<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997 Commission File Number 1-13524
TIMELINE, INC.
(Exact name of small business issuer as specified in its charter)
Washington 91-1590734
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3055 112th Avenue N.E., Ste. 106
Bellevue, WA 98004
(Address of principal executive offices)
(206) 822-3140
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Outstanding at
Class July 15, 1997
Common Stock, $.01 Par Value 3,140,953
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TIMELINE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997
March 31, 1997 June 30, 1997 Pro-forma
(audited) (unaudited) (unaudited)
-------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 187,428 $ 53,581 $ 52,809
Short-term investments - - -
Accounts receivable, net of allowance
of $99,146, $81,092 and $81,092 1,258,143 1,014,290 840,202
Prepaid expenses and other 218,365 219,335 131,808
Note receivable - - 608,198
------------ ----------- ----------
Total current assets 1,663,936 1,287,206 1,633,017
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,515,126, $1,577,960, and $1,568,086 737,611 674,942 653,512
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $469,975, $529,938 and $529,938 674,485 712,607 678,995
OTHER ASSETS 24,333 34,206 26,351
INVESTMENT IN TIMELINE EUROPE - - 254,360
------------ ----------- -----------
Total assets $ 3,100,365 $ 2,708,961 $ 3,246,235
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 569,981 $ 771,733 $ 430,110
Accrued expenses 497,537 534,534 333,505
Line of credit 348,950 448,172 287,420
Deferred revenue 354,643 449,381 399,328
Current portion of long-term debt 659,782 559,054 521,870
Current portion of capital leases 19,939 41,346 41,346
------------ ----------- ----------
Total current liabilities 2,450,832 2,804,220 2,013,579
LONG-TERM DEBT, net of current portion - -
LONG TERM PORTION OF CAPITAL LEASES & DEBT 25,719 - -
------------ ----------- ----------
Total liabilities 2,476,551 2,804,220 2,013,579
------------ ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 32,162 32,165 32,165
Additional paid-in capital 9,266,159 9,285,463 9,285,463
Unearned ESOP shares (391,366) (390,834) (390,834)
Stock subscription receivable (95,603) (95,603) (95,603)
Foreign currency adjustment (15,910) (71,987) -
Accumulated deficit (8,171,628) (8,854,463) (7,598,535)
------------ ----------- -----------
Total stockholders' equity 623,814 (95,259) 1,232,656
------------ ----------- -----------
Total liabilities and stockholders' equity $ 3,100,365 $ 2,708,961 $ 3,246,235
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 202,141 $ 774,888
Software development 120,800 136,288
Maintenance 234,317 176,955
Consulting and other 277,505 391,532
---------- ----------
Total revenues 834,763 1,479,663
COST OF REVENUES: 459,922 416,352
---------- ----------
Gross profit 374,841 1,063,311
---------- ----------
OPERATING EXPENSES:
Sales and marketing 319,671 657,133
Research and development 163,678 336,523
General and administrative 476,583 612,817
Depreciation 62,305 62,353
---------- ----------
Total operating expenses 1,022,237 1,668,826
---------- ----------
Income (loss) from operations (647,396) (605,515)
OTHER INCOME (EXPENSE):
Interest income 906 5,204
Interest expense (36,345) (30,820)
---------- ----------
Net income (loss) $ (682,835) $ (631,131)
========== ==========
Net income per common and
common equivalent share $ (0.22) $ (0.23)
========== ==========
Weighted average common and common
equivalent shares outstanding 3,140,953 2,693,219
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used) generated in operations $ (49,618) $ (796,223)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (165) (62,500)
Capitalized software costs (98,085) (446,541)
Sales of short-term investments - 100,890
----------- -----------
Net cash provided by investing activities (98,250) (408,151)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 99,222 350,000
Payments on notes payable (100,728) (2,083)
Payments on capital lease obligations (4,312) (34,978)
Proceeds from issuance of common stock 19,839 2,553,425
Costs of secondary public offering - (201,367)
----------- -----------
Net cash provided by (used in) financing activities 14,021 2,664,997
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (2,869)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (133,847) 1,457,754
CASH AND CASH EQUIVALENTS, beginning of period 187,428 284,542
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 53,581 $ 1,742,296
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for -
Interest $ 36,345 $ 29,733
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1997
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Timeline, Inc. and
subsidiary (the Company) are unaudited. In the opinion of the Company's
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information set forth therein. Results of operations for the three month period
ended June 30, 1997 are not necessarily indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-QSB.
Accordingly, these financial statements should be read in conjunction with the
Company's annual financial statements for the year ended March 31, 1997,
previously reported.
Net Loss per Common and Common Equivalent Shares
For the three months ended June 30, 1997, net loss per common and common
equivalent share was based on the weighted average number of common shares
outstanding during each period. Common stock equivalents include shares issuable
upon the exercise of outstanding stock options or warrants. These shares are not
included in the computation of net loss per share because the effect of
including such shares would be antidilutive.
2. SHAREHOLDERS' EQUITY
Changes in shareholders' equity for the period from March 31, 1997 to June 30,
1997 were as follows:
<TABLE>
<S> <C>
Shareholders' equity, March 31, 1997 $623,814
Issuance of common stock 19,307
Issuance costs -
Amortization of deferred compensation 532
Net loss (682,835)
Foreign currency translation adjustment (56,077)
--------
Shareholders' equity, June 30, 1997 $(95,259)
========
</TABLE>
3. PRO FORMA STATEMENTS
Effective July 3, 1997, the Company entered into an agreement pursuant to which
it sold a majority interest in it then wholly-owned subsidiary Timeline Europe
Limited (Timeline Europe). Under the agreement, Timeline Europe issued 87,500
new shares of common stock to certain individuals in the
5
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United Kingdom in exchange for subscriptions totaling approximately $1,633,760
US at then current exchange rates. Timeline, Inc. (Timeline) contributed a
portion of its debt receivable to Timeline Europe for 12,499 additional shares
in Timeline Europe. The result of these transactions reduced Timeline's
ownership interest in Timeline Europe to 12.5% and caused the Timeline Europe
management team and certain outside investors to obtain an 87.5% ownership
interest in Timeline Europe. Timeline Europe also repaid to Timeline
approximately $152,000 of prior advances and executed a debenture evidencing and
agreements securing its obligation to make three additional installments of
approximately $152,000 each on October 31, 1997; January 31, 1998 and April 30,
1998. Furthermore, an inter-company receivable of approximately $70,000 was
repaid to Timeline.
In connection with the sale of the majority interest in Timeline Europe,
Timeline and Timeline Europe also executed a Distributorship Agreement and
Source Code License which allows Timeline Europe to distribute, enhance and
maintain certain Timeline, Inc. software products in exchange for licensing fees
and maintenance fees payable to Timeline. The licensing fees are based on a
percentage of revenues generated by Timeline Europe on license and maintenance
fees it charges its customers. During the term of this agreement, Timeline
Europe has the right to market and license certain of Timeline's products to the
exclusion of Timeline in Europe, the Middle East, and Africa (the
"Territories").
Management believes these transactions will allow Timeline Europe adequate
working capital to build and maintain a viable market for Timeline's products in
the Territories. Consequently, Timeline believes substantial revenues will be
generated to Timeline over time on Timeline Europe licenses and maintenance.
Furthermore, these transactions makes Timeline no longer responsible for the
continued operations of Timeline Europe, thereby reducing Timeline's exposure to
negative cash flows which may be generated by Timeline Europe.
The accompanying pro forma balance sheet takes into effect the above transaction
as if it had occurred on June 30, 1997. The adjustments include the new
investment in Timeline Europe of $254,360, the receivable from Timeline Europe
of $608,198, and the effects of no longer consolidating Timeline Europe. Prior
to the transaction, Timeline had a negative investment in Timeline Europe of
$393,370, due to Timeline Europe's cumulative losses. The resulting gain
generated from the transaction was $1,255,928, which is also reflected in the
pro forma balance sheet.
4. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which is effective for periods beginning after December
15, 1997. SFAS No. 128 establishes new standards for computing and presenting
earnings per share (EPS). Companies will now report basic EPS and diluted EPS in
place of primary and fully diluted EPS, which were previously reported. Under
the new standard, the Company's basic and diluted EPS for the quarter ended June
30, 1997, would be the same as the current EPS reported.
