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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
[X] Filed by the Registrant
[ ] Filed by a party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only [as permitted by
Exchange Act Rule 14(a)-6(e)(2)]
[X] Definitive Proxy Statement
[ ] Definitive Additional Material
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
TIMELINE, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee:
[X] No fee required.
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(i)(2), or Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11:
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which filing fee is calculated and how determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing:
(1) Amount previously paid:
(2) Form, schedule or registration statement number:
(3) Filing party:
(4) Date filed:
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[TIMELINE LOGO]
June 17, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Timeline, Inc. to be held on Friday, July 11, 1997, at 4:00 P.M., PDT, at
Timeline, Inc., 3055 112th Avenue N.E., Ste. 106, Bellevue, Washington 98004.
The accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement describe the matters to be presented at the meeting. In addition to
the formal business to be transacted, management will make a presentation on
developments of the past year and respond to comments and questions of general
interest to shareholders. I personally look forward to greeting those Timeline
shareholders able to attend the meeting.
Whether or not you plan to attend the Annual Meeting, it is important
that your shares be represented and voted. THEREFORE, PLEASE SIGN, DATE AND
PROMPTLY MAIL AS SOON AS POSSIBLE THE ENCLOSED PROXY IN THE PREPAID ENVELOPE
PROVIDED.
Thank you.
Sincerely,
/s/ Charles R. Osenbaugh
Charles R. Osenbaugh
President, Chief
Executive Officer & Director
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TIMELINE, INC.
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
---------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 11, 1997
---------------------------
TO THE SHAREHOLDERS OF TIMELINE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Timeline, Inc., a Washington corporation (the "Company"), will be held on
Friday, July 11, 1997, at 4:00 P.M., PDT, at Timeline, Inc., 3055 112th Avenue
N.E., Ste. 106, Bellevue, Washington 98004, for the following purposes:
1. To elect two directors to hold a three-year term expiring in 2000;
2. To approve amendments to the Company's 1994 Stock Option Plan and
Directors' Nonqualified Stock Option Plan;
3. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for the year ending March 31, 1998; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 15, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at this Annual Meeting and at any continuation or adjournment
thereof.
By Order of the Board of Directors
/s/ Charles R. Osenbaugh
Charles R. Osenbaugh
Secretary
Bellevue, Washington
June 17, 1997
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. A PREPAID ENVELOPE IS ENCLOSED FOR
THAT PURPOSE. EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON
IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD
OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT
THE MEETING, YOU MUST OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A PROXY
ISSUED IN YOUR NAME.
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TIMELINE, INC.
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
---------------
PROXY STATEMENT
---------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board of Directors" or the "Board") of Timeline, Inc., a Washington
corporation (the "Company" or "Timeline"), for use at the Annual Meeting of
Shareholders to be held on Friday, July 11, 1997, at 4:00 P.M., PDT, or at any
continuation or adjournment thereof (the "Annual Meeting"), for the purposes
set forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at Timeline, Inc., 3055 112th Avenue N.E., Ste. 106,
Bellevue, Washington 98004.
VOTING AND OUTSTANDING SHARES
Only holders of record of the Company's common stock (the "Common
Stock") at the close of business on May 15, 1997, will be entitled to notice of
and to vote at the Annual Meeting. At the close of business on May 15, 1997,
there were outstanding and entitled to vote 3,140,953 shares of Common Stock.
Shareholders of record on such date are entitled to one vote for each share of
Common Stock held on all matters to be voted upon at the Annual Meeting. All
votes will be tabulated by the inspector of election appointed for the Annual
Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
The presence in person or by proxy of holders of record of a majority
of the outstanding shares of Common Stock is required to constitute a quorum at
the Annual Meeting. Under Washington law and the Company's Restated Articles
of Incorporation (the "Articles"), assuming the presence of a quorum, the
election of the Company's directors requires a plurality of votes cast, and
each of the other proposals described in the accompanying Notice to
Shareholders (including approval of the amendments to the 1994 Stock Option
Plan, as amended (the "1994 Plan"), and the Directors' Nonqualified Stock
Option Plan, as amended (the "Directors' Plan")) requires that the votes cast
in favor exceed the votes cast against the proposal.
