABLE>
HOLDERS
As of March 10, 2000 there were 148 stockholders of record.
DIVIDENDS
RoweCom has never declared or paid cash dividends on its common stock. RoweCom
intends to retain all future earnings to finance future growth, and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On October 13, 1999, RoweCom entered into a Securities Purchase Agreement,
pursuant to which RoweCom issued and sold to HFTP Investment L.L.C. and
Leonardo, L.P., $20 million in aggregate original principal amount of
convertible promissory notes, and warrants to purchase up to 224,000 shares of
RoweCom's Common Stock. The notes are convertible into shares of RoweCom's
Common Stock on the terms and conditions set forth in the Securities Purchase
Agreement and the notes. RoweCom also has an option, subject to certain
conditions, to require the investors to invest up to an additional $15 million
in additional convertible notes and warrants. We intend to use the aggregate
proceeds received from the issuance of convertible debt and the exercise of the
warrants for general working capital purposes.
RoweCom is party to the Registration Rights Agreement, dated as of October 13,
1999, by and among RoweCom, HFTP Investment L.L.C. and Leonardo, L.P., under
which RoweCom has granted HFTP Investment L.L.C. and Leonardo, L.P. rights to
have an aggregate of up to 224,000 shares of RoweCom common stock issuable upon
the exercise of warrants held by such persons, and an undetermined number of
shares of RoweCom common stock issuable upon the exercise of convertible notes
held by such person, registered under the Securities Act. According to the terms
of the agreement, the warrant and note holders may demand that RoweCom file a
short-form registration statement on Form S-3 no later than March 16, 2000, to
be effective no later than June 30, 2000. The warrant and note holders have also
been granted so-called "piggyback rights" to participate in any registration by
the company of its stock during a specified period which ends on the earlier of
all registrable shares becoming eligible for resale under Rule 144 or having
been sold by the warrant holders.
In October 1999, RoweCom acquired all of the issued and outstanding capital
stock of Dawson Inc., a Delaware corporation, and certain assets of United
Kingdom-based Dawson Information Services Group in a transaction accounted for
using the purchase method of accounting. RoweCom paid net consideration of
$34.0 million in cash and issued approximately 94,000 shares of RoweCom's common
27
<PAGE>
stock, which were valued at $1.7 million, and paid acquisition costs of $2.3
million, as part of an aggregate net consideration of approximately
$35.7 million. Under the terms of the purchase agreement, RoweCom is obligated
to issue an additional L4.0 million (approximately $6.5 million at December 31,
1999) of RoweCom common stock, at a price per share of approximately $17.62, as
part of the purchase price for the acquisition, after making an adjustment based
upon profit calculations for the period from the completion of the acquisition
to December 31, 1999. RoweCom expects to issue these shares in the first half of
2000.
Under the terms of the purchase agreement, the initial 94,000 shares of RoweCom
common stock issued to Dawson are to be registered as promptly as practicable
following RoweCom's eligibility to use Form S-3, unless at such time RoweCom is
not eligible to use Form S-3. In the event that additional shares of RoweCom
common stock are issued to Dawson upon the happening of certain events under the
Purchase and Sale Agreement, RoweCom will be required to file an additional
registration statement covering such shares. RoweCom has the right to delay the
initial registration of Dawson's shares up to 90 days if such registration could
interfere with negotiation or completion of any transaction then contemplated by
RoweCom or, alternatively, could involve disclosure obligations not in the best
interests of RoweCom's stockholders.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following historical selected 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 document.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $ 324 $ 3,116 $12,890 $19,053 $307,604
Cost of revenues................................ 323 3,083 12,701 18,736 286,853
----- ------- ------- ------- --------
Gross profit................................ 1 33 189 317 20,751
Operating expenses:
Sales and marketing........................... 259 585 2,034 4,818 16,820
Research and development...................... 149 532 584 1,631 5,368
General and administrative.................... 171 351 751 1,561 9,457
Stock based compensation...................... -- -- -- -- 519
Amortization of goodwill and intangibles...... -- -- -- -- 2,721
----- ------- ------- ------- --------
Total operating expenses.................... 579 1,468 3,369 8,010 34,885
----- ------- ------- ------- --------
Loss from operations...................... (578) (1,435) (3,180) (7,693) (14,134)
----- ------- ------- ------- --------
Interest and other income, net.................. 1 1 63 172 575
----- ------- ------- ------- --------
Loss before income taxes.................. (577) (1,434) (3,117) (7,521) (13,559)
Provision for income taxes...................... 8 16 136 109 1,508
----- ------- ------- ------- --------
Net loss.................................. $(585) $(1,450) $(3,253) $(7,630) $(15,067)
===== ======= ======= ======= ========
Basic and diluted pro forma net loss per share
(2)........................................... -- -- -- $ (1.87) $ (1.59)
Shares used in computing basic and diluted pro
forma net loss per share...................... -- -- -- 4,079 9,489
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and marketable securities........... $ 1,280 $ 16,974 $ 13,264
Working capital............................................. 185 15,447 7,629
Total assets................................................ 2,108 20,284 215,608
Stockholders' (deficit) equity.............................. $(3,768) $(12,251) $ 60,155
</TABLE>
- ------------------------
(1) Reflects the acquisitions of Corporate Subscription Services, Inc. in
June 1999, International Subscription Agencies Pty. Ltd. in August 1999 and
Dawson's Subscription Business in October 1999.
(2) 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 period and the exercise of all outstanding stock
purchase warrants.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THIS ACT PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS TO ENCOURAGE COMPANIES TO PROVIDE
PROSPECTIVE INFORMATION ABOUT THEMSELVES SO LONG AS THEY IDENTIFY THESE
STATEMENTS AS FORWARD LOOKING AND PROVIDE MEANINGFUL CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THE
PROJECTED RESULTS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT MADE
IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD LOOKING. IN PARTICULAR, THE
STATEMENTS HEREIN REGARDING INDUSTRY PROSPECTS AND FUTURE RESULTS OF OPERATIONS
OR FINANCIAL POSITION ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
REFLECT MANAGEMENT'S CURRENT EXPECTATIONS AND ARE INHERENTLY UNCERTAIN.
ROWECOM'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM MANAGEMENT'S
EXPECTATIONS. THE FOLLOWING DISCUSSION AND THE SECTION ENTITLED
"BUSINESS--ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS" DESCRIBES SOME,
BUT NOT ALL, OF THE FACTORS THAT COULD CAUSE THESE DIFFERENCES.
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,
e-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, e-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
business and financial services; biomedical; academic and the federal
government; and corporate and financial services.
RoweCom began significant commercial operations in March 1996. We introduced our
flagship product, the kStore, in June 1997. Since its inception, RoweCom has
incurred significant net losses and, as of December 31, 1999, had an accumulated
deficit of $29.3 million.
Substantially all of our revenues are generated by the sale of magazines,
newspapers, journals, e-journals, books and other knowledge resources published
by third parties. The sales price of each knowledge resource reflects the cost
to RoweCom of the knowledge resource plus the fee retained by RoweCom. Prior to
the fourth quarter of 1998, RoweCom only charged a fixed transaction fee.
RoweCom currently receives either a flat fee or the difference between the price
paid by the client and the publisher's discount price paid by RoweCom for the
knowledge resource, or a combination of the two. The amount of these discounts
varies by transaction and client. Clients can pay by several secure payment
options including direct debit, procurement card and credit card. RoweCom, in
some cases, finances the knowledge resource purchases of its clients and at
December 31, 1999 had outstanding accounts receivable of $138.5 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 would increase the amount of revenue
generated by such client.
To date, a substantial majority of our revenues have been generated in the
fourth quarter of each year, primarily because most subscriptions are purchased
or renewed in that quarter, with subscriptions generally beginning on
January 1(st). As 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. Dawson Subscription Business, which was
acquired by RoweCom in October 1999 by the purchase of certain assets of
UK-based Dawson Information Services and all of the issued and outstanding
capital stock of
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Dawson, Inc., has experienced similar seasonality. For a more detailed
discussion of the seasonality of our business, see "--Selected Quarterly Results
of Operations," and "--Acquisition of Dawson."
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
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 inc. 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, if any, until the second half of 2000. 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."
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of Corporate Subscription Services, Inc. for $5,726,000 in cash, subject to
certain post-closing adjustments, and 16,260 shares of RoweCom's common stock,
which were valued at approximately $250,000.
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of International Subscription Agencies Pty. Ltd. for $1,486,596 in cash.
ACQUISITION OF DAWSON
On October 4, 1999, pursuant to the terms of a purchase and sale agreement,
dated as of September 16, 1999, between RoweCom, Dawson Holdings PLC and certain
other Dawson-affiliated entities, RoweCom acquired:
- all of the issued and outstanding capital stock of Dawson, Inc., a
Delaware corporation; and
- certain assets of United Kingdom-based Dawson Information Services Group
relating to subscription services, a state-of-the-art, Web-based
information searching and retrieval tool, and library information
management software and services.
The acquired Dawson group includes over 20,000 clients, 500 employees and
operations in nine locations: Folkestone, UK; Paris, France; Madrid, Spain;
London, Ontario; Montreal, Quebec; Westwood, Massachusetts; Oregon, Illinois;
Chantilly, Virginia; and Carlsbad, California.
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RoweCom paid net consideration of $34.0 million in cash and issued approximately
94,000 shares of RoweCom's common stock, which were valued at $1.7 million, and
paid acquisition costs of $2.3 million, as part of an aggregate net
consideration of approximately $35.7 million. Under the terms of the purchase
agreement, RoweCom is obligated to issue an additional L4.0 million of RoweCom
common stock, at a price per share of approximately $17.62, as part of the
purchase price for the acquisition, after making an adjustment based upon profit
calculations for the period from the completion of the acquisition to
December 31, 1999. RoweCom expects to issue these shares in the first half of
2000.
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. As a
result of the seasonal nature of our cash flows, we will have to rely to a
greater extent on bank financing and lines of credit and other sources of
liquidity to cover current operating expenses during such periods.
ROWECOM'S GROSS MARGIN. RoweCom's gross margin has increased in each of the
past three years from 1.08% in 1996 to 6.75% for the year ended December 31,
1999. 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:
- reassessing our pricing structure from time to time to take advantage of
favorable market conditions;
- increasing sales of higher margin products; and
- obtaining greater discounts from publishers.
We believe that the combined effect of these strategies, which are discussed in
greater detail below, will improve our gross margin. The companies acquired by
RoweCom have historically shown higher gross margins than RoweCom. RoweCom
expects that it will begin to realize the full effect of the improved margins
during 2000. 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 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.
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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, or that any such changes will have a positive
effect on RoweCom's gross margin.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues for the year ended December 31, 1999 were $307.6 million, as
compared to $19.1 million for the year ended December 31, 1998, an increase of
$288.6 million or 1,511%. This increase resulted primarily from increased sales
per client and growth in our client base, particularly related to the
acquisition of Dawson. Transaction volumes for the year ended December 31, 1999
also increased significantly by 2,888% from the year ended December 31, 1998
from 48,000 to 1.4 million transactions, primarily due to volume increases
related to the Dawson acquisition. The average selling price per transaction for
the year ended December 31, 1999 was $214 as compared to $396 during the year
ended December 31, 1998.
COST OF REVENUES. Cost of revenues in the year ended December 31, 1999 was
$286.9 million as compared to $18.7 million during the year ended December 31,
1998, an increase of $268.1 million or 1,431%. As a percentage of revenues, cost
of revenues decreased to 93% during the year ended December 31, 1999 as compared
to 98% in the year ended December 31, 1998. This improvement was primarily due
to the clients added by the Dawson acquisition. Installation revenue was
$181,000 during the year ended December 31, 1999 and $41,000 during the year
ended December 31, 1998.
SALES AND MARKETING. Sales and marketing expenses increased to $16.8 million
during the year ended December 31, 1999 from $4.8 million in the year ended
December 31, 1998, an increase of $12.0 million or 250%. This growth is
primarily due to an increase of personnel and the associated expenses of
recruiting, hiring, and training the additional personnel. Personnel expenses
increased to approximately $10.2 million in the year ended December 31, 1999
from $1.9 million in the year ended December 31, 1998. In addition, during the
year ended December 31, 1999, RoweCom incurred approximately $1.6 million in
advertising costs, which included the announcement of the Dawson acquisition.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$5.4 million in the year ended December 31, 1999 from $1.6 million in the year
ended December 31, 1998, an increase of $3.7 million or 231%, primarily as a
result of increased staffing and associated costs incurred in an effort to
integrate new content into our catalog, to enhance the user interface and
functionality of the kStore, and to develop the transaction processing systems.
Consulting fees in connection with these improvements increased to $734,000
during the year ended December 31, 1999 from $376,000 in the year ended
December 31, 1998.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to
$9.5 million in the year ended December 31, 1999 compared to $1.6 million in the
year ended December 31, 1998, an increase of $7.9 million or 494%. This increase
can be primarily attributed to growth in average headcount in the
administrative, finance and human resources departments. RoweCom has also
incurred certain additional costs in its operation as a newly public company,
including insurance, investor relations and accounting fees that resulted in an
overall increase in expenses of $834,000 for the year ended December 31, 1999.
STOCK BASED COMPENSATION. Stock based compensation was $519,000 in the year
ended December 31, 1999. Under an agreement among certain of RoweCom's
shareholders, Working Ventures' Canadian Fund, Inc. was required to transfer an
aggregate of 310,371 shares of common stock to RoweCom for transfer to certain
other shareholders and option holders of RoweCom if Working Ventures' initial
investment increased by 45% or more, on an annually compounded basis, and it is
not legally restricted from selling these shares. As a result of the expiration
of the initial public offering's lock up period on September 5, 1999, these
conditions were satisfied and RoweCom was required to record a compensation
charge equal to the aggregate fair market value of the common stock transferred
by Working Ventures and eventually received by RoweCom option and warrant
holders who are eligible to receive such shares as described above.
GOODWILL AMORTIZATION. Goodwill amortization was $2.7 million in the year ended
December 31, 1999. As a result of the acquisitions of Corporate Subscription
Services, Inc. and International Subscription Agencies Pty. Ltd., approximately
$9.1 million in goodwill was recorded and is being amortized over a thirty-six
month period from the date of the acquisitions.
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 1999. In
management's opinion, this information has been prepared substantially on the
same basis as the audited consolidated financial statements appearing elsewhere
in this document, 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 document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................................... $ 1,699 $ 1,981 $ 9,479 $294,445
Cost of revenues......................................... 1,527 1,868 8,930 274,528
------- ------- ------- --------
Gross profit........................................... 172 113 549 19,917
Operating expenses:
Sales and marketing...................................... 1,894 2,653 3,525 8,748
Research and development................................. 818 1,027 882 2,641
General and administrative............................... 725 1,172 1,643 5,917
Stock based compensation................................. -- -- 656 (137)
Amortization of goodwill and intangibles................. -- 204 699 1,818
------- ------- ------- --------
Total operating expenses............................... 3,437 5,056 7,405 18,987
------- ------- ------- --------
Loss from operations................................. (3,265) (4,943) (6,856) 930
Interest and other income, net............................. 251 817 605 (1,098)
------- ------- ------- --------
Loss before income taxes............................. (3,014) (4,126) (6,251) (168)
Provision for income taxes................................. -- 55 7 1,446
------- ------- ------- --------
Net loss............................................. $(3,014) $(4,181) $(6,258) $ (1,614)
======= ======= ======= ========
</TABLE>
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $111.9 million for the year ended
December 31, 1999 as compared to $8.6 million for the year ended December 31,
1998. Cash used for the year ended December 31, 1999 resulted primarily from a
net loss of $15.0 million, an increase in accounts receivable of $80.5 million,
and a $71.6 million increase in deferred revenue. This was partially offset by a
$40.0 increase in accounts payable. Cash used in operating activities for the
year ended December 31, 1998 was primarily attributable to a net loss of
$7.6 million and an increase in accounts receivable of $1.4 million.
Net cash used in investing activities for the year ended December 31, 1999 was
$7.6 million, as compared to $597,000 for the year ended December 31, 1998. Cash
used for the acquisitions of Corporate Subscription Services, Inc.,
International Subscription Agencies Pty. Ltd., and Dawson's Subscription
Business net of cash acquired, was $5.1 million for the year ended December 31,
1999. Substantially all cash used in investing activities during the year ended
December 31, 1998 was for the purchase of equipment and furnishings.
Net cash provided by financing activities was $116.0 million for the year ended
December 31, 1999, as compared to $25.0 million for the year ended December 31,
1998. Proceeds from the initial public offering, net of underwriting discounts
and offering costs, were $51.6 million, proceeds from loans were $41.2 million,
and proceeds from the issuance of convertible debt, net of offering costs, was
$19.2 million. During the year ended December 31, 1998, $23.3 million in cash
provided by financing activities was from the sale of 4,586,599 shares of
Class B redeemable convertible preferred stock and 4,586,599 shares of Class C
redeemable convertible preferred stock. Prior to the initial public offering,
RoweCom financed its operations primarily through sales of its equity securities
in private placements. At December 31, 1999, RoweCom had cash and cash
equivalents of $13.2 million, working capital of $7.6 million, debt of
$61.0 million and stockholders' equity of $60.2 million.
RoweCom has historically funded its operations through sales of its preferred
stock, our initial public offering and limited borrowings from third-party
financing sources. During 1999, RoweCom entered into additional financing
arrangements including the sale of convertible promissory notes and domestic and
foreign credit facilities, and expects to meet its short and medium-term
liquidity requirements through borrowings under these arrangements and use of
its existing cash balances. RoweCom currently believes that these sources of
liquidity will be sufficient to enable RoweCom to meet anticipated cash
requirements through at least 2001. RoweCom may also gain additional liquidity
through the use of cash balances of companies that it may acquire and, possibly,
additional debt or equity financings. However, RoweCom cannot assure you that
additional capital beyond the amounts currently forecasted by RoweCom will not
be required nor that any required additional capital will be available on
reasonable terms, if at all, at the time it may be required.
SALE OF CONVERTIBLE NOTES AND COMMON STOCK PURCHASE WARRANTS. On October 13,
1999, RoweCom entered into a Securities Purchase Agreement with two investors
under which RoweCom issued and sold notes convertible into RoweCom common stock
in the aggregate principal amount of $20.0 million and warrants to purchase up
to 224,000 shares of RoweCom's common stock at an exercise price of
approximately $27.50 per share. The sale of the convertible notes and the
warrants generated net proceeds of approximately $19.2 million for RoweCom. The
notes are convertible into shares of RoweCom's common stock on the terms and
conditions set forth in the Securities Purchase Agreement and the notes pursuant
to calculations based upon the outstanding principal amount plus interest and
the trading price of RoweCom common stock, provided that the notes may not be
converted into RoweCom common stock until January 11, 2001, at the earliest,
unless specified conditions occur causing an acceleration. RoweCom also has an
option, subject to certain conditions, to require the investors to invest up to
an additional $15.0 million in additional convertible notes and warrants. This
option is not presently exercisable and may not become exercisable. RoweCom also
granted the
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investors certain rights to require the registration under applicable securities
laws of the shares of RoweCom common stock issuable upon conversion of the notes
and exercise of the warrants.
REVOLVING LINES OF CREDIT. In October 1999, RoweCom (UK) Ltd., our wholly owned
United Kingdom subsidiary entered into a revolving line of credit for up to L3.0
with National Westminster Bank Plc. The line of credit is secured by a the grant
of a security interest in RoweCom (UK) Ltd.'s accounts receivable. In addition,
we have guaranteed the loan, up to an aggregate of approximately L5.4. The line
of credit will be available to the borrower until April 2, 2000 and bear
interest at the rate of the bank's base rate, plus 1%.
In October 1999, RoweCom France SARL entered into a credit agreement with Credit
du Nord for an initial 70.0 million French Franc line of credit that will be
reduced on February 29, 2000 to a 30.0 million French Franc line of credit. The
line of credit will be available from December 1, 2000 to May 31, 2000 and bears
interest at the rate of EURIBOR plus 0.40%. The facility has been guaranteed by
RoweCom, and RoweCom has agreed to maintain 100% ownership of RoweCom France
SARL at all times while any amounts are outstanding under the facility, which
terminates December 31, 2000, unless renewed.
On November 3, 1999, RoweCom France SARL, a wholly owned subsidiary of RoweCom,
entered into a credit facility with Barclays Bank Plc that permits a maximum
borrowing of 100.0 million French Francs, limited to 100.0 million francs per
transaction. The line of credit is for unlimited duration and bears interest at
the rate of the average monthly financial market rate plus 1%. The line of
credit also provides for a 100.0 million French Franc daily overdraft that is
available from November 1 to May 31 each year, and bears interest at the rate of
EURIBOR plus 0.50%.
In December 1999, RoweCom France SARL established a line of credit with Banque
Nationale de Paris for 80.0 million French Francs. Borrowing under the facility
is limited to 110% of RoweCom France's accounts receivable, and accrues interest
at the rate of EURIBOR plus 0.55%. The line of credit will be reduced to
35.0 million French Francs after April 1, 2000 and will expire on June 16, 2000.
On December 14, 1999, three wholly owned subsidiaries of RoweCom's wholly owned
subsidiary Dawson, Inc., entered into a revolving line of credit with a
financial institution in the aggregate amount of $35.0 million. The line of
credit is secured by a lien on all of the assets, accounts receivable and after
acquired property of the three subsidiaries of Dawson. In addition, RoweCom and
Dawson have signed unconditional guaranties of full payment of the loan made to
the three subsidiaries. The entire unpaid principal balance of the loan becomes
due May 31, 2000, with interest payments due on the last business day of each
month. The revolving line of credit is scheduled to terminate on November 28,
2000, but under some conditions may be extended for an additional 364-day
period. The borrowings of the subsidiaries under the revolving credit loans bear
interest at the lender's prime rate. If its subsidiaries default on these loans,
RoweCom may ultimately have to pay any unpaid balances on the line of credit. As
of December 31, 1999, the aggregate amount borrowed under the line of credit was
$19.6 million.
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. 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 did not incur
material costs in preparing 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
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such systems that may have a material adverse effect on RoweCom's future results
of operations and financial condition.
RoweCom has been aware of the possible impact of Year 2000 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.
During 1999, approximately two employees of RoweCom were 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. At present, no employees are working full-time on Year 2000
Compliance issues.
RoweCom has focused, and will continue to focus, its Year 2000 Compliance
efforts on the following types of critical systems:
IN-HOUSE INFORMATION TECHNOLOGY. RoweCom has developed an application for use
in all client operations, including order processing and report generation. This
application, which was designed and developed entirely by RoweCom's in-house
development staff, was designed to be Year 2000 Compliant. Accordingly, RoweCom
did not incur, and does not expect in the future to incur, any material costs as
a result of any year 2000 problems with its in-house information technology.
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 RoweCom's finance and human resources
departments and deployed on a client-server system. In its contract with
RoweCom, Navision represents that its system is Year 2000 Compliant. To date,
RoweCom has not experienced any problems with this application as a result of
the year 2000 date change.
THIRD PARTY OPERATIONS. The critical systems maintained by third parties
include the Electronic Data Interchange transaction system, also known in the
industry as "EDI," which carries out RoweCom's transactions with publishers, the
CyberCash credit card transaction processing system that RoweCom uses to clear
credit card purchases, the Automated Clearing House transaction system, also
known in the industry as "ACH," pursuant to which RoweCom clears automatic debit
purchases, and the catalog and purchasing operations maintained by
barnesandnoble.com. To date, RoweCom has not experienced any problems with these
systems as a result of the year 2000 date change.
RoweCom believes that it has already incurred the majority of the expenses that
it expects to incur to deal with Year 2000 issues. RoweCom has funded costs
incurred to date from working capital and prior financings and will fund any
additional costs incurred from working capital.
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 continue to be Year 2000 Compliant. A failure by any of RoweCom's critical
systems to be Year 2000 Compliant could have a material adverse effect upon its
future results of operations and financial condition.
RoweCom is not able to assess the impact of the year 2000 date change on its
clients. In the event that a significant number of its clients face difficulties
as a result of the year 2000 date change, such clients may be unable to process
purchases through the kStore, or may face budgetary constraints that limit
knowledge resource purchasing. Any diminished purchasing by RoweCom's clients as
a result of year
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2000 difficulties could have a material adverse effect on RoweCom's future
results of operations and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EXCHANGE RATE RISK MANAGEMENT
RoweCom enters into forward currency contracts primarily in European and
Canadian currencies to hedge its foreign currency exposures. Forward currency
contracts have maturities of less than one year. These contracts are used to
reduce RoweCom's risk associated with exchange rate movements, as gains and
losses on these contracts are intended to offset exchange losses and gains on
underlying exposures. RoweCom does not engage in currency speculation. At
December 31, 1999 the face amount of outstanding forward currency contracts to
buy and sell U.S. dollars for non-U.S. currencies was $1.7 million. A 10%
decrease in exchange rates for these currencies would decrease the fair value by
approximately $288,000. However, since these contracts hedge non-U.S. currency
transactions, any change in the fair value of the contracts would be offset by
changes in the underlying value of the transactions being hedged. The
hypothetical movement was estimated by calculating the fair value of the forward
currency contracts at December 31, 1999 and comparing that with those calculated
using hypothetical forward currency exchange rates.
INTEREST RATE RISK MANAGEMENT
Due to its short-term duration, the fair value of RoweCom's borrowings at
December 31, 1999 approximated carrying value. Interest rate risk was estimated
as the potential increase in fair value resulting from a hypothetical 10%
increase in interest rates. The resulting hypothetical fair value was not
materially different from the year-end carrying value.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, collectively referred to as
derivatives, and for hedging activities. We will adopt SFAS No. 133 as required
by SFAS No. 137, "Deferral of the effective date of the FASB Statement
No. 133," in fiscal year 2001. To date we have not utilized derivative
instruments or hedging activities and, therefore, the adoption of SFAS 133 is
not expected to have a material impact on our financial position or results of
operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in RoweCom's first quarter of the
fiscal year 2000. The effects of applying this guidance, if any, will be
reported as a cumulative effect adjustment resulting from a change in accounting
principle. RoweCom does not expect the adoption of SAB 101 to have a material
effect on their financial statements, however the final evaluation of SAB 101 is
not yet complete.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ROWECOM INC.
Report of Independent Accountants........................... 40
Consolidated Balance Sheets at December 31, 1998 and 1999... 41
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999............................ 42
Consolidated Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1997, 1998 and 1999........ 43
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999............................ 44
Notes to Consolidated Financial Statements.................. 45
DAWSON'S SUBSCRIPTION BUSINESS (AN ACQUIRED BUSINESS OF
ROWECOM INC.)
Report of Independent Accountants........................... 66
Combined Balance Sheets at September 30, 1998 and October 2,
1999........................................................ 67
Combined Statements of Operations for the years ended
September 30, 1997 and 1998 and October 2, 1999............. 68
Combined Statements of Cash Flows for the years ended
September 30, 1997 and 1998 and October 2, 1999............. 69
Notes to Combined Financial Statements for the years ended
September 30, 1997 and 1998 and October 2, 1999............. 70
</TABLE>
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<PAGE>
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 subsidiaries at December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 financial statements in accordance with auditing standards
generally accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000
40
<PAGE>
ROWECOM INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
-------------------
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 16,974 $ 13,264
Accounts receivable (net of allowance for doubtful
accounts of
$60 and $1,847)......................................... 1,982 137,512
Other current assets...................................... 604 12,306
-------- --------
Total current assets.................................... 19,560 163,082
Property and equipment, net................................. 632 10,787
Deferred tax asset.......................................... 76 --
Goodwill, net............................................... -- 7,411
Intangible and other assets, net............................ 16 34,328
-------- --------
Total assets............................................ $ 20,284 $215,608
-------- --------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)EQUITY:
Current liabilities:
Accounts payable.......................................... 366 51,595
Accrued expenses.......................................... 810 9,005
Accrued compensation...................................... 356 2,511
Customer advances......................................... 923 20,095
Deferred revenue.......................................... -- 11,187
Loans payable............................................. 1,658 61,060
-------- --------
Total current liabilities............................... 4,113 155,453
Commitments (Note 9)
Class A Redeemable Convertible Preferred stock, $.01 par
value, 5,000,000 shares authorized, 1,772,857 shares
issued and outstanding December 31, 1998, none outstanding
at December 31, 1999...................................... 4,636 --
Class B Redeemable Convertible Preferred stock, $.01 par
value, 8,000,000 shares authorized, 6,326,610 shares
issued and outstanding December 31, 1998, none outstanding
at December 31, 1999...................................... 8,198 --
Class C Redeemable Convertible Preferred stock, $.01 par
value, 5,000,000 shares authorized, 4,586,599 shares
issued and outstanding December 31, 1998, none outstanding
at December 31, 1999...................................... 15,588 --
Stockholders' (deficit) equity:
Common stock, $.01 par value, 34,000,000 shares
authorized; 1,526,180 shares issued and outstanding at
December 31, 1998 and 10,377,559 shares issued and
outstanding at December 31, 1999........................ 15 104
Additional paid-in capital................................ 1,710 89,907
Treasury stock, at cost................................... (53) (53)
Accumulated deficit....................................... (13,901) (29,338)
Accumulated other comprehensive loss...................... (22) (465)
-------- --------
Total stockholders' (deficit) equity.................... (12,251) 60,155
-------- --------
Total liabilities and stockholders' (deficit) equity.... $ 20,284 $215,608
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $12,890 $19,053 $307,604
Cost of revenues............................................ 12,701 18,736 286,853
------- ------- --------
Gross profit.......................................... 189 317 20,751
Operating expenses:
Sales and marketing (exclusive of the non-cash stock
compensation expense of $85 at December 31, 1999)....... 2,034 4,818 16,820
Research and development (exclusive of the non-cash stock
compensation expense of $164 at December 31, 1999)...... 584 1,631 5,368
General and administrative (exclusive of the non-cash
stock compensation expense of $270 at December 31,
1999).................................................. 751 1,561 9,457
Stock based compensation.................................. -- -- 519
Amortization of goodwill and intangibles.................. -- -- 2,721
------- ------- --------
Total operating expenses................................ 3,369 8,010 34,885
------- ------- --------
Loss from operations.................................. (3,180) (7,693) (14,134)
Interest and other income, net.............................. 63 172 575
------- ------- --------
Loss before income taxes.............................. (3,117) (7,521) (13,559)
Provision for income taxes.................................. 136 109 1,508
------- ------- --------
Net loss.............................................. (3,253) (7,630) (15,067)
======= ======= ========
Accretion of dividends on redeemable preferred stock........ (184) (762) (370)
------- ------- --------
Net loss to common stockholders....................... $(3,437) $(8,392) $(15,437)
======= ======= ========
Basic and diluted net loss per share
Historical
Basic and diluted net loss per share to common
stockholders............................................ $ (2.22) $ (5.49) $ (1.80)
Weighted average shares used in computing basic and
diluted net loss per share.............................. 1,552 1,528 8,558
Pro forma
Basic and diluted net loss per share to common
stockholders............................................ $ (1.59)
Weighted average shares used in computing basic and
diluted net loss per share.............................. 9,489
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
ACCUMULATED
COMMON ADDITIONAL TREASURY OTHER
STOCK COMMON PAID-IN STOCK AT ACCUMULATED COMPREHENSIVE
SHARES STOCK CAPITAL COST DEFICIT INCOME (LOSS) TOTAL
---------- -------- ---------- -------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.... 1,551,819 $ 16 $ 1,709 -- $ (2,072) $ 9 $ (338)
Shares canceled upon
dissolution of Rowe
Communications, Inc......... (7,679) -- -- -- -- -- --
Accretion of dividends on
preferred stock to
redemption value............ -- -- -- -- (184) -- (184)
Net loss...................... -- -- -- -- (3,253) -- (3,253)
Accumulated other
comprehensive income........ -- -- -- -- -- 7 7
Comprehensive loss............ -- -- -- -- -- -- --
---------- ---- ------- ---- -------- ----- --------
Balance, December 31, 1997.... 1,544,140 16 1,709 -- (5,509) 16 (3,768)
Accretion of dividends on
preferred stock to
redemption value............ -- -- -- -- (762) -- (762)
Exercise of stock options..... 698 -- 1 -- -- -- 1
Purchase of treasury stock
shares...................... (18,658) (1) -- $(53) -- -- (54)
Net loss...................... -- -- -- -- (7,630) -- (7,630)
Accumulated other
comprehensive loss.......... -- -- -- -- -- (38) (38)
Comprehensive loss............ -- -- -- -- -- -- --
---------- ---- ------- ---- -------- ----- --------
Balance, December 31, 1998.... 1,526,180 15 1,710 (53) (13,901) (22) (12,251)
Conversion of preferred stock
to common stock upon initial
public offering............. 4,996,286 50 27,344 -- -- 27,394
Issuance of common stock under
initial public offering, net
of expenses................. 3,565,000 36 52,991 -- -- -- 53,027
Accretion of dividends on
preferred stock to
redemption value............ -- -- -- -- (370) (370)
Issuance of common stock in
connection with the
acquisition of Corporate
Subscriptions Service....... 16,260 -- 250 -- -- -- 250
Issuance of common stock in
connection with the
acquisition of Dawson's
Subscription Business....... 93,733 1 1,650 -- -- -- 1,651
Exercise of stock options..... 167,274 2 196 -- -- -- 198
Issuance of stock under
Employee Stock Purchase
Plan........................ 12,826 -- 182 -- -- -- 182
Beneficial conversion feature
and stock warrant value
issued with convertible
debt........................ -- -- 5,065 -- -- -- 5,065
Stock based compensation...... -- -- 519 -- -- -- 519
Net loss...................... -- -- -- -- (15,067) -- (15,067)
Accumulated other
comprehensive loss.......... -- -- -- -- -- (443) (443)
Comprehensive loss............ -- -- -- -- -- -- --
---------- ---- ------- ---- -------- ----- --------
Balance, December 31, 1999.... 10,377,559 $104 $89,907 $(53) $(29,338) $(465) $ 60,155
========== ==== ======= ==== ======== ===== ========
<CAPTION>
--------------
COMPREHENSIVE
LOSS
--------------
<S> <C>
Balance, December 31, 1996....
Shares canceled upon
dissolution of Rowe
Communications, Inc.........
Accretion of dividends on
preferred stock to
redemption value............
Net loss...................... $ (3,253)
Accumulated other
comprehensive income........ 7
--------
Comprehensive loss............ $ (3,246)
========
Balance, December 31, 1997....
Accretion of dividends on
preferred stock to
redemption value............
Exercise of stock options.....
Purchase of treasury stock
shares......................
Net loss...................... $ (7,630)
Accumulated other
comprehensive loss.......... (38)
--------
Comprehensive loss............ $ (7,668)
========
Balance, December 31, 1998....
Conversion of preferred stock
to common stock upon initial
public offering.............
Issuance of common stock under
initial public offering, net
of expenses.................
Accretion of dividends on
preferred stock to
redemption value............
Issuance of common stock in
connection with the
acquisition of Corporate
Subscriptions Service.......
Issuance of common stock in
connection with the
acquisition of Dawson's
Subscription Business.......
Exercise of stock options.....
Issuance of stock under
Employee Stock Purchase
Plan........................
Beneficial conversion feature
and stock warrant value
issued with convertible
debt........................
Stock based compensation......
Net loss...................... $(15,067)
Accumulated other
comprehensive loss.......... (443)
--------
Comprehensive loss............ $(15,510)
========
Balance, December 31, 1999....
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
43
<PAGE>
ROWECOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,253) $(7,630) $(15,067)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 80 212 3,915
Loss on sale of marketable securities..................... (76)
Amortization of discount on convertible notes............. -- -- 675
Stock based compensation.................................. 519
Loss on disposal of intangibles........................... 29 -- --
Other non-cash items...................................... -- -- (103)
Changes in operating assets and liabilities:
Accounts receivable....................................... 360 (1,398) (80,500)
Other current assets...................................... (158) (372) (1,759)
Accounts payable.......................................... 23 202 40,021
Income taxes payable...................................... 126 (121) 129
Accrued expenses and accrued compensation................. 479 482 5,068
Customer advances......................................... -- -- 6,820
Deferred revenue.......................................... -- -- (71,571)
------- ------- --------
Net cash used in operating activities..................... (2,314) (8,625) (111,929)
Cash flows from investing activities:
Purchase of property and equipment........................ (203) (596) (1,681)
Cash paid for debt issuance costs......................... (26) (1) (802)
Cash paid to acquire business, net of cash acquired....... -- -- (5,153)
------- ------- --------
Net cash used in investing activities..................... (229) (597) (7,636)
Cash flows from financing activities:
Net proceeds from issuance of common stock and common
stock warrants.......................................... 3,712 23,363 57,324
Loan proceeds............................................. 128 2,508 60,386
Loan repayments........................................... (38) (850) (1,658)
Purchase of treasury stock................................ -- (53) --
------- ------- --------
Net cash provided by financing activites.................. 3,802 24,968 116,052
Effect of exchange rates on cash.......................... 7 (52) (197)
Net increase (decrease) in cash and cash equivalents...... 1,266 15,694 (3,710)
Cash and cash equivalents, beginning of period.............. 14 1,280 16,974
------- ------- --------
Cash and cash equivalents, end of period.................... $ 1,280 $16,974 $ 13,264
======= ======= ========
Supplementary information:
Conversion of loan payable into preferred stock........... $ 300 -- --
Accretion of preferred stock.............................. $ 184 $ 762 $ 370
Issuance of common stock in connection with purchase
acquisitions............................................ -- -- $ 1,901
Income taxes paid......................................... -- $ 211 --
Interest paid............................................. $ 10 $ 19 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
44
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
RoweCom Inc. ("RoweCom"), was formed as Rosewood Knowledge Management, Inc. on
January 12, 1994, and was renamed as Rowe Communications, Inc. in
February 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.
In July 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. In April 1997, RoweCom LLC merged with RoweCom. The merger had no
significant impact on RoweCom's financial statement presentation.
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of Corporate Subscription Services, Inc., a New Jersey Corporation, in a
transaction accounted for using the purchase method of accounting.
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of International Subscription Agencies, Pty. Ltd., an Australian corporation, in
a transaction accounted for using the purchase method of accounting.
In October 1999, RoweCom acquired all of the issued and outstanding capital
stock of Dawson Inc., a Delaware corporation, and certain assets of United
Kingdom-based Dawson Information Services Group.
The consolidated financial statements include the accounts of RoweCom and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions between RoweCom and its wholly owned subsidiaries, included in the
accompanying financial statements, have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
original 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. The sales price of each knowledge-resource reflects the cost to
RoweCom of the knowledge-resource plus the fee retained by RoweCom. Revenue is
recognized from subscription services upon receipt of the customer order and
placement of the order with the publisher.
Revenues for the customization of the kStore on customers' intranets are
recognized upon completion. Revenues related to transaction fees paid by third
parties for transactions sourced from RoweCom's
45
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
kStore site are recognized when reported by the third-party. Revenues earned
from customizations and revenues related to transaction fees paid by third
parties were immaterial for the years ended December 31, 1997, 1998 and 1999.
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. To date, software production costs eligible for
capitalization have been immaterial.
ADVERTISING COSTS
RoweCom expenses advertising costs as incurred. Advertising expense for the
years ended 1997, 1998 and 1999 was $227,000, $245,000 and $1.6 million
respectively.
PROPERTY AND EQUIPMENT
Property and equipment 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.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of acquired businesses over
the estimated fair value of the net assets acquired. Goodwill amortization is
recorded using the straight-line method over three years. The carrying value of
goodwill and intangible assets is reviewed on a quarterly basis for the
existence of facts and circumstances both internally and externally that may
suggest impairment or that the useful lives of these assets are no longer
appropriate. To date, no such impairment has occurred. The Company determines
whether an impairment has occurred based on gross expected future cash flows and
measures the amount of impairment based on the related future estimated
discounted cash flows. The cash flow estimates used to determine the impairment,
if any, contain management's best estimates, using appropriate and customary
assumptions and projections at that time.
CUSTOMER ADVANCES
Customer advances represent funds advanced by customers for the future purchase
of publications not yet identified.
DEFERRED REVENUE
Deferred revenue represents specific customer orders to be placed with
publishers in a subsequent period.
46
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 in April 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.
OTHER COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has presented accumulated other comprehensive income and
other comprehensive income in the Statement of Stockholders' (Deficit) Equity.
Other comprehensive loss consists primarily of cumulative translation
adjustments.
CONCENTRATION OF CREDIT RISK
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. Our customer base consists of large numbers of
geographically diverse customers, dispersed across many industries. No customer
represents greater than 2% of total accounts receivable at December 31, 1998 and
1999.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of RoweCom's subsidiaries are translated into U.S.
dollars at year-end exchange rates. Income and expense accounts are translated
using average exchange rates during the year. The resulting translation
adjustments are recorded as a component of stockholders' (deficit) equity.
Transaction gains and losses are recognized in the statement of operations.
OFF-BALANCE SHEET RISK
RoweCom operates internationally, which exposes it to market risks brought on by
changes in foreign exchange rates. Accordingly, RoweCom enters into foreign
currency forward contracts as a hedge against foreign exchange rate risk.
RoweCom does not hold or issue derivative financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
RoweCom's hedging activities do not subject RoweCom to exchange rate risk
because the gains and losses on these contracts offset the losses and gains on
the transactions being hedged. Forward contracts involve agreements to purchase
or sell foreign currencies at specific rates at future dates. The
47
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
risk of loss associated with forward contracts is equal to the exchange rate
differential from the time the contract is made until the time it is settled.
The objective of RoweCom's foreign currency hedging activities is to protect
RoweCom from the longer-term risk that the eventual dollar-value equivalent of
net cash inflows resulting from foreign currency denominated sales will be
adversely affected by changes in the exchange rates. Contracts used to hedge
foreign currency denominated sales have average maturities at inception of less
than one year.
RoweCom's accounting for foreign currency forward contracts used as a means of
hedging exposure to foreign currency exchange risk is in accordance with the
concepts established in SFAS No. 52, "Foreign Currency Translation," and various
EITF pronouncements. The carrying amount of the foreign currency forward
contracts is the fair value, which is determined by applying year-end market
rates to the notional contract amounts. Gains and losses on foreign forward
currency contracts are recognized in the statement of operations. The contract
premiums or discounts are amortized over the life of the foreign exchange
contracts and are recognized in other income. The cash flows generated from
forward contracts are reported as arising from operating activities in the
Consolidated Statements of Cash Flows.
At December 31, 1999, the face amount of outstanding forward currency contracts
to buy and sell U.S. dollars for non-U.S. currencies were $1.7 million.
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. RoweCom's
ultimate success is dependent upon its ability to raise additional capital and
to successfully develop and market its services.
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%, 23% and 16% of knowledge resources sold by RoweCom for
the years ended December 31, 1997, 1998 and 1999, respectively. If this supplier
were to cease providing knowledge resources at favorable prices RoweCom may be
unable to offer competitive prices to its customers.
Finally, RoweCom has historically experienced seasonal 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.
48
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRIOR YEAR RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
2. NET LOSS PER COMMON SHARE
Basic net loss per share excludes the effect of any dilutive options, warrants
or convertible securities and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were issued,
exercised or converted into common stock. Dilutive common share equivalents
consist of stock options and warrants calculated using the treasury stock
method.
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.
The following is a calculation of net loss per share:
<TABLE>
<CAPTION>
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Historical
Basic and diluted:
Net loss to common stockholders......................... $(3,437) $(8,392) $(15,437)
Weighted average number of common shares................ 1,552 1,528 8,558
Net loss per common share--basic and diluted............ $ (2.22) $ (5.49) $ (1.80)
Pro forma
Basic and diluted:
Net loss................................................ $(15,067)
Weighted average number of common shares................ 8,558
Weighted average assumed number of shares upon
conversion of preferred stock and the net exercise of
all outstanding stock purchase warrants............... 931
--------
Total weighted average number of shares used in........... 9,489
Basic and diluted pro forma net loss per common share..... $ (1.59)
</TABLE>
Options to purchase shares of RoweCom's stock totaling 155,328, 470,328 and
908,315 at December 31, 1997, 1998 and 1999, respectively, preferred stock
purchase warrants totaling 120,698 at December 31,
49
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NET LOSS PER COMMON SHARE (CONTINUED)
1997 and 1998 and common stock warrants totaling 224,000 at December 31, 1999
were outstanding but were not included in the computations of diluted earnings
per share as the inclusion of these shares would have been antidilutive.
3. OTHER CURRENT ASSETS
The components of other current assets were as follows:
<TABLE>
<CAPTION>
-------------------
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Dawson receivable........................................... -- $ 8,390
Other current assets........................................ $604 3,916
---- -------
$604 $12,306
==== =======
</TABLE>
4. PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
<TABLE>
<CAPTION>
---------------------------------
AT DECEMBER 31,
USEFUL LIFE -------------------
(YEARS) 1998 1999
----------- -------- --------
<S> <C> <C> <C>
Equipment................................................... 3-5 $865 $ 5,751
Leasehold improvements...................................... 1-6 67 354
Buildings................................................... 25 -- 6,244
Land........................................................ -- -- 135
---- -------
932 12,484
Less: accumulated depreciation.............................. (300) (1,697)
---- -------
$632 $10,787
==== =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
$57,000, $199,000 and $1,190,000, respectively.