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<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
When used in this report, the words "expect", "intention", "should",
"anticipate" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the factors which affect the Company's business, including
the disclosures made in this report, the Company's periodic reports on Forms
10-KSB and 10-QSB, and the Company's registration statements on Form SB-2 and
S-3, all as filed with the Securities and Exchange Commission, and those
described from time-to-time in the Company's press releases and other
communications.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996 Change
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Software license 202 775 (74)%
Software development 121 136 (11)%
Maintenance 234 177 32%
Consulting 278 392 (29)%
------------------------
Total Revenues 835 1,480 (44)%
--------------------------------------------------------------------------
</TABLE>
Revenues for the three months ended June 30, 1997 were substantially lower than
the comparable period ended June 30, 1996. This reflects the considerable
downsizing which management has undertaken subsequent to the relevant 1996
period. In April of 1997, the Company closed its Chicago sales office and
operated with substantially reduced sales personnel in the second half of fiscal
1997 and the first quarter of fiscal 1998 compared with fiscal 1997. As part of
this restructuring, the Company also changed sales management and consolidated
all U.S. activities in Bellevue, Washington. Furthermore, the Company has now
focused its sales efforts on its middle tier products which are priced lower
than its historical market focus. All these changes resulted in substantial
disruption of the flow of qualified prospects entering into new licenses during
the quarter.
Software development revenues in the period ended June 30, 1997 were also lower
as fiscal 1997 included substantial development fees with Microsoft Corporation
on the Microsoft Small Business Financial Manager. This agreement did not
produce comparable revenues in the period ended June 30, 1997.
Maintenance revenue increased 32% for the comparable three month period. This
reflects increasing maintenance fees from licensees of Timeline's MV product
line which more than offset continued reductions in maintenance from the
Company's accounting systems based on Digital Equipment Corporation's operating
systems. Consulting revenue decreased 29%. The demand for consulting is directly
affected by installation support and training on new licenses signed during the
current and immediately prior quarters.
7
<PAGE> 8
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996 Change
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Gross profit 374 1,063 (65)%
Percentage of revenues 45% 72%
--------------------------------------------------------------------------
</TABLE>
The Company's gross margin varies in part depending upon the mix of
higher-margin software licenses and consulting and maintenance revenue, which is
labor intensive. The fact a higher proportionate share of gross revenue in the
quarter ending June 30, 1997 consisted of such labor intensive revenue resulted
in a substantial decrease in gross profits as a percentage of revenue.
SALES AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996 Change
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Sales and marketing 320 657 (51)%
Percentage of revenue 38% 44%
--------------------------------------------------------------------------
</TABLE>
Sales and marketing expenses as a percentage of net sales and in actual dollar
amounts decreased substantially between the periods presented. This decrease is
due to the substantial reduction in sales personnel and related expenses in the
United States. This expense reduction in the US more than offset continued
increases in such expenses in the United Kingdom. Due to the sale of a majority
interest in Timeline's subsidiary, Timeline Europe, effective in early July,
1997, future results will not reflect the cost of sales and marketing in the
United Kingdom. Consequently, management believes these expenses will continue
to show substantial reductions in future quarters.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996 Change
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Research & development 164 337 (51)%
Percentage of revenues 20% 23%
--------------------------------------------------------------------------
</TABLE>
The Company has made a strategic decision to not undertake any research and
development on new products. Research and development expenses during the
quarter ended June 30, 1997 were attributable to the enhancement of the
functionality of the current product line unless funded by outside third
parties. This approach is a key undertaking in management's effort to return the
Company to profitability. In the comparable period of fiscal 1997, the Company
completed development of and released MV Analyst(TM), its PC-based
database/Excel product, the development of which accounted for a large portion
of research and development expense.
8
<PAGE> 9
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996 Change
--------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
General & administrative 477 613 (22)%
Percentage of revenues 57% 41%
--------------------------------------------------------------------------
</TABLE>
General and administrative expenses between comparable three month periods ended
June 30, 1997 and June 30, 1996 decreased 22%. This decrease is a direct result
of management's efforts to reduce the workforce and related overhead expenses.
However, these expenditures continue to reflect those associated with Timeline
Europe's operations in the United Kingdom. Due to the sale of a majority
interest in Timeline Europe in early July, 1997, general and administrative
expense are expected to decrease in the upcoming quarter.
INCOME TAX
Income taxes are provided in the statement of operations in accordance with the
liability method. The Company has determined that the tax assets generated by
the net operating losses and research and experimentation credits do not satisfy
the recognition criteria set forth under the liability method. Accordingly, a
valuation allowance is recorded against the applicable deferred tax assets and
therefore no tax benefit is recorded.
In connection with the Company's initial public offering in January 1995, the
Company experienced a significant change in ownership, which limits the amount
of net operating loss carry forwards and credits which may be used in any given
year. However, the Company does not expect this to be a factor in fiscal 1998.
SIGNIFICANT EVENTS SUBSEQUENT TO QUARTER ENDED JUNE 30, 1997
Effective July 3, 1997, the Company entered into an agreement pursuant to which
it sold a majority interest in its then wholly-owned subsidiary Timeline Europe.
Under the agreement, Timeline Europe issued 87,500 new shares of common stock to
certain individuals in the United Kingdom in exchange for subscriptions totaling
approximately $1,633,760 US at then current exchange rates. Timeline contributed
a portion of its debt receivable to Timeline Europe for 12,499 additional shares
in Timeline Europe. The result of these transactions reduced Timeline's
ownership interest in Timeline Europe to 12.5% and caused the Timeline Europe
management team and certain outside investors to obtain an 87.5% ownership
interest in Timeline Europe. Timeline Europe also repaid to Timeline
approximately $152,000 of prior advances and executed a debenture evidencing and
agreements securing its obligation to make three additional installments of
approximately $152,000 each on October 31, 1997, January 31, 1998 and April 30,
1998. Furthermore, an inter-company receivable of approximately $70,000 was
repaid to Timeline.
9
<PAGE> 10
In connection with the sale of the majority interest in Timeline Europe,
Timeline and Timeline Europe also executed a Distributorship Agreement and
Source Code License which allows Timeline Europe to distribute, enhance and
maintain certain Timeline, Inc. software products in exchange for licensing fees
and maintenance fees payable to Timeline. The licensing fees are based on a
percentage of revenues generated by Timeline Europe on license and maintenance
fees it charges its customers. During the term of this agreement, Timeline
Europe has the right to market and license certain of Timeline's products to the
exclusion of Timeline in Europe, the Middle East, and Africa (the
"Territories").
Management believes these transactions will allow Timeline Europe adequate
working capital to build and maintain a viable market for Timeline's products in
the Territories. Consequently, Timeline believes substantial revenues will be
generated to Timeline over time on Timeline Europe licenses and maintenance.
Furthermore, these transactions makes Timeline no longer responsible for the
continued operations of Timeline Europe, thereby reducing Timeline's exposure to
negative cash flows which may be generated by Timeline Europe.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent and short-term investment balances at
June 30, 1997 stood at $53,581 compared to $187,000 at March 31, 1997. The
decrease in cash is attributable to substantial losses incurred in the fiscal
first quarter of 1998. Total obligations, excluding deferred income items,
totaled $2,354,839 at June 30, 1997 as compared to $2,122,000 at March 31, 1997.
The fiscal 1998 obligations include a corporate guarantee of a $322,917 bank
note between the Timeline Employee Stock Ownership Trust and Silicon Valley
Bank. This note is intended to be repaid from employee and matching employer
contributions under the Timeline Employee Stock Ownership Plan (the "ESOP"). The
Company is currently out of compliance with certain debt covenants associated
with the ESOP debt and has therefore classified this debt as current. During
fiscal 1997, the President and CEO of the Company personally guaranteed this
debt with the bank.
Net cash used in operating activities was $49,618 in the quarter ended June 30,
1997. The Company funded its operating loss through a significant increase in
deferred revenues and payables, and collections on accounts receivable.
Based on current cash and cash equivalent balances, the Company expects
additional borrowings, sales of equity or debt instruments, or substantial sales
of assets will be required to fund operations during fiscal 1998. A sale of a
majority of the stock in Timeline Europe was closed immediately after the end of
the June 30, 1997 quarter. Timeline will receive payments of $608,198 during the
next ten months as well as on-going license and maintenance fees over a period
of years in conjunction with this sale. The transaction provided a substantial
infusion of new capital in Timeline Europe, in which Timeline retains a 12.5%
equity interest. This transaction was considered necessary both to provide
liquidity to Timeline and to allow new working capital for Timeline Europe.