A shareholder who abstains from voting on any or all proposals will be
included in the number of shareholders present at the Annual Meeting for the
purpose of determining the presence of a quorum. Abstentions will not be
counted either in favor of or against the election of the nominees or other
proposals. Brokers holding stock for the accounts of their clients who have
not been given specific voting instructions as to a matter by their clients may
vote their clients' proxies in their own discretion, to the extent permitted
under the rules of the National Association of Securities Dealers. Broker
non-votes will be included in determining the presence of a quorum, but will
not be counted in determining whether a matter has been approved.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly and mailing of this Proxy Statement, the proxy
and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding shares of the Common Stock in their names
which are beneficially owned by others to forward to such beneficial owners.
The Company may reimburse persons representing beneficial owners for their
costs of forwarding the solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to
directors, officers or other regular employees for such services.
The Company intends to mail this Proxy Statement and accompanying
proxy card on or about June 19, 1997, to all shareholders entitled to vote at
the Annual Meeting.
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SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1998 Annual Meeting of Shareholders (the "1998 Annual Meeting") must
be received by the Company not later than February 3, 1998 in order to be
included in the proxy statement and proxy relating to the 1998 Annual Meeting.
In addition, any proposals to be brought before the shareholders must comply
with the procedural requirements contained in the Company's Bylaws.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 3055
112th Avenue N.E., Suite 106, Bellevue, Washington 98004, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Articles divide the Board of Directors into three
classes, each class consisting, as nearly as possible, of one-third of the
total number of directors. The Articles further provide that the members of
each class will be elected to serve for staggered three-year terms. Vacancies
on the Board may be filled only by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy
(including a vacancy created by an increase in the Board of Directors) will
serve for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor is elected and qualified,
or until such directors' earlier death, resignation or removal.
The Board of Directors is presently composed of five members. The
director nominees, Mr. Donald K. Babcock and Mr. Kent L. Johnson, are the
nominees for the class of directors to be elected at the Annual Meeting for a
three-year term expiring at the 2000 annual meeting of shareholders. At each
annual meeting of the shareholders, directors will be elected for a three-year
term to succeed those directors in the class whose term has so expired. If
elected at the Annual Meeting, the director nominees would serve until their
successors are elected and qualified, or until their earlier death, resignation
or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. It is the
intention of the persons named in the enclosed proxy, unless authorization to
do so is withheld, to vote the proxies received by them for the election of the
nominees named below. If, prior to the Annual Meeting, either nominee should
become unavailable for election, an event which currently is not anticipated by
the Board, the proxies will be voted for the election of such substitute
nominee or nominees as the Board of Directors may propose. Messrs. Babcock and
Johnson have agreed to serve if elected and management has no reason to believe
that they will be unable to serve.
Set forth below is biographical information for Messrs. Babcock and
Johnson.
DONALD K. BABCOCK is a founder of the Company and has served as a
Director since its inception in April 1993. He currently serves as Senior
Technologist, and previously was Senior Vice President of Research &
Development and Chief Technologist. He was also a founder of Timeline
Services, Inc. and served as a director from its inception in 1977 until its
merger into the Company in July 1994. From 1977 to April 1993, Mr. Babcock
also served as Senior Vice President and Chief Technologist of Timeline
Services, Inc. From 1970 to 1977, he was a consultant with Riggs, Babcock &
Mishko, a Tacoma, Washington-based data processing and consulting firm to the
property and casualty insurance industry. Mr. Babcock was Manager of Systems
Programming at United Pacific Insurance Company from 1965 to 1970, and a data
processor in the U.S. Air Force from 1955 to 1965.
KENT L. JOHNSON has been a Director of the Company since its
inception. He is President of Alexander Hutton Capital, L.L.C., a
Seattle-based investment banking firm that he co-founded in October 1994 and
that
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specializes in equity capital formation for emerging growth companies. From
April 1989 to June 1994, he served as Senior Vice President and Chief Operating
Officer of Brazier Forest Industries, Inc., a Seattle-based forest products
company. From 1987 to 1989, he was President and Chief Executive Officer of
OverDrive Systems, Inc., an electronic publishing software company based in
Cleveland, Ohio, and from 1982 to 1987, was President and Chief Executive
Officer of Microrim, Inc., a database software company located in Bellevue,
Washington. Prior to entering the software industry, Mr. Johnson was Chief
Financial Officer of Fiberchem, Inc., a wholesale distributor, from 1977 to
1982. Following his military career as an officer in the U.S. Army, Mr.
Johnson began his professional career as a management consultant with Arthur
Andersen & Co., where he was employed from 1970 to 1977. Mr. Johnson currently
serves as a director of several private companies, and devotes considerable
time to private investment activities. Mr. Johnson has a B.B.A. degree in
Business Administration from the University of Washington and an M.B.A. degree
from Seattle University, where he serves on the Business Advisory Board. He
received his CPA certificate in 1970.