50
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and Intangible assets were as follows:
<TABLE>
<CAPTION>
-------------------------------------
AMORTIZATION AT DECEMBER 31,
PERIOD ----------------------
(YEARS) 1998 1999
------------ -------- --------
<S> <C> <C> <C>
Goodwill.................................................... 3 -- 9,116
Customer list............................................... 10 -- 26,411
Completed technology........................................ 10 -- 995
Workforce................................................... 10 -- 1,230
Trademarks and other assets................................. 5 70 6,766
---- -------
70 44,518
Less: accumulated amortization.............................. (54) (2,779)
---- -------
$ 16 $41,739
==== =======
</TABLE>
Amortization expense for the years ended December 31, 1997, 1998 and 1999 was
$23,000, $13,000 and $2,725,000, respectively.
51
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
Our loss before taxes are as follows:
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Domestic.................................................... $(3,279) $(7,863) $(20,505)
Foreign..................................................... 162 342 6,946
------- ------- --------
$(3,117) $(7,521) $(13,559)
======= ======= ========
</TABLE>
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
--------------------
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Current:
Federal................................................... -- -- --
State..................................................... -- $ 40 $ 161
Foreign................................................... $136 69 1,284
---- ---- ------
Total....................................................... $136 $109 $1,445
Deferred:
Federal................................................... -- -- --
State..................................................... -- -- --
Foreign................................................... -- -- $ 63
---- ---- ------
Total....................................................... -- -- 63
---- ---- ------
Total provision for income taxes............................ $136 $109 $1,508
==== ==== ======
</TABLE>
The following is reconciliation between U.S. federal statutory rate and the
effective rate:
<TABLE>
<CAPTION>
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory tax rate............................. (34.0)% (34.0)% (34.0)%
Foreign taxes............................................... 4.4 .5 (7.4)
State taxes, net of federal benefit......................... -- 1.0 1.0
Non-deductible expenses..................................... 1.0 1.0 1.0
Net operating losses not benefited.......................... 33.0% 33.0% 50.5%
----- ----- -----
4.4% 1.5% 11.1%
</TABLE>
52
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
-------------------
1998 1999
-------- --------
<S> <C> <C>
Net operating loss.......................................... $1,629 $12,418
Stock issuance costs...................................... 100 --
Reserves and other........................................ 394 2,137
-------- --------
Total................................................... $2,123 $14,555
Valuation allowance......................................... (2,023) (14,518)
-------- --------
Net deferred tax asset.................................. $100 $37
======== ========
</TABLE>
As of December 31, 1999, RoweCom has net operating losses for federal and state
income tax purposes of approximately $31,300,000 which begin to expire in 2013
and 2003, respectively. RoweCom has recorded a deferred tax asset of
approximately $1,906,000 reflecting the benefit of deductions from the exercise
of stock options. This deferred asset has been fully reserved until it is more
likely than not that the benefit from the exercise of stock options will be
realized. The benefit from this $1,906,000 deferred tax asset will be recorded
as a credit to additional paid-in capital when realized. As required by
Statement of Financial Accounting Standards No. 109, management of RoweCom has
evaluated the positive and negative evidence bearing upon the realizability of
its deferred tax assets, which are comprised principally of net operating loss
carryforwards. Management has determined that it is more likely than not that
RoweCom will not recognize the benefits of federal and state deferred tax assets
and, as a result, a valuation allowance of approximately $14,518,000 has been
established at December 31, 1999.
RoweCom has recognized a net deferred tax asset at December 31, 1998 and 1999 of
$100,000 and $37,000 respectively, related to foreign temporary differences. No
valuation allowance was recorded for the foreign net deferred tax assets since
it is more likely than not that these deferred tax assets will be realized in
the future. Included in other current assets are $24,000 and $37,000
representing the current portion of the net deferred tax asset of RoweCom at
December 31, 1998 and 1999, respectively.
Ownership changes, as defined in the Internal Revenue Code, may have limited the
amount of net operating loss carryforwards that can be utilized annually to
offset future taxable income. Subsequent ownership changes could further affect
the limitation in future years.
7. BUSINESS COMBINATIONS.
In June 1999, RoweCom acquired all of the issued and outstanding capital stock
of Corporate Subscription Services, Inc., a New Jersey Corporation, in a
transaction accounted for using the purchase method of accounting. The total
consideration of $5,976,000 consisted of $5,726,000 in cash, subject to certain
post-closing adjustments, and 16,260 shares of RoweCom's common stock, which
were valued at approximately $250,000.
In August 1999, RoweCom acquired all of the issued and outstanding capital stock
of International Subscription Agencies, Pty. Ltd., an Australian corporation,
for $1,487,000 in cash in a transaction accounted for using the purchase method
of accounting.
In October 1999, RoweCom acquired all of the issued and outstanding capital
stock of Dawson Inc., a Delaware corporation, and certain assets of United
Kingdom-based Dawson Information Services Group in a transaction accounted for
using the purchase method of accounting. RoweCom paid net
53
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BUSINESS COMBINATIONS. (CONTINUED)
consideration of $34.0 million in cash and issued approximately 94,000 shares of
RoweCom's common stock, which were valued at $1.7 million, and paid acquisition
costs of $2.3 million, as part of an aggregate net consideration of
approximately $35.7 million. Under the terms of the purchase agreement, RoweCom
is obligated to issue an additional L4.0 million (approximately $6.5 million at
December 31, 1999) of RoweCom common stock, at a price per share of
approximately $17.62, as part of the purchase price for the acquisition, after
making an adjustment based upon profit calculations for the period from the
completion of the acquisition to December 31, 1999. RoweCom expects to issue
these shares in the first half of 2000.
The purchase price for the three acquisitions was allocated to the acquired
assets and assumed liabilities as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 37,759
Other assets................................................ 59,073
Property and equipment, net................................. 8,297
Liabilities................................................. (108,913)
Goodwill and Intangible Assets.............................. 47,472
---------
$ 43,688
=========
</TABLE>
The following unaudited pro forma financial information presents the
consolidated operations of RoweCom and the acquired companies as if the
acquisitions had occurred as of the beginning of fiscal 1999. The unaudited pro
forma financial information is presented for illustrative purposes only and is
not necessarily indicative of the financial position or results of operations of
the consolidated company after the acquisition of the companies.
<TABLE>
<CAPTION>
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenues............................................... $433,619 $440,098
Net loss............................................... $(16,498) $(36,347)
Basic and diluted net loss per share................... $ (3.94) $ (3.80)
</TABLE>
8. LOANS PAYABLE
Loans Payable is comprised of the following:
<TABLE>
<CAPTION>
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Revolving lines of credit.............................. $1,338 $45,451
Term loan.............................................. 320 --
Convertible notes...................................... -- 15,609
-------- --------
$1,658 $61,060
======== ========
</TABLE>
In September 1998, RoweCom entered into a revolving line of credit permitting
borrowings up to $4.0 million at an interest rate of prime (7.75% at December
31, 1998) plus .05%, compounded daily. The outstanding borrowings and accrued
interest were paid in full in March 1999.
54
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LOANS PAYABLE (CONTINUED)
In December 1998, RoweCom converted an equipment loan with an outstanding
balance of $320,000 into a term loan bearing interest at a variable rate of
prime (7.75% at December 31, 1998), plus 1.0%, compounded daily. The outstanding
borrowings and accrued interest were paid in full in October 1999.
In October 1999, RoweCom received proceeds of approximately $20,000,000 in
connection with the issuance of convertible notes in a private placement. The
$20,000,000 face amount of the Notes is due January 2001. The notes bear
interest at the rate of 11% per annum and are convertible, at any time at the
option of the holder, into shares of RoweCom's common stock at a price equal to
93% of the weighted average price of RoweCom's common stock on the day of
conversion. RoweCom has the option to convert the notes into shares of common
stock or to redeem the notes at 100% of par value during the first six months
after issuance and at 107% of par thereafter. The notes contain a beneficial
conversion feature related to the ability to convert at less than fair market
value and therefore, a portion of the proceeds from the issuance of the
convertible debt equal to the intrinsic value of the beneficial conversion
feature of approximately $1.5 million, has been allocated to additional paid-in
capital. In conjunction with the issuance of the notes, RoweCom also issued
warrants for the purchase of up to a total of 224,000 shares of RoweCom's common
stock at an exercise price equal to 110% of the price of RoweCom's common stock
ten days prior to the issuance of the notes. The warrants vest immediately and
expire four years from issuance. The placements will result in a monthly
beneficial conversion charge of approximately $100,000 for the 15-month
redemption period, resulting in a total charge of approximately $1.5 million.
Additionally, RoweCom will incur a warrant value discount charge of
approximately $170,000 monthly, for the 21-month debt term, resulting in a total
charge of approximately $3.6 million. The notes are carried net of discount
related to the conversion feature and warrants of approximately $5.0 million.
Amortization of the discount, which is recorded as interest expense, totaled
approximately $675,000 for the year ended December 31, 1999. Outstanding
borrowings at December 31, 1999 were $15,609,000.
In October 1999, RoweCom's wholly owned United Kingdom subsidiary entered into a
revolving line of credit for up to L3.0 million. The line of credit is
collateralized by the subsidiary's accounts receivable. In addition, RoweCom has
guaranteed the loan up to an aggregate of L5.4 million. The line of credit will
be available to the borrower until April 2, 2000 and bears interest at the rate
of the bank's base rate, currently LIBOR (3.21% at December 31, 1999) plus 1%.
There were no outstanding borrowings at December 31, 1999.
In October 1999, RoweCom's wholly owned French subsidiary entered into a credit
agreement for an initial 70.0 million French Franc line of credit that will be
reduced on February 29, 2000 to a 30.0 million French Franc line of credit. The
line of credit will be available from December 1, 1999 to May 31, 2000 and bears
interest at the rate of EURIBOR (3.17% at December 31, 1999) plus 0.40%. The
facility has been guaranteed by RoweCom, which has agreed to maintain 100%
ownership of the subsidiary at all times while any amounts are outstanding under
the facility, which terminates December 31, 2000, unless renewed. Outstanding
borrowings at December 31, 1999 were $10,723,000.
In November 1999, RoweCom's wholly owned French subsidiary entered into a credit
facility that permits a maximum borrowing of 100.0 million French Francs. The
line of credit is for unlimited duration and bears interest at the bank's rate
(3.20% at December 31, 1999) plus 1%. The line of credit also provides for a
100.0 million French Franc daily overdraft that is available from November 1 to
May 31 each year, and bears interest at the rate of EURIBOR (3.17% at
December 31, 1999) plus 0.50%. Outstanding borrowings at December 31, 1999 were
$12,366,000.
55
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LOANS PAYABLE (CONTINUED)
In December 1999, RoweCom's wholly owned French subsidiary established a line of
credit for 80.0 million French Francs. Borrowing under the facility is limited
to 110% of the subsidiary's accounts receivable, and accrues interest at the
rate of EURIBOR (3.17% at December 31, 1999) plus 0.55%. The line of credit will
be reduced to 35.0 million French Francs after April 1, 2000 and will expire on
June 16, 2000. Outstanding borrowings at December 31, 1999 were $2,757,000.
In December 1999, three wholly owned subsidiaries of RoweCom's wholly owned US
subsidiary, entered into a revolving line of credit which permits a maximum
borrowing capacity as follows: $35.0 million through and including January 31,
2000; $25.0 million from February 1, 2000 through and including February 29,
2000; $15.0 million from March 1, 2000 through and including March 31, 2000;
$10.0 million from April 1, 2000 through and including April 30, 2000; and
$5.0 million from May 1, 2000 through and including May 30, 2000. All revolving
amounts are due on or before May 31, 2000. Outstanding borrowings under the
revolving credit facility bear interest at a variable rate of prime (8.50% at
December 31, 1999), compounded daily. Interest is payable on the last business
day of each month. The line of credit is secured by a lien on all of the assets,
accounts receivable and after acquired property of the three subsidiaries. The
revolving line of credit terminates on November 28, 2000, but under some
conditions may be extended for a 364 day period. RoweCom is required to maintain
certain financial covenants, including a working capital greater than zero at
all times. Outstanding borrowings at December 31, 1999 were $19,605,000.
At December 31, 1999 the weighted average interest rate on outstanding
borrowings was 5.91%.
RoweCom's debt agreements contain various financial and non-financial covenants
with which RoweCom was in full compliance.
9. COMMITMENTS
RoweCom leases office space in Cambridge, Massachusetts; London, Ontario,
Canada; Montvale, New Jersey; Brisbane, Australia; Chantily, Virginia; and
Madrid, Spain under operating lease agreements which expire on June 30, 2006,
October 31, 2001, October 31, 2002, August 31, 2001, October 31, 2002, and
January 31, 2001, respectively. Rent expense net of sublease income, for the
years ended December 31, 1997, 1998, and 1999 was $108,000, $217,000, and
$377,000, respectively. RoweCom also leases certain office equipment and
automobiles under operating leases expiring through 2003. At December 31, 1999,
future minimum lease payments under noncancellable operating leases with
remaining terms of one or more years as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999
-----------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
2000........................................................ $1,571
2001........................................................ 1,592
2002........................................................ 1,342
2003........................................................ 1,152
2004........................................................ 1,135
Thereafter.................................................. 2,270
------
Total minimum lease payments................................ $9,062
======
</TABLE>
10. PENSIONS AND OTHER RETIREMENT BENEFITS
RoweCom has a contributory defined benefit plan covering approximately half its
UK employees. RoweCom acquired the liabilities and assets of the plan in
connection with the purchase of Dawson's Subscription Business.
56
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PENSIONS AND OTHER RETIREMENT BENEFITS (CONTINUED)
The benefits for this plan are based primarily on years of service and
employees' pay near retirement. The company's funding policy is consistent with
the funding requirements of local regulations.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... --
Service cost................................................ $ 63
Interest cost............................................... 36
Plan participants' contributions............................ 13
Benefits paid............................................... (5)
Actuarial (gain) loss....................................... (238)
Acquisition................................................. 2,652
Amendments.................................................. --
Currency adjustment......................................... (59)
------
Benefit obligation at end of year........................... $2,462
======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. --
Employer contributions...................................... $ 13
Plan participants' contributions............................ 13
Actual return on plan assets................................ 455
Benefits paid............................................... (5)
Acquisition................................................. 2,783
Currency adjustment......................................... (69)
------
Fair value of plan assets at end of year.................... $3,190
======
Funded status............................................... $ 729
Unrecognized prior service cost --
Unrecognized transition obligation (asset).................. --
Unrecognized actuarial (gain) loss.......................... (632)
------
Net amount recognized....................................... $ 97
======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
Amounts recognized in the statement of financial position
consist of:
Prepaid (accrued) benefit cost.............................. $ 97
Accrued benefit liability................................... --
Intangible asset............................................ --
Accumulated other comprehensive income...................... --
------
Net amount recognized....................................... $ 97
======
</TABLE>
57
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................... 6.00%
Expected return on plan assets.............................. 7.75%
Rate of compensation increase............................... 5.00%
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ $63
Interest cost............................................... 36
Expected return on plan assets.............................. (54)
Amortization of prior service cost.......................... --
Amortization of transition obligation (asset)............... --
Amortization of unrecognized (gain) loss.................... --
Curtailment/settlement (gain) loss.......................... --
------
Net periodic benefit cost................................... $45
======
</TABLE>
There were no under funded pension plans in any years.
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 1997, 1998 or 1999.
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.
On February 8, 1999, the board of directors declared a .34905-for-1 reverse
stock split of the RoweCom's common stock, which was 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.
58
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
$6.3 million.
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 $15.5 million.
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 $80.0 million, and results in proceeds of at least
$20.0 million (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.
59
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
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.
All shares of Class A, Class A-1, Class B and Class C converted into 3,451,496
shares of common stock upon the initial public offering on March 9, 1999.
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 $3.7 million. 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 $1.5 million. 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
60
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
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.
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.
All shares of Ltd. Class A and Ltd. Class B converted into 1,518,208 shares of
RoweCom Inc. common stock upon the initial public offering on March 9, 1999.
13. STOCK OPTIONS
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
comon 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.
61
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTIONS (CONTINUED)
On April 8, 1998, RoweCom adopted the 1998 Stock Incentive Plan. A total of
872,625 shares of common stock were reserved for issuance under the 1998 Stock
Incentive Plan. These options generally vest over a four year period and expire
over a period not exceeding ten years.
The board establishes the exercise price based on the closing price of the stock
on the day of grant 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. Prior to RoweCom's common stock becoming a publically traded stock,
the board of directors considered a broad range of factors to determine the fair
market value of the option to be granted 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 RoweCom's common stock, the Board of
Directors, on July 9, 1998, determined that certain stock options held by
employees of RoweCom 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 RoweCom's common stock was $0.72 per share and therefore no
compensation charge was recorded.
In February 1999, RoweCom's board of directors and its stockholders approved the
1999 Non-Employee Director Stock Option Plan. Under this plan, each director of
RoweCom who is not also an employee of RoweCom received upon the commencement of
RoweCom's initial public 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 this 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 this plan.
62
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTIONS (CONTINUED)
Transactions during 1997, 1998, and 1999 related to stock options granted by
RoweCom were as follows:
<TABLE>
<CAPTION>
-------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
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
Granted................................................... 896,204 23.06
Exercised................................................. (167,274) 1.21
Forfeited/canceled........................................ (290,943) 11.28
Outstanding at December 31, 1999............................ 908,315 $19.48
========
</TABLE>
At December 31, 1997, 1998 and 1999, 69,228, 66,994, and 130,569 options were
exercisable at exercise prices ranging from $0.72 to $50.13 and at December 31,
1999 71,165 were available for grant.
The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.72 174,881 8.0 $ .72 100,822 $ .72
2.86-5.01 23,397 8.7 3.17 16,657 2.99
10.40-14.25 109,362 9.2 11.98 -- --
15.63-18.85 108,303 9.3 16.28 13,090 16.00
$18.88 182,000 9.7 18.88 -- --
19.69-36.00 124,400 9.7 27.33 -- --
39.88-50.13 185,972 9.8 40.80 -- --
------- ------- ------
908,315 9.3 years $19.48 130,569 $ 2.54
</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
63
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTIONS (CONTINUED)
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 1997
and 1998 using the Black-Scholes option pricing model consistent with SFAS No.
123, the adjustment to net loss would have been immaterial. Pro forma net loss
for the year ended December 31, 1999, would have been $16,506,000 and basic and
diluted net loss per share would have been $(1.93). The weighted average fair
values of options granted are $1.03, $0.80, and $19.48, respectively. For this
purpose, the fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1998 and 1999, respectively: risk-free interest rates of
6.58%, 5.39%, and 5.91%; no dividend yields; volatility factors of 0%, 0%, and
100.0%; and a weighted-average expected life of the options of 8.0 years, 8.0
years, and 6.9 years.
14. 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. A total of 872,625 shares of
common stock have been reserved for issuance under this plan. This plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986. Offerings under this plan 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
this 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. As of December 31, 1999,
12,826 shares had been issued under the employee stock purchase plan, and an
aggregate of 859,799 additional shares of common stock were reserved for
issuance under this plan.
15. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
RoweCom operates in one business segment, that being a provider of knowledge
acquisition and management services. During 1997 and 1998 RoweCom conducted
operations predominantly in the United States and Canada. During 1999, RoweCom
conducted operations in the United States, Canada, France, the United Kingdom,
Spain, and Australia. RoweCom's reportable segments are based upon geographic
area. RoweCom has four reportable segments; North America, France, the United
Kingdom and Other. North America consists of the United States and Canada. Other
consists of Spain, Australia, the Netherlands, the British Virgin Islands, and
Barbados and were not reported separately as they are not material. RoweCom
evaluates performance based on several factors, of which the primary financial
measure is operating income. The accounting policies of the business segments
are the same as those described in Note 1 "Summary of Significant Accounting
Policies". The following
64
<PAGE>
ROWECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
table summarizes the revenue, gross profit, operating loss, depreciation and
amortization expense, and identifiable assets by reportable segment.
<TABLE>
<CAPTION>
NORTH UNITED
AMERICA FRANCE KINGDOM OTHER CONSOLIDATED
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
1997
Revenue................................... $ 12,890 -- -- -- $ 12,890
Gross profit.............................. 189 -- -- -- 189
Operating loss............................ (3,180) -- -- -- (3,180)
Depreciation and amortization............. 80 -- -- -- 80
Identifiable assets....................... 2,108 -- -- -- 2,108
-------- ------- ------- ------- --------
1998
Revenue................................... $ 19,053 -- -- -- $ 19,053
Gross profit.............................. 317 -- -- -- 317
Operating loss............................ (7,693) -- -- -- (7,693)
Depreciation and amortization............. 212 -- -- -- 212
Identifiable assets....................... 20,284 -- -- -- 20,284
-------- ------- ------- ------- --------
1999
Revenue................................... $203,110 $72,021 $26,396 $ 6,077 $307,604
Gross profit.............................. 9,584 7,818 2,520 829 20,751
Operating income (loss)................... (20,997) 5,664 1,065 134 (14,134)
Depreciation and amortization............. 3,491 65 79 280 3,915
Identifiable assets....................... $109,048 $73,261 $22,421 $14,683 $219,413
-------- ------- ------- ------- --------
</TABLE>
For the years ended December 31, 1997, 1998 and 1999, three customers
represented 23%, 21% and 3% of total revenues, respectively.
16. TERMINATION OF NEWSEDGE CORPORATION ACQUISITION (UNAUDITED)
On March 7, 2000 RoweCom and NewsEdge Corporation jointly announced that they
have agreed by mutual consent to terminate their acquisition agreement. Under
the terms of the merger agreement, which was announced on December 7, 1999,
RoweCom would have exchanged .26 shares of common stock for each share of
NewsEdge common stock. The companies have chosen instead to move forward with a
partnership that will enable the services of both companies to be integrated in
ways that benefit their customers.
65
<PAGE>
INDEPENDENT AUDITORS' REPORT ON DAWSON'S SUBSCRIPTION BUSINESS
To the Stockholders and Board of Directors
of RoweCom, Inc.
We have audited the accompanying balance sheets of Dawson's Subscription
Business as of October 2, 1999 and September 30, 1998 and the related statements
of operations and of cash flows for the period ended October 2, 1999 and each of
the two years ended September 30, 1998 and 1997.
Such financial statements are the responsibility of the management of Dawson's
Subscription Business. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dawson's Subscription Business as of
October 2, 1999 and September 30, 1998, and the combined results of their
operations and their cash flows for the period ended October 2, 1999 and the
years ended September 30, 1998 and 1997 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1, the accompanying combined financial statements present
the historical financial position, results of operations, and cash flows of
Dawson's Subscription Business, and are not necessarily indicative of what the
financial position, results of operations, or cash flows would have been had
Dawson's Subscription Business been an independent company during the periods
presented.
As discussed in Note 14 the 1999 and 1998 accompanying financial statements have
been restated.
Deloitte & Touche
London, England
December 17, 1999
(March 16, 2000 as to Note 14)
66
<PAGE>
COMBINED BALANCE SHEETS
DAWSON'S SUBSCRIPTION BUSINESS
OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
1999 1998
(AS RESTATED, (AS RESTATED,
(STERLING IN THOUSANDS) SEE NOTE 14) SEE NOTE 14)
- ----------------------- -------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. L 22,504 L 6,160
Short term investments.................................... 236 1,657
Accounts receivable, net of allowance for doubtful
accounts of L537 at October 2 1999 and L654 at September
30, 1998................................................ 31,004 32,969
Prepayments............................................... 3,055 2,766
Other current assets...................................... 563 237
-------------- --------------
Total current assets.................................... 57,362 43,789
Property, plant and equipment, net........................ 4,957 5,994
Goodwill, net............................................. 16,634 18,329
Deferred income taxes..................................... 296 115
-------------- --------------
TOTAL ASSETS................................................ L 79,249 L 68,227
============== ==============
LIABILITIES AND DAWSON'S NET INVESTMENT
Current liabilities:
Accounts payable.......................................... L 2,099 L 1,861
Customer advances......................................... 10,703 23,128
Deferred income........................................... 52,529 43,118
Accrued expenses and other current liabilities............ 4,679 4,262
-------------- --------------
Total current liabilities............................... 70,010 72,369
Other non-current liabilities............................. 8 406
Commitments and contingencies............................. -- --
-------------- --------------
Total liabilities....................................... 70,018 72,775
Dawson's net investments.................................. 9,231 (4,548)
-------------- --------------
TOTAL LIABILITIES AND DAWSON'S NET INVESTMENT............... L 79,249 L 68,227
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
COMBINED STATEMENTS OF OPERATIONS
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1999
(AS RESTATED,
(STERLING IN THOUSANDS) SEE NOTE 14) 1998 1997
- ----------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue.................................................... L 242,001 L 242,358 L 269,877
Cost of revenues........................................... (217,175) (216,277) (241,586)
---------------- ---------------- ----------------
Gross profit............................................... 24,826 26,081 28,291
Selling, general and administrative expenses............... (24,201) (25,036) (26,861)
---------------- ---------------- ----------------
Operating income........................................... 625 1,045 1,430
Interest expense, net...................................... (77) (722) (1,168)
---------------- ---------------- ----------------
Income before income taxes................................. 548 323 262
Income tax provision....................................... (1,576) (1,108) (1,297)
---------------- ---------------- ----------------
Net loss................................................... L (1,028) L (785) L (1,035)
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1999
(AS RESTATED,
(STERLING IN THOUSANDS) SEE NOTE 14) 1998 1997
- ----------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. L (1,028) L (785) L (1,035)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization........................... 3,287 2,966 3,144
Deferred income tax provision........................... (181) 68 (227)
Changes in operating assets and liabilities excluding the
effect of acquisitions:
Accounts receivable, net................................ 2,144 5,161 (3,675)
Accounts payable........................................ 136 (2,842) (2,250)
Customer advances....................................... (12,486) (507) (9,304)
Accruals and deferred income............................ 8,669 3,607 16,274
Other assets and liabilities--net....................... (526) (176) (75)
--------------- --------------- ---------------
Net cash provided by operating activities................. 15 7,492 2,852
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Sale/(Purchase) of short term investment.................. 1,531 896 8,907
Purchases of property, plant and equipment................ (206) (350) (533)
Cash flow effect of acquisition........................... -- (8,152) (86)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities......... 1,325 (7,606) 8,288
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Net transfers from (to) Dawson............................ 15,542 (17,461) (1,641)
(Repayments of)/Increase in borrowings.................... (140) (1,129) 343
Payments on long term debt................................ (184) (680) --
--------------- --------------- ---------------
Net cash provided by (used in) financing activities......... 15,218 (19,270) (1,298)
--------------- --------------- ---------------
Foreign currency translation differences.................. (214) (322) (99)
Increase (decrease) in cash and cash equivalents............ 16,344 (19,706) 9,743
Cash and cash equivalents, beginning of period.............. 6,160 25,866 16,123
--------------- --------------- ---------------
Cash and cash equivalents, end of period.................... L 22,504 L 6,160 L 25,866
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
(STERLING IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION
On October 2, 1999 RoweCom Inc. ("RoweCom") acquired (i) all of the issued and
outstanding capital stock of Dawson, Inc., a Delaware corporation, and
(ii) certain assets consisting of the remainder of the subscription businesses
of Dawson Holdings PLC ("Dawson") operating in Canada, France, Spain and the
United Kingdom ("UK"). The entity acquired by RoweCom is referred to herein as
"Dawson's Subscription Business".
Dawson's Subscription Business does not represent a legal group structure. The
financial statements are prepared on a combined basis as opposed to a
consolidated basis. The balance sheets as of October 2, 1999 and September 30,
1998 and the related statements of operations and cash flows for the period
ended October 2, 1999 and the years ended September 30, 1998 and 1997 are based
on an aggregation of the assets and liabilities and results of operations of
Dawson's Subscription Business, except that intercompany items between the
entities comprising the Dawson's Subscription Businesses have been eliminated.
In 1999 the Dawson accounts were drawn up for a 367 day period to bring the
consolidated accounts of Dawson in line with a significant subsidiary outside of
the Dawson's Subscription Business. All balances between the Dawson's
Subscription Business and Dawson, and its subsidiary undertakings, have been
included as part of Dawson's net investment on the Combined Balance Sheet.
The accompanying combined financial statements present the historical financial
position, results of operations, and cash flows of Dawson's Subscription
Business, and are not necessarily indicative of what the financial position,
results of operations, or cash flows would have been had Dawson's Subscription
Business been an independent company during the periods presented.
The financial statements of Dawson's Subscription Business include the
consolidated accounts of Dawson, Inc. Until October 1, 1999, Dawson, Inc. owned
the issued and outstanding share capital of Electronic Online Systems
International, Inc. ("EOSi") and Quality Books, Inc. ("QB"). EOSi and QB were
not acquired by RoweCom and accordingly, the combined financial statements of
Dawson's Subscription Business exclude the results and net assets of EOSi and QB
for the period ended October 2, 1999 and the years ended September 30, 1998 and
1997.
In Canada, France, Spain and the UK statutory entities were not acquired by
RoweCom. The results and net assets included in these combined financial
statements are attributable to the businesses acquired rather than the full
results and net assets of the respective statutory entities from which the
businesses were acquired. Immediately prior to the acquisition cash and cash
equivalents and amounts owed to government agencies were transferred from these
businesses to other Dawson entities.
The UK operations of Dawson's Subscription Business shared certain facilities
and services with Dawson's other UK operations and the associated costs are
allocated by management on a basis that they consider a reasonable reflection of
the benefit received taking into account the costs of individual staff employed
by each business, the specific overhead incurred and the allocation of other
costs based on office space utilized. The costs allocated to Dawson's
Subscription Business for the period ended October 2, 1999 and the years ended
September 30, 1998 and 1997, were L2,173, L1,941 and L2,251.
The combined financial statements of Dawson's Subscription Business have been
prepared in accordance with generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.
70
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION (CONTINUED)
All amounts receivable and payable between the businesses within Dawson's
Subscription Business have been eliminated. The capital stock held by
Dawson, Inc. in its subsidiary undertakings has also been eliminated.
In accordance with the management approach described in SFAS 131 Dawson's
Subscription Business has determined that it's principal business is in one
operating segment, namely the provision of information related services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSLATION OF FOREIGN CURRENCIES
Profits and losses and cash flows of foreign operations are translated to
Sterling at the average rates of exchange during the year. Non-sterling assets
and liabilities are translated at year-end rates of exchange. Key rates used are
as follows:
<TABLE>
<CAPTION>
AVERAGE RATES YEAR-END RATES
1999 1998 1997 1999 1998
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
US Dollar............... 1.6299 1.6579 1.6352 1.6556 1.6994
Canadian Dollar......... 2.4479 2.4104 2.2424 2.4337 2.5937
French Franc............ 9.7378 9.8931 9.2063 10.1507 9.5248
Spanish Peseta.......... 247.0194 250.2966 250.5027 257.4760 241.4250
</TABLE>
Differences arising from the restatement from average exchange rates to year-end
exchange rates of profits and losses for the year together with differences
arising from the re-translation of the net assets of overseas subsidiaries at
the beginning of the year are included within Dawson's net investment (deficit).
All other exchange gains and losses are included in the net loss.
FAIR VALUES AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the entity to credit risk are
cash and cash equivalents, short term investments and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers comprising the entity's customer
base and their break down among several industries and geographical locations.
The entity is exposed to credit risk with respect to cash and cash equivalents
and short term investments in the event of non-performance by the counter
parties to these financial instruments, which are major financial institutions.
Management believes that the risk of incurring material losses related to this
credit risk is remote. The carrying values of financial instruments approximated
their fair values based on current market prices and rates.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly-liquid investments with an original
purchased maturity of three months or less and are stated at cost, which
approximates market value.
71
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Property, plant and equipment is stated at cost. Depreciation is recorded
principally on the straight-line method over the estimated useful lives of the
assets. Estimated useful lives used in computing depreciation and amortization
expense are 50 years for freehold and long leasehold buildings, the period of
the lease for short leasehold buildings and between 3 and 12 years for fixtures,
fittings and equipment.
GOODWILL
Goodwill relating to a business purchased by the company is amortized over a
period of 15 years. In the opinion of the directors, this represents a prudent
estimate of the period over which the company will derive direct economic
benefit from the goodwill acquired as part of that business. Goodwill is
evaluated by reviewing current and estimated undiscounted cash flows whenever
significant events or changes occur indicating that the asset may not be
recoverable.
IMPAIRMENT OF LONG-LIVED ASSETS
Dawson's Subscription Business applies the provisions of Statement of Financial
Accounting Standards No. 121--"Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and periodically evaluates
whether events or circumstances have occurred that may affect the estimated
useful life or the recoverability of long-lived assets. If management concludes
that the carrying value will not be recovered, an impairment write down is
recorded to reduce the asset to its estimated fair value.
REVENUE RECOGNITION
Dawson's subscription business is an information services entity whose principal
business is acting as a periodicals subscription distributor specializing in
scientific, technical and medical information. The entity's principal service is
placing customer orders for publication subscriptions. For subscription
services, the entity's policy is to recognize revenue at the time the order is
placed with the publisher. Deferred revenue arises primarily from customer
subscriptions billed but not ordered from the publisher.
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year.
Deferred taxation is provided using the comprehensive liability method of
accounting for income taxes based on provisions of enacted laws. Recognition is
given to deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Financial Statements or
in the tax returns. In estimating these tax consequences consideration is given
to expected future events. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance representing the amount of any tax benefits
for which there is uncertainty of realization.
72
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133 --"Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective for fiscal years beginning after June 15, 2000. Earlier
application of this statement is encouraged, but is permitted only as of the
beginning of any fiscal quarter beginning after June of 1998. Dawson's
Subscription Business has not completed its evaluation of the impact of adopting
this statement.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
- ----------------------- --------------- ---------------
<S> <C> <C>
Land and buildings.............................. L 5,875 L 5,881
Fixtures, fittings and equipment................ 13,123 12,313
--------------- ---------------
Total......................................... 18,998 18,194
Less: accumulated depreciation.................. (14,041) (12,200)
--------------- ---------------
Property, plant and equipment, net............ L 4,957 L 5,994
=============== ===============
</TABLE>
Depreciation expense related to property, plant and equipment was L1,592, L1,686
and L1,948 for the years 1999, 1998 and 1997 respectively.
4. GOODWILL
Goodwill consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
- ----------------------- -------------- --------------
<S> <C> <C>
Goodwill.......................................... L 23,513 L 23,513
Less: accumulated amortization.................. (6,879) (5,184)
-------------- --------------
Goodwill, net..................................... L 16,634 L 18,329
============== ==============
</TABLE>
Amortization expense related to goodwill was L1,695, L1,280 and L1,196 for the
years 1999, 1998 and 1997 respectively.
73
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued Expenses and Other Current Liabilities consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
- ----------------------- ------------- -------------
<S> <C> <C>
Bank loans and overdrafts........................... L 861 L 886
Other............................................... 3,818 3,376
------------- -------------
Total............................................. L 4,679 L 4,262
============= =============
</TABLE>
6. PENSION PLANS AND OTHER POST RETIREMENT PLANS
The Dawson's Subscription Business operation includes the following significant
pension plans.
The UK operation of Dawson's Subscription Business participated in a defined
benefit scheme together with other Dawson UK operations. The numbers reported
herein represent the Dawson's Subscription Business' portion of Dawson UK plans.
Approximately 45% of the participants in Dawson's UK defined benefit plans
relate to Dawson's Subscription Business.
74
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
6. PENSION PLANS AND OTHER POST RETIREMENT PLANS (CONTINUED)
The benefits of Dawson's Subscription Business' UK pension plans are based
primarily on years of service and employees' pay near retirement. The entity's
funding policy is consistent with the funding requirements of local regulations.
<TABLE>
<CAPTION>
PENSION BENEFITS
UK PLANS
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... L 1,168 L 1,015 L 684
Service cost................................................ 146 101 53
Interest cost............................................... 63 70 57
Plan participants' contributions............................ 35 34 31
Actuarial gain.............................................. 273 -- 248
Benefits paid............................................... (83) (53) (58)
------------- ------------- -------------
Benefit obligation at end of year........................... L 1,602 L 1,167 L 1,015
============= ============= =============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. L 1,329 L 1,406 L 1,182
Actual return on plan assets................................ 362 (99) 207
Employer contributions...................................... 38 41 44
Plan participants' contributions............................ 35 34 31
Benefits paid............................................... (83) (53) (58)
------------- ------------- -------------
Fair value of plan assets at end of year.................... L 1,681 L 1,329 L 1,406
============= ============= =============
Funded Status............................................... L 79 L 162 L 391
Unrecognized net actuarial loss............................. 365 373 149
Unrecognized transition asset............................... (166) (199) (233)
------------- ------------- -------------
Net amount recognized....................................... L 278 L 336 L 307
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS
UK PLANS
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Amount recognized in the balance sheet:
Prepaid benefit cost........................ L 278 L 336 L 307
=========== =========== ===========
</TABLE>
75
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
6. PENSION PLANS AND OTHER POST RETIREMENT PLANS (CONTINUED)
The actuarial assumptions used to develop the periodic benefit cost and funded
status were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS
UK PLANS
--------------------------------------
1999 1998 1997
-------- -------- --------
% % %
<S> <C> <C> <C>
Discount rate................................ 5.50 5.50 7.00
Expected return on plan assets............... 7.75 9.00 9.00
Rate of compensation increases............... 5.00 5.00 6.50
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS
UK PLANS
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ L 146 L 101 L 53
Interest cost............................................... 63 70 57
Expected return on plan assets.............................. (103) (127) (107)
Amortization of transition asset............................ (33) (33) (33)
Amortization of unrecognized loss........................... 23 1 --
------------ ------------ ------------
Net periodic cost of defined benefit plans.................. L 96 L 12 L (30)
============ ============ ============
</TABLE>
There were no under funded pension plans in any years.
Dawson, Inc. has a contributory profit sharing and savings plan (the "Plan") in
which substantially all employees of its subsidiary companies are eligible to
participate. The Plan qualifies under Section 401(k) of the Internal Revenue
Code. Participants contribute a minimum of 1% of their wages with the maximum
contribution not to exceed 12% of wages. The Company matches 50% of the first 6%
of the participant's contribution. At the discretion of the Board of Directors,
the Company may also make a discretionary supplemental contribution.
Dawson, Inc.'s matching contributions for the period ended October 2, 1999 and
the years ended September 30, 1998 and 1997 were L109, L112, and L158,
respectively. Supplemental contributions for fiscal years 1999, 1998 and 1997
were L124, L137, and L105, respectively.
The Faxon Company, Inc., a US subsidiary of Dawson's Subscription Business,
terminated its defined benefit pension plan as of January 31, 1997 and
recognized a related gain of L595 in the year ended September 30, 1997.
76
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
7. STOCK BASED AWARDS
In 1998, Dawson adopted the Directors and Senior Executives Long Term Incentive
Plan (the "1998 Plan"). Certain of the directors participating in the 1998 Plan
performed services for Dawson's Subscription Business and disclosures relating
to those directors have been included herein. Options are granted with exercise
prices that are not less than the market value of the stock. Eligible employees
may exercise vested options at any time until October 2, 2000.
In 1994, Dawson launched the Long Term Incentive Bonus Scheme (the "1994
Scheme"). Certain of the directors participating in the 1994 Scheme performed
services for Dawson's Subscription Business. Under the 1994 Scheme shares were
awarded to directors contingent upon meeting performance criteria over the three
years to September 30, 1997. These criteria included Dawson's earnings per share
and share price.
Transactions during 1997, 1998 and 1999 related to stock options granted by
Dawson were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, September 30, 1996.................... 197,200 L 0.445
Granted............................................ -- --
Canceled........................................... -- --
Exercised.......................................... (50,000) 0.367
-------- --------------
Outstanding, September 30, 1997.................... 147,200 0.471
Granted............................................ 567,000 1.130
Canceled........................................... -- --
Exercised.......................................... -- --
-------- --------------
Outstanding, September 30, 1998.................... 714,200 0.994
Granted............................................ -- --
Cancelled/Lapsed................................... (510,300) 1.130
Exercised.......................................... -- --
-------- --------------
Outstanding, October 2, 1999....................... 203,900 L 0.654
======== ==============
</TABLE>
Additional information regarding options outstanding as of October 2, 1999 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
WEIGHTED
NUMBER AVERAGE
OUTSTANDING REMAINING WEIGHTED
RANGE OF AND CONTRACTUAL LIFE AVERAGE
EXERCISE PRICES EXERCISABLE (YEARS) EXERCISE PRICE
----------------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
L0.471 - 0.471 147,200 5.67 L0.471
L1.130 - 1.130 56,700 1.00 L 1.13
</TABLE>
The entity accounts for the Equity Plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized for all common stock and common stock
options issued with a price equal to fair market value. The entity has
recognized compensation cost for all common stock and common stock options
issued with a price below fair market value. For common stock options, such
expense is recognized over the vesting
77
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
7. STOCK BASED AWARDS (CONTINUED)
period of the options. The entity recognized compensation expense of
approximately Lnil, Lnil and L324 for the period ended October 2, 1999 and the
years ended September 30, 1998 and 1997, respectively, related to common stock
and common stock options issued below fair market value under the 1994 Scheme.
Had compensation cost for the Equity Plan been determined consistent with the
fair value methodology of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net loss
would have been as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ------------- ----------- -------------
<S> <C> <C> <C>
Net loss:
As reported.......................................... L 1,028 L 785 L 1,035
Pro forma loss....................................... L 1,077 L 785 L 1,035
</TABLE>
Under SFAS 123, the fair value of each option is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rate...................... No grants 5.0% No grants
Expected life (years)........................ No grants 5.0 No grants
Assumed volatility........................... No grants 35.0% No grants
Expected dividends........................... No grants None No grants
</TABLE>
The weighted average fair market values of options granted during 1998 was
L0.453. No options were granted in 1997 and 1999.
8. INCOME TAXES
THE INCOME TAX PROVISIONS WERE CALCULATED BASED UPON THE FOLLOWING COMPONENTS OF
INCOME (LOSS) BEFORE TAXES:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 2 OCT. 1999 30 SEP. 1998 30 SEP. 1997
- ----------------------- -------------- -------------- --------------
<S> <C> <C> <C>
UK......................................................... L 379 L 366 L (1,021)
US......................................................... (3,137) (2,792) (1,822)
France..................................................... 2,790 2,414 2,483
Other...................................................... 516 335 622
-------------- -------------- --------------
Income before taxes.................................... L 548 L 323 L 262
============== ============== ==============
</TABLE>
78
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
8. INCOME TAXES (CONTINUED)
THE COMPONENTS OF THE PROVISION (BENEFIT) FOR INCOME TAXES ARE SUMMARIZED AS
FOLLOWS:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 2 OCT. 1999 30 SEP. 1998 30 SEP. 1997
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
INCOME TAX PROVISION (BENEFIT) INCLUDE:
Current Taxes
UK............................................... L 363 L -- L --
US............................................... -- 7 --
France........................................... 1,124 802 1,151
Other............................................ 270 224 374
------------- ------------- -------------
Total............................................ 1,757 1,033 1,525
Deferred Taxes
UK............................................... (7) (1) (2)
US............................................... -- -- --
France........................................... (21) 148 (163)
Other............................................ (153) (72) (63)
------------- ------------- -------------
Total............................................ (181) 75 (228)
------------- ------------- -------------
Total Tax.......................................... L1,576 L1,108 L1,297
============= ============= =============
</TABLE>
Net current deferred income taxes consist of the tax effects of temporary
differences related to the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 2 OCT. 1999 30 SEP. 1998 30 SEP. 1997
- ----------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Allowance for doubtful accounts.................... L -- L 7 L 11
Other reserves--net................................ 6 49 64
----------------- ---------- ----------
Net current deferred tax asset (liability)....... L 6 L 56 L 75
================= ========== ==========
</TABLE>
Net non-current deferred income taxes consist of the tax effects of temporary
differences related to the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 2 OCT. 1999 30 SEP. 1998 30 SEP. 1997
- ----------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Property and Equipment............................. L (20) L (19) L (9)
Pensions and profit sharing schemes................ (15) 96 99
Intangible assets and other asset revaluations..... 290 (17) (141)
Other reserves--net................................ 35 (1) 159
----------- ----------- -----------
Net non-current deferred tax asset (liability)..... L 290 L 59 L 108
=========== =========== ===========
</TABLE>
79
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
8. INCOME TAXES (CONTINUED)
The differences between the entity's tax on profit on ordinary activities and
the statutory income tax rate in the United Kingdom are as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Taxes computed at the statutory rate: 30% for 2 Oct. 1999,
31% for 30 Sep. 1998 and 30 Sep. 1997..................... L 164 L 100 L 81
Goodwill.................................................... 540 395 190
Change in valuation allowance............................... 361 (590) (58)
Effect of different tax rates in other countries............ 227 241 295
Permanent items not deductible.............................. 289 880 790
Other--net.................................................. (17) 70 (13)
Income tax provision........................................ L 1,576 L 1,108 L 1,297
------------- ------------- -------------
Group effective tax rate on ordinary activities............. 288% 343% 495%
============= ============= =============
</TABLE>
All deferred tax assets are recognized on a full provision basis, and, if judged
appropriate, a valuation allowance is recorded based upon whether it is "more
likely than not" that some or all of the deferred tax asset will be realized. At
October 2, 1999, the US company has estimated net operating loss carryovers
sufficient to create a net deferred tax asset for the US part of the business. A
full valuation allowance is provided against the US net deferred tax asset,
which at September 30, 1998 was L4,566, because there is a less than 50%
probability that future taxable income in the US will be sufficient to fully
utilize the deferred tax assets.
For companies based in countries other than the US, deferred tax assets relating
to temporary differences other than net operating loss carry-forwards have been
recognized because of the respective companies' history of earnings and
utilization of the deferred amounts on a current basis.