At June 30, 1997, the outstanding balance on the Company's line of credit
facility was $287,420 in the US and $160,752 in Timeline Europe (which amount
was assumed by Timeline Europe in the transaction of July, 1997). Timeline has a
bank line of credit of $625,000 based upon the selling its accounts receivable
with recourse.
10
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PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Distributorship Agreement and Source Code License
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1997.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
(Registrant)
Date: August 11, 1997 By: /s/ CHARLES R. OSENBAUGH
---------------------------------
Charles R. Osenbaugh
President/Chief Financial Officer
Signed on behalf of registrant and
as principal financial officer.
12
<PAGE> 13
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
10.1 Distributorship Agreement and Source Code License
27.1 Financial Data Schedule
13
<PAGE> 1
DISTRIBUTORSHIP
AGREEMENT AND
SOURCE CODE LICENSE
This Agreement (the "Agreement") is between Timeline, Inc., a Washington
corporation whose principal place of business is at 3055 112th Avenue NE, Suite
106, Bellevue, WA 98004, Washington, USA ("Timeline") and Timeline Europe
Limited, a company registered in England whose registered office is at 9
Cheapside, London EC2V 6AD ("Timeline Europe"), dated as of 3rd July, 1997
("Effective Date").
In consideration of the mutual covenants contained herein, the parties
hereby agree as follows:
1. TERM OF AGREEMENT.
This Agreement shall take effect from the Effective Date and shall continue
thereafter unless terminated pursuant to the other provisions of this Agreement.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
as set forth below:
(a) "MV Analyst(TM)" shall mean a group of software programs constituting an
application developed by Timeline which provides financial reporting in a
Microsoft environment plus tools developed by Timeline which allow development
of reporting applications. MV Analyst as used herein shall include "Viewer"
(provides inter alia the ability to view and update reports with new data,
"Author" (provides inter alia the ability to write new reports), "Manager"
(provides inter alia ability to distribute databases to other desktops,
importation of data from third party sources and add reporting relationships to
such data) and "MV Budget" which comprise separate components which may be
licensed separately or in combination. All configurations of Viewer, Author,
Manager and/or MV Budget are included in the definition of MV Analyst as is all
software in respect of which Timeline has
<PAGE> 2
DISTRIBUTORSHIP AGREEMENT PAGE 2
a license from Lex Incorporated ("the Lex Software"). "MV Server(TM)" shall mean
an application developed by Timeline which provides a financial reporting
database resident in Microsoft SQL Server.
(b) "Customer" has the meaning attributed to it at clause 4(a).
(c) "End User" shall mean an entity who takes a license of Product for Use
and not for resale. An End User shall be designated a "Timeline Europe End User"
when Timeline Europe or any third party allowed to license such product by
reason of an agreement with Timeline Europe Limited is the party responsible for
obtaining an End User license of a Product for Use and not for resale.
(d) "Excluded Derivative" shall mean a version of the Product produced by
Timeline or Timeline Europe pursuant to a contract with a third party (such
third party not being a member of Timeline or Timeline Europe's Group (as the
case may be)) under which Timeline or Timeline Europe (as the case may be)
agrees to develop the said version for the said third party and to grant to it
the exclusive distribution rights therefor.
(e) "Master Copy" shall mean a master copy of the software comprised within
a Product (in machine readable form) and of all related documentation
(including, without limitation, operating manuals and product descriptions)
suitable for the reproduction of multiple copies by Timeline Europe.
(f) "Product" shall mean MV Analyst(TM) and/or MV Server(TM), and related
documentation ("the Existing Products"). Product shall also include any
Derivative. A "Derivative" is any product which either (1) utilizes in whole or
in part any source code of Timeline relating to MV Analyst(TM) or MV Server(TM)
or (2) substantially reproduces MV Analyst or MV Server in terms of its
functionality, design, architecture and user interfaces.
(g) "Quarter" shall mean a three month period commencing with 1 July, 1
October, 1 January or 1 April.
<PAGE> 3
DISTRIBUTORSHIP AGREEMENT PAGE 3
(h) "The Technology" shall mean all such materials and technical information
(whether reduced to a material form or not) as may reasonably be required for
the purpose of enabling Timeline Europe to produce, distribute maintain and
support Products in accordance with the terms of this Agreement, including,
without limitation, clean copies of the up to date source codes relating to the
Products and supporting documentation.
(i) "Use" shall mean copying any portion of software comprised within any
Product from storage units or media into a CPU for processing.
3. PROVISION OF TECHNOLOGY AND MASTER COPIES.
(a) On or before the Effective Date, Timeline shall provide to Timeline
Europe a Master Copy of and the Technology relating to the Existing Products. In
addition, Timeline shall as soon as possible after the Effective Date give
Timeline Europe access to its project leaders responsible for the Products.
(b) Timeline shall throughout the period of this Agreement provide promptly
on request by Timeline Europe a Master Copy and the Technology relating to any
Derivative or updates or version releases of the Products that it is obliged to
make available to Timeline Europe for evaluation purposes under Clause 7(c)
below and make available to Timeline Europe its relevant project leaders as
mentioned at clause 3(a) above.
(c) Timeline Europe shall take such steps (not involving Timeline Europe in
any significant expense other than travelling expenses to the premises of
Timeline for the purpose of meeting its project leaders) as may reasonably be
necessary to facilitate the provision of the Technology by Timeline in
accordance with this clause 3.
4. LICENSE GRANT.
(a) In consideration for Timeline Europe payment to Timeline of licensing
and maintenance fees as specified
<PAGE> 4
DISTRIBUTORSHIP AGREEMENT PAGE 4
in Exhibit A, Timeline grants to Timeline Europe:
(i) An exclusive license to reproduce, distribute and sub-license the
Products in object code only in the geographical areas mentioned in
Exhibit C (herein referred to as "Exclusive Territories"); and
(ii) A non-exclusive license to reproduce, distribute and sub-license
the Products in object code only outside the Exclusive Territories
such distribution or sub-licensing being in each case, to entities or
persons who are (1) Timeline Europe End Users who have signed a Timeline
Europe's End User License Agreement or who receive the Product under
Timeline Europe's "shrink wrap" license or (2) Resellers, Value Added
Resellers ("VARs") and Business Partners or other third parties who have
signed written agreements with Timeline Europe to sub-licence or distribute
("Customers"). Any Timeline Europe agreements with Customers shall be
required to comply with restrictions on their distribution, use, licensing,
copying and protection of the Products or Technology at least as restrictive
as those imposed on Timeline Europe herein.
(b) Timeline grants to Timeline Europe a nonexclusive license to Use the
Products during the term of this Agreement and thereafter in accordance with
clause 26(c ) if applicable, to be Used for maintaining its internal books and
records and marketing demonstrations only, and such license is neither to be
resold nor transferred to a third party save in the circumstances in which
assignment of this Agreement by Timeline Europe is permitted under clause 19
below.
(c) Timeline grants to Timeline Europe a license (non-transferable save in
the circumstances in which assignment of this Agreement is permitted under
clause 19 below) to use, (including, without limitation reproduce, modify, adapt
or translate) Timeline's source code relating to the Products in any manner and
for any business purpose whatsoever. All rights in any such modifications,
adaptations or translations shall belong to Timeline Europe but Timeline shall
have a non-exclusive, non-transferable (save in the circumstances mentioned at
clause 19 below) license to reproduce, distribute and sub-license the modified
or adapted Products (excluding
<PAGE> 5
DISTRIBUTORSHIP AGREEMENT PAGE 5
Excluded Derivatives) outside the Exclusive Territories (and within the
Exclusive Territories in the circumstance mentioned at clause 12 below). In
consideration for such license (which shall, save as mentioned above, be on the
same terms (mutatis mutandis) as Timeline Europe's license at clause 4(a)
above), Timeline shall pay licensing fees to Timeline Europe in accordance with
clause 6 below.
(d) Timeline grants to Timeline Europe a worldwide, nonexclusive license to
use the trade names, trademarks, and logos set forth in Exhibit B (the "Marks")
pursuant to the terms and conditions described in clause 5.
(e) Timeline Europe shall use reasonable security measures, at least as
protective as it uses for its own proprietary materials, to protect the Products
and Technology from unauthorized use and distribution, and shall cooperate as is
reasonable with Timeline in preventing unauthorized use. To the extent that any
rights in the Products and/or Technology belong to Timeline Europe, Timeline
shall owe a like obligation to Timeline Europe.