Set forth below is biographical information for directors whose terms
continue after the Annual Meeting.
DIRECTORS WITH TERMS EXPIRING AT THE 1998 ANNUAL MEETING
JOHN W. CALAHAN is a founder of the Company and has been a Director
since its inception in April 1993. He currently serves as Vice President -
Business Development, and previously was President and Chief Executive Officer
from April 1993 to November 1996. He was also a founder and director of the
Company's predecessor, Timeline Services, Inc., from its inception in 1977
until its merger into the Company in July 1994. From 1977 to April 1993, Mr.
Calahan also served as President of Timeline Services, Inc. From 1971 to 1977,
Mr. Calahan practiced public accounting in Seattle with Arthur Andersen & Co.,
Ernst & Ernst (now Ernst & Young), and Calahan, Reed & Gunn. He holds a B.A.
degree in accounting from the University of Washington and received his CPA
certificate in 1972.
MICHAEL R. HALLMAN has been a Director of the Company since its
inception in April 1993. Since November 1993, he has served as Chairman of the
Board of Information Optics Corporation, an optical computer memory and storage
company located in Issaquah, Washington, and its Chief Executive Officer from
November 1993 to October 1995. Mr. Hallman is also the founder and President
of the Hallman Group, a management consulting firm that focuses on marketing,
sales, organizational development and operations for the computer industry.
From February 1990 to March 1992, he was President and Chief Operating Officer
of Microsoft Corporation. From February 1987 to February 1990, Mr. Hallman
served as Vice President of The Boeing Company and as President of Boeing
Computer Services, Inc. Mr. Hallman started his career with the IBM
Corporation, where he last held the position of Vice President of Field
Operations. He now serves as a director of several public and private
companies, including Intuit, Inc., InFocus Systems, Inc., Amdahl, Inc., Network
Appliance Corp., and Keytronics Corporation. Mr. Hallman holds a B.B.A.
degree in Business Administration and an M.B.A. degree, both from the
University of Michigan.
DIRECTOR WITH TERM EXPIRING AT THE 1999 ANNUAL MEETING
CHARLES R. OSENBAUGH has served as Chief Financial Officer, Treasurer,
Secretary and a Director since the Company's inception in April 1993, and has
held the position of President and Chief Executive Officer since November 1996.
From April 1988 to April 1993, Mr. Osenbaugh served as Executive Vice
President, Chief Executive Officer and a Director, and from April 1993 to July
1994 as President and a Director, of Timeline Services, Inc. From 1975 to
1988, Mr. Osenbaugh was a partner of Lasher & Johnson, a Seattle law firm.
From 1973 to 1975, Mr. Osenbaugh practiced public accounting with Arthur
Andersen & Co. He holds a B.B.A. degree in economics and a J.D. degree, both
from the University of Iowa, and received his CPA certificate in 1974.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF MR. BABCOCK AND MR. JOHNSON
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BOARD COMMITTEES AND MEETINGS
The Board of Directors, which held 17 meetings during the fiscal year
ended March 31, 1997, has an Audit Committee and a Compensation Committee. The
Board of Directors does not have a Nominating Committee. Messrs. Hallman and
Johnson served as members of each of the Audit Committee and the Compensation
Committee for the fiscal year ended March 31, 1997.
The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent auditors,
and reviews and evaluates the Company's internal control functions. During the
fiscal year ended March 31, 1997, the Audit Committee met one time.
The Compensation Committee administers the Company's stock option
plans and makes recommendations to the Board of Directors concerning
compensation for executive officers and consultants of the Company. During the
fiscal year ended March 31, 1997, the Compensation Committee met three times.
The Company has agreed with H. J. Meyers & Co., Inc., (formerly Thomas
James Associates, Inc.) that, for a period of 36 months from the closing of the
Company's initial public offering in January 1995, the Company will allow an
observer designated by H. J. Meyers & Co., Inc. and acceptable to the Company
to attend all meetings of the Board of Directors. Such observer has no voting
rights. He or she will be reimbursed for out-of-pocket expenses incurred in
attending such meetings, and will be indemnified against any claims arising out
of participation at Board meetings, including claims based on liabilities
arising under the securities laws.
During the fiscal year ended March 31, 1997, all of the directors
attended at least 75% of the total number of meetings of the Board of Directors
and committees on which they served.