The sources of the temporary differences in all of the companies are: book
versus tax basis on intangible assets; pension and post-employment benefit
expenses not deductible for tax purposes; the use of accelerated methods of
computing depreciation for tax purposes; other book provisions not deductible
for tax purposes; and other temporary differences applicable to assets and
liabilities.
No provision is made for the tax which would become payable on the distribution
of retained earnings by non-UK subsidiaries or joint ventures or on the
disposition of such interests where there is no present intention to distribute
such retained earnings or to dispose of such interests.
9. RESEARCH AND DEVELOPMENT
Research and development expenses in the period ended October 2, 1999 and each
of the two years ended September 30, 1998 and 1997 were L1,450, L1,898 and L933
respectively.
80
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
10. RELATED PARTY TRANSACTIONS
Apart from transactions between Dawson and Dawson's Subscription Business, no
significant transactions with other related parties have occurred. The primary
transactions between the entity and Dawson are summarized as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Interest income (expense)................................... L690 L217 L(477)
=========== =========== ============
</TABLE>
Certain group share schemes were administered on behalf of Dawson's Subscription
Business by Dawson. The costs relating to employees involved in these schemes
have been reflected within the income statement.
No significant transactions with directors or other executive officers of the
entity have occurred during the period.
11. DAWSON'S NET INVESTMENTS
Changes in Dawson's net investments are summarized as follows (in thousands)
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Beginning balance........................................... L (4,548) L 12,615 L 15,818
Net loss.................................................... (1,028) (785) (1,035)
Net transfers from (to) Dawson.............................. 15,542 (17,461) (1,641)
Currency translation gain (loss)............................ (735) 1,083 (527)
-------------- --------------- --------------
Ending balance.............................................. L 9,231 L (4,548) L 12,615
============== =============== ==============
</TABLE>
Other Comprehensive Income consists of foreign currency translation gains and
losses. The total Comprehensive (Losses) Income for the period ended October 2,
1999 and the years ended September 30, 1998 and 1997 was L(1,763), L298 and
L(1,562) respectively.
81
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
12. GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
NET REVENUE
UK............................................ L 28,051 L 31,047 L 30,864
US............................................ 129,013 131,125 159,733
France........................................ 62,928 59,871 59,313
Other......................................... 22,009 20,315 19,967
--------------- --------------- ---------------
Total......................................... L242,001 L242,358 L269,877
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- -------------- -------------- --------------
<S> <C> <C> <C>
OPERATING INCOME (LOSS)
UK................................................ L 382 L 725 L (87)
US................................................ (3,236) (2,811) (1,577)
France............................................ 2,886 2,832 2,457
Other............................................. 593 299 637
-------------- -------------- --------------
Total............................................. L 625 L 1,045 L 1,430
============== ============== ==============
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
CONTINGENT LIABILITIES
The entity is subject to legal proceedings and other claims arising in the
ordinary course of business. Various lawsuits, claims and proceedings have been
or may be instituted or asserted against Dawson's Subscription Business relating
to the conduct of its business. Although the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes that the ultimate
outcome of matters currently pending is not likely to have a material adverse
effect on the results of operations or financial position of the Company.
OPERATING LEASE COMMITMENTS
Dawson's Subscription Business leases certain facilities and equipment under
operating leases. Total rental expense was L255, L590 and L788 for the period
ended October 2, 1999 and the years ended September 30, 1998, and 1997,
respectively as set out below:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C>
OPERATING LEASE CHARGES:
Land and buildings...................................... L 94 L 156 L 157
Other Items............................................. 161 434 631
----------- ----------- -----------
L255........ L 590 L 788
=========== =========== ===========
</TABLE>
82
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DAWSON'S SUBSCRIPTION BUSINESS
PERIOD ENDED OCTOBER 2, 1999, AND YEARS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum future rental commitments under operating leases, by year and in the
aggregate, under non-cancelable leases with initial or remaining terms of one
year or more consisted of the following at October 2, 1999:
<TABLE>
(STERLING IN THOUSANDS)
- -----------------------------------------------------------
2000 L 226
<S> <C>
2001 171
2002 41
2003 70
------------
Total L 508
============
</TABLE>
14. RESTATEMENT
Subsequent to the issuance of the combined financial statements of Dawson's
Subscription Business the management of the Subscription Business determined
that a number of further adjustments were required to the combined financial
statements of which the most significant related to a reduction in the carrying
value of prepayments at 2 October 1999 together with an increase in the cost of
revenues, for the period then ended, of L734,000. Additionally a prior period
adjustment of L214,000 has been reflected in Dawson's net investment at
October 1, 1997 to record a vacation accrual liability. As a result of these
adjustments the financial statements have been restated from amounts previously
reported. A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1999 1998 1998
- ----------------------- ---------------- ---------------- -------------- --------------
(AS AS RESTATED (AS AS RESTATED
PREVIOUSLY PREVIOUSLY
REPORTED) REPORTED)
<S> <C> <C> <C> <C>
At 2 October/30 September:
Cash and cash equivalents...................... L 22,509 L 22,504 L 6,160 L 6,160
Accounts receivable............................ 30,900 31,004 32,969 32,969
Prepayments.................................... 3,889 3,055 2,766 2,766
Accrued expenses and current liabilities....... 4,728 4,679 4,048 4,262
Dawson's net investments....................... L 9,917 L 9,231 L (4,334) L (4,548)
For the period ended 2 October 1999:
Revenue........................................ L 241,972 L 242,001
Costs of revenues.............................. (216,521) (217,175)
Selling, general and administrative expenses... (24,456) (24,201)
</TABLE>
83
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding RoweCom's executive officers required by Part III, Item
10, is set forth in Item 1 of Part I herein under the caption "Executive
Officers and Directors". Information required by Part III, Item 10, regarding
RoweCom's directors is included in RoweCom's Proxy Statement relating to
RoweCom's annual meeting of stockholders to be held on May 31, 2000, and is
incorporated herein by reference. Information relating to compliance with
Section 16(a) of the Securities Exchange Act of 1934, as amended, is set forth
in the Proxy Statement and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Part III, Item 11, is included in RoweCom's Proxy
Statement relating to RoweCom's annual meeting of stockholders to be held on
May 31, 2000, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Part III, Item 12, is included in RoweCom's Proxy
Statement relating to RoweCom's annual meeting of stockholders to be held on
May 31, 2000, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain of RoweCom's relationships and related
transactions is included in RoweCom's Proxy Statement relating to RoweCom's
annual meeting of stockholders to be held on May 31, 2000, and is incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT:
(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
ROWECOM INC.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999
Consolidated Statements of Stockholders' (Deficit) Equity for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
DAWSON'S SUBSCRIPTION BUSINESS (AN ACQUIRED BUSINESS OF ROWECOM INC.)
Report of Independent Accountants
Combined Balance Sheets at September 30, 1998 and October 2, 1999
Combined Statements of Operations for the years ended September 30, 1997
and 1998 and October 2, 1999
84
<PAGE>
Combined Statements of Cash Flows for the years ended September 30, 1997
and 1998 and October 2, 1999
Notes to Combined Financial Statements for the years ended September 30,
1997 and 1998 and October 2, 1999
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
None
(3) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.1 Third Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
4.2 Amended and Restated By-Laws (Incorporated by reference to
Exhibit 3.2 to RoweCom's Registration Statement on Form S-1
(file no. 333-68761)).
4.3 Form of Stock Certificate of RoweCom Inc. Common Stock
(Incorporated by reference to Exhibit 4.1 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
10.1+ 1997 Stock Incentive Plan of the Registrant (Incorporated by
reference to Exhibit 10.1 to RoweCom's Registration
Statement on Form S-1 (file no. 333- 68761)).
10.2+ 1998 Non-Employee Director Stock Option Plan (Incorporated
by reference to Exhibit 10.2 to RoweCom's Registration
Statement on Form S-1 (file no. 333-68761)).
10.3+ 1998 Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 10.3 to RoweCom's Registration Statement on Form
S-1 (file no. 333- 68761)).
10.4+ Amended and Restated 1998 Stock Incentive Plan (Incorporated
by reference to Exhibit 10.4 to RoweCom's Registration
Statement on Form S-1 (file no. 333-68761)).
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 (Incorporated by reference to Exhibit 10.5 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
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 (Incorporated by reference to Exhibit 10.6 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
10.7 Stock Purchase Agreement, dated May 4, 1998, between the
Registrant, Rowe Communications Ltd. ("RoweCom
Communications"), and the Purchasers named therein, relating
to the sale by the Registrant of its Class B Convertible
Preferred Stock (Incorporated by reference to Exhibit 10.7
to RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
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 (Incorporated by reference to
Exhibit 10.8 to RoweCom's Registration Statement on
Form S-1 (file no. 333-68761)).
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.9 Second Amended and Restated Stockholders' Agreement, dated
as of December 11, 1998, by and between the Registrant and
certain stockholders of the Registrant (Incorporated by
reference to Exhibit 10.9 to RoweCom's Registration
Statement on Form S-1 (file no. 333-68761)).
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
Convertible Preferred Stock (Incorporated by reference to
Exhibit 10.10 to RoweCom's Registration Statement on
Form S-1 (file no. 333-68761)).
10.11 Second Amended Registration Rights Agreement, dated as of
December 11, 1998, by and among the Registrant, RoweCom
Communications, and the Purchasers named therein
(Incorporated by reference to Exhibit 10.11 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
10.12+ Executive Employment Agreement, dated as of November 4,
1998, between the Registrant and Mr. Louis Hernandez
(Incorporated by reference to Exhibit 10.12 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
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 (Incorporated by reference to
Exhibit 10.13 to RoweCom's Registration Statement on
Form S-1 (file no. 333-68761)).
10.14 General Security Agreement, dated June 19, 1998, between
Imperial Bank and the Registrant (Incorporated by reference
to Exhibit 10.14 to RoweCom's Registration Statement on
Form S-1 (file no. 333-68761)).
10.15+ Form of Non-Competition Agreements by and between the
Registrant and each of Dr. Richard R. Rowe, Louis Hernandez
Jr., Stephen Vozella, Walter Crosby, Steven Woit and Ronald
Grigg (Incorporated by reference to Exhibit 10.15 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
10.16 Electronic Commerce Referral and Revenue Sharing Agreement,
dated August 24, 1998, by and between Intelisys Electronic
Commerce LLC and the Registrant (Incorporated by reference
to Exhibit 10.16 to RoweCom's Registration Statement on
Form S-1 (file no. 333-68761)).
10.17 Marketing and Integration Agreement, dated as of August 20,
1998, by and between RoweCom and barnesandnoble.com inc.
(Incorporated by reference to Exhibit 10.17 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
10.18 Content and Co-Marketing Agreement, dated September 28,
1998, by and between the Registrant and NewSub Services,
Inc. (Incorporated by reference to Exhibit 10.18 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
10.19 Content and Co-Marketing Agreement, dated October 23, 1998,
between the Registrant and Publications Resource Group, Inc.
(Incorporated by reference to Exhibit 10.19 to RoweCom's
Registration Statement on Form S-1 (file no. 333-68761)).
10.20+ Stock Purchase Warrant between Philippe Villers and the
Registrant (Incorporated by reference to Exhibit 10.20 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.21+ Stock Purchase Warrant between Jerome Rubin and the
Registrant (Incorporated by reference to Exhibit 10.21 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
10.22 Exchange Option Agreement, dated as of February 3, 1999,
between the Registrant and Working Ventures Canadian Fund
Inc. (Incorporated by reference to Exhibit 10.22 to
RoweCom's Registration Statement on Form S-1 (file
no. 333-68761)).
10.23 Agreement between RoweCom and NewsEdge Corp., dated
March 31, 1999 (Incorporated by reference to Exhibit 10.1 to
RoweCom's Quarterly Report on Form 10-Q (file
no. 333-68761) filed May 12, 1999).
10.24 Supplier Agreement between RoweCom and Commerce One, dated
April 20, 1999 (Incorporated by reference to Exhibit 10.1 to
RoweCom's Quarterly Report on Form 10-Q (file
no. 000-25163) filed August 13, 1999).
10.25 Stock Purchase Agreement, dated June 14, 1999, by and among
RoweCom, Julie Sue Beckerman and David Rifkin (Incorporated
by reference to Exhibit 2 to RoweCom's Current Report on
Form 8-K (file no. 000-25163) filed June 22, 1999).
10.26 Securities Purchase Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
(note: exhibits and schedules omitted) (Incorporated by
reference to Exhibit 99.1 to RoweCom's Current Report on
Form 8-K (file no. 000-25163) filed October 14, 1999).
10.27 Form of Note issued pursuant to the Securities Purchase
Agreement (Incorporated by reference to Exhibit 99.2 to
RoweCom's Current Report on Form 8-K (file no. 000-25163)
filed October 14, 1999).
10.28 Form of Warrant issued pursuant to the Securities Purchase
Agreement (Incorporated by reference to Exhibit 99.3 to
RoweCom's Current Report on Form 8-K (file no. 000-25163)
filed October 14, 1999).
10.29 Registration Rights Agreement, dated as of October 13, 1999,
by and among RoweCom and the "Buyers" indicated therein
(Incorporated by reference to Exhibit 99.4 to RoweCom's
Current Report on Form 8-K (file no. 000-25163) filed
October 14, 1999).
10.30 Agreement, dated as of September 16, 1999, by and among
RoweCom Inc., Dawson Holdings Plc, the Vendors and the
Purchasers (as defined therein) (Incorporated by reference
to Exhibit 2.1 to RoweCom's Current Report on Form 8-K (file
no. 000-25163) filed October 18, 1999).
10.31 Strategic Alliance and Marketing Agreement between RoweCom
and Office.com Inc., dated September 27, 1999 (Incorporated
by reference to Exhibit 10.1 to RoweCom's Quarterly Report
on Form 10-Q (file no. 000-25163) filed November 15, 1999).
10.32 Stock Purchase Agreement, dated August 18, 1999, by and
among RoweCom, Ashcliff Pty Ltd as trustee for the AJ Gans
Children's Trust and Alfred Jacob Gans (Incorporated by
reference to Exhibit 10.2 to RoweCom's Quarterly Report on
Form 10-Q (file no. 000-25163) filed November 15, 1999).
10.33 Form of Revolving Note, dated December 14, 1999, issued to
American National Bank and Trust Company of Chicago, The
Turner Subscription Agency, McGregor Subscription Service,
Inc. and The Faxon Company, Inc.
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.34 RoweCom Corporate Guaranty, to American National Bank and
Trust Company of Chicago, N.A. dated as of December 14,
1999.
10.35 Dawson Corporate Guaranty, to American National Bank and
Trust Company of Chicago, N.A. dated as of December 14,
1999.
10.36 Environmental Indemnity Agreement, dated as of December 14,
1999, among American National Bank and Trust Company of
Chicago, RoweCom, Dawson, The Turner Subscription Agency,
McGregor Subscription Service, Inc. and The Faxon Company,
Inc.
10.37 Loan and Security Agreement, dated as of December 14, 1999,
among American National Bank and Trust Company of Chicago,
The Turner Subscription Agency, McGregor Subscription
Service, Inc. and The Faxon Company, Inc.
10.38 General Service Agreement by and between RoweCom and Bank of
America Technology and Operations, Inc., dated September 1,
1999.
10.39 Partner Agreement by and between Concur Technologies, Inc.
and RoweCom, dated December 29, 1999.
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Deloitte & Touche, Independent Accountants
27.1 Financial Data Schedule
</TABLE>
- ------------------------
+ Executive Compensation Plan or Agreement
(B) REPORTS ON FORM 8-K:
On October 13, 1999, RoweCom filed a report on Form 8-K in connection with the
issuance of convertible debt.
On October 18, 1999, RoweCom filed a report on Form 8-K in connection with its
acquisition of Dawson Information Services Group.
On December 20, 1999 and January 5, 2000, RoweCom filed a report on Form 8-K/A
in connection with the audited financial statements of Dawson Information
Service Group, a business that RoweCom acquired in October 1999.
88
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: March 16, 2000 ROWECOM INC.
By: /s/ RICHARD R. ROWE
-----------------------------------------
Richard R. Rowe
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
<TABLE>
<C> <S>
/s/ RICHARD R. ROWE Chairman of the Board of Directors, President
------------------------------------------- and Chief Executive Officer (Principal
Richard R. Rowe Executive Officer)
/s/ PAUL BURMEISTER Senior Vice President and Chief Financial
------------------------------------------- Officer (Principal Financial and Accounting
Paul Burmeister Officer)
/s/ STANLEY FUNG
------------------------------------------- Director
Stanley Fung
/s/ JOHN KENNEDY
------------------------------------------- Director
John Kennedy
/s/ THOMAS LEMBERG
------------------------------------------- Director
Thomas Lemberg
JEROME S. RUBIN
------------------------------------------- Director
Jerome S. Rubin
/s/ PHILIPPE VILLERS
------------------------------------------- Director
Philippe Villers
DONALD A.B. LINDBERG, M.D.
------------------------------------------- Director
Donald A.B. Lindberg, M.D.
</TABLE>
89
<PAGE>
EXHIBIT 10.33
REVOLVING NOTE
$35,000,000.00 Dated as of: December 14, 1999
Chicago, Illinois Due: May 31, 2000
FOR VALUE RECEIVED, the undersigned, The Turner Subscription Agency,
Incorporated, a Delaware corporation ("Turner"), McGregor Subscription Service,
Inc., an Illinois corporation ("McGregor"), and The Faxon Company, Inc., a
Massachusetts corporation ("Faxon") (Turner, McGregor and Faxon are individually
a "Borrower" and collectively the "Borrowers"), jointly and severally promise to
pay to the order of American National Bank and Trust Company of Chicago, a
national banking association (the "Bank"), on or before May 31, 2000, the
principal sum of Thirty-Five Million and no/100 Dollars ($35,000,000.00), or
such lesser principal sum as the Bank may have advanced to Borrowers pursuant to
Section 2.1 of that certain Loan and Security Agreement of even date herewith by
and between the Bank and Borrowers (as amended, renewed or restated from time to
time, the "Loan Agreement"), together with interest thereon from the date hereof
at the rate set forth in Section 2.2 of the Loan Agreement. Interest shall be
payable on the last Business Day of each month as debited by the Bank. Interest
shall be calculated on the basis of a three hundred sixty (360) day year for the
actual number of days in which any principal, accrued interest or any other sum
due from Borrowers to the Bank pursuant to this Note or otherwise (collectively
the "Liabilities") remains outstanding. Upon maturity or an "Event of Default"
(hereinafter defined), whichever is first to occur, interest shall accrue upon
the outstanding Liabilities at the Default Rate. Payment of the Liabilities
shall be made at 120 South LaSalle Street, Chicago, Illinois 60603, or at such
other location as the Bank may designate in writing from time to time. Terms
used but not otherwise defined herein are used herein as defined in the Loan
Agreement.
Each Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by the Bank on account of the
Liabilities, and each Borrower agrees that the Bank shall have the continuing
exclusive right to apply and reapply any and all payments in such manner and in
such order as the Bank may deem advisable, including, but not limited to, the
payment of any costs, fees and expenses due and owing by Borrowers to the Bank.
The full and timely payment of the Liabilities and Borrowers' full and
timely performance of the Covenants are secured by security interests, liens and
encumbrances granted by Borrowers to the Bank pursuant to the Loan Agreement and
the other agreements, instruments, documents and guaranties as heretofore,
contemporaneously herewith or may hereafter be executed and delivered to the
Bank by Borrowers and any other persons and entities, from time to time, as the
case may be, evidencing, securing or guarantying the Liabilities and the
Covenants (collectively the "Collateral Documents"), including, without
limitation, the Massachusetts Mortgage, the RoweCom Guaranty and the Dawson
Guaranty.
If (a) Borrowers default in the full and timely payment of any of the
Liabilities or the full and timely performance of any of the Covenants, or (b) a
breach, default or event of default occurs under any of the Collateral
Documents, and such breach, default or event of default is not cured within the
applicable grace or cure period, if any (collectively an "Event of Default"), at
the option of the Bank or the legal holder hereof, as the case may be, and
without demand therefor or notice thereof from the Bank to Borrowers or any
other person or entity, all of the Liabilities shall be immediately due and
payable and shall be collectible immediately or at any time after such Event of
Default. The acceptance by the Bank of any partial payment of the Liabilities
after an Event of Default will not establish a custom, or waive any of the
Bank's rights or remedies pursuant to this Note, the Collateral Documents, at
law, in equity or otherwise. Borrowers and every endorser of this Note hereby
each waive presentment, demand and protest, and notice of presentment, demand,
protest, default, non-payment, maturity, release, compromise,
Page 1 of 4
<PAGE>
amendment, modification, settlement, extension or renewal of the Liabilities or
this Note, the Covenants, the Collateral Documents or any collateral or security
for the Liabilities or the Covenants.
Any forbearance by the Bank or the legal holder hereof, as the case may
be, in exercising any right or remedy pursuant to this Note or the Collateral
Documents, at law, in equity or otherwise, shall not be or be deemed a waiver of
nor shall preclude the subsequent exercise of any such right or remedy.
If at any time or times before or after an Event of Default, the Bank:
A. employs an accountant, consultant, counsel or any other
representative or advisor:
1. with respect to the Liabilities, this Note, the Collateral
Documents or otherwise,
2. to represent or consult with the Bank in connection with
any litigation, contest, dispute, suit or proceeding, or to
commence, defend, intervene or take any other action in or
with respect to any litigation, contest, dispute, suit or
proceeding, whether initiated by the Bank, Borrowers or any
other person or entity, in any way or respect arising from,
relating to or in connection with the Liabilities, this
Note, the Covenants, the Collateral Documents or any
collateral or security for the Liabilities or the
Covenants, or
3. to enforce any of the Bank's rights or remedies;
B. takes any action or initiates any proceeding to protect, collect,
sell, liquidate or otherwise dispose of any of the collateral or
security for the Liabilities, the Covenants or the Collateral
Documents; or
C. attempts to or enforces any of the Bank's rights or remedies against
Borrowers,
then the costs and expenses so incurred by the Bank shall be part of the
Liabilities payable by Borrowers to the Bank upon demand with interest at the
Default Rate until actually paid. Without limiting the generality of the
foregoing, such costs and expenses shall include the fees, expenses and charges
of attorneys, paralegals, accountants, investment bankers, appraisers, valuation
and other specialists, experts, expert witnesses, auctioneers, court reporters,
telegram, telex and telefax charges, overnight delivery services, messenger
services and expenses for travel, lodging and meals. Notwithstanding the
foregoing, Borrowers shall not be liable to the Bank for accountant or
consultant fees incurred by the Bank at any time while an Unmatured Event of
Default or Event of Default does not exist.
Each Borrower represents and warrants to the Bank that the Liabilities
and Borrowers' use of the principal portion of the Liabilities is solely for
proper business purposes and consistent with all applicable laws, including,
without limitation, Illinois Compiled Statutes, Chapter 815, Act 205, Section 4
(815 ILCS 205/4). Each Borrower further represents and warrants to the Bank and
covenants unto the Bank that such Borrower is not in the business of extending
credit for the purpose of purchasing or carrying margin stock within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve System,
and none of the principal portion of the Liabilities will be used to purchase or
carry any margin stock or to extend credit to other persons or entities for the
purpose of purchasing or carrying any margin stock.
This Note is executed and delivered by Borrowers to the Bank in
Chicago, Illinois, and shall be governed, controlled by and construed in
accordance with the laws and statutes of the State of Illinois, as to
interpretation, enforcement, validity, construction, effect, choice of law and
in all other respects.
Page 2 of 4
<PAGE>
This Note shall inure to the benefit of the Bank, the legal holder
hereof and any of their respective successors and assigns, as the case may be,
and shall be binding upon each Borrower, its respective legal representatives
and successors.
If any provision of this Note is held to be invalid or unenforceable by
a court of competent jurisdiction, such provision shall be severed here from and
such invalidity or unenforceability shall not affect any other provision of this
Note, the balance of which shall remain in and have its intended full force and
effect. However, if such invalid or unenforceable provision may be modified so
as to be valid and enforceable as a matter of law, such provision shall be
deemed to have been modified so as to be valid and enforceable to the maximum
extent permitted by law. If any rate of interest described in this Note is
greater than the rate of interest permitted to be charged or collected by
applicable law, as the case may be, such rate of interest shall be reduced to
the maximum rate of interest permitted to be charged or collected by applicable
law.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of, the Loan Agreement. The Loan Agreement, to which
reference is hereby made, sets forth said terms and provisions, including those
under which this Note may or must be paid prior to its due date or may have its
due date accelerated.
All references to Borrowers shall mean Turner, McGregor and Faxon, both
individually and collectively, and jointly and severally, and all
representations, warranties, duties, covenants, agreements and obligations of
Borrowers shall be the individual and collective representations, warranties,
duties, covenants, agreements and obligations of each of Turner, McGregor and
Faxon.
EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO THE BORROWERS AS SET FORTH IN THE LOAN AGREEMENT
IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE.
Borrowers and the Bank irrevocably agree, and hereby consent and submit
to the non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois,
and the United States District Court for the Northern District of Illinois,
Eastern Division, with regard to any actions or proceedings arising from,
relating to or in connection with the Liabilities, this Note, any of the
Covenants, the Collateral Documents or any collateral or security for the
Liabilities or the Covenants. Each Borrower hereby waives its right to transfer
or change the venue of any litigation filed in the Circuit Court of Cook County,
Illinois, or the United States District Court for the Northern District of
Illinois, Eastern Division. EACH BORROWER AND THE BANK HEREBY WAIVE THEIR
RESPECTIVE RIGHT TO TRIAL BY JURY.
Page 3 of 4
<PAGE>
This Note has been executed and delivered by Borrowers to the Bank as
of the date first set forth above, by Borrowers' duly authorized corporate
officers, pursuant to resolutions duly adopted by Borrowers' Board of Directors
and Borrowers' shareholders, if and to the extent such authorization is required
by applicable law, Borrowers' Articles or Certificate of Incorporation, By-Laws
or otherwise.
THE TURNER SUBSCRIPTION AGENCY, INCORPORATED,
a Delaware corporation
By:
-----------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
MCGREGOR SUBSCRIPTION SERVICE, INC.,
an Illinois corporation
By:
-----------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
THE FAXON COMPANY, INC.
a Massachusetts corporation
By:
---------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
Page 4 of 4
<PAGE>
<PAGE>
EXHIBIT 10.34
ROWECOM CORPORATE GUARANTY
This Corporate Guaranty (this "Guaranty") is executed and delivered as
of December 14, 1999, by RoweCom Inc., a Delaware corporation ("Guarantor"), to
American National Bank and Trust Company of Chicago, a national banking
association (the "Bank").
1. BACKGROUND.
A. Contemporaneously herewith, The Turner Subscription Agency,
Incorporated, a Delaware corporation ("Turner"), McGregor Subscription Service,
Inc., an Illinois corporation ("McGregor"), and The Faxon Company, Inc., a
Massachusetts corporation ("Faxon") (Turner, McGregor and Faxon are collectively
the "Borrower"), desire the Bank to provide certain extensions of credit, loans
or other financial accommodations to Borrower (the "Financial Accommodations")
pursuant to the following documents (collectively the "Loan Documents"): that
certain Loan and Security Agreement of even date herewith by and between the
Bank and Borrower (as amended, renewed or restated from time to time, the "Loan
Agreement"), and the other agreements, documents and instruments referenced in
or executed and delivered pursuant to the Loan Agreement, including, without
limitation, that certain Revolving Note of even date herewith executed and
delivered by Borrower to the Bank in a maximum aggregate principal amount not to
exceed Thirty-Five Million and no/100 Dollars ($35,000,000.00).
B. The Bank is willing to provide the Financial Accommodations to
Borrower, provided, among other things, Guarantor executes and delivers this
Guaranty to the Bank.
C. Guarantor acknowledges and agrees that (i) Guarantor owns one
hundred percent (100%) of the issued and outstanding capital stock of Dawson,
Inc., which owns one hundred percent of the issued and outstanding capital stock
of each Borrower, and Guarantor is, thus, benefitted by the Financial
Accommodations made by the Bank to Borrower, (ii) Guarantor's execution and
delivery of this Guaranty is a material inducement to the Bank providing the
Financial Accommodations to Borrower, and (iii) without this Guaranty, the Bank
would not have provided the Financial Accommodations to Borrower.
D. In consideration of the foregoing, and other good and valuable
consideration, the receipt and sufficiency of such consideration is hereby
acknowledged by Guarantor, Guarantor hereby covenants unto and agrees with the
Bank as set forth in this Guaranty.
2. DEFINITIONS.
A. "BORROWER'S LIABILITIES" shall mean, individually and collectively,
all debts, liabilities, covenants, duties, obligations and agreements of any
kind, nature or description whatsoever of each Borrower to and with the Bank
heretofore, now or hereafter made, incurred, evidenced or created, whether
voluntary or involuntary, and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, direct or
indirect, insured or uninsured or foreseeable or unforeseeable, whether pursuant
to the Loan Documents or otherwise.
B. "COVENANTS" shall mean all now existing and hereafter arising
covenants, duties, obligations and agreements of each Borrower to and with the
Bank, whether pursuant to the Loan Documents or otherwise.
C. "EVENT OF DEFAULT" shall mean the occurrence of any one of the
following events: (i) Guarantor fails or neglects to perform, keep or observe
any term, provision, condition, warranty, representation or covenant contained
in this Guaranty or any other agreement, document or instrument executed and
delivered by Guarantor to the Bank; (ii) any of Guarantor's assets are seized,
attached, subjected to a writ or distress warrant, or are levied
<PAGE>
upon, if such seizure, attachment, writ or distress warrant could have a
material adverse effect on Guarantor's business, assets or financial condition
as determined by the Bank in its reasonable discretion, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors; (iii) Guarantor shall make an assignment for the benefit of
creditors, or an application is made by or against Guarantor for the appointment
of a receiver, trustee, custodian or conservator for Guarantor or any of
Guarantor's assets; (iv) a petition under the United States Bankruptcy Code or
any similar federal, state or local law, statute or regulation shall be filed by
Guarantor; (v) a petition under the United States Bankruptcy Code or any similar
federal, state or local law, statute or regulation shall be filed against
Guarantor and such petition is granted or is not dismissed within thirty (30)
days after the filing thereof; (vi) Guarantor is enjoined, restrained or in any
way prevented by court order from conducting any part of Guarantor's business;
(vii) a lawsuit or other proceeding is filed by or against Guarantor to
liquidate any of Guarantor's assets and such lawsuit or other proceeding could
have a material adverse effect on Guarantor's business, assets or financial
condition as determined by the Bank in its reasonable discretion; (viii) one or
more notices of a lien, levy or assessment are filed of record for past due
Indebtedness which individually or in the aggregate is in excess of Fifty
Thousand and no/100 Dollars ($50,000.00) with respect to any of Guarantor's
assets by the United States of America or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental department, agency or instrumentality; (ix) Guarantor defaults in
the payment of any of its other obligations or liabilities which individually or
in the aggregate are in excess of $1,000,000.00 and such default is not cured
within the time, if any, specified therefor; (x) the dissolution of Guarantor;
or (xi) an "Event of Default" (as defined in the Loan Agreement) occurs under
the Loan Documents.
D. "GUARANTOR'S LIABILITIES" shall mean all of Guarantor's now existing
or hereafter arising debts, liabilities, covenants, duties, obligations and
agreements to and with the Bank, whether pursuant to this Guaranty or otherwise.
3. GUARANTY.
A. Guarantor hereby (i) unconditionally guaranties the full and timely
payment of Borrower's Liabilities when due or declared due, whether by
acceleration, maturity or otherwise; (ii) unconditionally guaranties the full
and timely performance of the Covenants; (iii) agrees to pay all costs, expenses
and fees, including, but not limited to, attorneys' fees, incurred by the Bank
in connection with this Guaranty, Borrower's Liabilities or any collateral or
security securing Borrower's Liabilities; and (iv) agrees to pay to the Bank the
amount of any payments made to the Bank in full or partial satisfaction of
Borrower's Liabilities, and which are subsequently invalidated, declared to be
preferential or fraudulent, set aside or required to be repaid by the Bank to
Borrower, its estate, a trustee, a receiver or any other party under the United
States Bankruptcy Code or any similar federal, state or local law, statute or
regulation.
B. This Guaranty and the full and timely performance of the Covenants
and the full and timely payment of Borrower's Liabilities by Guarantor pursuant
to this Guaranty shall be a continuing, absolute and unconditional guaranty of
payment and not of collection, irrespective of (i) the validity or
enforceability of any instrument, agreement or document evidencing all or any
part of Borrower's Liabilities; (ii) the absence of any attempt to collect or
enforce Borrower's Liabilities from or against Borrower or other action to
enforce the full and timely performance of the Covenants and the full and timely
payment of Borrower's Liabilities, and the absence of any such attempt shall in
no way preclude or be a condition precedent to proceeding against Guarantor;
(iii) any waiver or consent by the Bank with respect to any term or provision of
any instrument, agreement or document executed and delivered by Borrower or
Guarantor to the Bank; (iv) the Bank obtaining any additional guaranties or any
collateral to secure Borrower's Liabilities from Guarantor or any other person
or entity; (v) any failure by the Bank to take any steps to preserve its rights
to any security or collateral securing Borrower's Liabilities or the Covenants
or to utilize any of its remedies, which failure shall in no way preclude or be
a condition precedent to the Bank proceeding against Guarantor; (vi) the
existence or extent of collateral or security pledged, assigned,
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<PAGE>
hypothecated or granted by Guarantor to secure Borrower's Liabilities,
Guarantor's Liabilities or the Covenants; or (vii) any other fact, event, act,
omission or circumstance which might otherwise constitute a legal or equitable
discharge of liability or performance by a guarantor.
C. The Bank shall not be required or obligated to (i) take any action
to collect from, or to file any claim of any kind against, Borrower, any other
guarantor, or any other person or entity liable, jointly or severally, for the
full and timely performance of any of the Covenants or the full and timely
payment of any of Borrower's Liabilities, prior to pursuing any rights or
remedies the Bank may have against Guarantor; (ii) take any steps to protect,
enforce, take possession of, perfect any interest in, foreclose or realize on
any collateral or security, if any, securing the Covenants or Borrower's
Liabilities; or (iii) in any other respect, exercise any diligence whatsoever in
enforcing, collecting or attempting to collect any of Borrower's Liabilities by
any means.
4. WAIVERS.
A. Guarantor unconditionally and irrevocably waives each and every
defense which would otherwise impair, restrict, diminish or affect any of
Guarantor's Liabilities. Without limiting the foregoing, the Bank shall have the
exclusive right from time to time without impairing, restricting, diminishing or
affecting any of Guarantor's Liabilities, and without notice of any kind to
Guarantor, to (i) provide additional financial accommodations to Borrower; (ii)
renew, extend, accelerate, modify or otherwise change the terms of any of the
Covenants or any of Borrower's Liabilities, or any instrument, agreement or
document between the Bank and Borrower; (iii) accept partial payments on
Borrower's Liabilities; (iv) take and hold collateral or security to secure the
Covenants or Borrower's Liabilities, or take any other guaranty to secure the
Covenants and Borrower's Liabilities; (v) in its sole discretion, apply any such
collateral or security, and direct the order or manner of sale thereof, and the
application of the proceeds thereof; (vi) release any other guarantor, person or
entity guarantying Borrower's Liabilities; and (vii) settle, release,
compromise, collect or otherwise liquidate Borrower's Liabilities or exchange,
enforce, sell, lease, use, maintain, impair and release any collateral or
security therefor in any manner, without affecting or impairing any of
Guarantor's Liabilities hereunder. Nothing contained in this Guaranty, except
the full and timely performance of the Covenants and the full and timely payment
of Borrower's Liabilities to the Bank, shall operate to discharge any of
Guarantor's Liabilities.
B. Guarantor hereby unconditionally waives (i) notice of acceptance of
this Guaranty; (ii) notice of any default by Borrower in the full and prompt
performance of the Covenants or the full and prompt payment of Borrower's
Liabilities; (iii) presentment, notice of dishonor, protest, demand for payment
and any other notices of any kind; and (iv) any rights of set-off or
counterclaim against the Bank which would otherwise impair the Bank's rights
against Guarantors hereunder.
5. INFORMATION.
Guarantor assumes full responsibility for keeping informed of (A) the
financial condition of Borrower; (B) Borrower's Liabilities; and (C) all other
circumstances bearing upon Borrower or the risk of non-payment of Borrower's
Liabilities. Guarantor agrees that the Bank shall have no duty or obligation to
advise, furnish or supply Guarantor of or with any information known to the
Bank, including, but not limited to, Borrower's Liabilities, the financial
condition of Borrower, any other circumstances relating to non-payment of
Borrower's Liabilities or otherwise. If the Bank, in its sole discretion,
provides any advice or information to Guarantor, the Bank shall be under no
obligation to investigate the matters contained in such advice or information,
or to correct such advice or information if the Bank thereafter knows or should
have known that such advice or information is misleading or untrue, in whole or
in part, or to update or provide any other advice or information in the future.
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<PAGE>
6. WAIVER OF GUARANTOR'S RIGHTS OF INDEMNIFICATION, SUBROGATION,
CONTRIBUTION AND REIMBURSEMENT.
Guarantor acknowledges and agrees that it may have a right of
indemnification, subrogation, contribution and reimbursement from Borrower based
upon its execution of this Guaranty. Guarantor understands the benefits of
having such rights, including, but not limited to, (A) Guarantor's right to
reimbursement from Borrower of all monies expended for the payment of Borrower's
Liabilities by Guarantor; and (B) Guarantor's subrogation to the rights of the
Bank after payment of Borrower's Liabilities. Guarantor knowingly and
voluntarily waives, releases and relinquishes its rights of indemnification,
subrogation, contribution and reimbursement from Borrower.
7. REMEDIES UPON AN EVENT OF DEFAULT.
Upon an Event of Default, Guarantor's Liabilities shall be immediately
due and payable by Guarantor, whether or not Borrower's Liabilities are then due
and payable or declared due and payable, and the Bank may, in its sole
discretion, exercise any of its rights or remedies provided in this Guaranty, at
law, in equity or otherwise; provided, however, if Guarantor is not a debtor in
any state or federal bankruptcy proceeding, the Bank shall be required to give
Guarantor notice of the occurrence of such Event of Default prior to Guarantor's
Liabilities becoming immediately due and payable by Guarantor hereunder. All of
the Bank's rights and remedies are cumulative and non-exclusive, and the
exercise by the Bank of any right or remedy shall not preclude the Bank from
subsequently exercising any other right or remedy, in any other respect or at
any other time.
8. TERM OF GUARANTY.
This Guaranty and Guarantor's Liabilities shall apply to all
transactions between Borrower and the Bank. This Guaranty may only be terminated
by Guarantor giving notice of such termination to the Bank in accordance with
Paragraph 10 hereof. Such notice of termination, however, shall not release or
affect any of Guarantor's Liabilities existing as of the effective date of such
termination.
9. SUBORDINATION.
Guarantor acknowledges and agrees that all indebtedness, obligations
or liabilities now and at any time or times hereafter owing by any Borrower to
Guarantor are hereby subordinated to the full and timely performance of the
Covenants and the full and timely payment of Borrower's Liabilities to the Bank.
Guarantor will not accept any payments on the indebtedness, obligations or
liabilities of Borrower due and owing to Guarantor until Borrower's Liabilities
to the Bank have been fully paid and satisfied. If Guarantor receives any
payments on account of such indebtedness, obligations or liabilities from
Borrower in violation of this Guaranty, Guarantor shall receive and hold such
payments in trust for the benefit of and as the property of the Bank, and shall
immediately deliver all such payments to the Bank.
10. NOTICE.
Any and all notices, demands, requests, consents, designations, waivers
and other communications required or desired hereunder shall be in writing and
shall be deemed effective upon personal delivery, upon confirmed facsimile
transmission, upon receipted delivery by overnight carrier, or three (3) days
after mailing if mailed by registered or certified mail, return receipt
requested, postage prepaid, to Guarantor or the Bank at the following addresses
or facsimile numbers or such other address or facsimile number as Guarantor or
the Bank specify in like manner; provided, however, that notices of termination
of this Guaranty and notices of a change of address or facsimile number shall be
effective only upon receipt thereof.
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<PAGE>
<TABLE>
<S> <C>
If to Guarantor, then to: If to the Bank, then to:
RoweCom Inc. American National the Bank and Trust
15 Southwest Park Company of Chicago
Westwood, Massachussets 02090 IL1-1458
Attention: Dr. Richard Rowe 120 S. LaSalle Street, 8th Floor
Facsimile Number: (617) 661-9440 Chicago, Illinois 60603
Attention: Mr. Dennis Harrison
Facsimile No.: (312) 661-3530
with a copy to: with a copy to:
Bingham Dana LLP Fagel & Haber
150 Federal Street 140 South Dearborn Street
Boston, Massachusetts Suite 1400
Attention: Matthew Furlong, Esq. Chicago, Illinois 60603
Facsimile No.: (617) 951-8736 Attention: Victor A. Des Laurier, Esq.
Facsimile No.: (312) 580-2201
</TABLE>
11. APPLICATION OF PAYMENTS.
Guarantor hereby agrees that all payments to the Bank made by or on behalf
of Borrower, including, without limitation, payments from Guarantor, may be
applied and reapplied, in whole or in part, to any of Borrower's Liabilities or
Guarantor's Liabilities as the Bank sees fit in its sole discretion.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS. Guarantor represents, warrants
and covenants unto the Bank that: (A) Guarantor is and at all times hereafter
shall be a corporation duly organized and existing and in good standing under
the laws of the State of Delaware; (B) Guarantor has the right, power and
capacity and is duly authorized and empowered to enter into, execute, deliver
and perform this Guaranty; and (C) the execution, delivery and performance by
Guarantor of this Guaranty shall not, by the lapse of time, the giving of notice
or otherwise, constitute a violation of any applicable law or breach of any
provision contained in Guarantor's Articles of Incorporation or By-Laws, or
contained in any agreement, instrument or document to which Guarantor is now or
hereafter a party or by which it is or may become bound.
13. REPORTING. From time to time hereafter, Guarantor covenants to promptly
deliver to the Bank, such information, financial or otherwise, as the Bank may
reasonable request.
14. CONSTRUCTION.
A. This Guaranty shall be interpreted, construed and governed by and under
the laws of the State of Illinois. Wherever possible, each provision of this
Guaranty shall be interpreted in such manner as to be valid and enforceable
under applicable law, but if any provision of this Guaranty is held to be
invalid or unenforceable by a court of competent jurisdiction, such provision
shall be severed herefrom and such invalidity or unenforceability shall not
affect any other provision of this Guaranty, the balance of which shall remain
in and have its intended full force and effect. Provided, however, if such
provision may be modified so as to be valid and enforceable as a matter of law,
such provision shall be deemed to be modified so as to be valid and enforceable
to the maximum extent permitted by law.
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<PAGE>
B. The Paragraph headings contained in this Guaranty are solely for the
purpose of reference, are not part of the agreement between Guarantor and the
Bank, and shall not in any way affect the meaning or interpretation of this
Guaranty or any Paragraph. This Guaranty shall be binding on Guarantor and upon
the successors of Guarantor, its affiliates, divisions and shareholders, as the
case may be, and shall inure to the benefit of the Bank, its successors,
assigns, affiliates, divisions, parents and shareholders, and may be assigned by
the Bank without notice to Guarantor. This Guaranty may not be assigned by
Guarantor.
C. No failure to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver of any breach
of any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision. No extension of time for performance
of Guarantor's Liabilities or any other obligation or act hereunder or under any
other agreement shall be deemed to be an extension of the time for performance
of any other obligation or any other act. This Guaranty may not be altered,
changed, amended or modified except by an agreement in writing signed by the
Bank and Guarantor.
D. All references to Borrower shall mean Turner, McGregor and Faxon, both
individually and collectively, and jointly and severally.
15. CONSENT TO JURISDICTION.
Guarantor and the Bank irrevocably agree, and hereby consent and submit to
the non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois,
and the United States District Court for the Northern District of Illinois,
Eastern Division, with regard to any litigation, actions or proceedings arising
from, relating to or in connection with Borrower's Liabilities, the Covenants,
Guarantor's Liabilities, this Guaranty or any collateral or security therefor.
Guarantor hereby waives any right Guarantor may have to transfer or change the
venue of any litigation, actions or proceedings filed in the Circuit Court of
Cook County, Illinois, or the United States District Court for the Northern
District of Illinois, Eastern Division.
16. SERVICE OF PROCESS.
GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO THE BORROWERS AS SET FORTH HEREIN IN THE MANNER PROVIDED
BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE.
17. WAIVER OF JURY TRIAL.
GUARANTOR AND THE BANK EACH HEREBY ABSOLUTELY AND UNCONDITIONALLY WAIVE
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER OR RELATING TO THIS GUARANTY,
GUARANTOR'S LIABILITIES OR BORROWER'S LIABILITIES, OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN CONNECTION THEREWITH OR RELATED
THERETO.
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<PAGE>
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty on the day and
year first above written.
ROWECOM, INC.,
a Delaware corporation
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
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<PAGE>
<PAGE>
EXHIBIT 10.35
DAWSON CORPORATE GUARANTY
This Corporate Guaranty (this "Guaranty") is executed and delivered as
of December 14, 1999, by Dawson, Inc., a Delaware corporation ("Guarantor"), to
American National Bank and Trust Company of Chicago, a national banking
association (the "Bank").
