RoweCom creditors group Steering Committee/ second open letter

[Ann Okerson <aokerson@pantheon.yale.edu>]

Date: Fri, 7 Feb 2003 22:47:37 -0000 
From: "Seeley, Mark (ELS/Cahners)" <m.seeley@elsevier.com>
Subject: RoweCom creditors group Steering Committee/ second open letter

I thought you might want to have a copy of our Second Open Letter,
released today, which tries to describe progress made to date, outline
upcoming matters, and also to give some details to publishers and
libraries about how the proposed deal might work.  Also for your
information I am attaching a list of publishers who have publicly
announced they will grace RoweCom library customers through the transition
period.  If the formal creditors committee is formed and begins operating
next week, the operations of the ad-hoc group may cease or change...

Thanks,
Mark (chair of Steering Committee)

Mark Seeley
Vice President & General Counsel
Elsevier Science
275 Washington Street
Newton MA 02458
Phone: (+1) 617-630-2254
Fax:  (+1) 617-558-4649

_________

7 February 2003

AN OPEN LETTER TO THE PUBLISHER AND LIBRARY COMMUNITY

This is the second open letter from the Steering Committee of the ad-hoc
RoweCom library customers and publisher vendors group, a follow-up to the
first open letter of 25 January 2003.  Since our first open letter, a
number of important steps have occurred in the proposed transaction with
EBSCO that we think are important to share.

A purchase agreement for the sale of the RoweCom Europe operations has
been signed, ensuring that those facilities will continue to operate. The
acquisition is subject to approval by French anti-trust authorities, and
upon validation of the transaction, EBSCO will proceed to facilitate
payment to the publishers for publications provided to customers of
RoweCom Europe.

As discussed in prior press releases, the sale of the U.S. business will
be done through a bankruptcy restructuring.  As most of you know, RoweCom
Inc. and related entities filed for chapter 11 protection on 27 January,
and filed a legal complaint against divine Inc. in connection with prior
transfers of funds from RoweCom to divine. An official creditors committee
is in the process of being formed, which is likely to include members of
the ad-hoc group.

Today the Steering Committee filed a motion in the US bankruptcy to
clarify the legal status in the bankruptcy of the "graced" subscriptions
provided to date by publishers, to generally describe the EBSCO proposal,
and to direct RoweCom to help coordinate information about publishers and
library customers who intend to participate in the proposed resolution (as
described below).  The motion contemplates that as publishers "grace" 2003
subscription issues, they become creditors of RoweCom in direct proportion
to the amount of customers' claims that they have satisfied through such
"gracing."  The goal of this motion is to ensure maximum cooperation of
publishers and continuity of fulfillment for libraries, keeping in mind
that RoweCom's financial distress affects both publishers and libraries
and consequently requires close cooperation among publishers and
libraries.
  
The Australian operations have been in administration, a form of
bankruptcy, and EBSCO and the ad-hoc group has been in touch with the
administrator to discuss a possible transaction.

We believe the steps outlined above demonstrate that significant progress
is being made, and our view is that EBSCO and RoweCom are working hard to
ensure that additional progress will be made, particularly in connection
with the U.S. business.

As previously indicated, we also want to try to describe in more detail
what we envision will result if the proposed transaction with EBSCO is
consummated and the Steering Committee's motion is approved; especially
for library customers and publisher vendors in the U.S., where there was
the highest amount of prepaid orders.  While we cannot be sure that all
necessary steps will occur, we think it important for the broader
community to consider the implications and begin to prepare themselves to
take action when it is necessary.  We will provide more detail in
publisher-specific and library-specific communications, but wanted to send
out this summary today.

As has been widely reported, the amount of funds currently in RoweCom's
possession is significantly less than the amount needed to pay publishers
for 2003 subscriptions that were prepaid to RoweCom.  With that backdrop,
our basic assumption has been that the percentage recovery of creditors of
RoweCom will depend upon the amount of proceeds that can be generated
through the sale or other liquidation of RoweCom's assets.  For example,
the proceeds received from the sale of RoweCom's U.S. business to EBSCO,
any funds belonging to RoweCom, and the potential contribution from divine
or proceeds from divine obtained through the litigation, will all be part
of a "pot" that will be distributed ratably to all of RoweCom's creditors.  
While we cannot at this point estimate how much funds there will be
available to pay to creditors, the expectation is that the amount of cash
available, at least in the short-term, will be less than $0.50 on the
dollar, and possibly significantly less than this amount.

The proposal, which the Steering Committee strongly supports and 
recommends, would work as follows:

� Publishers will be asked to agree to fulfill 2003 subscriptions, and
will in return receive the claims for repayment that would otherwise be
held by libraries if the publisher did not agree to fulfill their 2003
subscriptions.

� Publishers will also be asked to leave unchanged current discount or
commission structures with EBSCO for 3 years

� Libraries will be asked, when making subscription decisions for 2004, to
take account of the participation of publishers that agree to supply 2003
issues without first being paid (other than claims for repayment).

� RoweCom will coordinate information on participating publishers and
participating customers, on a kind of "bulletin board" that will permit
RoweCom and EBSCO to determine whether a given customer's orders can be
fulfilled through the bankruptcy procedure with a participating publisher

� Creditors of RoweCom, including each participating publisher and each
library that does not receive 100% of its 2003 subscriptions from a
participating publisher, will receive their pro-rata share of the proceeds
of RoweCom's estate (i.e., the RoweCom proceeds will be distributed
pro-rata to all holders of claims, including those of libraries for
unfilled orders and those of participating publishers for orders they have
filled).

� It is expected that distributions of proceeds will not begin until June
or July of 2003 and, depending upon the manner in which claims against
divine are resolved, it may be a significant time before all distributions
are made
 
As indicated, we will be providing further updates and information over 
the next week.  For further information, you can access the ad-hoc group's 
site at http://groups.yahoo.com/group/rowecomcreditors.  


The Steering Committee:
Lawrence Livermore National Laboratory 
Johns Hopkins University 
NIH Library, National Institutes of Health 
Ohio University 
FEDLINK, The Library of Congress
Elsevier
John Wiley & Sons 
Association of Learned & Professional Society Publishers (represented by 
 the Institute of Physics, the Royal Society of Chemistry, and the British 
 Medical Journal Group)
American Institute of Physics 
Oxford University Press

____

GracingPublishersList4.doc