(f) Timeline Europe's license shall extend to any Derivatives, updates and
version releases (excluding Excluded Derivatives) Timeline makes commercially
available during the period of this Agreement and to any modified or adapted
Products made by Timeline Europe pursuant to paragraph (c) above.
(g) The licenses granted to Timeline Europe hereunder include licenses under
Timeline's patent application number PCT/US96/20366 any subsequent patent
application based upon or claiming priority from the said application or
relating to a Derivative that Timeline is obliged to make available to Timeline
Europe under this Agreement and all patents which may be granted pursuant to any
of the foregoing patent applications.
(h) In no event is Timeline Europe granted the right to license, sell or
permit access to uncompiled source code relating to Products or Technology to
any third party save insofar as the source code has been written by Timeline
Europe.
<PAGE> 6
DISTRIBUTORSHIP AGREEMENT PAGE 6
5. LICENSE RESTRICTIONS
(a) Timeline Europe recognizes the importance to Timeline of controlling the
licensing and usage of its Products. To that end, Timeline Europe agrees that it
will and will impose an obligation on its Customers to, in each case, provide
the Product to Timeline Europe End Users subject to the following criteria:
(i) Timeline Europe shall distribute each Product licensed under this
Agreement only to an entity which has executed a Timeline Europe End User
License Agreement or which receives the Products on the basis of the Timeline
Europe "shrink wrap" license.
(ii) Timeline Europe shall have the right to sub-contract the production
of Product.
(iii) Timeline Europe will not alter or remove any copyright, patent or
patent pending notice which is contained within the Product or documentation.
Timeline Europe will maintain and cause to appear as part of the sign-on message
the applicable Timeline copyright and patent pending notices. Timeline Europe
shall cause to appear on the title page of each volume of the Product
documentation, and at any other location where any copyright notice appears, the
Timeline and third party copyright notices which appear in the release of
Product documentation from which Timeline Europe's documentation is derived.
(iv) Timeline Europe shall use the Marks only, as applicable, under the
Product name(s) and only in conjunction with promotion and advertising of those
Products. Subject to Timeline providing to Timeline Europe from time to time an
up to date schedule of its current registrations of the Marks Timeline Europe
agrees to use the appropriate trademark symbol (either "(TM)" or "(R)") in a
superscript, and clearly indicate Timeline ownership of its trademark(s)
whenever the Mark is first mentioned in any advertisement, brochure or in any
other manner in connection with the Product. Timeline Europe agrees to use all
Marks strictly in accordance with such reasonable guidelines for use as Timeline
may provide. Timeline Europe shall, upon request, provide Timeline samples of
all Timeline Europe literature which use the Marks. In any materials containing
the Marks, Timeline
<PAGE> 7
DISTRIBUTORSHIP AGREEMENT PAGE 7
Europe shall include a footnote containing the appropriate footnote information,
if any, described in Exhibit B or subsequently provided by Timeline. Timeline
Europe shall not use the marks in conjunction with any other words or trademarks
so as to create a composite trademark. Except as listed on Exhibit B, Timeline
Europe is not granted the right to use any other trademarks of Timeline.
(v) For the avoidance of doubt, Timeline Europe may use upon or in
relation to any Product any mark of Timeline Europe in place of any of the
Marks.
6. TIMELINE EUROPE SPECIAL OBLIGATIONS
(a) Any new applications (for example, a Consolidation and Budgeting Module)
devised by Timeline Europe and which reproduce any substantial part of
Timeline's source code in the Products shall, for the avoidance of doubt, be
considered Derivatives in respect of which payment shall be due from Timeline
Europe in accordance with Exhibit A. All rights in such Derivatives shall (save
insofar as they comprise Timeline's source code) belong absolutely to Timeline
Europe, but Timeline Europe shall grant to Timeline (save in respect of Excluded
Derivatives) a non-exclusive non-transferable (save in the circumstances
mentioned at clause 19 below) license to reproduce, distribute and sub-license
the same to residents outside the Exclusive Territories (and within the
Exclusive Territories in the circumstances mentioned at clause 12 below). The
consideration for such license shall be the payment by Timeline to Timeline
Europe of licensing and maintenance fees at the same rates and on the same basis
(including as to the reporting obligations and rights of audit) that such fees
are due from Timeline Europe under clause 11 of this Agreement in respect of the
distribution of Products. The said license shall save as mentioned above be on
the same terms (mutatis mutandis) as Timeline Europe's license at clause 4(a)
and shall extend to any new releases provided to Timeline by Timeline Europe.
The following provisions of this Agreement shall also apply (mutatis mutandis)
namely clauses 4(b), 4(e), 5(a)(i) - (iii), 7(b) and ( c ), 8(a) 13, 14, 15, 16
and 17.
b) For purposes of calculating licensing fees due from Timeline Europe to
Timeline hereunder and for
<PAGE> 8
DISTRIBUTORSHIP AGREEMENT PAGE 8
purposes of calculating licensing fees due from Timeline to Timeline Europe
under any license granted to Timeline pursuant to clause 6(a) above, fees shall
be paid by each party to the other based on the entire license fee received by
that party from End Users, VARS, Resellers and Business Partners on each license
of any Derivative of the type mentioned at clause 6(a) above without allocation
between the license fee charged for the said Derivative and the underlying
Timeline Product(s). Notwithstanding the above, for licensees who license the
said Derivative for certain End Users and also license Timeline Products for
other End Users, no fee shall be due from Timeline to Timeline Europe for those
licenses granted by Timeline to those End Users who are not licensed to use the
said Derivative.
(c) Timeline Europe's exclusivity under clause 4(a)(i) above shall be
subject to it generating the following minimum licensing fees (exclusive of
maintenance fees)
<TABLE>
<S> <C> <C>
(i) in the 12 calendar months ending June 30 1999 pound sterling XXXXXX
(ii) in the 12 calendar months ending June 20 2000 pound sterling XXXXXX
(iii) in the 12 calendar months ending June 30 2001 pound sterling XXXXXX
(iv) in the 12 calendar months ending June 30 2002 and
in each 12 calendar months ending on June 30 in each
subsequent year pound sterling XXXXXX
</TABLE>
(c) If in any of the above-mentioned periods, the licensing fees payable are
less than the relevant annual minimum and Timeline Europe does not make up the
shortfall by the 15th day of August following the end of the relevant period,
Timeline may serve a written notice on Timeline Europe bringing its exclusivity
to an end. Thereupon Timeline Europe's rights under this Agreement shall become
non-exclusive and Timeline Europe shall be released from any further obligations
in respect of the achievement of annual minimum licence fees.
7. TIMELINE SPECIFIED OBLIGATIONS.
Timeline shall provide maintenance which includes the following:
<PAGE> 9
DISTRIBUTORSHIP AGREEMENT PAGE 9
(a) Within 6 months of new general commercial release of Microsoft Office,
Microsoft Sequel Server, Microsoft Windows or Microsoft Windows NT to the
general public, Timeline shall provide to Timeline Europe a release of the
Product which operates with the then current Microsoft release;
(b) Within 72 hours of Timeline Europe's written notification (which may,
for the avoidance of doubt be by e-mail) of an error or defect in any of the
Products, Timeline will give an initial response, indicating its assessment of
the error or defect and the anticipated time to produce a fix or reasonable
work-around. In the case of an error or defect which makes the Product incapable
of providing material functionality as stated in the Product description for the
Products Timeline shall, unless otherwise agreed with Timeline Europe provide
such fix or reasonable work-around as soon as possible and, in any event, within
168 hours. In the case of any other error or defect (other than minor cosmetic
defects, which may be remedied in the next release of the Product) a fix or
reasonable work around shall be provided within 30 days. All fixes or
work-arounds provided shall be accompanied by appropriate amendments to the
source code and/or supporting documentation
(c) Timeline shall, prior to making the same available to any third party,
make available to Timeline Europe for evaluation, alpha and beta test purposes
copies of any Derivatives (including modified, updated or enhanced versions of
the Products but excluding the Excluded Derivatives) that it proposes to
introduce. Alpha test copies shall be for Timeline Europe's internal evaluation
only. Beta test copies may be made available by Timeline Europe to Customers
with whom it has a written contract providing for the Customer's evaluation of
such copies.