1. BACKGROUND.
A. Contemporaneously herewith, The Turner Subscription Agency,
Incorporated, a Delaware corporation ("Turner"), McGregor Subscription Service,
Inc., an Illinois corporation ("McGregor"), and The Faxon Company, Inc., a
Massachusetts corporation ("Faxon") (Turner, McGregor and Faxon are collectively
the "Borrower"), desire the Bank to provide certain extensions of credit, loans
or other financial accommodations to Borrower (the "Financial Accommodations")
pursuant to the following documents (collectively the "Loan Documents"): that
certain Loan and Security Agreement of even date herewith by and between the
Bank and Borrower (as amended, renewed or restated from time to time, the "Loan
Agreement"), and the other agreements, documents and instruments referenced in
or executed and delivered pursuant to the Loan Agreement, including, without
limitation, that certain Revolving Note of even date herewith executed and
delivered by Borrower to the Bank in a maximum aggregate principal amount not to
exceed Thirty-Five Million and no/100 Dollars ($35,000,000.00).
B. The Bank is willing to provide the Financial Accommodations to
Borrower, provided, among other things, Guarantor executes and delivers this
Guaranty to the Bank.
C. Guarantor acknowledges and agrees that (i) Guarantor owns one
hundred percent (100%) of the issued and outstanding capital stock of each
Borrower, and Guarantor is, thus, benefitted by the Financial Accommodations
made by the Bank to Borrower, (ii) Guarantor's execution and delivery of this
Guaranty is a material inducement to the Bank providing the Financial
Accommodations to Borrower, and (iii) without this Guaranty, the Bank would not
have provided the Financial Accommodations to Borrower.
D. In consideration of the foregoing, and other good and valuable
consideration, the receipt and sufficiency of such consideration is hereby
acknowledged by Guarantor, Guarantor hereby covenants unto and agrees with the
Bank as set forth in this Guaranty.
2. DEFINITIONS.
A. "BORROWER'S LIABILITIES" shall mean, individually and collectively,
all debts, liabilities, covenants, duties, obligations and agreements of any
kind, nature or description whatsoever of each Borrower to and with the Bank
heretofore, now or hereafter made, incurred, evidenced or created, whether
voluntary or involuntary, and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, direct or
indirect, insured or uninsured or foreseeable or unforeseeable, whether pursuant
to the Loan Documents or otherwise.
B. "COVENANTS" shall mean all now existing and hereafter arising
covenants, duties, obligations and agreements of each Borrower to and with the
Bank, whether pursuant to the Loan Documents or otherwise.
C. "EVENT OF DEFAULT" shall mean the occurrence of any one of the
following events: (i) Guarantor fails or neglects to perform, keep or observe
any term, provision, condition, warranty, representation or covenant contained
in this Guaranty or any other agreement, document or instrument executed and
delivered by Guarantor to the Bank; (ii) any of Guarantor's assets are seized,
attached, subjected to a writ or distress warrant, or are levied upon, if such
seizure, attachment, writ or distress warrant could have a material adverse
effect on Guarantor's
<PAGE>
business, assets or financial condition as determined by the Bank in its
reasonable discretion, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors; (iii) Guarantor shall make
an assignment for the benefit of creditors, or an application is made by or
against Guarantor for the appointment of a receiver, trustee, custodian or
conservator for Guarantor or any of Guarantor's assets; (iv) a petition under
the United States Bankruptcy Code or any similar federal, state or local law,
statute or regulation shall be filed by Guarantor; (v) a petition under the
United States Bankruptcy Code or any similar federal, state or local law,
statute or regulation shall be filed against Guarantor and such petition is
granted or is not dismissed within thirty (30) days after the filing thereof;
(vi) Guarantor is enjoined, restrained or in any way prevented by court order
from conducting any part of Guarantor's business; (vii) a lawsuit or other
proceeding is filed by or against Guarantor to liquidate any of Guarantor's
assets and such lawsuit or other proceeding could have a material adverse effect
on Guarantor's business, assets or financial condition as determined by the Bank
in its reasonable discretion; (viii) one or more notices of a lien, levy or
assessment are filed of record for past due Indebtedness which individually or
in the aggregate is in excess of Fifty Thousand and no/100 Dollars ($50,000.00)
with respect to any of Guarantor's assets by the United States of America or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental department, agency or instrumentality; (ix)
Guarantor defaults in the payment of any of its other obligations or liabilities
which individually or in the aggregate are in excess of $1,000,000.00 and such
default is not cured within the time, if any, specified therefor; (x) the
dissolution of Guarantor; or (xi) an "Event of Default" (as defined in the Loan
Agreement) occurs under the Loan Documents.
D. "GUARANTOR'S LIABILITIES" shall mean all of Guarantor's now existing
or hereafter arising debts, liabilities, covenants, duties, obligations and
agreements to and with the Bank, whether pursuant to this Guaranty or otherwise.
3. GUARANTY.
A. Guarantor hereby (i) unconditionally guaranties the full and timely
payment of Borrower's Liabilities when due or declared due, whether by
acceleration, maturity or otherwise; (ii) unconditionally guaranties the full
and timely performance of the Covenants; (iii) agrees to pay all costs, expenses
and fees, including, but not limited to, attorneys' fees, incurred by the Bank
in connection with this Guaranty, Borrower's Liabilities or any collateral or
security securing Borrower's Liabilities; and (iv) agrees to pay to the Bank the
amount of any payments made to the Bank in full or partial satisfaction of
Borrower's Liabilities, and which are subsequently invalidated, declared to be
preferential or fraudulent, set aside or required to be repaid by the Bank to
Borrower, its estate, a trustee, a receiver or any other party under the United
States Bankruptcy Code or any similar federal, state or local law, statute or
regulation.
B. This Guaranty and the full and timely performance of the Covenants
and the full and timely payment of Borrower's Liabilities by Guarantor pursuant
to this Guaranty shall be a continuing, absolute and unconditional guaranty of
payment and not of collection, irrespective of (i) the validity or
enforceability of any instrument, agreement or document evidencing all or any
part of Borrower's Liabilities; (ii) the absence of any attempt to collect or
enforce Borrower's Liabilities from or against Borrower or other action to
enforce the full and timely performance of the Covenants and the full and timely
payment of Borrower's Liabilities, and the absence of any such attempt shall in
no way preclude or be a condition precedent to proceeding against Guarantor;
(iii) any waiver or consent by the Bank with respect to any term or provision of
any instrument, agreement or document executed and delivered by Borrower or
Guarantor to the Bank; (iv) the Bank obtaining any additional guaranties or any
collateral to secure Borrower's Liabilities from Guarantor or any other person
or entity; (v) any failure by the Bank to take any steps to preserve its rights
to any security or collateral securing Borrower's Liabilities or the Covenants
or to utilize any of its remedies, which failure shall in no way preclude or be
a condition precedent to the Bank proceeding against Guarantor; (vi) the
existence or extent of collateral or security pledged, assigned, hypothecated or
granted by Guarantor to secure Borrower's Liabilities, Guarantor's Liabilities
or the Covenants; or
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<PAGE>
(vii) any other fact, event, act, omission or circumstance which might otherwise
constitute a legal or equitable discharge of liability or performance by a
guarantor.
C. The Bank shall not be required or obligated to (i) take any action
to collect from, or to file any claim of any kind against, Borrower, any other
guarantor, or any other person or entity liable, jointly or severally, for the
full and timely performance of any of the Covenants or the full and timely
payment of any of Borrower's Liabilities, prior to pursuing any rights or
remedies the Bank may have against Guarantor; (ii) take any steps to protect,
enforce, take possession of, perfect any interest in, foreclose or realize on
any collateral or security, if any, securing the Covenants or Borrower's
Liabilities; or (iii) in any other respect, exercise any diligence whatsoever in
enforcing, collecting or attempting to collect any of Borrower's Liabilities by
any means.
4. WAIVERS.
A. Guarantor unconditionally and irrevocably waives each and every
defense which would otherwise impair, restrict, diminish or affect any of
Guarantor's Liabilities. Without limiting the foregoing, the Bank shall have the
exclusive right from time to time without impairing, restricting, diminishing or
affecting any of Guarantor's Liabilities, and without notice of any kind to
Guarantor, to (i) provide additional financial accommodations to Borrower; (ii)
renew, extend, accelerate, modify or otherwise change the terms of any of the
Covenants or any of Borrower's Liabilities, or any instrument, agreement or
document between the Bank and Borrower; (iii) accept partial payments on
Borrower's Liabilities; (iv) take and hold collateral or security to secure the
Covenants or Borrower's Liabilities, or take any other guaranty to secure the
Covenants and Borrower's Liabilities; (v) in its sole discretion, apply any such
collateral or security, and direct the order or manner of sale thereof, and the
application of the proceeds thereof; (vi) release any other guarantor, person or
entity guarantying Borrower's Liabilities; and (vii) settle, release,
compromise, collect or otherwise liquidate Borrower's Liabilities or exchange,
enforce, sell, lease, use, maintain, impair and release any collateral or
security therefor in any manner, without affecting or impairing any of
Guarantor's Liabilities hereunder. Nothing contained in this Guaranty, except
the full and timely performance of the Covenants and the full and timely payment
of Borrower's Liabilities to the Bank, shall operate to discharge any of
Guarantor's Liabilities.
B. Guarantor hereby unconditionally waives (i) notice of acceptance of
this Guaranty; (ii) notice of any default by Borrower in the full and prompt
performance of the Covenants or the full and prompt payment of Borrower's
Liabilities; (iii) presentment, notice of dishonor, protest, demand for payment
and any other notices of any kind; and (iv) any rights of set-off or
counterclaim against the Bank which would otherwise impair the Bank's rights
against Guarantors hereunder.
5. INFORMATION.
Guarantor assumes full responsibility for keeping informed of (A) the
financial condition of Borrower; (B) Borrower's Liabilities; and (C) all other
circumstances bearing upon Borrower or the risk of non-payment of Borrower's
Liabilities. Guarantor agrees that the Bank shall have no duty or obligation to
advise, furnish or supply Guarantor of or with any information known to the
Bank, including, but not limited to, Borrower's Liabilities, the financial
condition of Borrower, any other circumstances relating to non-payment of
Borrower's Liabilities or otherwise. If the Bank, in its sole discretion,
provides any advice or information to Guarantor, the Bank shall be under no
obligation to investigate the matters contained in such advice or information,
or to correct such advice or information if the Bank thereafter knows or should
have known that such advice or information is misleading or untrue, in whole or
in part, or to update or provide any other advice or information in the future.
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<PAGE>
6. WAIVER OF GUARANTOR'S RIGHTS OF INDEMNIFICATION, SUBROGATION,
CONTRIBUTION AND REIMBURSEMENT.
Guarantor acknowledges and agrees that it may have a right of
indemnification, subrogation, contribution and reimbursement from Borrower based
upon its execution of this Guaranty. Guarantor understands the benefits of
having such rights, including, but not limited to, (A) Guarantor's right to
reimbursement from Borrower of all monies expended for the payment of Borrower's
Liabilities by Guarantor; and (B) Guarantor's subrogation to the rights of the
Bank after payment of Borrower's Liabilities. Guarantor knowingly and
voluntarily waives, releases and relinquishes its rights of indemnification,
subrogation, contribution and reimbursement from Borrower.
7. REMEDIES UPON AN EVENT OF DEFAULT.
Upon an Event of Default, Guarantor's Liabilities shall be immediately
due and payable by Guarantor, whether or not Borrower's Liabilities are then due
and payable or declared due and payable, and the Bank may, in its sole
discretion, exercise any of its rights or remedies provided in this Guaranty, at
law, in equity or otherwise; provided, however, if Guarantor is not a debtor in
any state or federal bankruptcy proceeding, the Bank shall be required to give
Guarantor notice of the occurrence of such Event of Default prior to Guarantor's
Liabilities becoming immediately due and payable by Guarantor hereunder. All of
the Bank's rights and remedies are cumulative and non-exclusive, and the
exercise by the Bank of any right or remedy shall not preclude the Bank from
subsequently exercising any other right or remedy, in any other respect or at
any other time.
8. TERM OF GUARANTY.
This Guaranty and Guarantor's Liabilities shall apply to all
transactions between Borrower and the Bank. This Guaranty may only be terminated
by Guarantor giving notice of such termination to the Bank in accordance with
Paragraph 10 hereof. Such notice of termination, however, shall not release or
affect any of Guarantor's Liabilities existing as of the effective date of such
termination.
9. SUBORDINATION.
Guarantor acknowledges and agrees that all indebtedness, obligations
or liabilities now and at any time or times hereafter owing by any Borrower to
Guarantor are hereby subordinated to the full and timely performance of the
Covenants and the full and timely payment of Borrower's Liabilities to the Bank.
Guarantor will not accept any payments on the indebtedness, obligations or
liabilities of Borrower due and owing to Guarantor until Borrower's Liabilities
to the Bank have been fully paid and satisfied. If Guarantor receives any
payments on account of such indebtedness, obligations or liabilities from
Borrower in violation of this Guaranty, Guarantor shall receive and hold such
payments in trust for the benefit of and as the property of the Bank, and shall
immediately deliver all such payments to the Bank.
10. NOTICE.
Any and all notices, demands, requests, consents, designations, waivers
and other communications required or desired hereunder shall be in writing and
shall be deemed effective upon personal delivery, upon confirmed facsimile
transmission, upon receipted delivery by overnight carrier, or three (3) days
after mailing if mailed by registered or certified mail, return receipt
requested, postage prepaid, to Guarantor or the Bank at the following addresses
or facsimile numbers or such other address or facsimile number as Guarantor or
the Bank specify in like manner; provided, however, that notices of termination
of this Guaranty and notices of a change of address or facsimile number shall be
effective only upon receipt thereof.
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<TABLE>
<S> <C>
If to Guarantor, then to: If to the Bank, then to:
Dawson, Inc. American National the Bank and Trust
15 Southwest Park Company of Chicago
Westwood, Massachussets 02090 IL1-1458
Attention: Dr. Richard Rowe 120 S. LaSalle Street, 8th Floor
Facsimile Number: (617) 661-9440 Chicago, Illinois 60603
Attention: Mr. Dennis Harrison
Facsimile No.: (312) 661-3530
with a copy to: with a copy to:
Bingham Dana LLP Fagel & Haber
150 Federal Street 140 South Dearborn Street
Boston, Massachusetts Suite 1400
Attention: Matthew Furlong, Esq. Chicago, Illinois 60603
Facsimile No.: (617) 951-8736 Attention: Victor A. Des Laurier, Esq.
Facsimile No.: (312) 580-2201
</TABLE>
11. APPLICATION OF PAYMENTS.
Guarantor hereby agrees that all payments to the Bank made by or on behalf
of Borrower, including, without limitation, payments from Guarantor, may be
applied and reapplied, in whole or in part, to any of Borrower's Liabilities or
Guarantor's Liabilities as the Bank sees fit in its sole discretion.
12. REPRESENTATIONS, WARRANTIES AND COVENANTS. Guarantor represents, warrants
and covenants unto the Bank that: (A) Guarantor is and at all times hereafter
shall be a corporation duly organized and existing and in good standing under
the laws of the State of Delaware; (B) Guarantor has the right, power and
capacity and is duly authorized and empowered to enter into, execute, deliver
and perform this Guaranty; and (C) the execution, delivery and performance by
Guarantor of this Guaranty shall not, by the lapse of time, the giving of notice
or otherwise, constitute a violation of any applicable law or breach of any
provision contained in Guarantor's Articles of Incorporation or By-Laws, or
contained in any agreement, instrument or document to which Guarantor is now or
hereafter a party or by which it is or may become bound.
13. REPORTING. From time to time hereafter, Guarantor covenants to promptly
deliver to the Bank, such information, financial or otherwise, as the Bank may
reasonable request.
14. CONSTRUCTION.
A. This Guaranty shall be interpreted, construed and governed by and under
the laws of the State of Illinois. Wherever possible, each provision of this
Guaranty shall be interpreted in such manner as to be valid and enforceable
under applicable law, but if any provision of this Guaranty is held to be
invalid or unenforceable by a court of competent jurisdiction, such provision
shall be severed herefrom and such invalidity or unenforceability shall not
affect any other provision of this Guaranty, the balance of which shall remain
in and have its intended full force and effect. Provided, however, if such
provision may be modified so as to be valid and enforceable as a matter of law,
such provision shall be deemed to be modified so as to be valid and enforceable
to the maximum extent permitted by law.
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<PAGE>
B. The Paragraph headings contained in this Guaranty are solely for the
purpose of reference, are not part of the agreement between Guarantor and the
Bank, and shall not in any way affect the meaning or interpretation of this
Guaranty or any Paragraph. This Guaranty shall be binding on Guarantor and
upon the successors of Guarantor, its affiliates, divisions and shareholders,
as the case may be, and shall inure to the benefit of the Bank, its
successors, assigns, affiliates, divisions, parents and shareholders, and may
be assigned by the Bank without notice to Guarantor. This Guaranty may not be
assigned by Guarantor.
C. No failure to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver of any breach
of any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision. No extension of time for performance
of Guarantor's Liabilities or any other obligation or act hereunder or under any
other agreement shall be deemed to be an extension of the time for performance
of any other obligation or any other act. This Guaranty may not be altered,
changed, amended or modified except by an agreement in writing signed by the
Bank and Guarantor.
D. All references to Borrower shall mean Turner, McGregor and Faxon, both
individually and collectively, and jointly and severally.
15. CONSENT TO JURISDICTION.
Guarantor and the Bank irrevocably agree, and hereby consent and submit to
the non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois,
and the United States District Court for the Northern District of Illinois,
Eastern Division, with regard to any litigation, actions or proceedings arising
from, relating to or in connection with Borrower's Liabilities, the Covenants,
Guarantor's Liabilities, this Guaranty or any collateral or security therefor.
Guarantor hereby waives any right Guarantor may have to transfer or change the
venue of any litigation, actions or proceedings filed in the Circuit Court of
Cook County, Illinois, or the United States District Court for the Northern
District of Illinois, Eastern Division.
16. SERVICE OF PROCESS.
GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO THE BORROWERS AS SET FORTH HEREIN IN THE MANNER PROVIDED
BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE.
17. WAIVER OF JURY TRIAL.
GUARANTOR AND THE BANK EACH HEREBY ABSOLUTELY AND UNCONDITIONALLY WAIVE
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER OR RELATING TO THIS GUARANTY,
GUARANTOR'S LIABILITIES OR BORROWER'S LIABILITIES, OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN CONNECTION THEREWITH OR RELATED
THERETO.
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<PAGE>
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty on the day and
year first above written.
DAWSON, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE>
<PAGE>
EXHIBIT 10.36
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this "AGREEMENT") is
made as of December 14, 1999, by The Faxon Company, Inc., a Delaware corporation
having an address at 15 Southwest Park, Westwood, Massachusetts 02090 ("Faxon"),
McGregor Subscription Service, Inc., an Illinois corporation ("McGregor"), The
Turner Subscription Agency, Incorporated ("Turner"), RoweCom, Inc., a
Massachusetts_corporation ("RoweCom"), and Dawson, Inc., a Delaware corporation
("Dawson"; together with Faxon, McGregor, Turner and RoweCom, are collectively
the "INDEMNITOR"), in favor of American National Bank and Trust Company of
Chicago, a national banking association having an address at 120 S. LaSalle
Street, 8th Floor, Chicago, Illinois 60603 (the "LENDER"). All capitalized terms
not defined herein shall have the same meanings set forth in the Mortgage (as
hereinafter defined).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan and Security Agreement
dated as of the date hereof, as amended, renewed or restated from time to time
(collectively the "Loan Agreement"), Lender is making one or more loans to
Faxon, McGregor and Turner (collectively the "Borrower"), in the aggregate
principal amount of Thirty-Five Million and no/100 Dollars ($35,000,000.00) (as
such loan may be amended, renewed or restated from time to time, the "LOAN");
WHEREAS, the Loan is guarantied by (i) RoweCom pursuant to
that certain RoweCom Corporate Guaranty dated as of the date hereof executed and
delivered by RoweCom to Lender, and (ii) Dawson pursuant to that certain Dawson
Corporate Guaranty dated as of the date hereof executed and delivered by Dawson
to Lender (collectively the "Guaranties");
WHEREAS, each Borrower is a wholly-owned subsidiary of Dawson,
which is a wholly-owned subsidiary of RoweCom; and
WHEREAS, the Loan is secured by that certain Mortgage,
Security Agreement, Assignment of Leases and Rents and Fixture Filing dated the
date hereof, given by Faxon to Lender (the "MORTGAGE"), encumbering that certain
real property situated in the County of Norfolk, Commonwealth of Massachusetts
as is more particularly described on EXHIBIT A attached hereto, and all
Improvements thereon (said real property and Improvements are hereinafter
sometimes collectively referred to as the "PROPERTY"); and
WHEREAS, as a condition precedent to Lender providing the Loan
to Borrower, Indemnitor agreed to execute and deliver this Agreement to Lender.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Indemnitor hereby covenants and agrees for the benefit of Lender,
as follows:
<PAGE>
1. INDEMNITY. Each Indemnitor, jointly and severally, assumes liability for,
and agrees to pay, protect, defend (at trial and appellate levels and with
attorneys, consultants and experts acceptable to Lender), and save Lender
harmless from and against, and indemnify Lender from and against any and all
liens, damages (including, without limitation, punitive or exemplary
damages), losses, liabilities (including, without limitation, strict
liability), obligations, settlement payments, penalties, fines, assessments,
citations, directives, claims, litigation, demands, defenses, judgments,
suits, proceedings, costs, disbursements and expenses of any kind or of any
nature whatsoever (including, without limitation, reasonable attorneys',
consultants' and experts' fees and disbursements actually incurred in
investigating, defending, settling or prosecuting any claim, litigation or
proceeding or enforcing any term of this Agreement) (collectively "COSTS")
which may at any time be imposed upon, incurred by or asserted or awarded
against Lender, Indemnitor or the Property, and arising directly or
indirectly from or out of, whether now, hereafter or heretofore occurring:
(i) any violation or alleged violation of, or liability or alleged liability
under, any local, state or federal law, rule or regulation or common law duty
pertaining to human health, natural resources or the environment, including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. Section.9601 et seq.), the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. Section.6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section.1251 et seq.), the
Clean Air Act (42 U.S.C. Section.7401 et seq.), the Emergency Planning and
Community-Right-to-Know Act (42 U.S.C. Section.11001 et seq.), the Endangered
Species Act (16 U.S.C. Section.1531 et seq.), the Toxic Substances Control
Act (15 U.S.C. Section.2601 et seq.), the Occupational Safety and Health Act
(29 U.S.C. Section.651 et seq.), the Hazardous Materials Transportation Act
(49 U.S.C. Section.1801 et seq.), and those relating to paint containing more
than .05% lead by dry weight ("LEAD BASED PAINT") and the regulations
promulgated pursuant to said laws, all as amended from time to time
(collectively, "ENVIRONMENTAL LAWS"), relating to or affecting the Property,
whether or not caused by or within the control of Indemnitor; (ii) the
presence, release or threat of release of or exposure to any hazardous, toxic
or harmful substances, wastes, materials, pollutants or contaminants
(including, without limitation, asbestos or asbestos-containing materials,
polychlorinated biphenyls, petroleum or petroleum products or byproducts,
flammable explosives, radioactive materials, Lead Based Paint, infectious
substances or raw materials which include hazardous constituents) or any
other substances or materials which are included under or regulated by
Environmental Laws (collectively, "HAZARDOUS SUBSTANCES"), on, in, under or
affecting all or any portion of the Property or any surrounding areas,
regardless of whether or not caused by or within the control of Indemnitor;
(iii) any transport, treatment, recycling, storage, disposal or arrangement
therefor of Hazardous Substances whether on the Property, originating from
the Property, or otherwise associated with the Indemnitor or any operations
conducted on the Property at any time; (iv) the breach of any representation
or warranty contained in the Mortgage; (v) the enforcement of this Agreement,
or (vi) any environmental investigation, assessment, audit or review
conducted in connection with the Property or the operations conducted at any
time thereon, including, without limitation, the cost of assessment,
investigation, containment, removal and/or remediation of any and all
Hazardous Substances from all or any portion of the Property or any
surrounding areas, the cost of any actions taken in response to the presence,
release or threat of release of any Hazardous Substances on, in, under or
affecting any portion of the Property or any surrounding areas to prevent or
minimize such release or threat of release so that it does not migrate or
otherwise cause or threaten
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<PAGE>
danger to present or future public health, safety, welfare or the environment,
and costs incurred to comply with Environmental Laws in connection with all or
any portion of the Property or any surrounding areas. Notwithstanding the
foregoing, Borrower shall not be responsible for Costs which (i) are the direct
result of Lender's gross negligence or willful misconduct, or (ii) arise solely
from an act, occurrence or condition which initially commenced or was introduced
to the Property after the Bank takes possession thereof.
2. INDEMNIFICATION PROCEDURES. (a) If any action shall be brought
against Lender based upon any of the matters for which Lender is indemnified
hereunder, Lender shall notify Indemnitor in writing and Indemnitor shall
promptly assume the defense thereof, including, without limitation, the
employment of counsel acceptable to Lender and the negotiation of any
settlement; PROVIDED, HOWEVER, that any failure of Lender to notify Indemnitor
of such matter shall not impair or reduce the obligations of Indemnitor. Lender
shall have the right, at Indemnitor's expense, to employ separate counsel in any
action and to participate in the defense thereof. If Indemnitor shall fail to
defend Lender against any claim, loss or liability for which Lender is
indemnified, Lender may, at its sole option and election, defend or settle such
claim, loss or liability. The liability of Indemnitor to Lender hereunder shall
be conclusively established by such settlement, provided such settlement is made
in good faith, the amount of such liability includes both the settlement
consideration and all of the costs and expenses incurred by Lender in effecting
such settlement. Lender's good faith in any such settlement shall be
conclusively established if the settlement is made on the advice of independent
legal counsel for Lender.
(b) Except in cases where Lender is grossly negligent or
engaged in willful misconduct, Indemnitor shall not, without the prior written
consent of Lender: (i) settle or compromise any action, suit, proceeding or
claim (each, an "ACTION") or consent to the entry of any judgment that does not
include as an unconditional term thereof the delivery by the claimant or
plaintiff to Lender of a full and complete written release of Lender (in form,
scope and substance satisfactory to Lender in its sole discretion) from all
liability in respect of such Action and a dismissal with prejudice of such
Action, or (ii) settle or compromise any Action in any manner that may adversely
affect Lender (including, without limitation, Lender's reputation) or obligate
Lender to pay any sum or perform any obligation as determined by Lender in its
sole discretion.
(c) All Costs shall be immediately reimbursable to Lender when
and as incurred and without any requirement of waiting for the ultimate outcome
of any Action, and Indemnitor shall pay to Lender any and all Costs within ten
(10) days after written notice from Lender itemizing the amounts thereof
incurred to the date of such notice. In addition to any other remedy available
for the failure of Indemnitor to periodically pay such Costs, such Costs, if not
paid within said ten day period, shall bear interest at the Default Rate and
such Costs and interest shall be secured by the Mortgage and by the other Loan
Documents.
3. REINSTATEMENT OF OBLIGATIONS. If at any time all or any part of any
payment made by Indemnitor or received by Lender from Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the
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<PAGE>
insolvency, bankruptcy or reorganization of Indemnitor), then the obligations of
Indemnitor hereunder shall, to the extent of the payment rescinded or returned,
be deemed to have continued in existence, notwithstanding such previous payment
made by Indemnitor, or receipt of payment by Lender, and the obligations of
Indemnitor hereunder shall continue to be effective or be reinstated, as the
case may be, as to such payment, all as though such previous payment by
Indemnitor had never been made.
4. WAIVERS BY INDEMNITOR. To the extent permitted by law, Indemnitor
hereby waives and agrees not to assert or take advantage of (a) any right to
require Lender to proceed against any other person or to proceed against or
exhaust any security held by Lender at any time or to pursue any other remedy
in Lender's power or under any other agreement before proceeding against
Indemnitor hereunder; (b) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other person or
persons or the failure of Lender to file or enforce a claim against the
estate (in administration, bankruptcy or any other proceeding) of any other
person or persons; (c) demand, presentment for payment, notice of nonpayment,
protest, notice of protest and all other notices of any kind, or the lack of
any thereof, including, without limitation, notice of the existence, creation
or incurring of any new or additional indebtedness or obligation or of any
action or nonaction on the part of Lender, any endorser or creditor of either
Indemnitor or any other person whomsoever under this or any other instrument
in connection with any obligation or evidence of indebtedness held by Lender;
(d) any defense based upon an election of remedies by Lender; (e) any right
or claim of right to cause a marshaling of the assets of either Indemnitor or
Borrower; (f) any principle or provision of law, statutory or otherwise,
which is or might be in conflict with the terms and provisions of this
Agreement; (g) any duty on the part of Lender to disclose to Indemnitor any
facts Lender may know about the Property, regardless of whether Lender has
reason to believe that any such facts materially increase the risk beyond
that which Indemnitor intends to assume or has reason to believe that such
facts are unknown to Indemnitor or has a reasonable opportunity to
communicate such facts to Indemnitor, it being understood and agreed that
Indemnitor is fully responsible for being and keeping informed of the
condition of the Property and of any and all circumstances bearing on the
risk that liability may be incurred by Indemnitor; (h) any lack of notice of
disposition or of manner of disposition of any collateral for the Loan; (i)
any invalidity, irregularity or unenforceability, in whole or in part, of any
of the Loan Documents; (j) any lack of commercial reasonableness in dealing
with the collateral for the Loan; (k) any deficiencies in the collateral for
the Loan or any deficiency in the ability of Lender to collect or to obtain
performance from any persons or entities now or hereafter liable for the
payment and performance of any obligation hereby guaranteed; (l) any
assertion or claim that the automatic stay provided by 11 U.S.C. Section.362
or any other stay provided under any other debtor relief law of any
jurisdiction whatsoever, now or hereafter in effect, shall operate to stay or
inhibit the ability of Lender to enforce any of its rights which Lender may
have against Indemnitor, or the collateral for the Loan; (m) any
modifications of the Loan Documents or any obligation of Borrower relating to
the Loan by operation of law or by action of any court, whether pursuant to
Title 11 of the United States Code, as amended, or any other debtor relief
law of any jurisdiction whatsoever, now or hereafter in effect, or otherwise;
and (n) any action, occurrence, event or matter consented to by Indemnitor
under SECTION 5(G) or any other provision hereof, or otherwise.
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<PAGE>
5. GENERAL PROVISIONS. (a) RIGHT TO INDEMNIFICATION NOT
AFFECTED BY KNOWLEDGE. Lender's right to defense, indemnification, payment of
Costs or other remedies based on this Agreement shall not be diminished or
affected in any way by any investigation conducted by Lender or other knowledge
acquired (or capable of being acquired) in any way by Lender at any time.
(b) SURVIVAL. This Agreement shall be deemed to be continuing
in nature and shall remain in full force and effect and shall survive the
payment of the indebtedness evidenced and secured by the Loan Documents and the
exercise of any remedy by Lender under the Mortgage or any of the other Loan
Documents, even if, as a part of such remedy, the Loan is paid or satisfied in
full.
(c) NO SUBROGATION; NO RECOURSE AGAINST LENDER.
Notwithstanding the satisfaction by Indemnitor of any liability hereunder,
Indemnitor shall not have any right of subrogation, contribution, reimbursement
or indemnity whatsoever or any right of recourse to or with respect to the
assets or property of Borrower. In connection with the foregoing, Indemnitor
expressly waives any and all rights of subrogation to Lender against Borrower,
and Indemnitor hereby waives any rights to enforce any remedy which Lender may
have against Borrower and any right to participate in any collateral for the
Loan. In addition to and without in any way limiting the foregoing, Indemnitor
hereby subordinates any and all indebtedness of Borrower now or hereafter owed
to Indemnitor to all indebtedness of Borrower to Lender, and agrees with Lender
that Indemnitor shall not demand or accept any payment of indebtedness or
interest from Borrower, shall not claim any offset or other reduction of
Indemnitor's obligations hereunder because of any such indebtedness and shall
not take any action to obtain any of the collateral securing the Loan. Further,
Indemnitor shall not have any right of recourse against Lender by reason of any
action Lender may take or omit to take under the provisions of this Agreement or
under the provisions of any of the Loan Documents.
(d) RESERVATION OF RIGHTS. Nothing contained in this Agreement
shall prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution or cost recovery, which
Lender may have against Indemnitor or any other party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. ss.9601 eT Seq.), as it may be amended from time to time, or any
other applicable federal, state or local laws, all such rights being hereby
expressly reserved.
(e) RIGHTS CUMULATIVE; PAYMENTS. Lender's rights under this
Agreement shall be in addition to all rights of Lender under the Note, the
Mortgage and the other Loan Documents. FURTHER, PAYMENTS MADE BY INDEMNITOR
UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OR INDEMNITOR'S
OBLIGATIONS AND LIABILITIES UNDER THE NOTE, THE MORTGAGE, THE GUARANTY OR THE
OTHER LOAN DOCUMENTS EXCEPT WITH RESPECT TO, AND TO THE EXTENT OF, BORROWER'S
OBLIGATION AND LIABILITY FOR THE PAYMENT MADE BY INDEMNITOR.
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<PAGE>
(f) NO LIMITATION ON LIABILITY. Indemnitor hereby consents and
agrees that Lender may at any time and from time to time without further consent
from Indemnitor do any of the following events, and the liability of Indemnitor
under this Agreement shall be unconditional and absolute and shall in no way be
impaired or limited by any of the following events, whether occurring with or
without notice to Indemnitor or with or without consideration: (i) any
extensions of time for performance required by any of the Loan Documents or
extension or renewal of the Note; (ii) any sale, assignment or foreclosure of
the Note, the Mortgage or any of the other Loan Documents or any sale or
transfer of the Property; (iii) any change in the ownership of Borrower,
including, without limitation, the withdrawal or removal of Indemnitor from any
current or future position of ownership, management or control of Borrower; (iv)
the accuracy or inaccuracy of the representations and warranties made by
Indemnitor herein or in the Mortgage or by Borrower in any of the Loan
Documents; (v) the release of Borrower or of any other person or entity from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law, Lender's
voluntary act or otherwise; (vi) the release or substitution in whole or in part
of any security for the Loan; (vii) Lender's failure to record the Mortgage or
to file any financing statement (or Lender's improper recording or filing
thereof) or to otherwise perfect, protect, secure or insure any lien or security
interest given as security for the Loan; (viii) the modification of the terms of
any one or more of the Loan Documents; or (ix) the taking or failure to take any
action of any type whatsoever. No such action which Lender shall take or fail to
take in connection with the Loan Documents or any collateral for the Loan, nor
any course of dealing with Borrower or any other person, shall limit, impair or
release Indemnitor's obligations hereunder, affect this Agreement in any way or
afford Indemnitor any recourse against Lender. Nothing contained in this Section
shall be construed to require Lender to take or refrain from taking any action
referred to herein.
(g) NOTICE. All notices, demands, requests or other
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly given by delivery
of the same in the manner and to the address or facsimile number set forth in
the Loan Agreement for Lender and Borrower and in the Guaranties for RoweCom and
Dawson, or at such other address or facsimile number as may be designated by
such party as herein provided. All notices, demands and requests shall be
effective as set forth in the Loan Agreement and the Guaranties. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given as herein required shall be deemed to be receipt of
the notice, demand or request sent.
(h) SUCCESSIVE ACTIONS. A separate right of action hereunder
shall arise each time Lender acquires knowledge of any matter indemnified by
Indemnitor under this Agreement. Separate and successive actions may be brought
hereunder to enforce any of the provisions hereof at any time and from time to
time. No action hereunder shall preclude any subsequent action, and Indemnitor
hereby waives and covenants not to assert any defense in the nature of splitting
of causes of action or merger of judgments.
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(i) WAIVER BY INDEMNITOR. Borrower and Indemnitor covenant and
agree that upon the commencement of a voluntary or involuntary bankruptcy
proceeding by or against Borrower, neither Borrower nor Indemnitor shall seek a
supplemental stay or otherwise seek, pursuant to 11 U.S.C. ss.105 or any other
provision of Title 11 United States Code, as amended, or any other debtor relief
law (whether statutory, common law, case law, or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, to
stay, interdict, condition, reduce or inhibit the ability of Lender to enforce
any rights of Lender against Indemnitor by virtue of this Agreement or
otherwise.
(j) SPECIFIC NOTICE. IT IS EXPRESSLY AGREED AND UNDERSTOOD
THAT THIS AGREEMENT INCLUDES INDEMNIFICATION PROVISIONS WHICH, IN CERTAIN
CIRCUMSTANCES, COULD INCLUDE AN INDEMNIFICATION BY INDEMNITOR OF LENDER FROM
CLAIMS OR LOSSES ARISING AS A RESULT OF LENDER'S OWN NEGLIGENCE.
(k) MISCELLANEOUS. (i) Any amendments or modifications hereto,
in order to be effective, shall be in writing and executed by the parties
hereto. A determination that any provision of this Agreement is unenforceable or
invalid shall not affect the enforceability or validity of any other provision,
and any determination that the application of any provision of this Agreement to
any person or circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to any other
persons or circumstances.
(ii) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO ITS
CONFLICTS OF LAWS RULES.
(iii) This Agreement shall bind the Indemnitor and the its
personal representatives, successors and assigns and shall inure to the benefit
of Lender, its officers, directors, shareholders, agents and employees of Lender
and their respective heirs, personal representatives, successors and assigns.
Notwithstanding the foregoing, Indemnitor shall not assign any of its rights or
obligations under this Agreement without the prior written consent of Lender,
which consent may be withheld by Lender in its sole discretion.
(iv) The failure of any party hereto to enforce any right or
remedy hereunder, or to promptly enforce any such right or remedy, shall not
constitute a waiver thereof nor give rise to any estoppel against such party nor
excuse any of the parties hereto from their respective obligations hereunder.
Any waiver of such right or remedy must be in writing and signed by the party to
be bound.
(v) This Agreement is subject to enforcement at law or in
equity, including actions for damages or specific performance.
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<PAGE>
(vi) Time is of the essence hereof.
(vii) The term "business day" as used herein shall mean a
weekday, Monday through Friday, except a legal holiday or a day on which banking
institutions in [Chicago, Illinois] are authorized by law to be closed.
(viii) The captions and headings of the sections and
paragraphs of this Agreement are for convenience of reference only and shall not
be construed in interpreting the provisions hereof.
(ix) In the event it is necessary for Lender to retain the
services of an attorney or any other consultants in order to enforce this
Agreement, or any portion thereof, Indemnitor agrees to pay to Lender any and
all costs and expenses, including, without limitation, reasonable attorney's
fees, incurred by Lender as a result thereof and such costs, fees and expenses
shall be included in Costs.
(x) This Agreement may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page.
(xi) All references to Indemnitor shall mean Faxon, McGregor,
Turner, RoweCom and Dawson, both individually and collectively, and jointly and
severally, and all representations, warranties, duties, covenants, agreements
and obligations of Indemnitor shall be the individual and collective
representations, warranties, duties, covenants, agreements and obligations of
each of Faxon, McGregor, Turner, RoweCom and Dawson.
(xii) All references to Borrower shall mean Faxon, McGregor
and Turner, both individually and collectively, and jointly and severally.
-8-
<PAGE>
IN WITNESS WHEREOF, Indemnitor has executed this Agreement as of the
day and year first written above.
THE FAXON COMPANY, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
-------------------------------
MCGREGOR SUBSCRIPTION COMPANY
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
THE TURNER SUBSCRIPTION AGENCY,
INCORPORATED
By:
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
DAWSON, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
ROWECOM, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
------------------------------
-9-
<PAGE>
EXHIBIT 10.37
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
$35,000,000.00 REVOLVING CREDIT FACILITY TO
THE TURNER SUBSCRIPTION AGENCY, INCORPORATED,
MCGREGOR SUBSCRIPTION SERVICE, INC., AND
THE FAXON COMPANY, INC.
<PAGE>
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO/
THE TURNER SUBSCRIPTION AGENCY, INCORPORATED,
MCGREGOR SUBSCRIPTION SERVICE, INC., AND
THE FAXON COMPANY, INC.
LOAN AND SECURITY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND TERMS ............................................... 1
2. LOANS: DISBURSEMENTS, INTEREST RATES AND LOAN REQUESTS ............. -8-
2.1 REVOLVING LOANS ....................................... -8-
2.2 INTEREST RATES ON LOANS ............................... -8-
2.3 COMPUTATION OF INTEREST ............................... -9-
3. LOANS: GENERAL TERMS ............................................... -9-
3.1 PAYMENTS .............................................. -9-
A. SCHEDULED PAYMENTS ........................... -9-
B. REVOLVING LOAN MANDATORY PREPAYMENTS ......... -9-
3.2 NOTES ................................................. -10-
3.3 ONE LOAN .............................................. -10-
3.4 USE OF LOAN PROCEEDS .................................. -10-
3.5 MAXIMUM REVOLVING LOANS ............................... -10-
3.6 REPRESENTATION AND WARRANTY ........................... -10-
3.7 AUTHORIZATION TO DISBURSE ............................. -10-
3.8 BANK CHARGES .......................................... -10-
3.9 PAYMENT OF COSTS, FEES AND EXPENSES ................... -11-
3.10 DEBIT OF ACCOUNTS ..................................... -11-
3.11 APPLICATION OF PAYMENTS ............................... -11-
3.12 CO-OBLIGOR PROVISIONS ................................. -11-
3.13 CLOSING FEE ........................................... -12-
3.14 UNUSED COMMITMENT FEE ................................. -12-
4. COLLATERAL: GENERAL TERMS .......................................... -12-
4.1 GRANT OF SECURITY INTEREST ............................ -12-
4.2 SUPPLEMENTAL DOCUMENTATION ............................ -13-
4.3 INSPECTIONS AND VERIFICATIONS ......................... -13-
4.4 LIENS/COLLATERAL LOCATIONS ............................ -13-
4.6 ACCOUNT EARNINGS CREDIT ............................... -14-
4.7 ASSIGNMENT OF COMPETING SECURITY INTEREST ............. -14-
4.8 SPECIAL COLLATERAL .................................... -14-
4.9 ADDITIONAL COLLATERAL ................................. -15-
4.10 NO CUSTOM OR WAIVER ................................... -15-
4.11 LIEN ON REALTY ........................................ -15-
<PAGE>
<S> <C> <C> <C>
5. COLLATERAL: ACCOUNTS ............................................... -15-
5.1 ELIGIBLE ACCOUNTS ..................................... -15-
5.2 NOTICE OF INELIGIBLE ACCOUNTS ......................... -16-
5.3 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS .. -16-
5.4 REVOLVING LOANS ....................................... -17-
5.5 VERIFICATION OF ACCOUNTS .............................. -17-
5.6 SCHEDULE OF ACCOUNTS .................................. -17-
5.7 NOTICES REGARDING ACCOUNT DEBTORS ..................... -17-
5.8 FAILURE TO DIRECT ACCOUNT DEBTORS ..................... -18-
5.9 NOTICE REGARDING DISPUTED ACCOUNTS .................... -18-
5.10 ATTORNEY AND AGENT-IN-FACT ............................ -18-
6. COLLATERAL: INVENTORY .............................................. -18-
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS ............. -18-
7. EQUIPMENT ...................................................... -19-
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS ............. -19-
7.2 MAINTENANCE OF EQUIPMENT .............................. -19-
7.3 EVIDENCE OF OWNERSHIP ................................. -19-
7.4 RECORDS AND SCHEDULES OF EQUIPMENT .................... -19-
8. INSURANCE AND TAXES ................................................. -19-
8.1 INSURANCE ............................................. -19-
8.2 TAXES ................................................. -20-
9. REPRESENTATIONS, WARRANTIES AND COVENANTS: GENERAL ................ -20-
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS ............. -20-
(A) ORGANIZATION AND QUALIFICATION ............... -20-
(B) CORPORATE POWER AND AUTHORITY ................ -21-
(C) NO VIOLATION OF LAW .......................... -21-
(D) TITLE TO COLLATERAL .......................... -21-
(E) SOLVENCY ..................................... -21-
(F) LITIGATION ................................... -21-
(G) INDEBTEDNESS ................................. -21-
(H) GOVERNMENT CONTRACTS ......................... -21-
(I) ADEQUATE ASSETS/TRADEMARKS/COPYRIGHTS/PATENTS. -21-
(J) GOOD STANDING ................................ -21-
(K) BURDENSOME AGREEMENTS ........................ -22-
(L) VIOLATION OF LAW ............................. -22-
(M) BREACH OF OTHER LOAN DOCUMENTS ............... -22-
(N) FINANCIAL INFORMATION ........................ -22-
(O) FINANCIAL STATEMENTS ......................... -22-
(P) MATERIAL ADVERSE CHANGE ...................... -22-
(Q) CHANGE OF CORPORATE NAME OR STRUCTURE ........ -22-
(R) CAPITAL STRUCTURE ............................ -22-
(S) PENSION PLANS ................................ -23-
<PAGE>
<S> <C> <C> <C>
(T) LABOR RELATIONS ............................... -23-
(U) TRADE RELATIONS ............................... -23-
(V) NOTICES TO THE BANK ........................... -23-
(W) LANDLORD AND STORAGE AGREEMENTS ............... -24-
(X) SUBORDINATIONS ................................ -24-
(Y) ENVIRONMENTAL MATTERS ......................... -24-
(Z) FINANCIAL PROJECTIONS ......................... -24-
(AA) SURVEY ........................................ -24-
9.2 REPRESENTATIONS, WARRANTIES AND NEGATIVE COVENANTS ..... -25-
(A) ADDITIONAL ENCUMBRANCES ....................... -25-
(B) LEVIES AND ATTACHMENTS ........................ -25-
(C) RECEIVER, TRUSTEE OR ASSIGNEE ................. -25-
(D) MERGERS AND ACQUISITIONS ...................... -25-
(E) ORDINARY COURSE OF BUSINESS ................... -25-
(F) INVESTMENTS ................................... -25-
(G) SURETY ........................................ -25-
(H) CAPITAL STRUCTURE ............................. -25-
(I) ENCUMBRANCE OR SALE ........................... -25-
(J) SALE OF STOCK ................................. -25-
(K) INDEBTEDNESS .................................. -25-
(L) RESTRICTED PAYMENTS ........................... -25-
(M) CONSTITUENT DOCUMENTS ......................... -26-
(N) AFFILIATE TRANSACTIONS ........................ -26-
9.3 FINANCIAL COVENANTS .................................... -26-
(A) WORKING CAPITAL ............................... -26-
(B) TANGIBLE NET WORTH ............................ -26-
(C) CAPITAL EXPENDITURES .......................... -26-
9.4 FINANCIAL REPORTING .................................... -26-
10. CONDITIONS PRECEDENT ................................................ -27-
10.1 CONDITIONS TO INITIAL FUNDING .......................... -27-
10.2 CONDITIONS TO SUBSEQUENT FUNDINGS ...................... -28-
11. EVENT OF DEFAULT; REMEDIES .......................................... -29-
11.1 EVENTS OF DEFAULT ...................................... -29-
11.2 CUMULATIVE REMEDIES .................................... -30-
11.3 DISCONTINUING ADVANCES ................................. -30-
11.4 REMEDIES ............................................... -31-
11.5 ASSEMBLING COLLATERAL .................................. -31-
11.6 NOTICE OF SALE ......................................... -31-
11.7 POSTPONEMENT OF SALE ................................... -31-
12. GENERAL ............................................................. -31-
12.1 BANK ACCOUNTS .......................................... -31-
12.2 APPLICATION OF PAYMENTS ................................ -32-
12.3 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS ... -32-
12.4 MODIFICATION AND ASSIGNMENT OF LOAN DOCUMENTS .......... -32-
<PAGE>
<S> <C> <C> <C>
12.5 WAIVER OF UNMATURED EVENT OF DEFAULTS .................. -32-
12.6 SEVERABILITY ........................................... -33-
12.7 SUCCESSORS AND ASSIGNS ................................. -33-
12.8 INCORPORATION OF OTHER AGREEMENTS; EXHIBITS ............ -33-
12.9 SURVIVAL OF TERMINATION ................................ -33-
12.10 WAIVER OF NOTICES ...................................... -33-
12.11 AUTHORITY TO EXECUTE AND BORROW ........................ -33-
12.12 COSTS, FEES AND EXPENSES ............................... -33-
12.13 BINDING AGREEMENT; GOVERNING LAW ....................... -34-
12.14 NOTICES ................................................ -34-
12.15 OTHER COSTS, FEES AND EXPENSES ......................... -35-
12.16 RELEASE OF CLAIMS ...................................... -35-
12.17 CAPITAL ADEQUACY CHARGE ................................ -36-
12.18 HEADINGS ............................................... -36-
12.19 MAXIMUM INTEREST ....................................... -36-
12.20 CONSTRUCTION ........................................... -36-
12.21 REVIVAL OF LIABILITIES ................................. -36-
12.22 GENERAL INDEMNITY ...................................... -37-
12.23 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY .......... -37-
12.24 YEAR 2000 .............................................. -37-
12.25 JOINT AND SEVERAL LIABILITY ............................ -38-
12.27 MERGER CLAUSE .......................................... -38-
12.28 SERVICE OF PROCESS ..................................... -38-
12.29 JURISDICTION; VENUE; WAIVER OF JURY TRIAL .............. -38-
12.30 JURY WAIVER ............................................ -38-
Exhibit "A"
FORM OF BORROWING BASE CERTIFICATE ................................... -40-
Exhibit "B"
PERMITTED LIENS ...................................................... -41-
Exhibit "C"
REQUEST FOR ADVANCE AT THE LIBOR RATE ................................ -42-
Exhibit "D"
PRINCIPAL PLACES OF BUSINESS AND COLLATERAL LOCATIONS ................ -43-
Exhibit "E"
REAL PROPERTY OWNED BY BORROWERS ..................................... -44-
Exhibit "F"
SCHEDULE OF INDEBTEDNESS (OTHER THAN TRADE DEBT) ..................... -45-
<PAGE>
Exhibit "G"
BORROWERS AND ITS SUBSIDIARIES' CORPORATE INFORMATION;
STOCK OPTIONS AND AGREEMENTS .......................................... -46-
Exhibit "H"
LABOR RELATIONS ....................................................... -47-
Exhibit "I"
BORROWERS' FISCAL YEAR 2000 FINANCIAL PROJECTIONS ..................... -48-
</TABLE>
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Loan Agreement") is
made and entered into as of December 14, 1999, by and between American National
Bank and Trust Company of Chicago, a national banking association, with its
principal office located at 120 South LaSalle Street, Chicago, Illinois 60603
(the "Bank"), and The Turner Subscription Agency, Incorporated, a Delaware
corporation ("Turner"), McGregor Subscription Service, Inc., an Illinois
corporation ("McGregor"), and The Faxon Company, Inc., a Massachusetts
corporation ("Faxon") (Turner, McGregor and Faxon are individually a "Borrower"
and collectively the "Borrowers").
W I T N E S S E T H:
WHEREAS, Borrowers desire the Bank to provide certain
extensions of credit, loans or other financial accommodations to Borrowers in a
maximum aggregate principal amount not to exceed Thirty-Five Million and no/100
Dollars ($35,000,000.00) (the "Financial Accommodations"); and
WHEREAS, the Bank is willing to provide the Financial
Accommodations to Borrowers, but solely on the terms and subject to the
conditions set forth in this Loan Agreement and the other documents, instruments
and agreements executed and delivered pursuant to this Loan Agreement or
referenced herein.
NOW THEREFORE, in consideration of the Financial
Accommodations, the mutual promises and understandings of the Bank and Borrowers
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Bank and Borrowers hereby agree
as set forth in this Loan Agreement.
1. DEFINITIONS AND TERMS
1.1 The following words, terms or phrases shall have the
following meanings:
"ACCOUNT", "CHATTEL PAPER", "DEPOSIT ACCOUNT", "DOCUMENT",
"DOCUMENT OF TITLE", "EQUIPMENT", "FIXTURE", "GENERAL INTANGIBLE", "GOODS",
"INSTRUMENT", "INVENTORY" and "INVESTMENT PROPERTY": shall have their respective
meanings as set forth in the Illinois Uniform Commercial Code.
"ACCOUNT DEBTOR": shall mean any Person who is or shall become
obligated to any Borrower under or on account of any Accounts.
"AFFILIATE": shall mean any Person that directly or
indirectly, through one or more intermediaries, owns, controls or is controlled
by, or is under common control with, any Borrower. A Person shall be presumed to
control a Borrower if such Person is the direct or indirect legal or beneficial
owner of more than fifteen percent (15%) of the outstanding Stock of such
Borrower.
"BORROWING BASE": shall mean the total, without duplication,
of the following:
A. From the date of initial funding, through and including
May 30, 2000:
(1) eighty-five percent (85%) of the difference between (a)
the face amount of all then existing Eligible Accounts as set
forth on the Borrowing Base Certificate delivered by
<PAGE>
Borrowers to the Bank from time to time minus all finance
charges and prompt payment, volume and all other discounts,
credits or allowances which may be taken by or granted to
Account Debtors, minus 100% of the face amount of all proceeds
of the Eligible Accounts listed on such Borrowing Base
Certificate which Borrowers have received since the date of
the most recently delivered Borrowing Base Certificate
delivered to the Bank, and (b) 70% of the Deferred Revenue
Account,
(2) plus the Secured Over Formula Advance.
B. From May 31, 2000, and thereafter, zero and no/100
Dollars ($0).
"BORROWING BASE CERTIFICATE" shall mean the certificate delivered from
time to time by Borrowers to the Bank in accordance with this Loan Agreement in
the form attached hereto as Exhibit "A", as such form may be modified by the
Bank from time to time.
"BUSINESS DAY": shall mean any day that is not a Saturday, a Sunday or
a day on which banks are required or permitted to be closed in the State of
Illinois.
"CAPITAL EXPENDITURES": shall mean as to any Person, any and all
expenditures of such Person for fixed or capital assets, including, without
limitation, the incurrence of Capitalized Lease Obligations, all as determined
in accordance with GAAP; provided, however, Capital Expenditures shall not
include expenditures for fixed or capital assets to the extent such expenditures
are paid for or reimbursed from the proceeds of insurance.
"CAPITALIZED LEASE OBLIGATIONS": shall mean all obligations or
liabilities created or arising under any capitalized lease of real or personal
property, or conditional sale or other title retention agreement, whether or not
the rights and remedies of the lessor, seller or lender thereof are limited to
repossession of the property giving rise to such obligations or liabilities.
"CHARGES": shall mean all national, federal, state, county, city,
municipal or other governmental, including, but not limited to, any
instrumentality, division, agency, body or department thereof, taxes, levies,
assessments, charges, liens, claims or encumbrances upon or relating to the
Collateral, the Liabilities, each Borrower's business, ownership or use of any
of its assets, or Borrowers' income or gross receipts.
"COLLATERAL": shall have the meaning ascribed to such term in Section
4.1 below.
"COVENANTS": shall mean all now existing and hereafter arising
covenants, duties, obligations and agreements of Borrowers to and with the Bank,
whether pursuant to this Loan Agreement, the Other Agreements or otherwise.
"DAWSON": shall mean Dawson, Inc., a Delaware corporation, and its
successors and assigns.
"DAWSON GUARANTY": shall mean that certain Dawson Corporate Guaranty of
even date herewith executed and delivered by Dawson to the Bank, as amended,
renewed or restated from time to time.
-2-
<PAGE>
"DEFAULT RATE": shall mean two percent (2%) per annum in excess of the
Prime Rate.
"DEFERRED REVENUE ACCOUNT": shall mean the deferred revenue of the
Borrowers shown on Borrowers' balance sheet which consists of customer advances,
including, without limitation, customer advances for which Borrowers have not
placed a corresponding order to the publisher/vendor. The Deferred Revenue
Account shall be determined on a basis consistent with Borrowers' accounting
practices utilized in the Financials delivered to the Bank prior to the date
hereof.
"DESIGNATED PERSON": for each Borrower, shall mean Dr. Richard Rowe, or
any other officers of such Borrower, or any other person from time to time
designated by any officer of such Borrower.
"ELIGIBLE ACCOUNTS": shall have the meaning ascribed to such term in
Section 5.1 below.
"ENVIRONMENTAL LAWS": shall mean all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including, but not
limited to, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Toxic
Substances Control Act as amended, the Clean Water Act, the River and Harbor
Act, Water Pollution Control Act, the Marine Protection Research and Sanctuaries
Act, the Deep-Water Port Act, the Safe Drinking Water Act, the SuperFund
Amendments and Reauthorization Act of 1986, the Federal Insecticide, Fungicide
and Rodenticide Act, the Mineral Lands and Leasing Act, the Surface Mining
Control and Reclamation Act, state and federal superlien and environmental clean
up programs and laws, and U.S. Department of Transportation regulations.
"ERISA": shall mean the Employee Retirement Income Security Act of 1974
and all rules and regulations from time to time promulgated thereunder.
"EVENT OF DEFAULT": shall have the meaning ascribed to such term in
Section 11.1 below.
"FINANCIALS": shall mean all year-end financial statements,
projections, interim financial statements, tax returns, reports and similar
documentation and information previously delivered by Borrowers to the Bank and
the documents described in Section 9.4, individually or collectively.
"GAAP": shall mean generally accepted accounting principles
consistently applied from time to time.
"HAZARDOUS SUBSTANCES": shall have the meaning set forth in 42 USC ss.
9601(14), 42 USC ss. 9601(33) and 42 USC ss. 6991(8) or any state or local
counterpart Environmental Law.
"INDEBTEDNESS": shall mean all obligations and liabilities of Borrowers
to any Person other than the Bank, including, but not limited to, (1) all
indebtedness whether primary or secondary, direct or indirect, absolute or
contingent, liquidated or unliquidated, insured or uninsured, fixed or
otherwise, heretofore, now or from time to time hereafter owing, due or payable,
however evidenced, created, incurred or acquired, and howsoever arising, whether
by written or oral agreement, operation of law or otherwise; (2) all obligations
or liabilities of any Person that are secured by any lien, claim,
-3-
<PAGE>
encumbrance or security interest upon the Collateral or other assets of
Borrowers, whether or not Borrowers have assumed or become liable for the
payment thereof; (3) all Capitalized Lease Obligations; (4) all unfunded pension
obligations; and (5) all deferred taxes.
"INDEMNIFIED LIABILITIES": shall have the meaning ascribed to such term
in Section 12.22 below.
"INDEMNITEES": shall have the meaning ascribed to such term in Section
12.22 below.
"INTEREST PERIOD": shall mean the period commencing on the date a LIBOR
Loan is made and ending, as Borrowers shall select in advance, thirty (30),
sixty (60) or ninety (90) days thereafter.
"LETTERS OF CREDIT" shall mean any letters of credit which are now or
at any time hereafter issued by the Bank at the request of and for the account
of Borrowers.
"LIABILITIES": shall mean any and all obligations, liabilities,
indebtedness, Rate Hedging Obligations, fees, costs and expenses, now or
hereafter owed or owing by Borrowers to the Bank, including, but not limited to,
all principal, interest, debts, claims and indebtedness of any and every kind
and nature, howsoever created, arising or evidenced, whether primary or
secondary, direct or indirect, absolute or contingent, insured or uninsured,
liquidated or unliquidated, or otherwise, and whether arising or existing under
written or oral agreement or by operation of law, together with all costs, fees
and expenses of the Bank, including, but not limited to, the indebtedness
evidenced by the Revolving Note, and attorneys' and paralegals' fees or charges
relating to the preparation of this Loan Agreement and the Other Agreements and
the enforcement of the Bank's rights and remedies pursuant to this Loan
Agreement and the Other Agreements.
"LIBOR LOAN": shall mean any Loan bearing interest based upon the LIBOR
Rate.
"LIBOR RATE": means, for any Interest Period, the interest rate per
annum (rounded upwards, if necessary to the next 1/100th of 1%) at which
deposits in U.S. Dollars in immediately available funds are being offered to
prime banks in the London interbank market at 11:00 a.m. (London, England, time)
two (2) Business Days before the beginning of such Interest Period for a period
equal to such Interest Period and in an amount as nearly comparable as possible
to the principal balance of the applicable LIBOR Loan, determined in accordance
with the Bank's normal practice in the London Interbank Eurodollar Market for
U.S. dollar deposits. Each determination of the LIBOR Rate made by the Bank
shall be conclusive and binding on Borrowers absent manifest error.
"LOAN OR LOANS": shall mean, individually and collectively, the
Revolving Loans.
"MASSACHUSETTS ASSIGNMENT OF RENTS": shall mean that certain Assignment
of Rents and Leases of even date herewith executed and delivered by Faxon to the
Bank, as amended, renewed or restated from time to time.
"MASSACHUSETTS MORTGAGE": shall mean that certain Mortgage, Security
Agreement, Assignment of Rents and Fixture Filing of even date herewith executed
and delivered by Faxon to the Bank encumbering the real property commonly known
as 15 Southwest Park, Westwood, Massachusetts 02090, as amended, renewed or
restated from time to time.
-4-
<PAGE>
"MAXIMUM REVOLVING LOAN": shall mean (a) from the date hereof through
and including January 31, 2000, an amount equal to Thirty-Five Million and
no/100 Dollars ($35,000,000.00), (b) from February 1, 2000, through and
including February 29, 2000, an amount equal to Twenty-Five Million and no/100
Dollars ($25,000,000.00), (c) from March 1, 2000, through and including March
31, 2000, an amount equal to Fifteen Million and no/100 Dollars
($15,000,000.00), (d) from April 1, 2000, through and including April 30, 2000,
an amount equal to Ten Million and no/100 Dollars ($10,000,000.00), (e) from May
1, 2000, through and including May 30, 2000, Five Million and no/100 Dollars,
and (f) from and after May 31, 2000, zero and no/100 Dollars ($0).
"MULTIEMPLOYER PLAN": shall have the meaning ascribed to such term in
Section 4001(a)(3) of ERISA.
"OTHER AGREEMENTS": shall mean all agreements, instruments and
documents, including, but not limited to, guaranties, mortgages, deeds of trust,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other writings heretofore, now
or from time to time hereafter executed by or on behalf of Borrowers or any
other Person and delivered to the Bank in connection with the Liabilities or any
of the transactions contemplated herein, together with any amendments,
modifications, extensions or renewals thereto, including, but not limited to,
(1) the Revolving Note, (2) the Massachusetts Mortgage, (3) the Massachusetts
Assignment of Rents, (4) the RoweCom Guaranty, (5) the Dawson Guaranty, and (6)
the other documents, instruments and agreements described in Section 10.1(A) of
this Loan Agreement.
"PARENT": shall mean any Person, now or at any time or times hereafter,
owning or controlling, directly or indirectly, at least a majority of the issued
and outstanding Stock or other ownership interest of Borrowers or any
Subsidiary.
"PERMITTED INDEBTEDNESS": shall mean (1) renewals or extensions of
existing Indebtedness, (2) trade payables arising in the ordinary course of
Borrowers' business, (3) other obligations of Borrowers incurred in the ordinary
course of Borrowers' business as presently conducted that are not (a) past due,
or (b) incurred through the borrowing of money or the obtaining of credit, (4)
Indebtedness in respect of taxes, assessments, governmental charges or levies
and claims for labor, materials and supplies that is incurred in the ordinary
course of Borrowers' business as presently conducted and is not past due, (5)
Indebtedness in respect of judgments or awards which does not constitute an
Event of Default hereunder, (6) Indebtedness constituting contingent liabilities
arising under, relating to, or in connection with, any agreements with employees
of Borrowers, including, without limitation, any employment agreements, in an
aggregate amount not to exceed $500,000.00 at any time, (7) Indebtedness in
respect of employee benefit plans and programs that is incurred in the ordinary
course of Borrowers' business as presently conducted and is not past due, and
(8) purchase money Indebtedness incurred in connection with the acquisition of
Equipment in an aggregate amount not to exceed $500,000.00 at any time.
"PERMITTED LIENS": shall mean (1) liens for current taxes and duties
not delinquent or for taxes being contested in good faith, by appropriate
proceedings which do not involve, in the sole determination of the Bank, any
material danger of the sale or loss of any of the Collateral and with respect to
which Borrowers has provided for and is maintaining adequate reserves in
accordance with GAAP, (2) liens granted by any Subsidiary to secure such
Subsidiary's indebtedness to Borrowers, (3) Liens in the Bank's favor, (4) Liens
incurred in the ordinary course of business in connection with
-5-
<PAGE>
workers' compensation, unemployment insurance and other statutory obligations,
provided that such obligations are not past due and owing, (5) easements, rights
of way, restrictions and other similar charges or encumbrances with respect to
real property not interfering in any material respect with the ordinary conduct
of Borrower's business, (6) the security interests and liens listed on Exhibit
"B", and (7) liens securing purchase money Indebtedness allowed in the
definition of Permitted Indebtedness.
"PERSON": shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or foreign or United States
government, whether federal, state, county, city, municipal or otherwise,
including, but not limited to, any instrumentality, division, agency, body or
department thereof.
"PLAN": shall mean an employee benefit plan now or hereafter maintained
for employees of Borrowers that is covered by Title IV of ERISA.
"PRIME RATE": shall mean the daily rate equivalent of the annual rate
of interest announced from time to time by the Bank as its corporate prime,
reference or base rate of interest, as the case may be, which rate may not be
the most favorable or lowest rate of interest offered or charged by the Bank to
its commercial or other borrowers.
"PROHIBITED TRANSACTION": shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986.
"RATE HEDGING OBLIGATIONS": shall mean any and all obligations of
Borrowers, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (1) any and all
agreements designed to protect Borrowers from the fluctuations of interest
rates, exchange rates or forward rates applicable to such party's assets,
liabilities or exchange transactions, including, but not limited to: interest
rate swap agreements, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest rate cap,
floor or collar agreements, forward rate currency agreements relating to
interest options, puts and warrants, and (2) any and all agreements relating to
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"REPORTABLE EVENT": shall mean any of the events set forth in Section
4043(b) of ERISA.
"RESTRICTED PAYMENTS": shall mean any of the following: (1) any
dividend, distribution or return of capital to any shareholder of any Borrower,
or any other payment or delivery of property or cash to any of Borrower's
shareholders, or any redemption, retirement, purchase or other acquisition of
all or any portion of the Stock of Borrower, and (2) any distribution, loan, or
advance to any Affiliate.
"REVOLVING LOAN": shall mean, individually and collectively, the loans
provided by the Bank from time to time to Borrowers pursuant to Section 2.1
below.
"REVOLVING LOAN TERMINATION DATE": shall mean November 28, 2000;
provided, however, the Revolving Loan Termination Date may be extended for an
additional 364 day period if (a) after August 1, 2000, but prior to September
15, 2000, Borrowers request that the Bank consider extending the Revolving Loan
Termination Date for an additional 364 day period, and (b) the Bank, in its sole
and
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absolute discretion, elects to extend the Revolving Loan Termination Date.
Nothing in this Agreement shall be interpreted as a commitment by the Bank to
extend the Revolving Loan Termination Date beyond November 28, 2000.
"REVOLVING NOTE": shall mean that certain Revolving Note of even date
herewith executed and delivered by Borrowers to the Bank in a maximum aggregate
principal amount not to exceed the Maximum Revolving Loan, as amended, renewed,
restated or replaced from time to time.
"ROWECOM": shall mean RoweCom Inc., a Delaware corporation, and its
successors and assigns.
"ROWECOM GUARANTY": shall mean that certain RoweCom Corporate Guaranty
of even date herewith executed and delivered by RoweCom to the Bank, as amended,
renewed or restated from time to time.
"SCHEDULE OF ACCOUNTS": shall have the meaning set forth in Section 5.6
below.
"SECURED OVER FORMULA ADVANCE": shall mean the lesser of (a) Four
Million and no/100 Dollars ($4,000,000.00), or (b) an amount equal to ten
percent (10%) of the face amount of Borrowers' gross Accounts from time to time.
"SPECIAL COLLATERAL": shall mean that portion of the Collateral
evidenced by Chattel Paper, Instruments or Documents.
"STOCK": shall mean any and all shares and other equity and ownership
interests, however designated, of or in a corporation, whether or not voting,
including, but not limited to, common stock, warrants, preferred stock,
convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more of the foregoing.
"SUBORDINATED DEBT": shall mean Borrowers' Indebtedness which is
subordinated to the payment of all of the Liabilities to Lender pursuant to a
written subordination agreement in form and substance acceptable to the Bank.
"SUBSIDIARY": shall mean any Person who is under the direct or indirect
ownership or control of Borrowers.
"SUPPLEMENTAL DOCUMENTATION": shall have the meaning set forth in
Section 4.2 below.
"TANGIBLE NET WORTH": shall mean, as of any particular date and
calculated for Borrowers on a consolidated basis in a manner consistent with
GAAP, the total of (1) Borrowers' total stockholder's equity, as it is shown on
the Borrowers' consolidated balance sheet, plus (2) Subordinated Debt, less (3)
all values attributable to prepaid expenses, goodwill, patents, copyrights,
trademarks, licenses, capital leases and other intangible assets and loans and
Accounts due from officers, employees, Subsidiaries and Affiliates.
"UNMATURED EVENT OF DEFAULT": shall mean the occurrence or existence of
any event or condition which with notice, lapse of time or both would constitute
an Event of Default.
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"WORKING CAPITAL": shall mean, as of any particular date and calculated
for Borrowers on a consolidated basis in a manner consistent with GAAP, the
difference between (1) Borrowers' current assets, and (2) Borrowers' current
liabilities other than the Revolving Loan.
1.2 Except as otherwise defined in this Loan Agreement or the Other
Agreements, any accounting terms used in this Loan Agreement which are not
specifically defined herein shall have the meanings customarily given them in
accordance with GAAP. Unless the context indicates otherwise, all other words,
terms or phrases used herein shall be defined by the applicable definition
therefor, if any, in the Uniform Commercial Code as adopted by the State of
Illinois.
2. LOANS: DISBURSEMENTS, INTEREST RATES AND LOAN REQUESTS
2.1 REVOLVING LOANS.
(A) Provided that an Unmatured Event of Default or Event of Default does
not then exist and all of the conditions precedent in Section 10 of this Loan
Agreement have been satisfied, the Bank shall loan to Borrowers on a revolving
credit basis the lesser of (1) the Maximum Revolving Loan, or (2) the Borrowing
Base. The Revolving Loan shall be evidenced by and repaid in accordance with the
Revolving Note. Notwithstanding anything contained in this Loan Agreement or the
Other Agreements to the contrary, effective immediately upon notice from the
Bank to Borrowers, the Bank may, in its reasonable discretion, change, at any
time and from to time, the method of calculating the Borrowing Base, including,
but not limited to, reducing advance rates against Eligible Accounts, excluding
certain accounts from the Secured Over Formula Advance calculation and deducting
additional or other reserves from the Borrowing Base; provided, however, if any
change in the method of calculating the Borrowing Base under this Section 2.1(A)
causes the total amount of the outstanding Revolving Loans to exceed the
Borrowing Base, Borrowers shall have a period of five (5) days after notice of
such change to reduce the amount of the outstanding Revolving Loans to an amount
equal to or less than the Borrowing Base. During such five (5) day period, the
Bank shall not be obligated to make any Revolving Loan advances to Borrowers
until such time as the outstanding Revolving Loans are less than or equal to the
revised Borrowing Base.
(B) A request for a Revolving Loan shall be made, or shall be deemed made,
in the following manner: (1) Borrowers may give the Bank notice of its intention
to borrow in accordance with the provisions of this Section 2.1, or (2) if any
amount required to be paid under this Loan Agreement or the Other Agreements
becomes due and is not timely paid, such occurrence shall be deemed irrevocably
to be a request for a Revolving Loan on the due date in the amount then due.
(C) Each request for a Revolving Loan shall be made by notice, given not
later than 11:00 A.M. (Chicago time) on the Business Day of the proposed
Revolving Loan, from Borrowers to the Bank. If requested by the Bank, such
notice shall be accompanied by a Borrowing Base Certificate in form and
substance satisfactory to the Bank.
2.2 INTEREST RATES ON LOANS.
2.2.1 Borrowers hereby promise to pay interest on the unpaid principal
amount of the Revolving Loan as provided in Section 3.1 below at the floating
per annum rate of interest equal to the Prime Rate for the period commencing on
the date such Loan is disbursed until the date such Loan is paid in full.
Provided, however, Borrowers shall have the option of converting the interest
rate for all or
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a portion of the Revolving Loan to the LIBOR Rate, plus Two Hundred Fifty (250)
basis points, in accordance with Section 2.2.2 below. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, the unpaid principal
amount of the Revolving Loan shall, at the Bank's option, bear interest after
such Event of Default at the Default Rate.
2.2.2 Each LIBOR Loan shall be in the minimum amount of Five Million and
no/100 Dollars ($5,000,000.00), with integral amounts of Five Hundred Thousand
and no/100 Dollars ($500,000.00) thereafter. Not more than five (5) nor less
than two (2) Business Days prior to the requested date of any LIBOR Loan, any
Borrower shall deliver to the Bank an irrevocable written or telephonic notice
setting forth the requested date and amount of such LIBOR Loan and the duration
of the Interest Period applicable thereto. Each such notice shall be accompanied
by a Request for Advance at the LIBOR Rate in the form of Exhibit "C" to this
Loan Agreement. Unless Borrowers notifies the Bank to the contrary, upon the
expiration of any Interest Period for a LIBOR Loan, such LIBOR Loan shall
automatically convert to a Loan at the Prime Rate. Borrowers shall not (A)
request a LIBOR Loan for an Interest Period that expires on any date after the
repayment date of all or any portion of such LIBOR Loan, (B) request, nor permit
to be in effect, more than three (3) LIBOR Loans at any time, nor (C) prepay any
advance bearing interest at the LIBOR Rate unless Borrowers pay to the Bank all
breakage costs incurred by the Bank as a result of such prepayment. If Borrowers
pay any LIBOR Loan on any day other than the last day of the Interest Period,
then Borrowers shall pay to the Bank all of the Bank's costs, fees and expenses
incurred in connection therewith, including, without limitation, charges or
costs associated with changing LIBOR Rates prior to the expiration of their
scheduled Interest Period.
2.3 COMPUTATION OF INTEREST. Interest on the Loans shall be computed for
the actual number of days elapsed on the basis of a three hundred sixty (360)
day year.
3. LOANS: GENERAL TERMS
3.1 PAYMENTS.
A. SCHEDULED PAYMENTS. Except as otherwise provided in this Loan Agreement
or the Other Agreements, that portion of the Liabilities consisting of: (A) the
principal portion of the Revolving Loan shall be payable in full by Borrowers to
the Bank on or before May 31, 2000; (B) interest on the Revolving Loans shall be
payable by Borrowers to the Bank on the last Business Day of each month, as
debited by the Bank; (C) all costs, fees and expenses payable pursuant to this
Loan Agreement and the Other Agreements shall be payable by Borrowers to the
Bank, or to such other Persons designated by the Bank, on demand; and (D) the
balance of the Liabilities, if any, shall be payable by Borrowers to the Bank on
demand. All such payments to the Bank shall be payable at the Bank's principal
office in Chicago, Illinois, or at such other place or places as the Bank may
designate in writing to Borrowers. All such payments to Persons other than the
Bank shall be payable at such place or places as the Bank may designate in
writing to Borrowers.
B. REVOLVING LOAN MANDATORY PREPAYMENTS. Borrowers agrees that if at any
time the aggregate unpaid principal amount of all Revolving Loans shall exceed
the Borrowing Base, it will forthwith make a mandatory prepayment of principal
in an amount equal to such excess. Each such mandatory prepayment shall be
without premium or penalty except with respect to LIBOR Loans as to which the
provisions of Section 2.2.2 shall apply.
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3.2 NOTES. Loans made by the Bank to Borrowers pursuant to this Loan
Agreement may or may not, at the Bank's discretion, be evidenced by notes or
other instruments issued or executed and delivered by Borrowers to the Bank,
including, but not limited to, the Revolving Note. Where such loans are not so
evidenced, such loans shall be evidenced by entries upon the ledgers, books,
records or computer records of the Bank maintained for that purpose. The Bank's
failure to record any portion of the Liabilities on such books and records shall
not limit or otherwise affect the obligations and liabilities of Borrowers to
repay the Liabilities due and owing to the Bank pursuant to this Loan Agreement
and the Other Agreements.
3.3 ONE LOAN. All of the Liabilities shall constitute one loan secured by
the Bank's security interest and lien in and to the Collateral and by all other
security interests, liens, mortgages, claims and encumbrances heretofore, now or
from time to time hereafter granted by Borrowers to the Bank.
3.4 USE OF LOAN PROCEEDS. Each Borrower represents, warrants and covenants
unto the Bank that each Borrower shall use the proceeds of all Loans made by the
Bank to such Borrower pursuant to this Loan Agreement and the Other Agreements
as follows: (A) from time to time hereafter, the Revolving Loan shall be used to
meet Borrowers' general operating capital needs to the extent consistent with
this Loan Agreement, and (B) proceeds of the Loans shall be used solely for
proper business purposes and consistent with all applicable laws and statutes,
including, but not limited to, Illinois Compiled Statutes, Chapter 815, Act 205,
Section 4 (815 ILCS 205/4). Each Borrower further represents and warrants to the
Bank that such Borrower does not and will not at any time hereafter own any
margin securities, and that none of the proceeds of the loans hereunder shall be
used for the purpose of (i) purchasing or carrying any margin securities, (ii)
reducing or retiring any indebtedness which was originally incurred to purchase
any margin securities, or (iii) any other purpose not permitted by Regulation U
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.
3.5 MAXIMUM REVOLVING LOANS. Notwithstanding anything contained in this
Loan Agreement or the Other Agreements to the contrary, the principal amount of
the Revolving Loans outstanding at any one time, or from time to time, shall not
exceed the Maximum Revolving Loan. Furthermore, as of May 31, 2000, and
thereafter, all of the Revolving Loans shall be paid and satisfied in full.
3.6 REPRESENTATION AND WARRANTY. Each request for a Loan advance made by
Borrowers to the Bank pursuant to this Loan Agreement and the Other Agreements
shall constitute an automatic representation and warranty by Borrowers to the
Bank that there does not then exist an Unmatured Event of Default or Event of
Default.
3.7 AUTHORIZATION TO DISBURSE. Each Borrower hereby authorizes and directs
the Bank to disburse for and on behalf of such Borrower, and for the Borrowers'
account, the proceeds of Loans made by the Bank to Borrowers pursuant to this
Loan Agreement to such Person or Persons as any Borrower or any Person specified
in Paragraph 12.11 of this Loan Agreement shall direct, whether in writing or
orally.
3.8 BANK CHARGES. Borrowers shall pay to the Bank, on demand, any and all
charges customarily asserted by a bank or similar institution against the Bank
for or with respect to the Bank's forwarding to Borrowers proceeds of loans made
by the Bank to Borrowers pursuant to this Loan Agreement or the Other
Agreements, or for or with respect to the Bank's depositing for collection any
check or item of payment received by or delivered to the Bank on account of the
Liabilities.
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3.9 PAYMENT OF COSTS, FEES AND EXPENSES. The Bank, in its discretion, may
disburse any or all proceeds of Loans made to Borrowers pursuant to this Loan
Agreement or the Other Agreements to pay any costs, fees, expenses or other
amounts required to be paid by Borrowers hereunder and not timely paid, or to
pay any Person as the Bank deems necessary to insure that the security interest
and lien granted to the Bank in and to the Collateral shall at all times be a
first priority, perfected security interest and lien. All monies so disbursed by
the Bank shall be part of the Liabilities, secured by the Collateral and payable
by Borrowers to the Bank on demand.
3.10 DEBIT OF ACCOUNTS. Each Borrower hereby authorizes the Bank to debit
such Borrower's accounts with the Bank for (A) the principal, interest and other
costs, fees and expenses arising under or pursuant to this Loan Agreement and
the Other Agreements, when the same are due, and (B) all amounts due the Bank,
and any principal, interest and other costs, fees and expenses arising under or
pursuant to this Loan Agreement, the Other Agreements or otherwise.
3.11 APPLICATION OF PAYMENTS. Any check, draft, wire transfer or similar
item of payment by or for the account of Borrowers delivered to the Bank on
account of the Liabilities shall be applied by the Bank to the Liabilities as
follows: (A) wire transfers of immediately available funds and other cash
deposits will be credited on the same Business Day of receipt by the Bank, and
(B) checks and other instruments will be credited by the Bank, provided the same
is honored by the Bank and final settlement thereof is reflected by irrevocable
credit to the Bank, on available funds.
3.12 CO-OBLIGOR PROVISIONS.
(A) The Bank shall not be required or obligated to take any of the
following action prior to pursuing any rights or remedies the Bank may have
against any Borrower: (1) take any action to collect from, or to file any claim
of any kind against, any other Borrower, any guarantor, or any other person or
entity liable, jointly or severally, for the full and timely performance of the
Covenants or the full and timely payment of any of the Liabilities; (2) take any
steps to protect, enforce, take possession of, perfect any interest in,
foreclose or realize on any collateral or security, if any, securing the
Covenants or the Liabilities; or (3) in any other respect, exercise any
diligence whatsoever in enforcing, collecting or attempting to collect any of
the Liabilities by any means.
(B) Each Borrower unconditionally and irrevocably waives each and every
defense which would otherwise impair, restrict, diminish or affect any of the
Liabilities. Without limiting the foregoing, the Bank shall have the exclusive
right from time to time without impairing, restricting, diminishing or affecting
any of the Liabilities, and without notice of any kind to the Borrowers, to (1)
provide additional financial accommodations to Borrowers; (2) accept partial
payments on the Liabilities; (3) take and hold collateral or security to secure
the Covenants and the Liabilities, or take any other guaranty to secure the
Covenants and the Liabilities; (4) in its sole discretion, apply any such
collateral or security, and direct the order or manner of sale thereof, and the
application of the proceeds thereof; (5) release any guarantor or co-obligor of
the Liabilities; and (6) settle, release, compromise, collect or otherwise
liquidate the Liabilities or exchange, enforce, sell, lease, use, maintain,
impair and release any collateral or security therefor in any commercially
reasonable manner, without affecting or impairing any of the Liabilities
hereunder.
(C) Each Borrower hereby unconditionally waives (1) notice of any default
by Borrowers in the full and prompt performance of the Covenants or the full and
prompt payment of the Liabilities, and (2) presentment, notice of dishonor,
protest, demand for payment and any other notices of any kind.
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(D) Each Borrower assumes full responsibility for keeping informed of (1)
the financial condition of the other Borrowers; (2) the extent of the
Liabilities; and (3) all other circumstances bearing upon Borrowers or the risk
of non-payment of the Liabilities. Each Borrower agrees that the Bank shall have
no duty or obligation to advise, furnish or supply such Borrower of or with any
information known to the Bank, including, but not limited to, the financial
condition of the other Borrowers, any other circumstances relating to
non-payment of the Liabilities or otherwise. If the Bank, in its sole
discretion, provides any advice or information to any Borrower, the Bank shall
be under no obligation to investigate the matters contained in such advice or
information, or to correct such advice or information if the Bank thereafter
knows or should have known that such advice or information is misleading or
untrue, in whole or in part, or to update or provide any other advice or
information in the future.
(E) Each Borrower acknowledges and agrees that it may have a right of
indemnification, subrogation, contribution and reimbursement from the other
Borrowers, the Bank or any guarantor of the Liabilities based upon its execution
of this Loan Agreement. Each Borrower understands the benefits of having such
rights, including, but not limited to, (1) such Borrower's right to
reimbursement from the other Borrowers of all monies expended for the payment of
the Liabilities; and (2) such Borrower's subrogation to the rights of the Bank
after payment of the Liabilities. No Borrower shall exercise any such rights of
indemnification, subrogation, contribution or reimbursement from the other
Borrower, the Bank or any guarantor of the Liabilities prior to the indefeasible
payment and satisfaction in full to the Bank of the Liabilities.
3.13 CLOSING FEE. Contemporaneously with the execution of this Agreement,
Borrowers shall pay to the Bank a fully earned non-refundable closing fee in the
amount of One Hundred Seventy-Five Thousand and no/100 Dollars ($175,000.00).
3.14 UNUSED COMMITMENT FEE. From and after the date of this Loan Agreement
until the Revolving Loan Termination Date, Borrowers shall pay to the Bank,
monthly in arrears on the first Business Day of each calendar month, an unused
commitment fee at the rate of one-half of one percent (1/2 %) per annum of the
difference between (i) the average daily Maximum Revolving Loan for the prior
month, and (ii) the average daily balance of all Revolving Loans outstanding
during the prior month.
4. COLLATERAL: GENERAL TERMS
4.1 GRANT OF SECURITY INTEREST. To secure the full and timely payment by
Borrowers to the Bank of the Liabilities and the full and timely performance by
Borrowers of the Covenants, each Borrower hereby grants to the Bank a first
position priority security interest and lien in and to all of Borrowers' now
existing or owned and hereafter arising or acquired: (A) Accounts; (B) Goods for
sale, lease or other disposition by such Borrower which have given rise to
Accounts and have been returned to or repossessed or stopped in transit by such
Borrower; (C) contract rights and documents, instruments, contracts or other
writings executed in connection therewith, including, but not limited to, all
real and personal property lease rights, and all sums now due or which may
become due from Borrowers to the Bank; (D) Chattel Paper, Documents of Title,
Instruments, Documents and General Intangibles; (E) patents, trademarks, trade
names, trademark registrations and copyrights, all applications therefor,
service marks, trade secrets, goodwill, inventions, processes, designs,
formulas, and other intellectual or proprietary rights or interests, of any
kind, nature or description whatsoever, and all registrations, licenses,
franchises, customer lists, tax refund claims, claims against carrier and
shippers, insurance claims, guaranty claims, all other claims, proof of claims
filed in any bankruptcy, insolvency or other proceeding, contract rights, choses
in action, security interests, security deposits and rights to indemnification;
(F) Inventory; (G) Investment Property; (H) Equipment, Fixtures and trade
fixtures; (I) deposits, cash and cash
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equivalents and any other property of Borrowers now or hereafter in the
possession, custody or control of the Bank, whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise; (J) deposit accounts
held with the Bank or any other depository institution; and (K) additions and
accessions to, substitutions for and replacements, products and cash and
non-cash proceeds of all of the foregoing property, including, but not limited
to, proceeds of all insurance policies insuring the foregoing and all of
Borrowers' books and records relating to any of the foregoing and to Borrowers'
business (all of the foregoing property is collectively referred to as the
"Collateral"). Borrowers shall make appropriate entries upon their respective
financial statements and books and records disclosing the Bank's first position
priority security interest and lien in and to the Collateral.
4.2 SUPPLEMENTAL DOCUMENTATION. Borrowers shall execute and deliver to the
Bank, at any time and from time to time, all agreements, instruments, documents
and other written matter (the "Supplemental Documentation"), including, without
limitation, Uniform Commercial Code financing statements, that the Bank may
request, in form and substance acceptable to the Bank, to perfect and maintain
perfected the Bank's first position priority security interest and lien in and
to the Collateral and to consummate the transactions contemplated by this Loan
Agreement and the Other Agreements. Each Borrower, irrevocably, hereby makes,
constitutes and appoints the Bank, and all Persons designated by the Bank for
that purpose, as such Borrower's true and lawful attorney and agent-in-fact, to
sign the name of such Borrower on the Supplemental Documentation and to deliver
such Supplemental Documentation to such Persons as the Bank may reasonably
elect. To the extent permitted by law, each Borrower agrees that a carbon,
photographic, photostatic copy or other reproduction of this Loan Agreement or
of any financing statement shall be sufficient as a financing statement.
4.3 INSPECTIONS AND VERIFICATIONS. The Bank shall have the right, at any
time while all or any portion of the Revolving Loan is outstanding, to inspect
the Collateral, all related records and the premises upon which it is located,
and to verify the amount and condition of or any other matter relating to the
Collateral. All reasonable costs, fees and expenses incurred by the Bank in
connection with such inspection or verification shall constitute part of the
Liabilities, secured by the Collateral and payable by Borrowers to the Bank on
demand.
4.4 LIENS/COLLATERAL LOCATIONS. Each Borrower represents, warrants and
covenants unto the Bank that: (A) the Bank's security interest and lien in and
to the Collateral is now and at all times hereafter shall be perfected and have
a first priority; (B) except for the Permitted Liens, the Collateral is and
shall remain free and clear of all security interests, liens and other
encumbrances; (C) Borrowers' principal places of business, all other offices and
places of business and the offices and locations where Borrowers keeps the
Collateral at the locations specified on Exhibit "D"; (D) Borrowers shall not
remove the Collateral from the locations specified on Exhibit "D" and shall not
keep any of the Collateral at any other office or location unless Borrowers give
the Bank thirty (30) days prior written notice; and (E) the Collateral is and
shall remain within the continental United States of America. Each Borrower
shall provide the Bank with thirty (30) days prior written notice of the opening
of any new office or place of business, the closing of any existing office or
place of business or delivering any Collateral to a warehouse or other storage
facility not listed on Exhibit "D". Each Borrower covenants unto and agrees with
the Bank that any new office or place of business shall be within the
continental United States of America.
4.5 LOCKBOX AND CASH COLLATERAL ACCOUNT.
A. Except as otherwise permitted in Section 12.1 below, each Borrower shall
direct all of its Account Debtors to make payments on Accounts directly into a
lockbox established by Borrower over which
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the Bank shall have sole control and authority pursuant to a Lockbox Agreement
between Borrowers and the Bank (the "Lockbox"). If any monies, checks, notes,
drafts or other payment for or proceeds of the Collateral shall come into the
possession or under the control of any Borrower, or any of its shareholders,
directors, officers, employees, agents or those Persons acting for or in concert
with said Borrower, said Borrower shall receive same as the sole and exclusive
property of the Bank and as trustee for the Bank, and said Borrower shall remit
or cause the same to be remitted, in kind, to the Bank or to any agent or agents
appointed by the Bank for that purpose, and such monies, checks, notes, drafts
or other payment for or proceeds of the Collateral shall be credited to the Cash
Collateral Account, unless the Bank shall otherwise elect. The Bank, now or at
any time or times hereafter, in its sole discretion, may take control of and
endorse any Borrower's name to any of the items of payment or proceeds described
in this Section 4.5. For the purposes of this Section, each Borrower,
irrevocably, hereby makes, constitutes and appoints the Bank, and all persons
designated by the Bank for that purpose, as said Borrower's true and lawful
attorney and agent-in-fact to take any such actions. All such items of payment
or proceeds received through the Lockbox or directly from Borrowers shall,
unless the Bank shall otherwise elect, be deposited into a cash collateral
account maintained with the Bank (the "Cash Collateral Account") over which the
Bank has sole control and authority and shall be applied by the Bank to the
Liabilities; provided, however, all proceeds received in the Lockbox which are
in excess of the amount necessary to reduce the Liabilities to zero, shall be
deposited into Borrowers' operating account at the Bank. The amounts deposited
into the Cash Collateral Account are and shall continue to be the sole and
exclusive property of the Bank.