(d) Within one year of completion of agreed specifications, Timeline shall
provide a commercial release of MV Server in accord with a specification
reasonably agreed to by a technology committee appointed to give input to future
releases of all Timeline Products. The goal of such MV Server release is to
provide the MV Analyst architecture directly in Sequel Server. The parties agree
to negotiate in good faith to arrive at agreed reasonable specifications as soon
as practical.
<PAGE> 10
DISTRIBUTORSHIP AGREEMENT PAGE 10
(e) Immediately after the Effective Date, Timeline shall establish a
technology committee. Timeline Europe shall have the right to appoint half of
the members of the committee who shall carry half of the voting rights until the
fourth anniversary of this Agreement. No changes to or developments or
enhancements of the version of the Products to be distributed by Timeline Europe
under this Agreement shall be implemented by Timeline without the approval of
the said technology committee.
(f) Until June 30, 1999 Timeline shall not license its Products or
Technology to a third party for development of a consolidation and budgeting
module where such module would be licensed as a stand alone package not licensed
to a End User who also licenses such third party's transaction accounting
software.
8. TIMELINE EUROPE REMEDIES FOR DEFAULT OF SPECIAL OBLIGATIONS UNDER PARAGRAPH
7.
(a) In the event of a default under Paragraphs 7 (a) or (b), Timeline Europe
may, without prejudice to its other rights and remedies either:
(i) elect to make no maintenance payments in respect of the period
during which the default continues and/or undertake to fix the problem
and to substitute its own release of Product to Timeline Europe End
Users or Customers; or
(ii) terminate this Agreement insofar as it relates to the provision of
maintenance by Timeline, in which case the provisions of clause
26(d)(i)-(iii) shall apply.
For the avoidance of doubt, a default by Timeline under clauses 7(a) or (b)
shall not give Timeline Europe the right to terminate this Agreement save to
the extent expressly provided in this clause 8(a).
(b) In the event of a default under Paragraph 7 (d), Timeline Europe's sole
remedy shall be to undertake to build or license a substitute server product and
to provide the same to Timeline Europe End Users subject to the payment to
Timeline in respect of those End Users who actually install and use such
substitute server product of
<PAGE> 11
DISTRIBUTORSHIP AGREEMENT PAGE 11
licensing and maintenance fees reduced by 50% from those that would otherwise
have been due in respect of such substitute server product and MV Analyst.
Notwithstanding the above and save in the circumstances mentioned in the
preceding sentence, Timeline Europe shall remain obligated to pay maintenance
and licensing fees on MV Analyst and MV Server for those End Users who continue
to use and pay maintenance on such Product(s).
(c) In the event of a default under Paragraph 7 (f), Timeline Europe's sole
remedy shall be that any fees or remuneration received by Timeline Europe on
release of its Consolidation and Budgeting module will not be subject to the
payment of licensing fees under Exhibit A.
9. TIMELINE EUROPE RIGHTS AND LIMITATIONS TO MAKE OR REPRESENT OTHER SOFTWARE
PRODUCTS.
(a) Timeline Europe shall have the right to make and/or license software
products for re-licensing without payment of fees under Exhibit A provided
such software products are not Derivatives.
(b) Notwithstanding anything else contained in this Agreement, Timeline Europe
shall not be obliged to pay any fees to Timeline in respect of Derivatives
that do not reproduce any source code of MV Analyst or MV Server, which are
developed by a third party and which Timeline Europe obtains the right to
reproduce and distribute whether by assignment of the intellectual property
rights relating to the same, license or otherwise.
10. DOCUMENTATION
Timeline Europe may reproduce and modify Timeline's documentation at its own
expense and as it sees fit provided Timeline's copyright notices are
appropriately contained therein.
11. TIMELINE EUROPE'S LICENSE-THROUGH REPORTING REQUIREMENTS AND PAYMENT.
(a) Payment responsibilities shall be as follows:
<PAGE> 12
DISTRIBUTORSHIP AGREEMENT PAGE 12
(i) Timeline Europe agrees to pay Timeline licensing fees as described
in Exhibit A. Licensing fees accruing due during any Quarter shall be payable to
Timeline within forty-five (45) days from the end of the relevant Quarter.
(ii) No licensing fee shall accrue to Timeline for copies of Product
(aa) shipped as replacements for copies found to be defective in materials,
manufacture, or reproduction; (bb) used for demonstrations to prospective End
Users whether by Timeline Europe or its Customers, or (cc) evaluation Product
delivered to prospective End Users or Timeline Europe's Customers which has been
held by such End Users or Customers for less than ninety (90) days.
(b) Timeline Europe shall at the same time as paying the licensing fees due
under clause 11(a)(i) provide Timeline with a statement indicating the number of
Timeline Europe End User License Agreements and agreements between Timeline
Europe and Customers relating to the Products made during the relevant Quarter;
the amount of licensing fees due; and the calculation of such fees.
Timeline agrees it will treat the information provided above as confidential,
will not use it save for the purposes of this Agreement and will not provide it
to any third party.
(d) Timeline Europe record keeping and Timeline auditing procedures are set
forth below:
(i) During the term of this Agreement, Timeline Europe agrees to keep
all usual and proper records and books of account and all usual and proper
entries relating to each license of Product granted in accordance with generally
accepted accounting principles.
(ii) Timeline may cause an audit to be made of the applicable records in
order to verify statements issued by Timeline Europe and prompt adjustment shall
be made to compensate for any errors or omissions
<PAGE> 13
DISTRIBUTORSHIP AGREEMENT PAGE 13
disclosed by such audit. Any such audit shall be conducted by an independent
certified public or chartered accountant selected by Timeline (other than on a
contingent fee basis) and shall be conducted only with reasonable advanced
written notice and during regular business hours at Timeline Europe's offices
and in such a manner as not to interfere with Timeline Europe's normal business
activities. Any such audit shall be paid for by Timeline unless material
discrepancies are disclosed. "Material" shall mean a discrepancy amounting to at
least ten percent (10%) of the amount that should have been reported. If
material discrepancies are disclosed, Timeline Europe agrees to pay Timeline for
one half of the costs associated with the audit. In no event shall audits be
made more frequently than once annually unless the immediately preceding audit
disclosed a material discrepancy. Timeline Europe shall be required to make
available to Timeline only those records and reports of the auditor which
directly pertain to the audit. Timeline recognizes and agrees that information
contained therein is confidential and will use it only in furtherance of
disposition of the audit in question and will not disclose it to any third
party.
12. SALES INTO EXCLUSIVE TERRITORIES:
(a) Notwithstanding the exclusive rights granted to Timeline Europe at
clause 4(a)(i) above, Timeline may:-
(i) license the Use of the Products in the Exclusive Territories provided
Timeline shall not employ any direct end user sales personnel inside the
Exclusive Territories and such licences are:-
(aa) procured through resellers or VARs whose principal place of
business is not in the Exclusive Territories and are not directly or
indirectly solicited by Timeline.
(bb) procured through an agreement between Timeline and a provider of
accounting systems or any other third party which does not have its
principal place of business inside the Exclusive Territories.
(ii) license the Use of the Products to a parent company whose principal
place of business is outside the Exclusive Territories in circumstances where
the Products may be Used by subsidiaries of that parent in the Exclusive
Territories.
<PAGE> 14
DISTRIBUTORSHIP AGREEMENT PAGE 14
(b) Where clause 12(a)(bb) applies but the turnover in the Exclusive
Territories of the said provider or other third party (or of the Group of which
it forms part) exceeds (according to its most recently published accounts) 30%
of its total turnover, Timeline shall pay to Timeline Europe 12.5% of Timeline's
licensing and maintenance fees (calculated in accordance with the principles set
out in Exhibit A) in respect of such license PROVIDED THAT no such payment shall
be due from Timeline if Timeline can demonstrate to the reasonable satisfaction
of Timeline Europe that not more than 30% of Timeline's gross revenue from the
said provider or other third party arises from licenses in the Exclusive
Territories.
(c) In no event shall either party be authorized to obligate the other to
direct telephone or on-site maintenance without the express authorization of the
other party. Notwithstanding paragraph (a)(i) above, Timeline may appoint a
maintenance provider within the Exclusive Territories to maintain any Product
licensed pursuant to clause 12(a) but only if Timeline Europe has first been
offered the opportunity to maintain such Product on its usual commercial terms
and has declined and may license, either directly through end users sales force
or through resident VARS, resellers, or other appointees its products other than
the Products.