B. Each Borrower shall execute all documents requested by the Bank with
respect to the Cash Collateral Account, the Lockbox and any blocked account
agreements and agrees to pay to the Bank promptly upon demand for any and all
fees, costs and expenses which the Bank incurs or customarily charges in
connection with the opening and maintaining of the Cash Collateral Account and
the Lockbox and depositing for collection by the Bank any monies, checks, notes,
drafts or other items of payment received and/or delivered on account of the
Liabilities.
4.6 ACCOUNT EARNINGS CREDIT. Should the Bank's operating costs and fees
relating to Borrowers' operating accounts and any lockbox exceed the earnings
credit rate associated with the account balances in any one month, such
deficiency shall be part of the Liabilities, secured by the Collateral and
payable by Borrowers to the Bank on demand.
4.7 ASSIGNMENT OF COMPETING SECURITY INTEREST. The Bank, in its discretion,
without waiving or releasing any obligation, liability or duty of Borrowers
under this Loan Agreement and the Other Agreements or any Unmatured Event of
Default or Event of Default, may at any time or times hereafter, but shall not
be obligated to do so, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person against the
Collateral. All sums paid by the Bank in connection therewith and all costs,
fees and expenses, including, but not limited to, attorneys' fees, court costs,
expenses and other charges relating thereto incurred by the Bank on account
thereof shall be part of the Liabilities, secured by the Collateral and payable
by Borrowers to the Bank on demand.
4.8 SPECIAL COLLATERAL. Immediately upon any Borrower's receipt of any
Special Collateral, such Borrower shall mark the same to show that such Special
Collateral is subject to a first position security interest and lien in favor of
the Bank and shall deliver the original thereof to the Bank, together with an
appropriate endorsement or other specific evidence of assignment in form and
substance acceptable to the Bank.
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4.9 ADDITIONAL COLLATERAL. Upon the occurrence of an Unmatured Event of
Default or Event of Default, the Bank may, in its discretion, retain as
additional Collateral, such portion of the monies, reserves and proceeds
received by the Bank with respect to the Collateral as the Bank may determine.
Each Borrower hereby grants to the Bank a first position priority security
interest and lien in and to all such monies, reserves and proceeds and other
property of such Borrower in the possession of the Bank at any time or times
hereafter as additional Collateral hereunder, and, in the Bank's discretion, may
be held by the Bank until the Liabilities are indefeasibly paid in full or be
applied by the Bank on account of the Liabilities.
4.10 NO CUSTOM OR WAIVER. No authorization given by the Bank pursuant to
this Loan Agreement or the Other Agreements to sell any specified portion of the
Collateral or any items thereof, and no waiver by the Bank in connection
therewith, shall establish a custom or constitute a waiver of the prohibition
contained in this Loan Agreement or the Other Agreements against such sales,
with respect to any portion of the Collateral or any item thereof not covered by
said authorization.
4.11 LIEN ON REALTY. Each Borrower represents and warrants to the Bank that
such Borrower is not the direct or indirect legal or beneficial owner of any
real property, except the real property set forth on Exhibit "E" hereto. If any
Borrower shall acquire at any time or times hereafter an interest in any fee
interest on real property other than as set forth on Exhibit "E" hereto, such
Borrower agrees promptly to execute and deliver to the Bank as additional
security and Collateral for the Liabilities, deeds of trust, security deeds,
mortgages or other collateral assignments satisfactory in form and substance to
the Bank, and its counsel (herein collectively referred to as "New Mortgages")
covering such real property. Each New Mortgage shall be duly recorded in each
office where such recording is required to constitute a valid lien on the real
property covered thereby. Borrowers shall deliver to the Bank at Borrowers'
expense, mortgagee title insurance policies issued by a title insurance company
satisfactory to the Bank insuring the Bank as mortgagee; such policies shall be
in form and substance satisfactory to the Bank and shall insure a valid lien in
favor of the Bank and the property covered thereby, subject only to those
exceptions acceptable to the Bank and its counsel. Said policies shall be in
form and substance satisfactory to the Bank. Borrowers shall deliver to the Bank
such other documents as the Bank and its counsel may reasonably request relating
to any such New Mortgages. From time to time hereafter, upon the Bank's request,
Borrowers shall deliver to the Bank a current appraisal for any real property
encumbered by a mortgage or deed of trust which secures the Liabilities.
Borrowers shall be required to pay for the cost of preparing appraisals which
(a) are prepared after the occurrence of an Event of Default, and (b) are
prepared prior to the occurrence of an Event of Default, but not to exceed one
(1) appraisal per Borrowers' fiscal year commencing with the fiscal year
beginning October 1, 2000.
5. COLLATERAL: ACCOUNTS
5.1 ELIGIBLE ACCOUNTS. An "Eligible Account" is an Account that, when
scheduled to the Bank and at all times thereafter, does not violate the negative
covenants and other provisions of this Section 5 and does satisfy the positive
covenants and other provisions of this Section 5. The following Accounts are not
and shall not be considered Eligible Accounts:
(A) Accounts which remain unpaid for more than ninety (90) days after their
invoice date;
(B) Accounts with respect to which the Account Debtor is a director,
officer, employee or agent of any Borrower or is a Parent, a Subsidiary or an
Affiliate of any Borrower;
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(C) Accounts with respect to which payment by the Account Debtor
is or becomes conditional upon the Account Debtor's approval of the Goods or
services, or is otherwise subject to any repurchase obligation or return right,
as with sales made on a bill-and-hold, guaranteed sale, sale on approval, sale
or return or consignment basis;
(D) Accounts with respect to which the Account Debtor (1) is not a
resident, a citizen of or otherwise located in the United States of America; or
(2) is not subject to service of process in the United States of America;
(E) The face amount of any Accounts with respect to which a Borrower is or
may become liable to the Account Debtor for Goods sold or services rendered by
such Account Debtor to such Borrower, but only to the extent of the maximum
aggregate amount of such Borrower's liability to such Account Debtor;
(F) Accounts which are owing by any Account Debtor involved in any
bankruptcy or insolvency proceeding;
(G) Accounts as to which the Bank, at any time or times hereafter,
determines in good faith that the prospect of payment or performance by the
Account Debtor is or will be impaired; and
(H) It is an Account with respect to which the Account Debtor is located in
a state which requires such Borrower, as a precondition to commencing or
maintaining an action in the courts of that state, either to (1) receive a
certificate of authority to do business and be in good standing in such state,
or (2) file a notice of business activities report or similar report with such
state's taxing authority, unless (a) such Borrower has taken one of the actions
described in clauses (1) or (2), (b) the failure to take one of the actions
described in either clause (1) or (2) may be cured retroactively by such
Borrower at its election, or (c) such Borrower has proven, to the Bank's
satisfaction, that it is exempt from any such requirements under any such
state's laws.
(I) All or any portion of an Account to the extent there exists or the
Account Debtor has asserted a counterclaim or dispute; provided, however, if the
amount of such counterclaim or dispute is equal to or greater than ten percent
(10%) of the total Account owing from such Account Debtor to the applicable
Borrower, then the full amount of such Account shall be deemed an ineligible
Account.
5.2 NOTICE OF INELIGIBLE ACCOUNTS. Immediately upon learning thereof,
Borrowers shall notify the Bank that an Account is no longer an Eligible
Account. Borrowers shall immediately pay to the Bank an amount of money equal to
the monies theretofore advanced by the Bank to Borrowers upon an Account that is
no longer an Eligible Account to the extent that the total outstanding Revolving
Loan exceeds the Borrowing Base as a result thereof, and the Bank shall apply
such payment to and on account of the Liabilities, or the Bank, in its
discretion, may pay to itself, for the account of Borrowers, from (A) future
loans or advances to be made by the Bank to Borrowers pursuant to this Loan
Agreement and the Other Agreements, and (B) monies, reserves and proceeds
received or collected by the Bank pursuant to Section 4.9 above, in an amount
necessary to satisfy in whole or in part the foregoing requirement. If Borrowers
do not fully and timely make such payment or if the funds referred to in clauses
(A) and (B) above are not sufficient therefor, the same shall be deemed an Event
of Default by Borrowers under this Loan Agreement.
5.3 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to
each of the Accounts, each Borrower represents, warrants and covenants unto the
Bank that: (A) they are and shall be genuine, in all respects what they purport
to be and are not evidenced by a judgment; (B) they represent
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undisputed, bona fide transactions completed in accordance with the terms and
provisions contained in the invoices and other documents delivered to the Bank
with respect thereto; (C) the amounts thereof, which may be shown on any
Schedule of Accounts or invoices and statements delivered to the Bank with
respect thereto, are and shall be actually and absolutely owing to Borrowers and
are not contingent for any reason; (D) no payments have been or shall be made
thereon except payments immediately delivered to the Bank pursuant to this Loan
Agreement and the Other Agreements; (E) except as disclosed to the Bank in
writing, there are no setoffs, counterclaims or disputes existing or asserted
with respect thereto and Borrowers have not made and will not make any agreement
with any Account Debtor for any deduction therefrom, except regular discounts
allowed by Borrowers in the ordinary course of their respective businesses for
prompt payment; (F) except as disclosed to the Bank, there are no facts, events
or occurrences which in any way impair the validity or enforcement thereof or
tend to reduce the amount payable thereunder; (G) to Borrower's knowledge, all
Account Debtors have the capacity to contract and are solvent; (H) the services
furnished or Goods sold giving rise thereto are not subject to any lien, claim,
encumbrance or security interest, except the first position priority security
interest and lien of the Bank; (I) except as disclosed to the Bank, Borrowers
have no knowledge of any fact or circumstance which would impair the validity or
collectibility thereof; and (J) to Borrower's knowledge, except as disclosed to
the Bank, there are no proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change in
its financial condition.
5.4 REVOLVING LOANS. Borrowers shall not request nor permit the Bank to
make any Revolving Loans with respect to any Account contained on any Schedules
of Accounts, except and only so long as such Account is an Eligible Account.
5.5 VERIFICATION OF ACCOUNTS. Any of the Bank's officers, employees or
agents shall have the right, at any time or times hereafter, in the Bank's name
or in the name of a nominee of the Bank, to verify the validity, amount or any
other matter relating to any Accounts by mail, telephone, facsimile
transmission, telegraph or otherwise. All costs, fees and expenses relating
thereto incurred by the Bank, or for which the Bank becomes obligated, shall be
part of the Liabilities, secured by the Collateral and payable by Borrowers to
the Bank on demand.
5.6 SCHEDULE OF ACCOUNTS. Within fifteen (15) days after the last day of
each month from and after the date hereof, Borrowers shall deliver to the Bank,
in form and substance acceptable to the Bank, certified as to accuracy and
completeness by the controller or any Designated Person of Borrowers, (A) a
detailed aged schedule of Accounts and such other matters and information
relating to the status of then existing Accounts as the Bank shall reasonably
request, (B) an Accounts reconciliation statement, in form and substance
acceptable to the Bank, and (C) an accounts payable aging report (collectively
"Schedule of Accounts"). Borrowers shall keep accurate and complete records of
their Accounts which shall be available to the Bank at all times for the Bank's
inspection, copying, verification or otherwise.
5.7 NOTICES REGARDING ACCOUNT DEBTORS. Each Borrower shall: (A) promptly
upon any Borrower learning thereof, inform the Bank, in writing, of any material
delay in such Borrower's performance of any of its obligations to any Account
Debtor and of any assertion of any claims, offsets or counterclaims by any
Account Debtor and of any allowances, credits or other monies granted by such
Borrower to any Account Debtor; (B) not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including, but not limited to, any of the
terms relating thereto; and (C) promptly upon Borrowers' receipt or learning
thereof, furnish to and inform the Bank of all material adverse information
relating to the financial condition of any Account Debtor.
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5.8 FAILURE TO DIRECT ACCOUNT DEBTORS. The Bank shall have the right, now
and at any time or times hereafter, in its discretion, to take control, in any
manner, of any item of payment or proceeds referred to in Section 4.5 above. If
Borrowers fail to timely direct any Account Debtors to make payments on Accounts
in accordance with Section 4.5 of this Loan Agreement, then the Bank shall have
the right to: (A) notify any or all Account Debtors that the Accounts and
Special Collateral have been assigned to the Bank and that the Bank has a first
position priority security interest and lien therein; (B) direct such Account
Debtors to make all payments due from them to Borrowers upon the Accounts and
Special Collateral directly to the Bank; and (C) enforce payment of and collect,
by legal proceedings or otherwise, the Accounts and Special Collateral in the
name of the Bank and Borrowers.
5.9 NOTICE REGARDING DISPUTED ACCOUNTS. In the event any amount due and
owing in excess of Ten Thousand and no/100 Dollars ($10,000.00) is in dispute
for a period of thirty (30) days or more after any Borrower receives notice or
obtains knowledge thereof between any Borrower and an Account Debtor, such
Borrower shall provide the Bank with written notice thereof at the time of
submission of the next Schedule of Accounts explaining in detail the reason for
the dispute, all claims related thereto and the amount in controversy; provided,
however, in the event the aggregate total of such amounts in dispute exceeds
Fifty Thousand and no/100 Dollars ($50,000.00), such written notice must be
provided to the Bank immediately upon such Borrower having knowledge of such
disputes.
5.10 ATTORNEY AND AGENT-IN-FACT. Each Borrower irrevocably hereby
designates, makes, constitutes and appoints the Bank, and all Persons designated
by the Bank, as such Borrower's true and lawful attorney and agent-in fact, in
any Borrower's or the Bank's name, to at any time: (A) demand payment of the
Accounts and Special Collateral during the continuance of an Event of Default;
(B) enforce payment of the Accounts and Special Collateral by legal proceedings
or otherwise during the continuance of an Event of Default; (C) exercise all of
Borrowers' rights and remedies with respect to the collection of the Accounts
and Special Collateral during the continuance of an Event of Default; (D)
settle, adjust, compromise, extend or renew the Accounts and Special Collateral
during the continuance of an Event of Default; (E) settle, adjust or compromise
any legal proceedings brought to collect the Accounts and Special Collateral
during the continuance of an Event of Default; (F) sell or assign the Accounts
and Special Collateral upon such terms, for such amounts and at such time or
times as the Bank deems advisable during the continuance of an Event of Default;
(G) discharge and release the Accounts and Special Collateral during the
continuance of an Event of Default; (H) take control, in any manner, of any item
of payment or proceeds referred to in Section 4.5 above; (I) prepare, file and
sign any Borrowers' name on any notice of lien, assignment or satisfaction of
lien or similar document in connection with the Accounts and Special Collateral;
(J) prepare, file and sign any Borrower's name on any Proof of Claim in
bankruptcy or similar document against any Account Debtor; (K) do all acts and
things necessary, in the Bank's sole discretion, to fulfill Borrowers'
obligations under this Loan Agreement during the continuance of an Event of
Default; (L) endorse the name of any Borrower upon any of the items of payment
or proceeds referred to in Section 4.5 above and to deposit the same on account
of the Liabilities; (M) endorse the name of any Borrower upon any Chattel Paper,
Document, Instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts and Special Collateral; and (N) sign the
name of any Borrower to verifications of the Accounts and Special Collateral and
notices thereof to Account Debtors.
6. COLLATERAL: INVENTORY
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower represents and
warrants to and covenants with the Bank that such Borrower does not now and
hereafter shall not have any Inventory.
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7. EQUIPMENT
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower represents and
warrants to and covenants with the Bank that (A) Borrowers have and shall have
good, indefeasible and merchantable title, free and clear of all security
interests, claims and encumbrances to and ownership of the Equipment, except for
the Permitted Liens; and (B) the Equipment owned by Borrowers shall be kept and
maintained solely at each Borrower's respective places of business specified on
Exhibit "D".
7.2 MAINTENANCE OF EQUIPMENT. Each Borrower shall keep and maintain the
Equipment in good operating condition and repair and shall make all necessary
replacements thereof and renewals thereto so that the value and operating
efficiency of the Equipment shall at all times be maintained and preserved,
except to the extent that such Equipment is obsolete. No Borrower shall permit
any of the Equipment to become a Fixture to the real estate or accession to
other personal property.
7.3 EVIDENCE OF OWNERSHIP. Upon the Bank's request, each Borrower shall
deliver to the Bank any and all evidence of ownership to, including, without
limitation, certificates of title to and applications for title to, any of the
Equipment owned by Borrowers.
7.4 RECORDS AND SCHEDULES OF EQUIPMENT. Each Borrower shall maintain
accurate records itemizing and describing the kind, type, quality, quantity and
value of its Equipment and all dispositions thereof, and shall furnish the Bank
with a current schedule containing the foregoing information upon request by the
Bank.
8. INSURANCE AND TAXES
8.1 INSURANCE.
(A) Borrowers, at their sole cost and expense, shall keep and maintain: (1)
the Collateral insured for the full insurable value against loss or damage by
fire, theft, explosion, sprinklers and all other hazards and risks ordinarily
insured against by other owners or users of such properties in similar
businesses; and (2) business interruption insurance, workmen's compensation
insurance, public liability insurance and property damage insurance relating to
Borrowers' businesses and ownership and use of their assets.
(B) All such policies of insurance shall be in form and substance, in such
amounts and with insurers recognized as adequate by prudent business persons, as
may be satisfactory to the Bank. Borrowers shall deliver to the Bank the
original, or certified copy, of each policy of insurance or a certificate of
insurance, and evidence of payment of all premiums for each such policy. All
policies of insurance shall contain an endorsement, in form and substance
acceptable to the Bank, showing the Bank as additional insured and lender's loss
payee, except for public liability insurance, which policies shall name the Bank
as additional insured. Such endorsement or independent instrument furnished to
the Bank shall provide that the insurance companies will give the Bank at least
thirty (30) days written notice before any such policy or policies of insurance
shall be altered or canceled and that no act or default of Borrowers or any
other person shall affect the right of the Bank to recover under such policy or
policies of insurance in case of loss or damage.
(C) Borrowers hereby direct all insurers under such policies of insurance
to pay all proceeds payable thereunder directly to the Bank. Each Borrower
irrevocably, makes, constitutes and appoints the Bank, and all officers,
employees or agents designated by the Bank, as such Borrower's true and lawful
attorney and agent-in-
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fact for the purpose of making, settling and adjusting claims under such
policies of insurance with respect to the Collateral, endorsing the name of such
Borrower on any check, draft, instrument or other item of payment constituting
the proceeds of such policies of insurance with respect to the Collateral at any
time or times hereafter, and for making all determinations and decisions with
respect to such policies of insurance. If Borrowers at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
the Bank, without waiving or releasing any obligation, Unmatured Event of
Default or Event of Default by Borrowers hereunder, may at any time or times
thereafter, but shall not be obligated to do so, obtain and maintain such
policies of insurance, pay such premium and take any other action with respect
thereto which the Bank deems advisable. All sums so disbursed by the Bank,
including, but not limited to, attorneys' fees, court costs, expenses and other
charges relating thereto, shall be part of the Liabilities, secured by the
Collateral and payable by Borrowers to the Bank on demand.
(D) Each Borrower hereby acknowledges that the following notice by the Bank
is required by and given in full compliance with the Illinois Collateral
Protection Act, 815 ILCS 180/15:
Unless Borrowers provide the Bank with evidence of the insurance coverage
required by this Loan Agreement, the Bank may purchase insurance at
Borrowers' expense to protect the Bank's interest in the Collateral. This
insurance may, but need not, protect Borrowers' interest. The coverage that
the Bank purchases may not pay any claim that Borrowers make or any claim
that is made against Borrowers in connection with the Collateral. Borrowers
may later cancel any insurance purchased by the Bank, but only after
providing the Bank with evidence that Borrowers have obtained insurance as
required by this Loan Agreement. If the Bank purchases insurance for the
Collateral, Borrowers will be responsible for the cost of that insurance,
including interest and any other charges the Bank may impose in connection
with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The cost of the insurance may
be added to Borrowers' total outstanding balance or obligation. The cost of
insurance may be more than the cost of insurance Borrowers may be able to
obtain on their own.
8.2 TAXES. Each Borrower represents, warrants and covenants unto the Bank
that it shall fully and timely pay, when due, all of the Charges, and that it
shall not permit the Charges to arise, or to remain, and will promptly discharge
the same, except as such charges are being contested as permitted in the
definition of Permitted Liens. In the event Borrowers, at any time or times
hereafter, shall fail to pay the Charges or to obtain such discharges, Borrowers
shall so advise the Bank thereof in writing. The Bank may, without waiving or
releasing any obligation or liability of Borrowers hereunder or any Event of
Default, at any time or times thereafter, make such payment, or any part
thereof, obtain such discharge or take any other action with respect thereto
which the Bank deems advisable. All sums so paid by the Bank and any expenses,
including, but not limited to, attorneys' fees, court costs, expenses and other
charges relating thereto, shall be part of the Liabilities, secured by the
Collateral and payable by Borrowers to the Bank on demand.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS: GENERAL
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower represents,
warrants and covenants unto the Bank as follows:
(A) ORGANIZATION AND QUALIFICATION. Each Borrower is and at all times
hereafter shall be (i) a corporation, duly organized and existing and in good
standing under the laws of the State of its incorporation
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reflected in the first paragraph of this Loan Agreement, and (ii) qualified or
licensed to do business in all states in which the laws thereof require
Borrowers to be so qualified or licensed.
(B) CORPORATE POWER AND AUTHORITY. Each Borrower has the right, power and
capacity and is duly authorized and empowered to enter into, execute, deliver
and perform this Loan Agreement and the Other Agreements.
(C) NO VIOLATION OF LAW. The execution, delivery and performance by
Borrowers of this Loan Agreement and the Other Agreements shall not, by the
lapse of time, the giving of notice or otherwise, constitute a violation of any
applicable law or breach of any provision contained in any Borrower's Articles
of Incorporation or By-Laws, or contained in any agreement, instrument or
document to which any Borrower is now or hereafter a party or by which it is or
may become bound.
(D) TITLE TO COLLATERAL. Each Borrower has and at all times hereafter shall
have good, indefeasible and merchantable title to and ownership of the
Collateral, free and clear of all liens, claims, security interests and
encumbrances, except for the Permitted Liens; provided, however, Borrower may
from time to time hereafter fail to have merchantable title to and ownership of
Collateral, other than Accounts, which has an aggregate value of less than
$100,000.00.
(E) SOLVENCY. Each Borrower (1) was and is solvent, (2) had and has
adequate cash flow to pay its debts as they mature or otherwise become due, (3)
had and has sufficient capital to conduct its business in the ordinary course,
and (4) has property and assets which, if valued at fair market valuation, are
greater than the sum of such Borrower's debts and liabilities.
(F) LITIGATION. There are no actions or proceedings which are pending or
threatened against any Borrower which could reasonably be expected to result in
any material or adverse change in its financial condition or materially affect
such Borrower's assets or the Collateral.
(G) INDEBTEDNESS. No Borrower has Indebtedness, except (1) for trade
payables arising in the ordinary course of its business since the dates
reflected in the Financials, (2) as disclosed in the Financials and as more
fully described on Exhibit "F" to this Loan Agreement by creditor, amount due,
interest rate, payment schedule and collateral description, if any, and (3)
Permitted Indebtedness.
(H) GOVERNMENT CONTRACTS. No Borrower is subject to the renegotiation of
any material government contracts.
(I) ADEQUATE ASSETS/TRADEMARKS/COPYRIGHTS/PATENTS. Each Borrower possesses
adequate assets, licenses, patents, copyrights, trademarks and trade names to
continue to conduct its respective business as previously conducted by it. As of
the date hereof, Borrowers do not own any patents, trademarks or copyrights.
Borrowers shall notify the Bank if any Borrower acquires ownership of or a
license or other interest in any patents, trademarks or copyrights and shall
execute and deliver such documents to the Bank as the Bank shall request to
assign to the Bank as security such Borrower's interest in such patents,
copyrights and trademarks.
(J) GOOD STANDING. Each Borrower has been and is in good standing with
respect to all governmental permits, certificates, consents and franchises
necessary to (i) continue to conduct its business as previously conducted by it,
and (ii) own or lease and operate its properties as now owned or leased by it
and none of said permits, certificates, consents or franchises contain any term,
provision, condition or limitation
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more burdensome than such as are generally applicable to persons engaged in the
same or similar business as such Borrower.
(K) BURDENSOME AGREEMENTS. No Borrower is a party to any contract or
agreement or subject to any charge, restriction, judgment, decree or order
materially and adversely affecting its business, property, assets, operations or
condition, financial or otherwise.
(L) VIOLATION OF LAW. No Borrower is in violation of any applicable
statute, regulation or ordinance of the United States of America, any state,
city, town, municipality, county, or any other jurisdiction, or any agency
thereof, in any material respect affecting its business, property, assets,
operations or condition, financial or otherwise.
(M) BREACH OF OTHER LOAN DOCUMENTS. No Borrower is in default with respect
to any indenture, loan agreement, mortgage, deed or other similar agreement
relating to the borrowing of monies to which it is a party or by which it is
bound other than a default which does not constitute an Event of Default under
Section 11.1(M).
(N) FINANCIAL INFORMATION. The Financials fairly and accurately present the
information set forth therein which may include, but is not limited to, the
assets, liabilities, financial conditions and results of operations of Borrowers
and such other Persons described therein as of and for the period ending on such
dates and have been prepared in accordance with GAAP and such principles have
been applied on a basis consistently followed in all material respects
throughout the periods involved.
(O) FINANCIAL STATEMENTS. Borrowers shall, from time to time, provide
annual audited Financials to the Bank pursuant to Section 9.4 which fairly and
accurately present the assets, liabilities and financial conditions and results
of operations of Borrowers and such other Persons described therein as of and
for the period ending on such dates and have, unless otherwise indicated
therein, been prepared in accordance with GAAP and such principles have been
applied on a basis consistently followed in all material respects throughout the
periods involved.
(P) MATERIAL ADVERSE CHANGE. There has been no material adverse change in
the assets, liabilities or financial condition of any Borrower since the date of
the most recent Financials for the Borrowers delivered to the Bank.
(Q) CHANGE OF CORPORATE NAME OR STRUCTURE. No Borrower has within the
previous two (2) years and no Borrower shall at any time hereafter, without the
Bank's prior written consent, which shall not be unreasonably withheld, change
its name, identity, corporate structure or ownership, except for the acquisition
of Dawson and the Borrowers by RoweCom.
(R) CAPITAL STRUCTURE. Exhibit "G" attached hereto and made a part hereof
states (1) the correct name of each of the Subsidiaries of Dawson and Borrowers,
and the jurisdiction of incorporation and the percentage of voting Stock owned
by Dawson and Borrowers, (2) the name of each Borrower's corporate or joint
venture Affiliates and the nature of the affiliation, (3) the number, nature and
holder of all outstanding Stock of Dawson and Borrowers and each Subsidiary of
any Borrower, and (4) the number of authorized, issued and treasury shares of
Dawson, each Borrower and each Subsidiary of each Borrower. Dawson and each
Borrower has good and marketable title to all of the shares they purports to own
of the Stock of each Subsidiary, free and clear in each case of any lien other
than Permitted Liens. All such shares of Stock have been duly issued and are
fully paid and non-assessable. Except as described on Exhibit "G", there are not
outstanding any
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options to purchase, or any rights or warrants to obligations convertible into,
or any powers of attorney relating to, shares of the capital Stock of Dawson or
any Borrower. Except as described on Exhibit "G", there are not outstanding any
agreements or instruments binding upon any of Dawson's or any Borrower's
shareholders relating to the ownership of its shares of capital Stock.
(S) PENSION PLANS. No Borrower has received any notice to the effect that
it is not in full compliance with any of the requirements of ERISA and the
regulations promulgated thereunder. No fact or situation that could lead to a
material adverse change in the financial condition of any Borrower, including,
but not limited to, any Reportable Event or Prohibited Transaction, exists or
will hereafter exist in connection with any Plan. Borrowers have no and shall
continue to have no withdrawal liability in connection with a Multiemployer
Plan.
(T) LABOR RELATIONS. Except as described on Exhibit "H" attached hereto and
made a part hereof, no Borrower is a party to any collective bargaining
agreement, and there are no material grievances, disputes or controversies with
any union or any other organization of each Borrower's employees, or threats of
strikes, work stoppages or any asserted pending demands for collective
bargaining by any union or organization. Borrowers shall notify the Bank prior
to entering into any collective bargaining agreement.
(U) TRADE RELATIONS. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between any Borrower and any customer or any group of customers
whose purchases individually or in the aggregate are material to the business of
such Borrower, or with any material supplier, which could reasonably be expected
to have a material adverse effect on any Borrower or such Borrower's business,
and there exists no present condition or state of facts or circumstances which
would materially adversely affect any Borrower or prevent any Borrower from
conducting such business after the consummation of the transaction contemplated
by this Loan Agreement in substantially the same manner in which it has
heretofore been conducted.
(V) NOTICES TO THE BANK. Each Borrower shall notify the Bank in writing:
(1) promptly after any Borrower learns thereof, of the commencement of any
litigation affecting a Borrower or any of its real or personal property, whether
or not the claim is considered by such Borrower to be covered by insurance, and
of the institution of any administrative proceeding which may materially and
adversely affect such Borrower's operations, financial condition, real or
personal property or business or the Bank's Lien upon any of the Collateral; (2)
at least thirty (30) days prior thereto, of any Borrower's opening of any new
office or place of business or any Borrower's closing of any existing office or
place of business; (3) promptly after any Borrower learns thereof, of any labor
dispute to which a Borrower may become a party, any strikes or walkouts relating
to any of its plants or other facilities, and the expiration of any labor
contract to which it is a party or by which it is bound; (4) promptly after
Borrower learns thereof, of any material default by a Borrower under any note,
indenture, loan agreement, mortgage, lease, deed, guaranty or other similar
agreement relating to any Indebtedness of such Borrower exceeding Ten Thousand
and no/100 Dollars ($10,000.00); (5) promptly after the occurrence thereof, of
any Unmatured Event of Default or Event of Default; (6) promptly after the
occurrence thereof, of any default by any obligor under any note or other
evidence of Indebtedness payable to a Borrower; (7) promptly after the rendition
thereof, of any judgment rendered against a Borrower or any of its Subsidiaries;
and (8) promptly after any Borrower learns thereof, of any material adverse
finding of any state or federal government entity in connection with all or any
part of the Collateral.
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(W) LANDLORD AND STORAGE AGREEMENTS. Each Borrower shall provide the Bank
with copies of all agreements between such Borrower and any landlord or
warehouseman which owns any premises at which any Collateral may, from time to
time, be kept.
(X) SUBORDINATIONS. Each Borrower shall provide the Bank with a debt
subordination agreement, in form and substance satisfactory to the Bank,
executed by such Borrower and any Person who is an officer, director or
Affiliate of such Borrower to whom any Borrower is or hereafter becomes indebted
for borrowed money, subordinating in right of payment and claim all of such
Indebtedness and any future advances thereon to the full and final payment and
performance of the Liabilities and the Covenants.
(Y) ENVIRONMENTAL MATTERS.
(1) Each Borrower shall and shall cause each of its Subsidiaries to (a)
comply strictly and in all respects with all applicable Environmental Laws, (b)
take promptly any remediation and/or corrective action necessary to cure any
violation of Environmental Laws of which a Borrower has knowledge, (c) notify
the proper governmental agency promptly in the event of any release of any
Hazardous Substances reportable under 42 USC ss.9603, 42 USC ss.11044, 33 USC
ss.1321(b)(5) or any counterpart or similar state or local requirements, (d)
promptly forward to the Bank, upon its request, a copy of any order, notice,
permit, application, or any other communication or report in connection with any
such release of any Hazardous Substance or any other material matter relating to
the Environmental Laws as they may affect their premises.
(2) Borrowers shall jointly and severally indemnify the Bank and hold
the Bank harmless from and against any loss, liability, damage or expense,
including reasonable attorneys' fees, suffered or incurred by the Bank, whether
as mortgagee pursuant to any mortgage, as mortgagee in possession, or as
successor in interest to a Borrower or any of its Subsidiaries as owner or
lessee of any premises by virtue of foreclosure or acceptance of deed in lieu of
foreclosure (a) under or on account of the Environmental Laws, including the
assertion of any lien thereunder; (b) with respect to any release of any
Hazardous Substance reportable under 42 USC ss.9603, 42 USC ss.11044, 33 USC
ss.1321(b)(5) or any counterpart or similar state or local requirements,
affecting such premises or the premises of any other place, including any loss
of value of such premises as a result of a release of any Hazardous Substance;
and (c) with respect to any other environmental matter within the jurisdiction
of any federal, state or municipal official administering the Environmental
Laws; provided, however, Borrowers will not be liable for such indemnification
to the Bank to the extent that any such loss, liability, damage or expense
results from the willful misconduct of the Person who would otherwise be
entitled to be indemnified pursuant to this Section 9.1(Y). The procedures to be
followed as to any indemnity pursuant to this Section shall be as set forth in
Section 12.22 hereof.
(3) Borrowers shall provide the Bank with such evidence, reports and/or
other documentation as reasonably requested by the Bank to insure that Borrowers
are in compliance with the terms of this Section 9.1(Y).
(Z) FINANCIAL PROJECTIONS. Attached hereto as Exhibit "I" are Borrowers'
consolidated and consolidating financial projections for Borrowers' 2000 fiscal
year.
(AA) SURVEY. On or before January 24, 2000, Borrowers shall deliver to the
Bank an A.L.T.A. standard survey with respect to the real property encumbered by
the Massachusetts Mortgage, certified to the Bank and First American Title
Insurance Company, in form and substance satisfactory to the Bank.
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9.2 REPRESENTATIONS, WARRANTIES AND NEGATIVE COVENANTS. Each Borrower
represents, warrants and covenants unto the Bank that such Borrower shall not
now or at any time hereafter, unless such Borrower obtains the prior written
consent of the Bank:
(A) ADDITIONAL ENCUMBRANCES. Grant a security interest in, assign, sell or
transfer any of the Collateral to any Person except as permitted herein or
permit, grant, or suffer a lien, claim or encumbrance upon any of the
Collateral, except for the Permitted Liens.
(B) LEVIES AND ATTACHMENTS. Permit or suffer any levy, attachment or
restraint to be made affecting any of its assets or the Collateral.
(C) RECEIVER, TRUSTEE OR ASSIGNEE. Permit or suffer any receiver, trustee
or assignee for the benefit of creditors to be appointed to take possession of
all or any of such Borrower's assets or any of the Collateral.
(D) MERGERS AND ACQUISITIONS. Merge, consolidate with or acquire any
Person.
(E) ORDINARY COURSE OF BUSINESS. Enter into any transaction not in the
ordinary course of its business as presently conducted.
(F) INVESTMENTS. Other than in the ordinary course of business, make any
investment in the securities of any Person; provided, however, notwithstanding
the foregoing, Borrowers may (i) make investments in certificates of deposit of
the Bank or any of its affiliates or such other banking institution having a net
worth in excess of $100,000,000, or in securities of the United States of
America or commercial paper with a P1 rating (all of the foregoing maturing
within one year), and (ii) with the Bank's prior consent, make investments of
deposits received by Borrowers from Account Debtors.
(G) SURETY. Guaranty or otherwise, in any way, become liable with respect
to the obligations or liabilities of any Person except by endorsement of
instruments or items of payment for deposit to the general account of Borrowers
or for delivery to the Bank on account of the Liabilities.
(H) CAPITAL STRUCTURE. Make any material change in such Borrower's capital
structure or in any of its business objectives, purposes and operations which
might in any way adversely affect the repayment of the Liabilities.
(I) ENCUMBRANCE OR SALE. Encumber, sell, pledge, mortgage, lease, or
otherwise dispose of or transfer, whether by merger, consolidation or otherwise,
any of such Borrower's assets, except sales of Equipment (i) to the extent that
such Equipment is obsolete or de minimus and has a fair market value of less
than One Hundred Thousand and 00/100 Dollars ($100,000.00), or (ii) as otherwise
expressly permitted herein.
(J) SALE OF STOCK. Sell or issue any Stock of such Borrower.
(K) INDEBTEDNESS. Incur indebtedness, except Permitted Indebtedness
(L) RESTRICTED PAYMENTS. Make any Restricted Payments, other than
Restricted Payments made when the Revolving Loan Commitment is Zero Dollars ($0)
and all of the Liabilities have been satisfied in full.
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(M) CONSTITUENT DOCUMENTS. Amend or restate such Borrower's By-Laws or
Articles or Certificate of Incorporation.
(N) AFFILIATE TRANSACTIONS. Enter into any transaction with an Affiliate ,
except for transactions in the ordinary course of business pursuant to the
reasonable requirements of each such Borrower's business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arms-length transaction.
9.3 FINANCIAL COVENANTS. During the term of this Loan Agreement, and
thereafter for so long as there are any outstanding Liabilities owed to the
Bank, Borrowers covenant that they shall:
(A) WORKING CAPITAL. Not permit their consolidated Working Capital to be
less than Zero Dollars ($0) at any time.
(B) TANGIBLE NET WORTH. Not permit their consolidated Tangible Net Worth to
be less than Five Million and no/100 Dollars ($5,000,000.00) at any time.
(C) CAPITAL EXPENDITURES. Not make or be committed to make, directly and
indirectly, Capital Expenditures (including new Capitalized Lease Obligations
valued in accordance with GAAP) amounting in the aggregate for the Borrowers to
more than One Million and no/100 Dollars ($1,000,000.00) during each of the
Borrowers' fiscal years.
9.4 FINANCIAL REPORTING. Borrowers represent, warrant and covenant unto the
Bank that they will deliver to the Bank the following financial information, all
of which shall accurately reflect the financial condition of Borrowers at and
for the periods of time described therein and shall be prepared in accordance
with GAAP:
(A) As soon as available but in no event later than one hundred twenty
(120) days after the close of each of Borrowers' fiscal years, the audited
consolidated and unaudited consolidating financial statements of RoweCom, Dawson
and Borrowers, including, but not limited to, (1) a balance sheet, (2) a
statement of income and retained earnings, and (3) a statement of cash flows,
together with an unqualified opinion of a firm of independent certified public
accountants selected by RoweCom and reasonably approved by the Bank.
(B) Concurrently with the delivery of the audited financial statements
described in Section 9.4(A) above, certificates of the controller or any
Designated Person of each Borrower in form and substance acceptable to the Bank,
certifying to the Bank that, based upon such financial statements, (1) Borrowers
are in compliance with all financial covenants and ratios contained in this Loan
Agreement, together with the calculations for the financial covenants and ratios
described therein; and (2) the controller or such Designated Person, as the case
may be, is not aware of any event or occurrence which constitutes an Unmatured
Event of Default or Event of Default.
(C) As soon as available but in no event later than thirty (30) days after
the end of each month, Dawson's and Borrowers' internally prepared consolidated
and consolidating financial statements, including, but not limited to, (1) a
balance sheet, (2) a statement of income and retained earnings, and (3) a
statement of cash flows all for the previous month, and the year-to-date
statement for that portion of Dawson's and Borrowers' fiscal year then elapsed.
(D) Concurrently with the delivery of Borrowers' internally prepared
financial statements pursuant to Section 9.4(C) above, certificates of the
controller or any Designated Person of each Borrower, in form and
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substance acceptable to the Bank, certifying to the Bank that, based upon the
internally prepared financial statements, (1) the controller or such Designated
Person, as the case may be, is not aware of any event or occurrence which
constitutes an Unmatured Event of Default or Event of Default, and (2) Borrowers
are in compliance with all financial covenants contained in this Loan Agreement,
together with the calculations for the financial covenants and ratios described
herein.
(E) As soon as available, but in no event later than thirty (30) days prior
to each Borrower's fiscal year end, such Borrowers' internally prepared
consolidated and consolidating financial projections, including, without
limitation, (1) a balance sheet, (2) a statement of income and retained
earnings, and (3) a statement of cash flows, all for the forthcoming year
prepared on a month by month basis.
(F) On the 1st Business Day of each week, a current Borrowing Base
Certificate, sales and collection report and detailed summary of the Deferred
Revenue Account.
(G) Such other data and information, financial and otherwise as the Bank,
from time to time, may request.
10. CONDITIONS PRECEDENT
10.1 CONDITIONS TO INITIAL FUNDING. The Bank's obligation to make the
initial loan pursuant to this Loan Agreement and the Other Agreements is subject
to the full and timely performance of the following covenants prior to or
contemporaneously with the making of the initial loan.
(A) The Bank shall have received each of the following, in form and
substance satisfactory to the Bank and its counsel:
(1) (a) A copy of the Articles or Certificate of Incorporation of each
Borrower certified by the Secretary of State of such Borrower's
state of incorporation, and a certificate or other satisfactory
evidence as to the qualification to conduct business and good
standing of Borrowers from the Secretary of State of each state in
which Borrowers is required to be so qualified; (b) certificates of
the Secretary or an Assistant Secretary of Borrowers dated the date
hereof and certifying (i) that attached thereto are true and
complete copies of the by-laws of Borrowers and true and complete
copies of resolutions duly adopted by the Board of Directors of
Borrowers authorizing the execution, delivery and performance of
this Loan Agreement and any Other Agreements and the borrowing by
Borrowers hereunder and all aspects of the financing transactions
with the Bank requiring approval by Borrowers, (ii) that such
resolutions have not been modified, rescinded or amended and are in
full force and effect and that the Articles of Incorporation of
Borrowers have not been amended as shown on the good standing
certificate furnished pursuant to (a) above, and (iii) as to the
incumbency and specimen signature of each officer of Borrowers
executing this Loan Agreement and the Other Agreements; and (c)
such other instruments, documents and agreements as the Bank or its
counsel may reasonably request.
(2) A fully executed original of this Loan Agreement.
(3) A fully executed original of the Revolving Note.
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(4) A favorable written opinion of Bingham Dana LLP, counsel for
Borrowers, acceptable to the Bank and its counsel.
(5) File-stamped acknowledgment copies of all Uniform Commercial Code
financing statements required to perfect the Bank's security
interest and lien in and to the Collateral.
(6) Copies of the Uniform Commercial Code, tax lien and pending suit
and judgment searches from such jurisdictions as the Bank deems
necessary, which shall not have disclosed any prior lien or
security interest in the Collateral, except for the Permitted
Liens.
(7) An initial Borrowing Base Certificate and Schedule of Accounts
dated as of the date of this Loan Agreement.
(8) Certificates of insurance with lender's loss payable and additional
insured clauses covering the Collateral and meeting the
requirements of this Loan Agreement.
(9) A fully executed original of the RoweCom Guaranty and the Dawson
Guaranty.
(10) A fully executed original of the Massachusetts Mortgage and the
Massachusetts Assignment of Rents.
(11) A fully executed original of a landlord's agreement for each
location leased by Borrowers.
(12) An Environmental Indemnity Agreement executed and delivered by the
Borrowers, RoweCom and Dawson in favor of the Bank.
(13) A copy of the Appraisal dated April 26, 1999, prepared by
Commonwealth Valuation Group for the real property encumbered by
the Massachusetts Mortgage.
(14) A duly executed blocked account agreement by and among Borrowers,
The Chase Manhattan Bank and the Bank.
(15) Such other documents, instruments or agreements as the Bank may
request.
(B) No Unmatured Event of Default or Event of Default shall have occurred
and be continuing.
(C) There shall have been no material or adverse change in the business,
financial condition or results of operations since the date of Borrowers' then
most recently delivered Financials.
(D) The representations and warranties contained in this Loan Agreement
shall be true and correct as of the making of the initial Loan.
10.2 CONDITIONS TO SUBSEQUENT FUNDINGS. The Bank's obligation to make any
subsequent loans pursuant to this Loan Agreement and the Other Agreements is
subject to the full and timely performance of each of the following covenants
either prior to or contemporaneously with the making of each subsequent loan.
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(A) No Unmatured Event of Default or Event of Default shall have occurred
and be continuing.
(B) No claims, litigation, arbitration proceedings or governmental
proceedings not disclosed in writing to the Bank prior to the date of the last
previous loan shall be pending or known to be threatened against any Borrower
and no known material development not so disclosed shall have occurred in any
claims, litigation, arbitration proceedings or governmental proceedings so
disclosed which, in each case or in the aggregate, in the reasonable opinion of
the Bank is likely to materially or adversely affect the financial position or
business of Borrowers or capability of Borrowers to pay the Liabilities.
(C) There shall have been no material or adverse change in the business,
financial condition or results of operations since the date of Borrowers' then
most recently delivered Financials or the previous Loan advance.
(D) The representations and warranties of Borrowers contained in this Loan
Agreement shall be true and correct as of the making of any subsequent Loan,
with the same effect as though made on such date of each subsequent Loan.