13. SALES, SUPPORT AND TRAINING.
(a) Timeline Europe shall comply with all laws and regulations applicable to
its distribution and marketing of the Products under this Agreement.
(b) It is Timeline Europe's responsibility to provide such support as it is
contracted to provide to Timeline Europe End Users either directly or through
its VARs, Resellers, or Business Partners. In such instances, Timeline will
provide Product support only to Timeline Europe at the rate provided in Exhibit
A.
(c) Timeline Europe shall be responsible for providing training in the use
and sale of Products to its own sales force and for offering Timeline Europe End
Users training after they have licensed the Product.
<PAGE> 15
DISTRIBUTORSHIP AGREEMENT PAGE 15
(d) Timeline may not, without Timeline's Europe prior written consent,
reference Timeline Europe and/or its End User Licensees, VARs, Resellers and
Business Partners in advertising and promotional materials in connection with
sale and promotion of the Product, or list Timeline Europe, its VARs, Resellers
and Business Partners in directories of the Product's distributors.
14. MAINTENANCE
Timeline shall be obligated to provide maintenance of the source code for the
Products solely to Timeline Europe and Timeline Europe shall be obligated for
the fees as provided in Exhibit A. It shall be Timeline Europe's responsibility
to provide telephone support, training, consulting and to make all required
upgrades, maintenance releases, and distributions to Timeline Europe End Users
and Customers.
15. WARRANTIES.
(a) Timeline warrants, represents and undertakes that, with the exception of
the Lex Software, it is the sole legal and beneficial owner of the copyright and
all other intellectual property rights in the Existing Products and will, save
as notified in writing to Timeline Europe prior to the date of provision of the
same to Timeline Europe, be the sole legal and beneficial owner of all such
rights in all Derivatives (including modified, enhanced, or updated versions of
the Product) that it provides to Timeline Europe.
(b) Timeline warrants that it has full power and authority to enter into
this Agreement.
(c) Timeline warrants that the Product, when delivered to Timeline Europe,
will perform substantially in accordance with the published product materials.
Timeline Europe's remedy and Timeline's obligation under this warranty shall be
limited to providing corrections of any defects or errors in accordance with and
within the periods specified at clause 7(b) above.
<PAGE> 16
DISTRIBUTORSHIP AGREEMENT PAGE 16
(d) The limited warranty set out at clause 15(c) above may be asserted by
Timeline Europe only on behalf of itself and not by Timeline Europe's end users,
and is in lieu of all other warranties or obligations, express or implied, or
statutory, including implied warranties of merchantability and fitness for a
particular purpose relating to the performance of the Product.
(e) Notwithstanding anything else contained in this Agreement but subject to
Clause 15 (f) below, Timeline shall not be liable to Timeline Europe for loss of
profits, business or anticipated savings or for any indirect or consequential
loss or damage whatsoever suffered by Timeline Europe even if Timeline shall
have been advised of the possibility thereof and whether arising from
negligence, breach of contract or howsoever. This exclusion shall not however
apply to any loss or damage suffered by Timeline Europe as the result of any
breach by Timeline of the warranty set out at clause 15 (b) above.
(f) Timeline does not exclude or limit liability for death or personal
injury caused by Timeline's negligence.
(g) Neither Timeline Europe nor any of its employees or agents shall have
any right to make any other warranties, or promises, for the Use of the Product
which are not contained within Timeline Europe's End User License Agreement (or
shrinkwrap license) for the Product.
16. TITLE AND INDEMNIFICATION.
Timeline agrees to indemnify, hold harmless, and defend Timeline Europe from
and against any and all damages, costs, and expenses, including attorneys' fees,
arising out of or incurred in connection with any claim that a Product or the
exercise by Timeline Europe of any of the rights granted to it under this
Agreement, infringes the copyright, rights in confidential information, trade
secret, trademark trade name or other intellectual property right of any third
party provided Timeline is notified promptly in writing of any notice of claim
or of threatened or actual suit received by Timeline Europe, Timeline Europe
will not settle any such claim or suit without Timeline's approval (not to be
unreasonably withheld or delayed) and at Timeline's request and expense,
<PAGE> 17
DISTRIBUTORSHIP AGREEMENT PAGE 17
Timeline is given Timeline Europe's reasonable assistance in the defense of
same.
17. LIMITATION OF LIABILITY.
Save where clauses 15(f) or 16 apply or where Timeline is in breach of any of
its warranties under clauses 15(a) or (b) above, Timeline's total cumulative
liability under or in connection with this Agreement shall not exceed the
greater of the sum of pound sterling 1 million (one million pounds sterling) or
the total sums paid or payable by Timeline Europe under this Agreement.
18. TERMINATION.
(a) This Agreement may only be terminated:
(i) by Timeline, if Timeline Europe is in material breach of its
obligation to make payments under clause 11 of this Agreement;
(ii) by Timeline Europe insofar as the Agreement relates to Timeline's
licenses from Timeline Europe under this Agreement, if Timeline is
in material breach of its obligation to make payments to Timeline
Europe in respect of such licenses;
(iii) by written agreement of the parties.
For the avoidance of doubt, the parties hereby expressly agree that Timeline
Europe shall not be considered to be in breach of its payment obligations
under this Agreement to the extent that Timeline Europe is withholding
payments in pursuance of its rights under Clause 14 of the Subscription
Agreement of even date herewith made between Timeline, Timeline Europe, Jean
Harvey and the Managers of Timeline Europe to offset claims under the
warranties and indemnities given by Timeline in that Agreement or in any
document contemplated by or relating to that Agreement against such
payments.
(b) Termination under (i) above shall be effective sixty (60) days after
written notice of termination to the party in default if such party's specified
defaults have not been cured within such sixty (60) day period. The
<PAGE> 18
DISTRIBUTORSHIP AGREEMENT PAGE 18
rights and remedies of the terminating party provided in this Clause 18 shall
not be exclusive and are in addition to any other rights and remedies provided
by law or this Agreement.
(c) Upon termination of this Agreement the rights and obligations of the
parties under this Agreement shall automatically terminate save that:-
(i) the provisions of paragraphs 2, 4(e), 15, 16, 17, 21,24, 25 and 27
hereof shall survive in full force and effect and Timeline Europe shall
continue to be obligated to make payments that have accrued due in
accordance with clause 11 and Exhibit A;
(ii) Timeline Europe shall be entitled to continue to exercise the rights
granted to it under this Agreement for the purpose of fulfilling any
unperformed contracts of Timeline Europe outstanding at the date of
termination (and to that extent and for that purpose, the provisions of this
Agreement shall continue in effect).
19. PROHIBITION AGAINST ASSIGNMENT AND SUBLICENSE.
This Agreement, and any rights or obligations hereunder, shall not be
assigned or sublicensed by either party without the other party's prior written
consent save that either party may assign (without the need for consent) the
whole of the benefit and burden of this Agreement to a purchaser of the whole or
substantially the whole of its business.
20. RIGHT OF PREEMPTION
(a) If prior to any notice being given by Timeline Europe under clause 26(a)
below, Timeline receives any offer for the purchase or other assignment or
transfer of title to any of its intellectual property rights in the Product or
Technology and Timeline desires to accept such offer, it shall promptly give
Timeline Europe written notice of that fact together with all material details
of the proposed purchase or other transfer. Timeline Europe shall then have a
period of 14 days from receipt of such notice within which to give written
notice to Timeline of whether or not it wishes to consider acquiring such rights
at a fair market value.
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DISTRIBUTORSHIP AGREEMENT PAGE 19
(b) If Timeline Europe indicates that it wishes to consider acquiring the
rights, the parties shall then seek to agree upon a fair market value. In the
event that no agreement is reached within 14 days, the question of what is a
fair market value shall be referred for final determination to an expert
("Expert") who shall act as expert not as arbitrator. In reaching a decision,
the Expert shall take into account, inter alia, the terms of the offer notified
to Timeline Europe under clause 20(a) above.
(c) If the parties cannot agree on the identity of the Expert within 7 days
of the end of the period referred to at clause 20(b) above, the Expert shall be
chosen at the request of either party by the President for the time being of the
Law Society of England and Wales. The Expert shall be instructed to deliver his
determination to the parties within 14 days and his decision shall be final and
binding and not subject to appeal.