11. EVENT OF DEFAULT; REMEDIES
11.1 EVENTS OF DEFAULT. The occurrence of any one of the following events
shall constitute an Unmatured Event of Default ("Event of Default") by Borrowers
under this Loan Agreement:
(A) Borrowers fail to fully and timely pay any of the Liabilities
consisting of principal and interest, when due and payable or declared due and
payable or Borrowers fail to fully and timely pay any of the other Liabilities
when due and payable or declared due and payable, and such failure continues for
a period of five (5) days after notice thereof from the Bank;
(B) Any Borrower fails or neglects to perform, keep or observe any of the
Covenants; provided, however, Borrower shall have a period of 30 days from the
occurrence thereof to cure a default under Sections 9.1(A)(ii), 9.1(J)(i),
9.1(W) and 9.1(X) of this Loan Agreement;
(C) any material statement, report or certificate made or delivered by a
Borrower, or any of its officers, employees, or agents, to the Bank is not true
and correct;
(D) any assets of any Borrower are attached, seized, subjected to a writ or
distress warrant, or are levied upon, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors;
(E) a petition under the United States Bankruptcy Code or any similar
federal, state or local law, statute or regulation shall be filed by any
Borrower;
(F) a petition under the United States Bankruptcy Code or any similar
federal, state or local law, statute or regulation shall be filed against any
Borrower;
(G) any Borrower shall make an assignment for the benefit of creditors, or
an application is made by any Borrower for the appointment of a receiver,
trustee, custodian or conservator for such Borrower or any of its assets;
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(H) an application is made against any Borrower for the appointment of a
receiver, trustee, custodian or conservator for such Borrower or any of its
assets;
(I) Any Borrower is enjoined, restrained or in any way prevented by court
order from conducting any material part of its business affairs, as determined
by the Bank in its sole discretion;
(J) a lawsuit or other proceeding is filed against any Borrower to
liquidate, in the aggregate, more than One Hundred Thousand and no/100 Dollars
($100,000.00) of such Borrower's assets;
(K) a lawsuit or other proceeding is filed by any Borrower to liquidate any
of such Borrower's assets;
(L) a notice of a lien, levy or assessment is filed of record with respect
to any of the assets of any Borrower by the United States of America or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental department, agency, or instrumentality,
including without limitation, the Pension Benefit Guaranty Corporation;
(M) any Borrower defaults in the payment of any of its other obligations or
liabilities, and such default is not cured within the time, if any, specified
therefor. Notwithstanding the foregoing, it shall not be considered an Event of
Default if Borrower is contesting such obligations or liabilities in good faith,
and such liabilities and obligations are less than One Hundred Thousand and
00/100 Dollars ($100,000.00);
(N) the occurrence of a breach, default or event of default under any
agreement, instrument or document executed and delivered by any Person to the
Bank pursuant to which such Person has guarantied to the Bank the payment of all
or any portion of the Liabilities or provided collateral to secure all or any
portion of the Liabilities, including, without limitation, the Dawson Guaranty
and the RoweCom Guaranty, or such Person terminates or purports to terminate his
guaranty of the Liabilities to the Bank;
(O) a breach, default or event of default occurs under any of the Other
Agreements beyond any period of grace contained therein;
(P) there shall be entered against any Borrower one or more judgments or
decrees in excess of Ten Thousand and no/100 Dollars ($10,000.00) in the
aggregate at any one time outstanding for such Borrower, excluding those
judgments or decrees (i) that shall have been stayed, vacated or bonded, (ii)
that shall have been outstanding less than 30 days from the entry thereof, or
(iii) for and to the extent to which such Borrower is insured and with respect
to which the insurer specifically has assumed responsibility in writing; or
(Q) the Bank, in good faith, reasonably believes its prospect of payment or
performance of the Liabilities and the Covenants is impaired or it deems itself
insecure for whatever reason.
11.2 CUMULATIVE REMEDIES. All of the Bank's rights and remedies under this
Loan Agreement and the Other Agreements are cumulative and non-exclusive.
11.3 DISCONTINUING ADVANCES. Upon the occurrence of an Unmatured Event of
Default or Event of Default, without notice or demand by the Bank to Borrowers,
the Bank shall have no further obligation to and may immediately cease advancing
monies or extending credit to or for the benefit of Borrowers under this Loan
Agreement and the Other Agreements. Upon the occurrence of an Event of Default
under Sections 11.1(E) or
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11.1(F) hereof, without notice or demand by the Bank to Borrowers, the
Liabilities shall be immediately due and payable, including, without limitation,
all of Borrowers' contingent liabilities with respect to any Letters of Credit.
Upon the occurrence of any Event of Default (other than an Event of Default
under Sections 11.1(E) or 11.1(F)), at the election of the Bank with notice by
the Bank to Borrowers, the Liabilities shall be immediately due and payable,
including, without limitation, all of Borrowers' contingent liabilities with
respect to any Letters of Credit. ANY ADVANCES MADE BY THE BANK TO BORROWERS
AFTER THE OCCURRENCE OF AN UNMATURED EVENT OF DEFAULT OR AN EVENT OF DEFAULT
SHALL NOT ESTABLISH A CUSTOM OR COURSE OF DEALING AND THE BANK SHALL BE ENTITLED
TO CEASE MAKING ADVANCES AT ANY TIME THEREAFTER.
11.4 REMEDIES. Upon the occurrence of an Event of Default, the Bank, in its
discretion, may: (A) exercise any one or more of the rights and remedies
accruing to a "secured party" under the Uniform Commercial Code of Illinois and
any other applicable law upon Unmatured Event of Default by a debtor; (B) enter,
with or without process of law and without breach of the peace, any premises
where the Collateral is or may be located, and without charge or liability to
the Bank therefor, seize and remove the Collateral from said premises or remain
upon said premises and use the same for the purpose of collecting, preparing and
disposing of the Collateral; and (C) sell or otherwise dispose of the Collateral
at public or private sale for cash or credit, provided, however, that Borrowers
shall be credited with the net proceeds of such sale only when such proceeds are
actually received by the Bank.
11.5 ASSEMBLING COLLATERAL. Upon an Event of Default, each Borrower,
immediately upon demand by the Bank, shall assemble the Collateral and make it
available to the Bank at a place or places to be designated by the Bank which
are reasonably convenient to the Bank and Borrowers. Each Borrower recognizes
that if it fails to perform, observe or discharge any of its obligations or
liabilities under this Loan Agreement or the Other Agreements, no remedy of law
will provide adequate relief to the Bank, and each Borrower agrees that the Bank
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
11.6 NOTICE OF SALE. Any notice required to be given by the Bank of a sale,
lease or other disposition of the Collateral or any other intended action by the
Bank, if provided not less than ten (10) days prior to such proposed action,
shall constitute commercially reasonable and fair notice to Borrowers thereof.
11.7 POSTPONEMENT OF SALE. Each Borrower agrees that the Bank may, if the
Bank deems it reasonable, postpone or adjourn any such sale of the Collateral
from time to time by an announcement at the time and place of sale, without
being required to give a new notice of sale. Further, each Borrower agrees that
the Bank has no obligation to preserve rights against prior parties to the
Collateral.
12. GENERAL
12.1 BANK ACCOUNTS. Borrowers shall keep and maintain all of their
checking, depository and other bank accounts with the Bank; provided, however,
notwithstanding the foregoing, (a) Borrowers shall be entitled to keep and
maintain checking accounts with another bank at any time, (b) at any time while
the Maximum Revolving Loan Amount is Zero and all of the Liabilities are paid in
full, with the Bank's prior written consent, Borrowers shall be entitled to keep
and maintain their depository Accounts with another bank, (c) Borrowers shall be
entitled to keep and maintain their depository accounts with an affiliate of the
Bank provided that Borrowers and such affiliate execute and deliver to the Bank
a blocked account agreement in form and substance satisfactory to the Bank, and
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(d) Borrowers shall be entitled to continue utilizing the depository accounts
currently maintained with The Chase Manhattan Bank for a period of sixty (60)
days after the date hereof provided that The Chase Manhattan Bank and Borrower
execute and deliver to the Bank a blocked account agreement in form and
substance satisfactory to the Bank. Each statement of account by the Bank
delivered to any Borrower relating to the Liabilities shall be presumed correct
and accurate and shall constitute an account stated between such Borrower and
the Bank unless, within thirty (30) days after such Borrower's receipt of said
statement, such Borrower delivers to the Bank notice specifying the error or
errors, if any, contained in any such statement.
12.2 APPLICATION OF PAYMENTS. Each Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
the Bank on account of the Liabilities and each Borrower agrees that the Bank
shall have the continuing exclusive right to apply and re-apply any and all such
payments in such manner and in such order as the Bank may deem advisable,
including, without limitation, to the payment of any costs, fees and expenses
payable by Borrowers under this Loan Agreement, notwithstanding any entry by the
Bank upon any of its books and records.
12.3 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower
represents, warrants and covenants unto the Bank that (A) all representations
and warranties of Borrowers contained in this Loan Agreement and the Other
Agreements shall be true at the time of Borrowers' execution of this Loan
Agreement and the Other Agreements, shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein and shall be true from the time of Borrowers' execution of
this Loan Agreement until the expiration of this Loan Agreement; and (B) there
shall be no material or adverse change in the financial condition of any
Borrower from the time of execution, delivery and acceptance of this Loan
Agreement and the Other Agreements until the closing of the transactions
described therein or related thereto.
12.4 MODIFICATION AND ASSIGNMENT OF LOAN DOCUMENTS. This Loan Agreement and
the Other Agreements may not be modified, altered or amended, except by an
agreement in writing signed by Borrowers and the Bank. Borrowers may not sell,
assign or transfer this Loan Agreement or the Other Agreements or any portion
thereof, including, without limitation, Borrowers' rights, titles, interests,
remedies, powers or duties thereunder. Each Borrower hereby consents to the
Bank's sale, assignment, grant of participations, transfer or other disposition,
at any time and from time to time hereafter, of this Loan Agreement and the
Other Agreements or of any portion thereof, including, without limitation, the
Bank's rights, titles, interests, remedies, powers or duties. Notwithstanding
the foregoing, the Bank shall not sell or assign this Loan Agreement or the
Other Agreements to a bank unaffiliated with the Bank at any time while an Event
of Default does not exist without providing Borrowers sixty (60) days notice
prior to the effective date of such sale or assignment.
12.5 WAIVER OF UNMATURED EVENT OF DEFAULTS. The Bank's failure at any time
or times hereafter to require strict performance by Borrowers of any provision
of this Loan Agreement shall not waive, affect or diminish any right of the Bank
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by the Bank of an Unmatured Event of Default or Event of Default by
Borrowers under this Loan Agreement or the Other Agreements shall not suspend,
waive or affect any other Unmatured Event of Default or Event of Default by
Borrowers under this Loan Agreement or the Other Agreements, whether the same is
prior or subsequent thereto and whether of the same or of a different type. NONE
OF THE UNDERTAKINGS, AGREEMENTS, WARRANTIES, COVENANTS AND REPRESENTATIONS OF
BORROWERS CONTAINED IN THIS LOAN AGREEMENT OR THE OTHER AGREEMENTS AND NO EVENT
OF DEFAULT BY BORROWERS UNDER THIS LOAN AGREEMENT OR THE OTHER AGREEMENTS SHALL
BE DEEMED TO HAVE BEEN SUSPENDED OR WAIVED BY THE BANK UNLESS SUCH SUSPENSION OR
WAIVER IS IN WRITING
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SIGNED BY AN OFFICER OF THE BANK AND DIRECTED TO BORROWERS SPECIFYING SUCH
SUSPENSION OR WAIVER.
12.6 SEVERABILITY. Wherever possible, each provision of this Loan Agreement
shall be interpreted in such manner as to be valid and enforceable under
applicable law, but if any provision of this Loan Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, such provision
shall be severed herefrom and such invalidity or unenforceability shall not
affect any other provision of this Loan Agreement, the balance of which shall
remain in and have its intended full force and effect. Provided, however, if
such provision may be modified so as to be valid and enforceable as a matter of
law, such provision shall be deemed to be modified so as to be valid and
enforceable to the maximum extent permitted by law.
12.7 SUCCESSORS AND ASSIGNS. This Loan Agreement and the Other Agreements
shall be binding on each Borrower and upon the successors of each Borrower, and
shall inure to the benefit of the Bank, its successors, assigns, affiliates,
divisions and parents and may be assigned by the Bank without notice to
Borrowers. This provision, however, shall not be deemed to modify Section 12.4
hereof. Each Borrower acknowledges and agrees that the Bank may at any time and
from time to time, sell or assign all or any portion of this Loan Agreement, the
Other Agreements or the Loans, and may sell participations therein, all without
notice to Borrowers.
12.8 INCORPORATION OF OTHER AGREEMENTS; EXHIBITS. The terms and provisions
of the Other Agreements are incorporated herein by this reference thereto. The
Exhibits referred to herein are attached hereto, made a part hereof and
incorporated herein by this reference thereto.
12.9 SURVIVAL OF TERMINATION. Except as otherwise provided in this Loan
Agreement or the Other Agreements, no termination or cancellation of this Loan
Agreement or the Other Agreements shall in any way affect or impair the powers,
obligations, duties, rights and liabilities of Borrowers or the Bank in any way
or respect relating to (A) any transaction or event occurring prior to such
termination or cancellation, (B) the Collateral, or (C) any of the undertakings,
agreements, covenants, warranties and representations of Borrowers contained in
this Loan Agreement or the Other Agreements. All such undertakings, agreements,
representations, warranties and covenants shall survive such termination or
cancellation.
12.10 WAIVER OF NOTICES. Except as otherwise expressly provided herein,
each Borrower waives any and all notices or demands which such Borrower might be
entitled to receive with respect to this Loan Agreement or the Other Agreements
by virtue of any applicable law, statute or regulation, and waives presentment,
demand, protest, notice, default, dishonor, non-payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
Accounts, contract rights, Documents, Instruments, Chattel Paper and guaranties
at any time held by the Bank on which Borrowers may in any way be liable, and
hereby ratifies and confirms whatever the Bank may do in this regard.
12.11 AUTHORITY TO EXECUTE AND BORROW. Until the Bank is notified by
Borrowers to the contrary, the signature upon this Loan Agreement or upon any of
the Other Agreements of (A) a Designated Person, or (B) any other Person
designated in writing to the Bank by any of the foregoing, shall bind all
Borrowers and be deemed to be the duly authorized act of all Borrowers. Each
Designated Person shall have the authority to Borrow funds on behalf of
Borrowers pursuant to the terms of this Loan Agreement.
12.12 COSTS, FEES AND EXPENSES. Borrowers shall reimburse the Bank for all
costs, fees and expenses incurred by the Bank, or for which the Bank becomes
obligated, in connection with the negotiation, preparation,
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administration, enforcement and conclusion of this Loan Agreement and the Other
Agreements, including, but not limited to, audit fees and expenses incurred by
the Bank, attorneys' and paralegals' fees, costs and expenses, other
professional fees, search fees, costs and expenses, filing and recording fees
and all taxes payable in connection with this Loan Agreement or the Other
Agreements. Borrowers shall further reimburse the Bank, upon demand, for the
costs, fees and expenses incurred by the Bank, its agents or employees, with
respect to audits or other business analysis performed in the administration of
this Loan Agreement, plus all of the auditor's expenses.
12.13 BINDING AGREEMENT; GOVERNING LAW. This Loan Agreement and
the Other Agreements are submitted by Borrowers to the Bank, for the Bank's
acceptance or rejection thereof, at the Bank's office in Chicago, Illinois, as
an offer by Borrowers to borrow monies from the Bank and shall not be binding
upon the Bank or become effective until and unless accepted by the Bank, in
writing, at said place of business. THIS LOAN AGREEMENT AND THE OTHER AGREEMENTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND UNDER THE LAWS OF THE STATE
OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT,
AND IN ALL OTHER RESPECTS INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE
INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING ILLINOIS' CHOICE OF LAW
PROVISIONS.
12.14 NOTICES. Any and all notices, demands, requests, consents,
designations, waivers and other communications required or desired hereunder
shall be in writing and shall be deemed effective upon personal delivery, upon
confirmed facsimile transmission, upon receipted delivery by Federal Express or
another overnight carrier, or three (3) days after mailing if mailed by
registered or certified mail, return receipt requested, postage prepaid, to
Borrowers or the Bank at the following addresses or facsimile numbers or such
other addresses and facsimile numbers as Borrowers or the Bank may specify in
like manner; provided, however, that notices of a change of address or facsimile
number shall be effective only upon receipt thereof.
<TABLE>
<S> <C>
If to Borrowers, then to: If to the Bank, then to:
The Faxon Company, Inc. American National Bank and
15 Southwest Park Trust Company of Chicago
Westwood, Massachusetts 02090 IL1-1458
Attention: Dr. Richard Rowe 120 South LaSalle Street, 8th Floor
Facsimile No.: (617) 661-9440 Chicago, Illinois 60603
Attention: Mr. Dennis Harrison
Facsimile No.: (312) 661-3530
McGregor Subscription Service, Inc. with a copy to:
15 Southwest Park
Westwood, Massachussets 02090 Fagel & Haber
Attention: Dr. Richard Rowe 140 S. Dearborn, 14th Floor
Facsimile No.: (617) 661-9440 Chicago, Illinois 60609
Attention: Victor A. Des Laurier, Esq.
The Turner Subscription Agency, Facsimile No.: (312) 580-2201
Incorporated
15 Southwest Park
Westwood, Massachussets 02090
Attention: Dr. Richard Rowe
Facsimile No.: (617) 661-9440
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<PAGE>
<S>
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110-1726
Attention: Matthew Furlong, Esq.
Facsimile No.: (617) 951-8736
</TABLE>
12.15 OTHER COSTS, FEES AND EXPENSES. If, prior to or after the
occurrence of an Unmatured Event of Default or Event of Default, the Bank:
(A) employs an accountant, consultant, counsel or any other
representative or advisor:
(1) with respect to the Liabilities, this Loan Agreement,
the Other Agreements, the Collateral or otherwise;
(2) to represent or consult with the Bank in connection with
any litigation, contest, dispute, suit or proceeding, or
to commence, defend, intervene or take any other action in
or with respect to any litigation, contest, dispute, suit
or proceeding, whether initiated by the Bank, Borrowers, a
guarantor or any other person or entity, in any way or
respect arising from, relating to or in connection with
the Liabilities, this Loan Agreement, the Other Agreements
and the Collateral; or
(3) to enforce any of the Bank's rights or remedies;
(B) takes any action or initiates any proceeding to protect,
collect, sell, liquidate or otherwise dispose of any of the Collateral for the
Liabilities, this Loan Agreement and the Other Agreements; or
(C) attempts to or enforces any of the Bank's rights or remedies
against any Borrower or any guarantor,
then the costs and expenses so incurred by the Bank shall be part of
the Liabilities payable by Borrowers to the Bank upon demand with interest at
the Default Rate until actually paid. Without limiting the generality of the
foregoing, such costs and expenses shall include the fees, expenses and charges
of attorneys, paralegals, accountants, investment bankers, appraisers, valuation
and other specialists, experts, expert witnesses, auctioneers, court reporters,
telegram, management consultants, telex and telefax charges, overnight delivery
services, messenger services and expenses for travel, lodging and meals.
Notwithstanding the foregoing, Borrowers shall not be liable to the Bank for
accountant or consultant fees incurred by the Bank at any time while an
Unmatured Event of Default or Event of Default does not exist.
12.16 RELEASE OF CLAIMS. Excepting only causes of action or claims
for the Bank's wilful misconduct or gross negligence, each Borrower hereby
releases the Bank from any and all causes of action or claims which Borrowers
may now or hereafter have for any asserted loss or damage to any Borrower caused
by or arising from: (A) any failure of the Bank to protect, enforce or collect
in whole or in part any of the Collateral; (B) the Bank's notification to any
Account Debtor of the Bank's security interest and lien in and to the Accounts
and Special
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Collateral; (C) the Bank directing any Account Debtor to pay any sums owing to
any Borrower directly to the Bank; and (D) any other act or omission to act on
the part of the Bank, its officers, agents or employees.
12.17 CAPITAL ADEQUACY CHARGE. In the event that the Bank shall
have determined that the adoption of any law, rule or regulation regarding
capital adequacy, or any change therein or in the interpretation or application
thereof or compliance by the Bank with any directive regarding capital adequacy
(whether or not having the force of law) from any central bank or governmental
authority does or shall have the effect of reducing the rate of return on the
Bank's capital as a consequence of its obligations hereunder to a level below
that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank, in its sole discretion, to be
material, then from time to time, after submission by the Bank to Borrowers of a
written demand therefor, Borrowers shall pay to the Bank such additional amount
or amounts as will compensate the Bank for such reduction. A certificate of the
Bank claiming entitlement to payment as set forth above shall be conclusive in
the absence of manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such payment, the additional amount or amounts to
be paid to the Bank, and the method by which such amounts were determined. In
determining such amount, the Bank may use any reasonable averaging and
attribution method.
12.18 HEADINGS. The captions contained in this Loan Agreement are
inserted only as a matter of convenience and shall in no way define, limit or
extend the scope or intent of this Loan Agreement or any provision of this Loan
Agreement, and shall not affect the construction or interpretation of this Loan
Agreement.
12.19 MAXIMUM INTEREST. It is the intent of Borrowers and the Bank
that the rate of interest and the other charges of Borrowers under this Loan
Agreement shall be lawful; therefore, if for any reason, the interest or other
charges payable under this Loan Agreement are found by a court of competent
jurisdiction to exceed the limit which the Bank may lawfully charge Borrowers,
then the obligation to pay interest and other charges shall automatically be
reduced to such limits. If Borrowers have paid an amount in excess of such
limit, then such amount shall be applied to reduce the principal portion of the
Liabilities.
12.20 CONSTRUCTION. Any provision of this Loan Agreement which
requires a party to perform any act shall be construed as requiring the party to
perform the act or cause such act to be performed. Any provision of this Loan
Agreement which requires a party to refrain from taking any act shall be
construed as requiring the party to refrain from taking the act, to refrain from
causing such act to be taken and to cause those under his/her control from
taking the act. Wherever the term "including" is used, the same shall be deemed
to mean, "including, but not limited to". "Any" shall be deemed to mean "any and
all" whenever applicable. The singular shall be deemed to include the plural,
and the plural shall be deemed to include the singular. The masculine pronoun
shall be deemed to include the feminine and neuter pronouns, and vice versa.
"Copies" means photostatic or other reproduced originals which accurately,
truly, correctly and completely present the original of the document copied.
12.21 REVIVAL OF LIABILITIES. To the extent that the Bank receives
any payment on account of the Liabilities, or any proceeds of the Collateral are
applied on account of the Liabilities, and any such payment or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by the Bank to any Borrower,
its estate, trustee, receiver or any other party under the United States
Bankruptcy Code or any similar federal, state or local law, statute or
regulation, then, to the extent of such payment or proceeds received, the
Liabilities shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received by the Bank and applied on account of
the Liabilities.
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<PAGE>
12.22 GENERAL INDEMNITY. In addition to the payment of expenses
pursuant to Sections 12.12 and 12.15, whether or not the transactions
contemplated hereby shall be consummated, Borrowers agree to indemnify, pay and
hold the Bank and its successors and assigns and the officers, directors,
employees, agents, and affiliates of the Bank and its successors and assigns
(collectively the "Indemnitees"), harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto) that may be imposed on,
incurred by, or asserted against any Indemnitee in any manner relating to or
arising out of this Loan Agreement, any of the Other Agreements or any other
agreements executed and delivered by any Borrower or any guarantor of the
Liabilities in connection herewith, the statements contained in any commitment
or proposal letter delivered by the Bank, the Bank's agreement to make the Loans
or the use or intended use of the proceeds of any of the Loans hereunder
(collectively the "Indemnified Liabilities"); provided that Borrowers shall have
no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnitee. To
the extent that the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, Borrowers shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them. The provisions of the undertakings and indemnification set out in this
Section shall survive satisfaction and payment of the Liabilities and
termination of this Loan Agreement.
12.23 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. Each Borrower
hereby indemnifies the Bank and agrees to hold the Bank and its predecessors and
successors in interest, and its affiliates, employees, agents, directors and
officers harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs, consulting fees, costs of
investigation and reasonable attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, the Bank for,
with respect to, or as a direct or indirect result of (i) the violation or
alleged violation by Borrowers or any of its predecessors in interest of any
Environmental Laws regarding past, present or future property or operations;
(ii) the presence on or under, or the release from, at or to, properties
utilized by Borrowers and/or any predecessor in interest of any Hazardous
Substances; (iii) the existence of any unsafe or unhealthful condition on or at
any premises utilized by Borrowers or any predecessor in interest in the past,
present or future; (iv) transport, treatment, recycling, storage, disposal, or
release or threatened release, or arrangement therefor, to, at or from any
facility owned or operated by another Person, of any Hazardous Substances
generated by Borrowers or its predecessors in interest; (v) any remedial action
or corrective action arising out of, related to, or in connection with any past,
present or future property or operations of Borrowers or any of its predecessors
in interest; (vi) asbestos-containing material, in or at any past, present or
future property of Borrowers or any of its predecessors in interest; (vii)
failure to comply with any representations, warranties, covenants, terms or
conditions of this Loan Agreement that relate to Environmental Laws or Hazardous
Substances; and (viii) any environmental, health or safety investigation or
review conducted by or on behalf of the Bank in connection with this Loan
Agreement; provided that Borrowers shall have no obligation to the Bank
hereunder with respect to any such liabilities arising from the gross negligence
or willful misconduct of the Bank. The provisions of and undertakings and
indemnification set out in this Section shall survive satisfaction and payment
of the Liabilities and termination of this Loan Agreement and shall expressly
cover time periods when the Bank may have come into possession or control of any
of the property of Borrowers at any time thereafter.
12.24 YEAR 2000. Borrowers and their Subsidiaries have reviewed
the areas within their business and operations which could be adversely affect
by, and have developed or are developing a program to address on a timely basis,
the "Year 2000 Problem" (that is, the risk that computer applications used by
Borrowers and their
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<PAGE>
Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date on or
after December 31, 1999), and have made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, each Borrower believes
that the "Year 2000 Problem" will not have a material adverse effect on such
Borrower. From time to time, at the request of the Bank, Borrowers and its
Subsidiaries shall provide to the Bank such updated information or documentation
as is requested regarding the status of their efforts to address the "Year 2000
Problem.
12.25 JOINT AND SEVERAL LIABILITY. All references to Borrowers
shall mean Turner, McGregor and Faxon, both individually and collectively, and
jointly and severally, and all representations, warranties, duties, covenants,
agreements and obligations of Borrowers shall be the individual and collective
representations, warranties, duties, covenants, agreements and obligations of
each of Turner, McGregor and Faxon.
12.26 RELEASE OF COLLATERAL. Upon the payment and satisfaction in
full of the Liabilities and the expiration or termination of the Bank's
commitment to lend any money to the Borrowers', upon Borrowers' request and at
Borrowers' expense, the Bank shall execute and deliver to Borrowers releases and
terminations of all mortgages, security interests and liens granted by Borrowers
to the Bank, whether herein or in the Other Agreements.
12.27 MERGER CLAUSE. This Loan Agreement constitutes the entire
agreement between the Bank and Borrowers with regard to the subject matter
hereof, and supersedes all prior and contemporaneous communications, agreements
and assurances, whether verbal or written.
12.28 SERVICE OF PROCESS. EACH BORROWER HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE BORROWERS
AS SET FORTH HEREIN IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF
COURT OR OTHERWISE.
12.29 JURISDICTION; VENUE; WAIVER OF JURY TRIAL. BORROWERS AND THE
BANK IRREVOCABLY AGREE, AND HEREBY CONSENT AND SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, AND THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION,
WITH REGARD TO ANY ACTIONS OR PROCEEDINGS ARISING FROM, RELATING TO OR IN
CONNECTION WITH THE LIABILITIES, THIS LOAN AGREEMENT, THE OTHER AGREEMENTS OR
THE COLLATERAL. BORROWERS HEREBY WAIVES ANY RIGHT BORROWERS MAY HAVE TO TRANSFER
OR CHANGE THE VENUE OF ANY LITIGATION FILED IN THE CIRCUIT COURT OF COOK COUNTY,
ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS, EASTERN DIVISION.
12.30 JURY WAIVER. EACH BORROWER AND THE BANK HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG ALL OR ANY BORROWERS AND THE BANK ARISING OUT OF OR
IN ANY WAY RELATED TO THIS LOAN AGREEMENT OR ANY OF THE OTHER AGREEMENTS. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING
DESCRIBED HEREIN AND IN THE OTHER AGREEMENTS. EACH BORROWER HEREBY REPRESENTS
AND WARRANTS TO THE BANK THAT IT HAS CONSULTED WITH AND BEEN COUNSELED BY
COMPETENT COUNSEL CONCERNING THE WAIVER SET FORTH IN THIS SECTION AND HAS
KNOWINGLY MADE SUCH WAIVER.
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IN WITNESS WHEREOF, the Bank and Borrowers have caused this Loan
Agreement to be executed and delivered by their duly authorized officers as of
the date first set forth above.
AMERICAN NATIONAL BANK AND THE TURNER SUBSCRIPTION AGENCY,
TRUST COMPANY OF CHICAGO, INCORPORATED, a Delaware corporation
a national banking association
By: By:
----------------------------- ----------------------------------
Title: Name:
-------------------------- ------------------------------
Title:
-----------------------------
MCGREGOR SUBSCRIPTION SERVICE, INC.,
an Illinois corporation
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
THE FAXON COMPANY, INC.,
a Massachusetts corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT 10.38
Bank of America [LOGO] GENERAL SERVICES AGREEMENT
Agreement Number:
Effective Date: September 1, 1999
Expiration Date: September 1, 2002
Supplier Name: RoweCom, Inc.
Supplier Address: 725 Concord Avenue
Cambridge, Massachusetts 02138
Supplier Telephone: 617/497-5800
This GENERAL SERVICES AGREEMENT ("Agreement") is entered into as of the
Effective Date by and between Bank of America Technology and Operations, Inc.
("BATO"), a Delaware corporation and the above-named Supplier, a Delaware
corporation, and consists of this signature page and, the attached Terms and
Conditions, Schedules and all other documents attached hereto, which are
incorporated in full by this reference.
Supplier expressly acknowledges and agrees that the rights of BATO set forth in
this Agreement shall inure to all its Affiliates.
RoweCom, Inc. Bank of America Technology
("Supplier") and Operations, Inc.
("BATO")
By: /s/ Judith Schott By: /s/ Laurie A. Venzer
--------------------------- ---------------------------
Name: JUDITH SCHOTT Name: Laurie A. Venzer
------------------------- --------------------------
Title: VP SALES Title: Senior Vice President
------------------------ -------------------------
Date: 9/14/99 Date: 10/7/99
------------------------- --------------------------
Negotiator: Angela Chism
-------------------------------
<PAGE>
Address for Notices: Address for Notices:
RoweCom, Inc. Bank of America Technology and Operations, Inc.
Attn: Nancy Barrett Corporate Services and Procurement
725 Concord Avenue Attn: Angela Chism
Cambridge, Massachusetts 02138 TX2-501-11-03
Telephone: 617/497-5800 400 S. Zang Blvd.
Facsimile: 617/497-6825 Dallas, Texas 75218-6601
Telephone: 214/948-2616
Facsimile: 214/948-2699
With a copy to:
Bank of America Technology and Operations, Inc.
Corporate Services and Procurement
Attn: Susan Hamrick
NC1-023-09-01
525 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Telephone: 704/388-5537
Facsimile: 704/386-8213
2
<PAGE>
TABLE OF CONTENTS
SECTION NO. SECTION HEADING
- ----------- ---------------
1.0 Definitions
2.0 Term of Agreement
3.0 Termination
4.0 Scope of Agreement
5.0 Customer Service
8.0 Pricing/Fees
7.0 Invoices/Taxes/Payments
8.0 Mutual Representations and Warranties
9.0 Representations and Warranties of Supplier
10.0 Year 2100
11.0 Financial Responsibility
12.0 Force Majeure
13.0 Relationship of the Parties
14.0 Supplier Representatives
15.0. Insurance
16.0 Confidentiality
17.0 Indemnity
18.0 Limitation of Liability
19.0 Minority Business Development Initiative
20.0 Environmental Initiative
21.0 Retention of Records/Audit
22.0 Non-Assignment
23.0 Arbitration
24.0 Non-Exclusive Nature of Agreement
25.0 Miscellaneous
26.0 Entire Agreement
SCHEDULE A SERVICE SPECIFICATIONS
SCHEDULE B SERVICE FEES
SCHEDULE C PERFORMANCE MEASUREMENTS
3
<PAGE>
1.0 DEFINITIONS: All defined terms in this Agreement not otherwise defined in
this Section 1.0 shall have the meanings assigned in the part of this
Agreement in which they are defined.
1.1 Affiliate -- a business entity now or hereafter controlled by, controlling
or under common control with a Party. Control exists when an entity owns
or controls more than 50% of the outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority of another entity.
1.2 Bank of America -- BATO and its Affiliates.
1.3 Business Day -- Monday through Friday, excluding days on which Bank of
America is not open for business in the United States of America.
1.4 Order -- purchase order, work order or other written instrument executed,
or if agreed to by the Parties, electronic transmissions, originated by an
authorized officer of Bank of America directing Supplier in the provision
of Services.
1.4 Party -- BATO or Supplier.
1.5 Representative -- an employee, officer, director, or agent of a Party.
1.6 Services -- the Services this Agreement calls for Supplier to provide or
Supplier provides, including without limitation all professional,
management, labor and general services, together with any materials,
supplies, tangible items or other goods Supplier furnishes in connection
with the Services.
1.7 Subcontractor -- a third party to whom Supplier has delegated or
subcontracted any portion of its obligations set forth herein.
1.8 Term -- the initial term of the Agreement or any renewal or extension.
1.9 Transaction -- the flat fee incurred for subscription orders by an
associate.
2.0 TERM OF AGREEMENT:
2.1 This Agreement shall be in effect from the Effective Date through the
Expiration Date indicated on the signature page ("Initial Term") unless
terminated earlier or extended under the terms of this Agreement. BATO
shall have the right to extend this Agreement for an additional one (1)
year ("Renewal Term") by giving Supplier written notice of its intent at
least 30 calendar days prior to the end of the Initial Term or any Renewal
Term. If BATO does not notify Supplier of its intent to renew or terminate
this Agreement, it shall continue in effect on a month-to-month basis, at
the prices last offered for Services under the initial or Renewal Term
just expired, until terminated by either Party upon at least 30 calendar
days prior written notice to the other.
3.0 TERMINATION:
3.1 BATO may terminate this Agreement for its convenience, with or without
cause, at any time without further charge or expense upon at least 45
calendar days prior written notice to Supplier.
4
<PAGE>
3.2 In addition to any other remedies available to either Party, upon the
occurrence of a Termination Event (as defined below) with respect to
either Party, the other Party may immediately terminate this Agreement by
providing written notice of termination. A Termination Event shall have
occurred if: (a) a Party materially breaches its obligations under this
Agreement, and the breach is not cured within 30 calendar days after
written notice of the breach and intent to terminate is provided by the
other Party; (b) a Party becomes insolvent (generally unable to pay its
debts as they become due) or the subject of a bankruptcy, conservatorship,
receivership or similar proceeding, or makes a general assignment for the
benefit of its creditors; (c) Supplier either (i) merges with another
entity, (ii) suffers a transfer involving fifty percent (50%) or more of
any class of its voting securities or (iii) transfers all, or
substantially all, of its assets.
3.3 Upon termination, Supplier agrees that upon the request of BATO, Supplier
will, at no additional cost to BATO, continue uninterrupted operations and
cooperate with BATO in the transition of the business to another supplier
of BATO's choice or to concluding the business in an orderly fashion. In
no event shall said transition be more than ninety (90) calendar days from
the date of termination. Reimbursement of all extraordinary costs and
expenses incurred outside of the Agreement terms and conditions will be
agreed upon by Supplier and BATO prior to the transition.
3.4 The rights and obligations of the Parties which by their nature must
survive termination or expiration of this Agreement in order to achieve
its fundamental purposes including, without limitation, the provisions of
the Sections captioned ARBITRATION, CONFIDENTIAL INFORMATION, INDEMNITY,
LIMITATION OF LIABILITY, MISCELLANEOUS, RETENTION OF RECORDS and YEAR 2100
shall survive any termination of this Agreement.
4.0 SCOPE OF THE AGREEMENT:
4.1 Supplier shall perform the Services in accordance with this Agreement and
the specifications and timeframes set forth in SCHEDULE A, Service
Specifications, and in accordance with performance measurements in
SCHEDULE C, Performance Measurements. Supplier acknowledges that time is
of the essence as the Services are essential to Bank of America's
business.
4.2 All instruments, such as Orders, acknowledgments, invoices, schedules and
the like used in conjunction with this Agreement ("Instruments) shall be
for the sole purpose of defining quantities, prices and describing
Services or products to be provided hereunder, and to this extent only are
incorporated as a part of this Agreement. Any preprinted terms and
conditions included in Instruments shall not be incorporated and such
Instrument shall be construed to modify, amend, or alter the terms of this
Agreement solely for the purpose stated in the preceding sentence. Any
Instrument submitted to BATO by Supplier in connection with this Agreement
shall reference, as applicable, Order number and/or Agreement number.
4.3 BATO may reproduce all documentation and reports provided by Supplier.
4.4 BATO and Supplier hereby designate the following employee(s)
("Relationship Manager(s)") to act on each respective party's behalf with
regard to matters arising pursuant to request for Products and/or Services
placed under this Agreement. Either party may change its Relationship
Manager by providing the other Party prior written notice.
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BATO: Supplier:
Bank of America Technology RoweCom, Inc.
and Operations, Inc. Relationship Manager
Relationship Manager Attn: Bob Mayhew
Attn: Angela Chism 725 Concord Avenue
TX2-501-11-03 Cambridge, Massachusetts 02138
400 South Zang Boulevard Telephone: 617/497-5800
Dallas, Texas 75218-6601 Facsimile: 617/497-6825
Telephone: 214/948-2616
Facsimile: 214/948-2699
4.5 Each Party's Relationship Manager shall have full authority to execute any
and all instruments related to the request for Products and/or Services
placed hereunder. However, such authority does not include the authority
to alter or amend any term, condition, or provision of this Agreement.
4.6 The role of the Relationship Manager(s) shall be to ensure that Bank of
America receives the value required as a result of this Agreement. The
BATO Relationship Manager interacts with internal Bank of America clients
and the Supplier to enforce compliance with contract terms, monitor
performance and develop a relationship under which BATO and the Supplier
gain improvement.
4.6 The Relationship Manager(s) will serve many roles which include but are
not limited to:
(a) Understand the terms of the Agreement.
(b) Identify clients and stakeholders.
(c) Communicate Bank of America philosophies to the Supplier and the
client.
(d) Help the Supplier present themselves to Bank of America.
(e) Serve as a liaison between the Supplier and Bank of America.
(f) Act as conduit for client, stakeholder and Supplier problems.
(g) Establish consistent problem resolution procedures.
(h) Assist with the development of performance measurement plans and
tools to facilitate the performance measurements and data
collection.
(i) Assist in gathering data.
(j) Analyze and communicate performance data.
(k) Assist the Supplier with process improvements.
(l) Monitor the performance of the Supplier.
(m) Notify BATO's Procurement Services of contract violations.
(n) Recommend recognition of Supplier when applicable.
4.7 BATO and Supplier shall use measurements throughout the term of this
Agreement. Business measures and customer measures are both important in
this Agreement. Business measures are measures important to the
functioning of the relationship of the two companies and customer measures
are those directly related to client expectations. BATO and Supplier
agrees that measurements to use throughout the term of this Agreement
shall be specified in SCHEDULE C attached hereto and incorporated herein
by reference.
5.0 CUSTOMER SERVICE:
5.1 Customer shall, at its sole expense, establish and maintain a customer
service support Representatives. Supplier shall provide telephone support
for use by BATO, BATO Affiliates,
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including their respective employees to contact the customer service
support Representatives. Supplier agrees to increase the number of
telephone lines and/or resources at no additional cost to BATO should BATO
determine that additional lines and/or resources are required to provide
the Services hereunder.
5.2 Customer service support staffing shall be sufficient to provide Services
between the hours of 8:00 A.M. and 5:00 P.M. in each time zone throughout
the United States and follow the performance measurements set forth
herein.
6.0 PRICING/FEES:
6.1 BATO shall pay Supplier for Services provided under this Agreement as set
forth in SCHEDULE B, Service Fees, hereto. Said Service Fees shall be
capped at the amount set forth in SCHEDULE B and shall not be increased
throughout the term of the Agreement.
6.2 Fees for additional Services not listed on SCHEDULE B shall be as mutually
agreed in writing between BATO and Supplier prior to performance.
6.3 Supplier warrants and represents that the prices set forth herein for
Services are available to other purchasers in the geographic area in which
Bank of America receives the Services, reflect the economies of doing
business with Bank of America at the volumes projected or are necessary to
meet the pricing levels of Supplier's competitors who may wish to sell to
Bank of America.
7.0 INVOICES/TAXES/PAYMENT:
7.1 Supplier shall provide BATO summary invoices, electronic allocation files,
as well as, detailed invoice reports for Services provided hereunder with
such format and content as the parties agree from time to time. Detail to
support summary invoices shall include, at a minimum, Supplier number,
cost center, ship to address, quantity, unit price, extended price,
freight and sales tax. Reports shall be sorted by Supplier and cost center
with sub-totals and grand totals.
7.2 Invoices omitting this Agreement reference number or that are incorrect,
incomplete or list Services that were not requested in writing by BATO
will not be paid but will be returned to Supplier for correction.
7.3 BATO shall pay Supplier for all Services and applicable taxes invoiced in
accordance with the terms of this Agreement, within 30 calendar days of
the date of receipt of invoice by BATO.
7.4 Unless otherwise specified, invoices shall include and list all applicable
taxes as a separate item. BATO will reimburse Supplier for all sales, use
or excise taxes levied on amounts payable by BATO to Supplier pursuant to
this Agreement, provided that BATO shall not be responsible for remittance
of such taxes to applicable tax authorities. BATO shall not be responsible
for any ad valorem, income, franchise, privilege, value added or
occupational taxes of Supplier. Supplier shall cooperate with BATO's
efforts to identify taxable and nontaxable portions of amounts payable
pursuant to this Agreement (including segregation of such portions on
Invoices) and to obtain refunds of taxes paid, where appropriate. BATO may
furnish Supplier with certificates or other evidence supporting applicable
exemptions from sales, use or excise taxation. If BATO pays or reimburses
Supplier under this Section, Supplier hereby assigns and transfers to BATO
all of its right, title and interest in and to any refund for taxes paid.
Any claim for refund of taxes against the assessing authority may be
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made in the name of BATO or Supplier, or both, at BATO's option. BATO may
initiate and manage litigation brought in the name of BATO or Supplier, or
both, to obtain amounts paid under this Section. Supplier shall cooperate
fully with BATO in pursuing any refund claims, including any related
litigation or administrative procedures.
8.0 MUTUAL REPRESENTATIONS AND WARRANTIES:
8.1 Each Party represents and warrants the following: (a) the Party's
execution; delivery and performance of this Agreement (i) have been
authorized by all necessary corporate action, (ii) do not violate the
terms of any law, regulation, or court order to which such Party is
subject or the terms of any material agreement to which the Party or any
of its assets may be subject and (iii) are not subject to the consent or
approval of any third party; (b) this Agreement is the valid and binding
obligation of the representing Party, enforceable against such Party in
accordance with its terms; and (c) such Party is not subject to any
pending or threatened litigation or governmental action which could
interfere with such Party's performance of its obligations hereunder.
9.0 REPRESENTATIONS AND WARRANTIES OF SUPPLIER:
9.1 Supplier represents and warrants to BATO as follows: (a) Supplier is in
good standing in the state of its incorporation and is qualified to do
business as a foreign corporation in each of the other states In which it
is providing Services hereunder, and (b) Supplier shall secure or has
secured all permits, licenses, regulatory approvals and registrations
required to render Services set forth herein, including without
limitation, registration with the appropriate taxing authorities for
remittance of taxes.
9.2 Supplier shall perform the Services in a timely and professional manner
using competent personnel having expertise suitable to their assignments.
Supplier warrants that the Services shall conform to or exceed, in all
material respects, the specifications described herein, as well as the
standards generally observed in the industry for similar services.
Services supplied hereunder shall be free of defects in workmanship,
design and material.
9.3 THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.0 YEAR 2000:
10.1 Supplier warrants that the advent of the year 2000 shall not adversely
affect the systems used in supplying the Services ("Systems") including
without limitation, ordering, inventory, shipping, delivery, or billing.
Supplier warrants that neither performance nor functionality of the
Systems is or will be affected by dates prior to, during and after the
year 2000. In particular, no date value will cause any interruption in
operation; date-based functionality will behave consistently for dates
prior to, during and after year 2000; in all interfaces and data storage,
the century in any date will be specified either explicitly or by
unambiguous algorithms or inferencing rules; and Year 2000 will be
recognized as a leap year. At BATO's request, Supplier will provide
evidence to demonstrate adequate testing of the Systems to meet the
foregoing requirements.
11.0 FINANCIAL RESPONSIBILITY:
11.1 Supplier shall, promptly upon BATO's request, furnish its annual financial
statements as prepared by or for Supplier in the ordinary course of its
business for the purpose of determining Supplier's ability to perform its
duties hereunder. Furthermore, Supplier shall
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notify BATO immediately in the event there is a material adverse change in
the business or financial condition since the last submission of financial
statements to BATO.
12.0 FORCE MAJEURE:
12.1 No failure, delay or default in performance of any obligation of a Party
to this Agreement shall constitute an event of default or breach of the
Agreement to the extent that such failure to perform, delay or default
arises out of a cause, existing or future, that is beyond the control and
without negligence of such Party including, but not limited to: action or
inaction of governmental, civil or military authority; fire; strike;
lockout or other labor dispute (but not including delays caused by
subcontractors or suppliers); flood; war; riot; theft; earthquake and
other natural disaster. The Party affected by such cause shall take action
to minimize the consequences of any such cause. A Party desiring to rely
upon any of the foregoing as an excuse for failure, default or delay in
performance shall give to the other Party prompt notice in writing of the
facts which constitute such cause when the cause arises; and, when the
cause ceases to exist, shall give prompt notice thereof to the other
Party.
12.2 If Supplier postpones or extends any performance date under this Agreement
pursuant to this Section for longer than 30 calendar days, BATO, by
written notice given during the postponement or extension, may immediately
terminate, without liability, Supplier's right to render further
performance or any part thereof affected by the force majeure condition.
12.3 Supplier agrees to establish and maintain policies and procedures relevant
to contingency plans, recovery plans and proper risk controls to ensure
Suppliers continued performance under this Agreement. Said policies and
procedures must be in place within 30 calendar days after the Effective
Date and shall include, but not be limited to, testing, control functions
accountability and corrective actions to be immediately implemented, if
necessary. Supplier agrees to provide copies of said policies and
procedures to BATO upon request.
13.0 RELATIONSHIP OF THE PARTIES:
13.1 The Parties are independent contractors. Nothing in this Agreement or in
the activities contemplated by the Parties hereunder shall be deemed to
create an agency, partnership, employment or joint venture relationship
between the Parties (or any of their Subcontractors or Representatives).
14.0 SUPPLIER PERSONNEL:
14.1 Supplier's personnel are not eligible to participate in any of the
employee benefit or similar programs of Bank of America. Supplier shall
inform all of its personnel providing Services pursuant to this Agreement
that they will not be considered employees of Bank of America for any
purpose, and that Bank of America shall not be liable to any of them as an
employer in any amount for any claims or causes of action arising out of
or relating to their assignment at or to Bank of America or release
therefrom.
14.2 Upon the reasonable request of BATO, Supplier agrees to immediately remove
any of Suppliers Representatives or Subcontractors performing Services
under this Agreement and replace such Representative or Subcontractor as
soon as practicable.
14.3 The engagement of a Subcontractor by Supplier shall be subject to BATO's
prior written consent, which shall not be unreasonably withheld, and shall
not relieve Supplier of any of its obligations under this Agreement.
Supplier shall require all Subcontractors, as a condition to
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their engagement, to agree to be bound by provisions substantially the
same as those included in Sections 14, 15 and 16.
14.4 Supplier shall comply and shall cause its Representatives and
Subcontractors to comply with all personnel, facility, safety and security
rules and regulations and other instructions of Bank of America, when
performing work at a Bank of America facility, and shall conduct its work
at Bank of America facilities in such a manner as to avoid endangering the
safety, or interfering with the convenience of, Bank of America
Representatives or customers. Supplier understands that Bank of America
operates under various laws and regulations that are unique to the
security-sensitive banking industry. As such, persons engaged by Supplier
to provide Services under this Agreement are held to a higher standard of
conduct and scrutiny than in other industries or business enterprises.
Supplier understands and acknowledges that its Representatives and
Subcontractors shall possess appropriate character, disposition and
honesty conducive to the environment where Services are provided under
this Agreement. Supplier shall, to the extent permitted by law, exercise
reasonable and prudent efforts to comply with the security provisions of
this Agreement.
14.5 Supplier shall not knowingly permit a Representative and/or Subcontractor
to have access to the premises, records or data of Bank of America when
such Representative and/or Subcontractor: (a) has been convicted of a
crime or has agreed to or entered into a pretrial diversion or similar
program in connection with (i) a dishonest act or a breach of trust, as
set forth in Section 21 of the Federal Deposit Insurance Act, 14 U.S.C.
1829(a); and/or (ii) a felony; or (b) uses illegal drugs.
14.6 BATO shall notify Supplier of any act of dishonesty or breach of trust
committed against Bank of America which may involve a Supplier
Representative and/or Subcontractor, and Supplier shall notify BATO if it
becomes aware of any such offense. Following such notice, at the request
of BATO and to the extent permitted by law, Supplier shall cooperate with
investigations conducted by or on behalf of Bank of America.
15.0 INSURANCE:
15.1 Supplier shall at its own expense secure and maintain, and shall require
its Subcontractors to secure and maintain, throughout the Term, the
following insurance with companies satisfactory and acceptable to BATO and
shall furnish to BATO certificates evidencing such insurance prior to
commencing work and naming Bank of America as an additional insured on the
policies. Said certificates shall contain a provision whereby the policy
and/or policies shall not be canceled or altered without at least 30
calendar days prior written notice to BATO. The insurance coverages and
limits required to be maintained by Supplier shall be primary to insurance
coverage, if any, maintained by Bank of America.
(A) Worker's Compensation Insurance which shall fully comply with the
statutory requirements of all applicable state and federal laws and
Employers' Liability Insurance which limit shall be $500,000 per accident
for Bodily Injury and $500,000 per employee/aggregate for disease.
Supplier and its underwriter shall waive subrogation against BATO.
(B) Commercial General Liability Insurance with a minimum combined single
limit of liability of $1,000,000 per occurrence per location and
$2,000,000 aggregate for bodily injury and/or death and/or property damage
and/or personal injury. This shall include
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products/completed operations coverage and shall also include Broad Form
Contractual coverage specifically for this Agreement.
16.0 CONFIDENTIALITY:
16.1 The term "Confidential Information" shall mean: this Agreement and all
proprietary information, data, trade secrets, business information and
other information of any kind whatsoever which: (a) a Party ("Discloser")
discloses, in writing, orally or visually, to the other Party
("Recipient"), or to which Recipient has access, in connection with the
negotiation and performance of this Agreement, and which (b) relates to
(i) the Discloser, (ii) in the case of Supplier, Bank of America and its
customers, or (iii) third-party vendors or licensors who have made
confidential or proprietary information available to Bank of America.
Supplier acknowledges that Bank of America has a responsibility to its
customers to keep their records strictly confidential. Supplier and its
Representatives and Subcontractors shall keep strictly confidential any
Bank of America customer records that Bank of America discloses or of
which Supplier or its Representatives or Subcontractors become aware.
16.2 Each of the Parties, as Recipient, hereby agrees on behalf of itself and
its Representatives and Subcontractors, that Confidential Information will
not be disclosed or made available to any person for any reason
whatsoever, other than on a "need to know basis" and then only to: (a) its
Representatives; (b) Subcontractors and other third-parties specifically
permitted under this Agreement, provided that all such persons are subject
to a confidentiality agreement which shall be no less restrictive than the
provisions of this Section; (c) independent contractors, agents, and
consultants hired or engaged by Bank of America, provided that all such
persons are subject to a confidentiality agreement which shall be no less
restrictive than the provisions of this Section; and (d) as required by
law or as otherwise permitted by this Agreement, either during the Term or
after the termination of this Agreement. Prior to any disclosure of
Confidential Information as required by law, the Recipient shall: (i)
notify the Discloser of any, actual or threatened legal compulsion of
disclosure, and any actual legal obligation of disclosure immediately upon
becoming so obligated, and (ii) cooperate with the Discloser's reasonable,
lawful efforts to resist, limit or delay disclosure. Nothing in this
Section 16 shall require any notice or other action by Bank of America in
connection with request or demands for Confidential Information by bank
examiners.
16.3 If any Services furnished by Supplier (or plan, design or specification
for producing the same) has been specifically designed, developed or
modified by Supplier for Bank of America at its request and expense, then
no such Services, plan, design or specification shall be duplicated or
furnished to others by Supplier without BATO's prior written consent.
Supplier shall return all copies of documentation of such Services
including original (or plan, design or specification for producing the
same) upon BATO's request or upon termination or expiration of this
Agreement.
16.4 Upon the termination or expiration of this Agreement, or at any time upon
the request of Bank of America, Supplier shall return all Confidential
Information in the possession of Supplier or in the possession of any
third party over which Supplier has or may exercise control.
16.5 The obligations of confidentiality in this Section shall not apply to any
information which a Party rightfully has in its possession when disclosed
to it by the other Party, information which a Party independently
develops, information which is or becomes known to the public other
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than by breach of this Section or information rightfully received by a
Party from a third party without the obligation of confidentiality.
16.6 All media releases, public announcements and public disclosures by either
Party, or their Representatives, relating to this Agreement or the name or
logo of Bank of America or Supplier, including, without limitation,
promotional or marketing material, but not including any disclosure
required by legal, accounting or regulatory requirements beyond the
reasonable control of the releasing Party, shall be coordinated with and
approved by the other Party in writing prior to the release thereof.
17.0 INDEMNITY:
17.1 Supplier shall indemnify, defend, and hold harmless Bank of America and
its Representatives, successors and permitted assigns from and against any
and all claims made or threatened by any third party and all related
losses, expenses, damages, costs and liabilities, including reasonable
attorneys' fees and expenses incurred in investigation or defense
("Damages"), to the extent such Damages arise out of or relate to the
following: (a) any negligent act or omission by Supplier, its
Representatives or any Subcontractor engaged by Supplier in the
performance of Supplier's obligations under this Agreement; (b) any
material breach in a representation, covenant or obligation of Supplier
contained in this Agreement or (c) any claims that, in use of any
Services, work product or part thereof ("Product") provided to Bank of
America under this Agreement or use, reproduction or modification of any
Product, Bank of America has violated, misappropriated or infringed the
patent, copyright, trade secret, or other proprietary rights of any third
party ("Intellectual Property Rights").
17.2 If any Product furnished under this Agreement, becomes, or in BATO's or
Supplier's reasonable opinion is likely to become, the subject of any
claim, suit, or proceeding arising from or alleging infringement of, or in
the event of any adjudication that such Product infringes on, any
Intellectual Property Right, Supplier, at its own expense shall take the
following actions: (a) secure for Bank of America the right to continue
using the Product; or if commercially reasonable efforts are unavailing,
(b) replace or modify the Product to make it noninfringing; provided,
however, that such modification or replacement shall not degrade the
utility, operation or performance of the Product.
18.0 LIMITATION OF LIABILITY:
18.1 Neither Party shall be liable to the other for any special, indirect,
incidental, consequential, punitive or exemplary damages, including, but
not limited to, lost profits, even if such Party has knowledge of the
possibility of such damages provided, however, that the limitations set
forth in this Section shall not apply to or in any way limit the indemnity
obligations under this Agreement.
18.2 If either Party commences legal or arbitral proceedings to enforce the
provisions of this Agreement, the prevailing Party, as determined by the
court or arbitrators, shall be entitled to recover from the other,
reasonable costs incurred in connection with such enforcement, including
but not limited to, attorneys' fees, expenses and costs of investigation
and litigation/arbitration.
19.0 MINORITY BUSINESS DEVELOPMENT INITIATIVE:
19.1 Supplier recognizes the Bank of America Minority Business Development
Initiative supporting Minority and Women-Owned Business Enterprises and is
committed to participation of minority
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and women-owned business enterprises in its construction, procurement and
professional services programs.
19.2 Definitions. For purposes of this Agreement, the following are the
definitions of "Minority-Owned Business Enterprise" and "Women-Owned
Business Enterprise":
"Minority-Owned Business Enterprise" means a "for profit" enterprise,
regardless of size, physically located in the United States or its trust
territories, which is at least fifty-one percent (51%) owned, operated and
controlled, by one or more member(s) of a "Minority Group" who maintain
United States citizenship.
(American Indians, Eskimos, Aleuts, and native Hawaiians), Asian-Pacific
Americans, and other minorities as recognized by the United States Small
Business Administration Office of Minority Small Business and Capital
Ownership Development.
"Women-Owned Business Enterprise" is recognized as a "for profit"
enterprise, regardless of size, located in the United States or its trust
territories, which is at least fifty-one percent (51%) owned, operated and
controlled by a female of United States citizenship.
To qualify as a Minority or Women-Owned Business Enterprise ("M/WBE")
under this Agreement, the M/WBE must be certified by an agency acceptable
to BATO.
19.3 Participation.
Supplier represents it is not a Minority or Woman Owned Business
Enterprise and agrees to the following:
Supplier agrees to utilize best efforts to achieve a minimum of fifteen
percent (15%) of the total dollar amount of this Agreement to be provided
by Minority Owned Business Enterprises. Supplier and BATO's MBD
Coordinator shall work diligently to achieve this goal and shall meet on a
quarterly basis to discuss opportunities of achieving same.
19.4 Supplier shall provide BATO quarterly, a report which specifies the total
amounts invoiced by and paid to Minority and/or Women Owned Business
Enterprises for the quarter being reported. The report shall be in the
format outlined in the Bank of America Primary Vendor Subcontracting
Reporting Procedures packet provided by BATO's MBD Coordinator.
20.0 ENVIRONMENTAL INITIATIVE:
20.1 Supplier acknowledges that BATO encourages each vendor with which it
enters into an agreement for the provision of goods or services to use,
consistent with the efficient performance of such agreements, recycled
paper goods and to implement and adhere to other environmentally
beneficial policies and practices.
21.0 RETENTION OF RECORDS:
21.1 Supplier shall maintain at no additional cost to BATO, in a reasonably
accessible location, all records pertaining to its charges and costs paid
or payable by BATO under this Agreement. Throughout the Term and for two
years thereafter, or if longer, the minimum amount of time required by
law, such Supplier records referenced above may be inspected, audited and
copied by BATO, its Representatives or by federal or state agencies having
jurisdiction over
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Bank of America, during normal business hours and at such reasonable times
as BATO may determine.
22.0 NONASSIGNMENT:
22.1 Neither Party may assign this Agreement or any of the rights hereunder or
delegate any of is obligations hereunder, without the prior written
consent of the other Party, and any such attempted assignment shall be
void, except that BATO or any permitted BATO assignee may assign any of
its rights and obligations under this Agreement to any BATO Affiliate, the
surviving corporation with or into which BATO or such assignee may merge
or consolidate or an entity to which BATO or such assignee transfers all,
or substantially all, of its business and assets.
23.0 ARBITRATION:
23.1 Any controversy or claim between or among the parties hereto shall be
determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), and the
Rules of Practice and Procedure for the Arbitration of Commercial Disputes
of Judicial Arbitration and Mediation Services, Inc./Endispute, Inc.
("J.A.M.S./Endispute"). If J.A.M.S./Endispute is unable or legally
precluded from administering the arbitration, then the American
Arbitration Association ("AAA") will serve.
23.2 Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any Party to this Agreement may bring an action, including a
summary or expedited proceeding, to compel arbitration of any controversy
or claim to which this Agreement applies in any court having jurisdiction
over such action in the Governing State set forth herein.
23.3 Upon receipt of demand for arbitration from either BATO or Supplier,
J.A.M.S./Endispute or AAA, as applicable, shall use its best efforts to
appoint an arbitrator and notify BATO and Supplier of such appointment
within 15 calendar days and further to commence arbitration within 90
calendar days. Any BATO or Supplier demand for arbitration shall include
detail sufficient to establish the nature of the dispute and shall be
delivered to the other Party concurrent with delivery to
J.A.M.S./Endispute or AAA.
23.4 Nothing in this Section shall limit the right of either Supplier or BATO
to obtain from a court provisional or ancillary remedies such as, but not
limited to, injunctive relief, or the appointment of a receiver, before,
during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement.
24.0 NON-EXCLUSIVE NATURE OF AGREEMENT:
24.1 Supplier agrees that it shall not be considered Bank of America's
exclusive provider of any goods or services provided hereunder. Bank of
America retains the unconditional right to utilize other vendors in the
provision of similar services.
25.0 MISCELLANEOUS:
25.1 BATO and Supplier are equal opportunity employers and do not discriminate
in employment of persons or awarding of subcontracts because of a persons
race, sex, age, religion, national origin, veteran or handicap status.
Supplier is aware of and fully informed of Supplier's responsibilities and
agrees to the provisions under the following: (a) Executive Order 11256,
as amended or superseded in whole or in part, and as contained in Section
212 of said Executive Order as found at 41 C.F.R.ss. 60-1.4(a)(1-7); (b)
Section 503 of the Rehabilitation
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Act of 2173 as contained in 41 C.F.R. ss. 60-741.4; and (c) The Vietnam
Era Veterans' Readjustment Assistance Act of 2174 as contained in 41
C.F.R. ss. 60-250.4.
25.2 Section headings are included for convenience or reference only and are
not intended to define or limit the scope of any provision of this
Agreement and should not be used to construe or interpret this Agreement.
25.3 No delay, failure or waiver of either Party's exercise or partial exercise
of any right or remedy under this Agreement shall operate to limit,
impair, preclude, cancel, waive or otherwise affect such right or remedy.
Any waiver by either Party of any provision of this Agreement shall not
imply a subsequent waiver of that or any other provision of this
Agreement.
25.4 If any provision of this Agreement is held invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
25.5 No amendments of any provision of this Agreement shall be valid unless
made by an instrument in writing signed by both Parties specifically
referencing this Agreement.
25.6 This Agreement may be executed by the Parties in one or more counterparts,
and each of which when so executed shall be an original but all such
counterparts shall constitute one and the same instrument.
25.7 This Agreement shall be governed by the internal laws, and not by the laws
regarding conflicts of laws, of the State of North Carolina. Each Party
hereby submits to the jurisdiction of the courts of such state, and waives
any objection to venue with respect to actions brought in such courts.
25.8 The remedies under this Agreement shall be cumulative and are not
exclusive. Election of one remedy shall not preclude pursuit of other
remedies. In arbitration a Party may seek any remedy generally available
under the governing law. Damages recoverable under this Agreement shall
include damages incurred or suffered by BATO and any BATO Affiliate.
25.9 Notwithstanding the general rules of construction, both BATO and Supplier
acknowledge that both parties were given an equal opportunity to negotiate
the terms and conditions contained in this Agreement, and agree that the
identity of the drafter of this Agreement is not relevant to any
interpretation of the terms and conditions of this Agreement.
25.10 All material notices or other communications or notices required under
this Agreement shall be given to the parties in writing to the applicable
addresses set forth on the signature page, or to such other addresses as
the Parties may substitute by written notice given in the manner
prescribed in this Section as follows: (a) by first class, registered or
certified United States mail, return receipt requested and postage
prepaid, (b) over-night express courier or (c) by hand delivery to such
addresses. Such notices shall be deemed to have been duly given either
three calendar days after the date of mailing as described above or one
business day after being received during business hours by an express
courier.
25.11 Wherever this Agreement requires either Party's approval, consent or
satisfaction, the response shall not be unreasonably or arbitrarily
withheld or delayed.
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25.12 This Agreement shall be binding upon, and inure to the benefit of, the
parties and their respective successors and assigns. Except as
specifically set forth in this Agreement, the parties do not intend the
benefits of this Agreement to inure to any third party, and nothing
contained herein shall be construed as creating any right, claim or cause
of action in favor of any such third party, against either of the parties
hereto.
26.0 ENTIRE AGREEMENT:
26.1 This Agreement, the Schedules and the documents incorporated herein, is
the final, full and exclusive expression of the agreement of the Parties
and supersedes all prior agreements, understandings, writings, proposals,
representations and communications, oral or written, of either Party with
respect to the subject matter hereof and the transactions contemplated
hereby. Other than those remedies specifically disclaimed in this
Agreement, all remedies set forth in this Agreement shall be in addition
to all other remedies available under this Agreement or at law or in
equity.
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EXHIBIT 10.39
CONCUR COMMERCE NETWORK(TM) PARTNER AGREEMENT
(PARTNER-HOSTED CONTENT VERSION)
This Concur Commerce Network Partner Agreement (the "Agreement") is
entered into this 29 day of December, 1999 (the "Effective Date") by and between
CONCUR TECHNOLOGIES, INC., a Delaware corporation with its principal place of
business at 6222 185th Avenue Northeast, Redmond, WA 98052 ("Concur") and
RoweCom, a Delaware corporation with its principal place of business at 15
Southwest Park, Westwood, MA 02090 ("Partner").
Through the Concur Commerce Network, Concur provides an online marketplace
with access to a variety of workplace-related products, programs and services.
These products, programs and services are made available to the employees of
each of Concur's corporate customers through the Concur eWorkplace business
portal, which is accessible via either a corporate intranet or over the
Internet. In addition to providing connectivity to the Concur Commerce Network,
Concur eWorkplace includes a suite of software applications (the "Concur
Software"), which presently may include one or more of the following: Concur
Procurement, Concur Expense, and Concur Human Resource.
Partner markets and sells workplace-related goods and/or services to
corporate customers.
Concur and Partner desire to enter into an agreement for the integration
at the Partner Catalog (as defined herein) with the Concur Commerce Network,
enabling customers of Concur Software to review and purchase goods and/or
services via the Concur Commerce Network using the Partner Catalog and/or the
Partner Store (each as defined herein).
NOW, THEREFORE, for and in consideration of the agreements of the parties
set forth below, Concur and Partner agree as follows:
Definitions
"Application" means either the Concur Software or the Partner Catalog.
"Buyer" means any Concur enterprise customer, or any employee or agent
thereof, that orders any of Partner's goods or services offered on the Partner
Store, using the Concur Commerce Network.
"Confidential Information" means any information concerning either party's
Intellectual Property Rights or other proprietary information concerning the
business, technology or products of the other party, or any other information of
either party which is reasonably understood to be confidential by the other
party to whom it has been disclosed.
"Intellectual Property Rights" means patent rights (including but not
limited to rights in patent applications or disclosures and rights of priority),
copyright rights (including but not limited to rights in audiovisual works and
moral rights), trade secret rights, trademark rights, rights of privacy and
publicity, and any other intellectual property rights recognized by the law of
any applicable jurisdiction.
"Launch Date" means the date on which one or more Buyers, using links to
the Partner Store from the Concur Software are able to purchase products
available on the Partner Catalog.
"Partner Catalog" means the electronic catalog from which a Buyer can
order goods and/or services via the Concur Commerce Network, whether hosted on
the Concur Commerce
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Network or as part of the Partner Store, the content and pricing for which shall
be solely determined by Partner.
"Partner Store" means a web site developed and maintained solely by
Partner within a secure environment containing the Partner Catalog and such
other content as shall be jointly determined by Concur and Partner.
"Revenue" means the aggregate amount received by Partner from an order on
the Partner Store, less: (i) credits, refunds and allowances separately and
actually credited to Buyers for defective, damaged, outdated, and returned or
cancelled goods or services; (ii) offered and taken trade and cash discounts,
rebates, commissions and distribution fees in amounts customary to the trade and
as required to do business in the country in which they are made; (iii) special
outbound packing, transportation, insurance, and handling charges, separately
billed to the Buyer or prepaid; and (iv) sales, excise, use, turnover,
inventory, value-added and similar taxes and duties, not including net income
tax.
1. Technical Integration.
1.1 No later than sixty (60) days after the Effective Date, Concur and
Partner agree to jointly complete a development plan to integrate the Partner
Store and the Partner Catalog, as appropriate, with the Concur Commerce Network,
and specifying, among other things, the Launch Date. Concur shall also provide
to Partner all documentation necessary for Partner to become compliant with the
Concur Commerce Network. Partner has read and understood the "Supplier OnRamp"
documentation included in this Agreement as Exhibit A and agrees that the
Integration between Partner and Concur to be performed by the parties pursuant
to this Agreement shall be within the framework of and consistent with Exhibit
A. Concur reserves the right to modify Exhibit A at any time, at its sole
discretion. Concur shall notify Partner within sixty (60) days of making any
material change to Exhibit A.
1.2 Partner acknowledges and agrees that the parties will use only those
protocols identified in Exhibit A as the required communication protocols
between the Partner Store and the Concur Commerce Network.
1.3 Each of Partner and Concur agree to provide the other with at least
thirty (30) days notice of any change in its Application which it believes would
materially affect the Integration. The parties shall cooperate to implement any
necessary changes to the Integration in order to accommodate such changes in the
Application.
2. Resource Commitments.
2.1 Each party agrees, as promptly as practicable after the Effective
Date, to make available to the other party a contact list with names and phone
numbers of selected of its employees to be involved in the relationship
contemplated by this Agreement, which shall include employees involved in sales
and marketing functions and in technical functions. Each party shall ensure that
its employees designated as contacts are reasonably qualified to perform the
particular duties required of them under this Agreement (e.g., the personnel
designated by each party as contacts for the technical integration duties
required under this Agreement shall have a level of skill and qualification
commensurate with the tasks required to be performed thereunder), and that the
number of such individuals shall be sufficient for it to meet its obligations
hereunder. The contact list, which in its initial form (subject to subsequent
modification) is set forth on Exhibit D, shall include, at a minimum, a
Partnership Relationship Manager who shall be the primary designated contact for
all matters arising in connection with this Agreement. The respective
Partnership Relationship Managers shall meet at least once per calendar quarter
to review progress made and the overall status of the partnership.
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2.2 Each party also agrees to designate one of its employees (who may or
may not also be the Partnership Relationship Manager) as a primary contact for
customers, media, industry analysts, and other third parties, concerning the
relationship contemplated in this Agreement.
2.3 The names of any individuals identified in the foregoing may be
changed by the naming party from time to time, upon written notice of such
change to the other party.
3. Business Terms and Consideration.
3.1 In consideration for its participation in the Concur Commerce Network,
Partner agrees to the fee schedule set forth in Exhibit C. Concur reserves the
right, in its sole discretion and without liability to Partner, to (a) enter
into similar relationships as that contemplated in this Agreement with other
business partners on terms more or less favorable than those found herein or (b)
offer certain additional marketing and promotional opportunities, including but
not limited to, preferred supplier placement on the Concur Commerce Network,
advertising, or other promotional opportunities to any such supplier or business
partner.
3.2 Partner agrees to provide access to the Partner Catalog via the Concur
Commerce Network for Buyers. For purposes of this Section, "access" shall mean
that Partner will take all reasonable steps to ensure that, subject to Partner's
standard terms and conditions, Buyers shall be able to purchase goods and
services through the Partner Store, including, without limitation, by
implementing such protocols as are identified on Exhibit A hereto.
3.3 Partner warrants that, as to both the demonstration environment and
the production environment for the Partner Store, each Buyer or prospective
Buyer will experience at least 97% up-time in the Partner Store (not including
(a) scheduled Application upgrades by Partner or (b) any downtime scheduled by
Partner's data center hosting partner, if any). With respect to the foregoing,
"demonstration environment" shall not be construed to mean a development
environment, but rather a "mirror image" or replica of the production
environment. Partner will be in breach of the foregoing warranty if the Partner
Store fails to achieve 97% up-time (as measured over a period of a given month
based on 24 x 7 availability) in three consecutive months. Any such breach shall
be deemed to be an event of default warranting a termination for cause under
Section 6.2. Partner agrees to provide Concur in advance of each calendar
quarter during the term of this Agreement a schedule of planned down-times for
that quarter. In addition, Partner agrees to notify Concur promptly of any
unexpected downtime experienced by Partner with the Partner Store.
4. Marketing and Sales Efforts..
4.1 Each party will actively and positively promote the relationship
contemplated by this Agreement, and the related products and services of the
other party. Such activities will include, but not be limited to, promotion in
connection with each party's marketing, public relations, and sales efforts
(including, where applicable, joint sales calls). The parties shall jointly
develop guidelines for such promotional activities prior to beginning such
promotion. If one party wishes to engage in promotional activities relating to
this relationship, or the products or services of the other party, which are not
covered by the guidelines then in effect, it shall seek the prior approval of
the other party. Without limiting the foregoing, the parties shall cooperate to
develop data sheets and appropriate marketing materials to describe the Partner
Store to be offered by Concur and Partner and, subject to the terms and
conditions of Section 5, each party shall be entitled to refer to each other and
this relationship on their web site, and in its marketing and sales tools.
4.2 Partner agrees that it will, in cooperation with Concur, develop and
circulate a press release announcing the relationship between Partner and Concur
promptly after the
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Effective Date. The content of such press release shall be jointly developed by
Concur and Partner.
4.3 (i) Concur will place a hypertext link to a web site designated by
Partner on the Concur partner web page. The textual and graphic content of these
links will be in the form specified below and will be provided to Concur by
Partner as a computer readable file in a compatible Hypertext Markup Language
(HTML) file format (such file is the Partner Image). Subject to the terms of
this Agreement, Partner hereby grants Concur a non-exclusive, non-transferable,
royalty-free license to use the Partner Image as embodied in the HTML file
delivered under this Section 4.3 for the purposes and subject to the conditions
set forth below.
(ii) Partner will place a hypertext link to the Concur Home Page on
Partner's partner web page. The textual and graphic content of the link will be
in the form specified below and will be provided to Partner by Concur as a
computer readable file in a compatible HTML file format (such file is the Concur
Image). Subject to the terms of this Agreement, Concur hereby grants Partner a
non-exclusive, non-transferable, royalty-free license to use the Concur Image as
embodied in the HTML file delivered under this Section 4.3 for the purposes and
subject to the conditions set forth below.
4.4 Concur and Partner agree to make their Partner Relationship Manager or
another suitable executive available for participation in (a) occasional
press/analyst calls; (b) at least two speaking engagements per year; (c) at
least one Concur user conference per year; and (d) at least one (1) Concur
supplier advisory meeting per year.
4.5 At least twice per year, each party agrees to provide quotes for
inclusion in the others press releases.
4.6 Partner agrees to cooperate with Concur to jointly develop a
co-branded presentation and demonstration (including a demonstration Web site)
to introduce the Partner Store to Buyers.
4.7 During each year of the Agreement, Concur agrees to participate in
events sponsored by Partner that provide a forum for the marketing of the
Partner Store or Concur Software (e.g. user groups, vendor fairs, trade shows,
seminars). Partner and Concur will mutually agree upon the events in which
Concur will participate. Each party will be responsible for its own
out-of-pocket expenses incurred in connection with these events.
4.8 Partner, at it's sole discretion, will allow Concur to include
information describing Concur's products and services in relevant marketing,
direct mail or other Partner campaigns that are aimed at its customers or
prospects. Concur will be responsible for the cost of production of such
information and the incremental costs associated with their delivery.
5. License.
5.1 By Concur. Subject to the terms and conditions of this Agreement,
Concur hereby grants to Partner (a) a royalty-free, non-exclusive,
non-transferable license to use the Concur Software for the sole purpose of
testing and modifying the Partner Catalog as required to integrate the Partner
Catalog with the Concur Software in establishing the Partner Store and for
demonstration purposes, in accordance with the terms and conditions contained in
Concur's standard software license agreement attached hereto as Exhibit B; and
(b) a worldwide, royalty-free, non-exclusive, non-transferable license to
reproduce and display the Concur trademarks, service marks, trade names, and
logos (the "Concur Trademarks") solely as necessary and in connection with
Partners performance of its obligations under this Agreement. All such uses
shall be in accordance with Concur's trademark usage guidelines, unless
otherwise instructed by Concur. Such license shall terminate upon the effective
date of the expiration or termination of this Agreement.
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5.2 By Partner. Subject to the terms and conditions of this Agreement,
Partner hereby grants to Concur (a) a royalty-free, non-exclusive,
non-transferable license to use the Partner Catalog to offer Partner's goods and
services to Buyers through the Concur Commerce Network. Concur may use the
Partner Catalog and the information contained therein only in connection with
the marketing and promoting of Partner's goods and services in accordance with
this Agreement; and (b) a worldwide, royalty-free, non-exclusive,
non-transferable license to reproduce and display the Partner trademarks,
service marks, trade names, and logos (the "Partner Trademarks") solely as
necessary and in connection with Concur's performance of its obligations under
this Agreement. All such uses shall be in accordance with Partner's trademark
usage guidelines, unless otherwise instructed by Partner. Such license shall
terminate upon the effective date of the expiration or termination of this
Agreement.
6. Term and Termination.
6.1 Term. The Agreement will have an initial term of twelve (12) months
from the Launch Date and shall automatically renew for successive periods of one
year, unless otherwise terminated as provided in the Agreement, and will be
subject to renegotiation by the parties thereafter. Either party may terminate
the Agreement for any reason or no reason upon providing written notice to the
other party not less than ninety (90) days prior to the date of termination of
the then-current term.
6.2 Termination for Cause or Insolvency. If a party defaults in the
performance of any material provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party that if the default is not
cured within thirty (30) days, the Agreement will be terminated. If the
non-defaulting party gives such notice and the default is not cured during the
thirty (30) day period, then the Agreement shall automatically terminate at the
end of that thirty (30) day period. In addition, this Agreement shall terminate,
without notice, (i) upon the institution by or against Partner or Concur of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of such party's debts, which, if involuntary, are not dismissed
within ninety (90) days, (ii) upon Partner's or Concur's making an assignment
for the benefit of creditors, or (iii) upon either Partner's or Concur's
dissolution.
6.3 Survival of Certain Terms. The provisions of Sections 6.3, 7, 9 and
10, shall survive the expiration or termination of this Agreement for any
reason. Section 8 will survive any termination or expiration of this Agreement
for a period of five (5) years.
7. Warranties; Limitation on Liability; Responsibilities.
7.1 Power and Authority. Each party represents and warrants that (a) it
has the full right, power and authority to enter into this Agreement and to
discharge its obligations hereunder, and (b) it has not entered into any
agreement inconsistent with this Agreement or otherwise granted any third party
any rights inconsistent with the rights granted to the other parties under this
Agreement.
7.2 Non-Infringement. Each party represents and warrants that (a) in the
case of Partner, the Partner Trademarks and the Partner Catalog, and, in the
case of Concur, the Concur Trademarks and the Concur Software, and any text,
graphics and any other material contributed by it to the Partner Store from time
to time (its "Contributed Materials") does not and will not infringe or violate
the Intellectual Property Rights of any third party, and that the other party's
exercise of its rights under this Agreement will not constitute an infringement
or violation of the Intellectual Property Rights of any third party; and (b) the
Contributed Materials do not and will not (i) contain any false, defamatory,
offensive, pornographic, or obscene material, or (ii) violate any applicable law
or regulation.
7.3 Customer Service. Partner warrants that, in connection with any Buyer
transactions conducted with Partner, using the Concur Commerce Network, it will
provide such
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Buyers with a level of service (in areas which shall include, but not be limited
to, order accuracy, timeliness and completeness of order processing and
delivery, customer assistance, and exchange and refund policies) that is (a) as
good or better than that offered by Partner to its customers outside the scope
of this Agreement; and (b) consistent with generally accepted customer service
standards for Partner's industry. The parties agree that any breach of the
foregoing warranty shall constitute a material default under Section 6.2.
7.4 No Other Warranties. EXCEPT FOR THE FOREGOING WARRANTIES AND ANY OTHER
EXPRESS WARRANTIES IN THIS AGREEMENT, THE PARTIES MAKE NO OTHER WARRANTIES,
EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT. EACH PARTY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, NONINFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE.
7.5 Limitation of Liability. IN NO EVENT SHALL ONE PARTY BE LIABLE TO THE
OTHER FOR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES OF ANY
KIND UNDER ANY CAUSE OR ACTION (INCLUDING NEGLIGENCE), WHETHER OR NOT SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY. EXCEPT WITH RESPECT TO BREACH OF SECTION 8 AND THE INDEMNIFICATION
OBLIGATIONS OF SECTION 9, THE LIABILITY OF EACH PARTY UNDER THIS AGREEMENT WILL
IN NO EVENT EXCEED THE GREATEST AMOUNT OF THE TOTAL PAYMENTS RECEIVED BY A PARTY
DIRECTLY FROM THE OTHER PARTY UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTH
PERIOD PRIOR TO THE DATE SUCH LIABILITY IS FINALLY DETERMINED.
7.6 Partner's Responsibility for Its Goods and Services. Where, by the
terms of the specific arrangement between Concur and Partner under this
Agreement, Concur is not involved in the actual transaction between any Buyer
and Partner, the following provision shall apply: The parties agree that Concur
shall not have any responsibility whatsoever with regard to the actual
fulfillment of any orders, including but not limited to the shipment of the
items ordered. As a result, Concur has no control over the quality, safety or
legality of the products listed, the truth or accuracy of the listings, the
ability of Partner to sell items or the ability of a Buyer to buy items. Concur
cannot and does not control whether or not Buyers will complete the purchase of
items they have ordered. In the event of any claim brought by a Buyer or any
other third party in relation to the listing by Partner of any item on the
Partner Store, Partner hereby indemnifies Concur, its affiliates, customers,
employees, successors and assigns (all referred to as "Concur") against any
losses, damages, claims, fines, penalties and expenses (including reasonable
attorneys' fees) arising from Partner's negligence or willful misconduct;
provided that, as to any product liability claim, Partner shall indemnify Concur
to no less an extent than Partner itself is indemnified by any third party.
7.7 Transaction Responsibilities. Partner acknowledges and agrees that it
will be solely responsible for all aspects of marketing, offering and selling
its products and services featured on the Partner Store, including but not
limited to, order taking, order fulfillment, shipping, product delivery,
invoicing, or billing, product returns or replacement, customer service, and
payment collection for all goods and services, payment of any assessments, taxes
and related fees and charges. Partner hereby agrees to indemnify, defend and
hold Concur harmless with respect to any losses, damages, claims, fines,
penalties and expenses related to the foregoing. Partner further acknowledges
and agrees that it shall keep track of and record every Buyer (for this purpose,
not individuals) who accesses the Partner Store and the purchases of products
and services made by such Buyers (through the use of such Buyer's URL).
8. Confidentiality.
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8.1 Nondisclosure. Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential Information
except as set forth herein, and shall use reasonable efforts not to disclose
such Confidential Information to any third party. Without limiting the
foregoing, each of the parties shall use at least the same degree of care which
it uses to prevent the disclosure of its own confidential information of like
importance to prevent the disclosure of Confidential Information disclosed to it
by the other party under this Agreement. Each party shall promptly notify the
disclosing party of any actual or suspected misuse or unauthorized disclosure of
such disclosing party's Confidential Information. Upon expiration or termination
of this Agreement, each party shall return all Confidential Information received
from the other party to the disclosing party.
8.2 Exceptions. Notwithstanding the above, no party shall have liability
to the others with regard to any Confidential Information of the others which
the receiving party can prove: (i) was in the public domain at the time it was
disclosed or has entered the public domain through no fault of the receiving
party; (ii) was known to the receiving party, without restriction, at the time
of disclosure, as demonstrated by files in existence at the time of disclosure;
(iii) is disclosed with the prior written approval of the disclosing party; (iv)
was independently developed by the receiving party without any use of the
Confidential Information, as demonstrated by files created at the time of such
independent development; (v) becomes known to the receiving party, without
restriction, from a source other than the disclosing party without breach of
this Agreement by the receiving party and otherwise not in violation of the
disclosing party's rights; or (vii) is disclosed pursuant to the order or
requirement of a court, administrative agency, or other governmental body;
provided, however, that the receiving party shall provide prompt notice thereof
to the disclosing party to enable the disclosing party to seek a protective
order or otherwise prevent or restrict such disclosure. In addition, Concur
shall have the right to disclose the terms and conditions of this Agreement in
documents filed with the Securities and Exchange Commission if Concur deems such
disclosure to be advisable; provided, however, that Concur will make such
documents available to Partner for review by Partner from time to time during
the term of this Agreement.
8.3 Remedies. Any breach of the restrictions contained in this Section 8
is a breach of this Agreement that may cause irreparable harm to the
nonbreaching party. Any such breach shall entitle the nonbreaching party to
injunctive relief in addition to all legal remedies.
9. Indemnification. Each party shall be solely responsible for, and shall
indemnify and hold the other party free and harmless from, any and all claims,
damages or lawsuits (including attorneys' fees) arising out of the negligent or
wrongful acts of such party, its employees or its agents under this Agreement,
including, without limitation, claims by third parties against such party as a
result of such party's (a) representation of the products or services of the
other in a manner inconsistent with the other party's published descriptions and
warranties, or (b) marketing of the Partner Store inconsistent with the terms of
this Agreement; provided, that such party is provided with (i) prompt written
notice of such claim or action, (ii) sole control and authority over the defense
or settlement of such claim or action and (iii) proper and full information and
reasonable assistance to defend and/or settle any such claim or action.
10. Miscellaneous.
10.1 Successors and Assigns. No party will have the right to assign this
Agreement without the prior written consent of the other parties; provided, that
both parties shall have the right to assign its rights, obligations and
privileges hereunder to a successor in business or an acquirer of all or
substantially all of its business or assets to which this Agreement pertains
without obtaining the consent of Partner. However, should either party be
acquired by a direct competitor of the other (as reasonably identified by the
non-acquired party), the non-acquired party may terminate this agreement upon 60
days written notice. Subject to the foregoing, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns
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any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
10.2 Governing Law. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of Washington, without
giving effect to principles of conflicts of law.
10.3 Arbitration. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in a location
mutually agreed upon by the parties in accordance with the then-current
Commercial Arbitration Rules of the American Arbitration Association by three
arbitrators appointed in accordance with said rules. Each party shall select one
such arbitrator, and the two arbitrators so chosen shall select the third
arbitrator. The arbitrators shall apply Washington law, without reference to
rules of conflicts of law or rules of statutory arbitration, to the resolution
of any dispute. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
parties may apply to any court of competent jurisdiction for preliminary or
interim equitable relief, or to compel arbitration in accordance with this
paragraph, without breach of this arbitration provision.
10.4 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile or
electronic mail transmission, or forty-eight (48) hours after being deposited in
the regular mail as certified or registered mail (airmail if sent
internationally) with postage prepaid, if such notice is addressed to the party
to be notified at such party's address, facsimile number or electronic mail
address as set forth below, or as subsequently modified by written notice.
Concur: Partner:
Concur Technologies, Inc. RoweCom, Inc.
6222 185th Avenue Northeast 15 Southwest Park
Redmond, WA 98052 Westwood, MA 02090
Tel: (425) 702-8808 (617) 497-5800
Fax: (425) 702-8828 (617) 497-6825
Attention: Legal Department Attn: CFO
10.5 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
10.6 Entire Agreement. This Agreement is the product of both parties
hereto, and constitutes the entire agreement among such parties pertaining to
the subject matter hereof, and merges all prior negotiations and drafts of the
parties with regard to the transactions contemplated herein. Any and all other
written or oral agreements existing among the parties hereto regarding such
transactions are expressly canceled. Any term of this Agreement may be amended
or waived only with the written consent of the parties or their respective
permitted successors and assigns.
10.7 Advice of Legal Counsel. Each party acknowledges and represents that,
in executing this Agreement, it has had the opportunity to seek advice as to its
legal rights from legal counsel and that the person signing on its behalf has
read and understood all of the terms and
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provisions of this Agreement. This Agreement shall not be construed against any
party by reason of the drafting or preparation thereof.
10.8 Independent Contractors. The relationship of the parties is that of
independent contractors, and nothing contained in this Agreement shall be
construed to (i) give one party the power to direct or control the day-to-day
activities of the other, (ii) constitute the parties as partners, joint
venturers, co-owners or otherwise as participants in a joint undertaking, or
(iii) allow one party to create or assume any obligation on behalf of the other
party for any purpose whatsoever. Nothing in this Agreement shall prohibit
either party, its agents or representatives from entering into the same or
similar agreements with any other party.
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IN WITNESS WHEREOF, the parties have agreed to and executed this Agreement as of
the date first set forth below.
PARTNER CONCUR TECHNOLOGIES, INC.
Signature:______________________ Signature:______________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
Date:___________________________ Date:___________________________
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EXHIBIT 21.1 - SUBSIDIARIES
ROWE COMMUNICATIONS, LTD.
1673 Richmond Street
London, Ontario
CORPORATE SUBSCRIPTION SERVICES, INC.
85 Chestnut Ridge Road
Montvale, NJ 07645
INTERNATIONAL SUBSCRIPTION AGENCIES, PTY. LTD.
41 Sherwood Road, Second Floor
Toowong Brisbane QLD 4066
ROWECOM GLOBAL, LTD.
The Financial Services Centre
P.O. Box 111
Bishop's Court Hill
St. Michael
Barbados, West Indies
ROWECOM GLOBAL HOLDINGS, LTD.
c/o Abacus Trust and Management Services Limited
Unit 18, Mill Mall
Wickham's Cay
P.O. Box 3339
Road Town, Tortola
British Virgin Islands
ROWECOM CANADA, ULC
P.O. Box 2382
London, Ontario N6A 5A7
ROWECOM FRANCE, S.A.R.L.
Rue de la Prairie - Villebon sur Yvette
91121 Palaiseau Cedex - France
ROWECOM UK, LTD.
Folkestone, UK
ROWECOM ESPANA, S.L.
Parq. Europolis - Edif. Santander - Calle I - Nave, 6 y 8
28230 las Rozas (Madrid) Espana
LAVERTON HOLDING B.V.
Amsteldijk 166
1079 LH Amsterdam Netherlands
DAWSON INC.
1001 W. Pines Road
Oregon, IL 61061-9570
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-77891) of RoweCom Inc. of our report dated
February 10, 2000 relating to the financial statements which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 16, 2000
<PAGE>
EXHIBIT 23.2
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in Registration Statement on
Form S-8 (File No. 333-77891) of RoweCom, Inc. of our report on Dawson's
Subscription Business dated December 17, 1999, March 16, 2000, as to Note 14
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to the restatement described in Note 14), which appears in this Current
Report on Form 10-K of RoweCom, Inc. dated March 16, 2000.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Chartered Accountants
London, England
March 16, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,264
<SECURITIES> 0
<RECEIVABLES> 137,512
<ALLOWANCES> 1,847
<INVENTORY> 0
<CURRENT-ASSETS> 163,082
<PP&E> 10,787
<DEPRECIATION> 1,697
<TOTAL-ASSETS> 215,608
<CURRENT-LIABILITIES> 155,453
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 60,051
<TOTAL-LIABILITY-AND-EQUITY> 215,608
<SALES> 307,173
<TOTAL-REVENUES> 307,604
<CGS> 286,853
<TOTAL-COSTS> 34,885
<OTHER-EXPENSES> 34,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 575
<INCOME-PRETAX> (13,559)
<INCOME-TAX> 1,508
<INCOME-CONTINUING> (15,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,067)
<EPS-BASIC> (1.80)
<EPS-DILUTED> (1.80)
</TABLE>