(d) Within 14 days of its receipt of the Expert's decision, Timeline Europe
shall notify Timeline as to whether it wishes to acquire the rights at the
market value determined by the Expert. If Timeline Europe notifies Timeline that
it does so wish, Timeline shall have 14 days from receipt of such notification
to inform Timeline Europe whether it will accept the offer. If so, then, upon
the tendering by Timeline Europe of the market value so determined, Timeline
shall forthwith execute an assignment of its rights, such assignment to be with
full title guarantee and to contain a warranty from Timeline that it is the sole
legal and beneficial owner of the rights being transferred and that those rights
are free from any incumbrances. Upon execution of such assignment, the rights
and obligations of the parties under this Agreement in respect of the assigned
rights shall terminate.
(e) If, following its receipt of the Expert's determination, Timeline Europe
indicates that it does not wish to purchase the said rights, Timeline shall be
free to sell or otherwise assign its rights in accordance with the terms
previously notified to Timeline Europe and subject always to Timeline Europe's
rights and licenses under this Agreement.
(f) Timeline may not, during the period of this Agreement, sell or otherwise
assign or transfer title to any of its intellectual property rights in the
Product or Technology save in accordance with the procedure set out in this
<PAGE> 20
DISTRIBUTORSHIP AGREEMENT PAGE 20
clause 20.
(g) For the avoidance of doubt, nothing contained in this clause 20 shall
prevent Timeline from granting non-exclusive licenses of its source code or
escrowing its source code in the ordinary course of its business.
21. NOTICES.
All notices or other documents to be given under this Agreement shall be
in writing and shall be delivered by hand or sent by registered post or
facsimile to the party concerned at the address set out [below] or such
other address as one party may from time to time designate by written
notice to the other. Any such notice or other document shall be deemed
to have been received by the addressee if delivered, upon delivery; if
posted, on the fifth working day following the date of posting; and if
sent by facsimile, when the communication is transmitted to the
recipient's fax number PROVIDED THAT a copy of the communication is sent
by registered post or delivered by hand as soon as practicable
thereafter.
Timeline: Timeline, Inc.
3055 112th Avenue N.E., Ste. 106
Bellevue, WA 98004
Attention: Charles R. Osenbaugh
With Copy To: Paula McGee
Timeline Europe: Timeline Europe Limited
500 Chiswick High Road
London W4 5RG
England
Attention: Mike Evans
With Copy To: Terry Harvey
<PAGE> 21
DISTRIBUTORSHIP AGREEMENT PAGE 21
22. INFRINGEMENTS
In the event of any infringement or threatened infringement within the
Exclusive Territories of any of the rights granted to Timeline Europe under this
Agreement, Timeline shall give to Timeline Europe all such assistance of which
is reasonably capable in connection with any action or proceedings undertaken or
proposed to be undertaken by Timeline Europe. Where possible, Timeline Europe
may take proceedings in its own name, exercising all the rights and remedies
that would normally be available to Timeline. Where this is not possible,
Timeline Europe may carry on any such proceedings in the name of Timeline.
23. FORCE MAJEURE
Notwithstanding anything else contained in this Agreement, neither party
shall be liable for any delay in performing its obligations hereunder if such
delay is caused by circumstances beyond its reasonable control including,
without limitation, any delay caused by any act or omission of the other party.
24. LAW AND JURISDICTION
This Agreement shall be governed by, construed and enforced in accordance
with the laws of England and the parties hereby irrevocably submit to the
non-exclusive jurisdiction of the English courts.
25. CONFIDENTIALITY.
Each party expressly undertakes to retain in confidence all information and
know-how transmitted to the other that the disclosjng party has identified as
being proprietary and/or confidential or that, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
proprietary and/or confidential, and will make no use of such information and
know-how except under the terms and during the existence of this Agreement.
However, neither party shall have an obligation to maintain the confidentiality
of information that (i) it received rightfully from another party prior to its
receipt from the disclosing party or; (ii) the disclosing party has disclosed to
a third party without any obligation to maintain such information in confidence.
Further, either party
<PAGE> 22
DISTRIBUTORSHIP AGREEMENT PAGE 22
may disclose confidential information as required by governmental or judicial
order, provided such party gives the other prompt notice prior to such
disclosure and complies with any protective order (or equivalent) imposed on
such disclosure. Each party shall treat all [Product adaptation materials] as
confidential information and shall not disclose, disseminate or distribute such
materials to any third party without the other's prior written permission. Each
party shall treat the terms and conditions of this Agreement as confidential;
however, Timeline Europe may disclose such information in confidence to its
immediate legal and financial consultants as required in the ordinary course of
the obligated party's business. Each party's obligation under this Section shall
extend to the earlier of such time as the information protected hereby is in the
public domain through no fault of the obligated party or five (5) years
following termination or expiration of this Agreement.
26. OPTION TO MODIFY RELATIONSHIP
(a) Upon giving to Timeline at least 90 days' written notice expiring on 30
June 2001 or any time thereafter. Timeline Europe may modify the terms of
this Agreement with effect from the day following the expiry of the notice
("the Modification Date") in the following respects:-
(i) Timeline shall have no further obligations to provide maintenance
for or new releases and updates of the Products pursuant to clause 7
above;
(ii) The licenses granted to Timeline Europe at clause 4(a) above will
become non-exclusive;
(iii) Maintenance fees accruing to Timeline Europe will be treated as
licensing fees for the purposes of calculating the payments due to
Timeline under Exhibit A;
(iv) The rate at which Timeline Europe is obliged to make licensing
payments to Timeline will be reduced over the following three years as
provided in Exhibit A;
<PAGE> 23
DISTRIBUTORSHIP AGREEMENT PAGE 23
(b) If, immediately prior to the Modification Date, Timeline still has an
obligation to provide maintenance to Timeline Europe under this Agreement,
then within 14 days after the Modification Date, Timeline shall provide
Timeline Europe with a final up to date copy of the source code relating to
the Product and Timeline Europe shall provide Timeline with a final up to
date copy of the source code relating to any Derivatives licensed to
Timeline pursuant to clause 6(a).
(c) At the expiry of three years from the Modification Date, this Agreement
shall terminate (save as regards provisions that, whether expressly or by
implication, are intended to come into or continue in force after
termination) and:-
(i) Timeline Europe shall have a perpetual, royalty-free, worldwide
non-exclusive non-transferable (save in the circumstances as mentioned
at clause 19 above) license to use, reproduce, distribute and modify the
Products, and the source code and documentation relating thereto.
(ii) Timeline shall have a perpetual, royalty-free, worldwide,
non-exclusive non-transferable (save in the circumstances as mentioned
at clause 19 above) license to use, reproduce and modify any Derivatives
licensed to Timeline pursuant to clause 6(a) above and the source code
relating thereto.
(d) Upon giving to Timeline at least 90 days' written notice expiring on 30
June 1998 or at any time thereafter Timeline Europe may terminate the
maintenance obligations owed by Timeline under this Agreement with the
effect that from the day following the expiry of such notice:-
(i) Timeline shall have no further obligations to provide maintenance
for or new releases and updates of the Products pursuant to clause 7
above;
(ii) Maintenance fees accruing to Timeline Europe will be treated as
licensing fees for the purposes of calculating the payments due to
Timeline under Exhibit A;
(iii) Within 14 days after the date of expiry of the said notice,
Timeline shall provide Timeline Europe with a final up to date copy of
the source code relating to the Product.
<PAGE> 24
DISTRIBUTORSHIP AGREEMENT PAGE 24
27. GENERAL.
(a) This Agreement and the attached exhibits constitute the entire agreement
between the parties with respect to the subject matter hereof and merges all
prior and contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed on
behalf of Timeline Europe and Timeline by their respective duly authorized
representatives.
(b) If this Agreement shall be held by a court of competent jurisdiction to
be invalid, illegal or unenforceable or if this Agreement is terminated as to
particular provisions or Product(s), this Agreement shall remain in full force
and effect as to the remaining provisions or Product(s).
(c) No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
(d) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture or agency
relationship or as granting a franchise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above. All signed copies of this Agreement shall be deemed
originals.
TIMELINE, INC. TIMELINE EUROPE LIMITED
By /s/ CHARLES R. OSENBAUGH By /s/ MICHAEL EVANS
------------------------------- ---------------------------------
Charles R. Osenbaugh Michael Evans
- ---------------------------------- -----------------------------------
Name (Print) Name (Print)
President Managing Director
- ---------------------------------- -----------------------------------
Title Title
3rd July 1997 3rd July 1997
- ---------------------------------- -----------------------------------
Date Date
<PAGE> 25
DISTRIBUTORSHIP AGREEMENT
EXHIBIT A
PRODUCT, DERIVATIVE AND TECHNOLOGY FEES
LICENSING FEES
Timeline Europe shall remit to Timeline a licensing fee equal to a
percentage of the license fees, resellers fees, VAR fees or any remuneration
paid for the right to license any of the Products, (exclusive of taxes,
import duties or other similar governmental charges) charged by Timeline
Europe or its subsidiaries. Licensing fees shall be payable on gross revenue
properly accrued by Timeline Europe without allocation to functionality
added by Timeline Europe and that already existing in Timeline Products,
Derivatives or Technology.
In arriving at the License Fee Base (as referred to below) Timeline Europe may
deduct from the fees or remuneration referred to above:
(a) If the procurement of the license is through the efforts of a referral
source, sublicensor, VAR or reseller or other third party who receives a fee
actually paid by Timeline Europe for such referral or who retains a portion
of the End User license fee, an amount equal to the fee paid to or retained
by said referral source, sub-licensor, reseller, VAR or third party;
(b) Actual costs of fulfillment which is limited to packaging, reproduction and
shipping costs;
(c) Any amounts refunded by Timeline Europe in respect of returned or defective
Product.
No arrangement shall be made with any third party where a fee or commission is
paid on the license which would reduce the amount of licensing fee remitted to
Timeline, unless made in good faith, and not in trade for a benefit to Timeline
Europe or any of its shareholders.
Notwithstanding the above, no licensing fees shall be due on fees or
remuneration due Timeline Europe on or before June 30, 1998, provided such fees
or remuneration do not comprise a prepayment for delivery of Product after such
date.
The amount to be remitted to Timeline by Timeline Europe is as follows:
<TABLE>
<S> <C>
For the period beginning July 1, 1997 through June 30, 1998: XXXXXXXXXXXXXXXXXXXXX
For the period beginning July 1, 1998 through June 30, 1999: XXXXXXXXXXXXXXXXXXXXX
For the period beginning July 1, 1999 through June 30, 2000: XXXXXXXXXXXXXXXXXXXXX
For the period beginning July 1, 2000 and thereafter: XXXXXXXXXXXXXXXXXXXXX
</TABLE>
In the event of an election by Timeline Europe as provided in Clause 26 of this
Agreement, then the definition of the "License Fee Base" shall be amended to
include any remuneration (less VAT or other Sales Tax and any refunds or credit)
properly accruing to Timeline Europe for maintenance of the Products and
licensing fees at the rates set out above shall be payable on such remuneration
in place of the maintenance fees set out in the next section.
If Timeline elects as provided at clause 26(a) above, the licensing fees payable
by Timeline Europe shall decrease as follows:-
<TABLE>
<S> <C>
First annual period from the Modification Date: XXXXXXXXXXXXXXXXXXXXX
Second annual period from the Modification Date: XXXXXXXXXXXXXXXXXXXXX
Third annual period from the Modification Date: XXXXXXXXXXXXXXXXXXXXX
Thereafter XXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 26
DISTRIBUTORSHIP AGREEMENT
MAINTENANCE
Timeline Europe shall be responsible for the provision of support and updates to
Timeline Europe End Users either directly or through its Customers. Timeline
Europe shall pay Timeline on a quarterly basis:
(a) During the period beginning on the Effective Date and ending June 30, 1998,
an amount equal to 33.33% of the gross revenue less VAT or other sales tax
and any refunds or credits ("Net Revenue") accrued by Timeline Europe for
maintenance on Timeline's Products,
(b) During the period beginning July 1, 1998 and ending June 30, 1999, an amount
equal to 30% of the Net Revenue accrued by Timeline Europe for maintenance
on Timeline's Products,
(c) During the period beginning July 1, 1999 and ending June 30, 2000, an amount
equal to 26.67% of the Net Revenue accrued by Timeline Europe for
maintenance on Timeline's Products,
(d) During the period beginning July 1, 2000 and ending June 30, 2001, an amount
equal to 23.33% of the Net Revenue accrued by Timeline Europe for
maintenance on Timeline's Products,
(e) During the period beginning July 1, 2001 and ending June 30, 2002, an amount
equal to 20% of the Net Revenue accrued by Timeline Europe for maintenance
on Timeline's Products,
(f) During the period beginning July 1, 2002 and thereafter, an amount equal to
16.67% of the Net Revenue accrued by Timeline Europe for maintenance on
Timeline's Products.
In exchange for such maintenance fees, Timeline will provide bug fixes, updates
and enhancements in accordance with the provisions of the Agreement. Timeline
Europe may then redistribute to End Users who maintain valid current maintenance
agreements with Timeline Europe and to its Customers
Notwithstanding the above, in the event Timeline Europe elects under Paragraph
26 of this Agreement, then with effect from the day following the expiry of the
relevant notice no maintenance fees shall be due to Timeline and the amount of
gross maintenance revenue properly accrued by Timeline Europe shall be subject
to the payment of licensing fees as provided herein.
PAYMENT TERMS
Payment terms for licensing fees and maintenance shall be paid quarterly in
arrears within 45 days from the end of the Quarter of proper recognition of any
fee or remuneration by Timeline Europe.
<PAGE> 27
DISTRIBUTORSHIP AGREEMENT
EXHIBIT B
USE OF COPYRIGHT, TRADE NAME, TRADEMARK AND/OR LOGO
COPYRIGHT (C) 1992-1997 BY
TIMELINE, INC., BELLEVUE, WASHINGTON
THIS SOFTWARE IS FURNISHED UNDER A LICENSE AND MAY BE USED AND COPIED ONLY IN
ACCORDANCE WITH THE TERMS OF SUCH LICENSE AND WITH THE INCLUSION OF THE ABOVE
COPYRIGHT NOTICE. THIS SOFTWARE, OR ANY OTHER COPIES THEREOF, MAY BE NOT
PROVIDED OR OTHERWISE MADE AVAILABLE TO ANY OTHER PERSON, EXCEPT AS MAY BE
PROVIDED IN THE LICENSE AGREEMENT. NO TITLE TO AND OWNERSHIP OF THE SOFTWARE IS
HEREBY TRANSFERRED.
[LOGOS]
Timeline is a registered trademark and the Timeline logo MV Server and MV
Analyst are trademarks of Timeline, Inc.
<PAGE> 28
DISTRIBUTORSHIP AGREEMENT
EXHIBIT C
EXCLUSIVE TERRITORIES
Europe, the Middle East and Africa, including, for the avoidance of doubt, the
whole of the geographical area shown on the annexed maps (excluding the area to
the right of the red line) and including the whole of the countries (other than
Russia) shown as falling in whole or in part within such area and including for
the further avoidance of doubt the whole of Iceland, Norway, Sweden and Denmark.
MAP I:
MAP OF EUROPE AND NORTHERN AFRICA, WITH A LINE DRAWN STARTING AT APPROXIMATELY
55 DEGREES LONGITUDE EAST AND 60 DEGREES LATITUDE NORTH, RUNNING SOUTH TO THE
TIP OF THE CASPIAN SEA, ALONG THE EASTERN EDGE OF THE CASPIAN SEA, AND THEN
ALONG THE WESTERN EDGE OF TURKMENISTAN, AFGHANISTAN, AND PAKISTAN TO THE INDIAN
OCEAN.
MAP II:
CONTINUATION OF MAP I, SHOWING THE CONTINENT OF AFRICA FROM APPROXIMATELY 10
DEGREES LATITUDE NORTH OF THE EQUATOR.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED JUNE
30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 53,581
<SECURITIES> 0
<RECEIVABLES> 1,095,382
<ALLOWANCES> 81,092
<INVENTORY> 0
<CURRENT-ASSETS> 1,287,206
<PP&E> 2,252,902
<DEPRECIATION> 1,577,960
<TOTAL-ASSETS> 2,708,961
<CURRENT-LIABILITIES> 2,804,220
<BONDS> 0
0
0
<COMMON> 32,165
<OTHER-SE> 9,285,463
<TOTAL-LIABILITY-AND-EQUITY> 2,708,961
<SALES> 202,141
<TOTAL-REVENUES> 834,763
<CGS> 0
<TOTAL-COSTS> 459,922
<OTHER-EXPENSES> 1,022,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,345
<INCOME-PRETAX> (682,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> (682,835)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (682,835)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