PROPOSAL 2: APPROVAL OF AMENDMENT
TO THE COMPANY'S 1994 STOCK OPTION PLAN AND
DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
BACKGROUND
In September 1994, the Company adopted its 1994 Plan and its
Directors' Plan. An aggregate of 250,000 shares of Common Stock are reserved
for issuance upon exercise of options granted to the Company's employees,
directors and consultants under the 1994 Plan and the Directors' Plan
(collectively, the "Stock Option Plans"). In May 1997, the Board of Directors
unanimously adopted, subject to shareholder approval, an amendment to the Stock
Option Plans to enhance the flexibility of the Board of Directors and the
Compensation Committee in granting options to the Company's employees and
consultants.
PROPOSED AMENDMENT
The proposed amendment increases the aggregate number of shares of
Common Stock authorized for issuance under the Stock Option Plans from 250,000
shares to 400,000 shares, subject to adjustment from time to time for stock
dividends and certain other changes in capitalization as provided in the Stock
Option Plans. The Board of Directors adopted this proposed amendment to ensure
that there will be a sufficient reserve of shares to permit further option
grants to existing and new employees and consultants at levels determined
appropriate by the Board of Directors and the Compensation Committee. It is
anticipated that the proposed increase will provide a sufficient number of
shares to cover grants made over a period of approximately three years. Stock
options have for years been an important part of the Company's overall
compensation program. The Board of Directors believes that stock options serve
to attract, retain and motivate employees and consultants and to enhance their
incentive to perform at the highest level and contribute significantly to the
Company's success. As of May 31, 1997, options for an aggregate of 166,750
shares had been granted and 5,000 shares had been exercised under the Stock
Option Plans, leaving 78,250 shares available for future issuance.
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DESCRIPTION OF STOCK OPTION PLANS AS AMENDED
The 1994 Plan provides for options to purchase Common Stock and is
administered by the Plan Administrator, which may be either the Company's Board
of Directors or a committee designated by the Board of Directors. Currently,
the Plan Administrator is the Board of Directors. Under the 1994 Plan, the
Plan Administrator determines the employees and consultants to whom options are
granted, the number of shares subject to each option, the price at which each
option may be exercised, and the vesting schedule for each option. Options
generally are expected to vest over a four-year period, but the Plan
Administrator has discretion under the 1994 Plan to allow options to vest over
a different period, and has discretion to accelerate vesting in the case of
death or disability. Options granted under the 1994 Plan are exercisable for a
period of ten years from the date of grant, except that incentive stock options
granted to persons who own more than ten percent of the outstanding Common
Stock terminate after five years. Vested options terminate 90 days after the
optionee's termination of employment with the Company for any reason other than
death or disability, and one year after termination upon death or disability.
The exercise price of options granted under the 1994 Plan generally must be not
less than the fair market value of the Common Stock on the date of grant and,
in the case of greater than ten percent shareholders of the Company, not less
than 110% of the fair market value of the Common Stock on the date of grant.
Upon exercise, the exercise price may be paid immediately in cash, or, at the
discretion of the Plan Administrator, in cash over a one-year period, in shares
of Common Stock, or by withholding from the optionee that number of shares of
Common Stock the fair market value of which on the date of exercise is equal to
the exercise price of the option. The 1994 Plan provides for the granting of
both incentive stock options intended to qualify as such under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and for stock
options which do not so qualify.
The Directors' Plan provides that directors of the Company who are not
officers or otherwise employees of the Company will be granted options to
purchase shares of Common Stock according to a formula set forth in the
Directors' Plan. Options granted under the Directors' Plan vest over a
three-year period. Options may vest immediately if a director is terminated by
reason of death or disability. Options granted under the Directors' Plan are
exercisable for a period of ten years from the date of grant. Vested options
terminate three months after a director's termination as a director of the
Company for any reason other than death or disability, and one year after
termination upon death or disability. The exercise price of options granted
under the Directors' Plan is the fair market value of the Common Stock on the
date of grant. Upon exercise, the exercise price may be paid immediately in
cash, in cash over a one-year period, in shares of Common Stock, or by
withholding from the director that number of shares of Common Stock the fair
market value of which on the date of exercise is equal to the exercise price of
the option. Stock options granted under the Directors' Plan are not intended to
qualify as incentive stock options.
Under both the 1994 Plan and the Directors' Plan, outstanding options
not otherwise already vested will vest immediately upon the occurrence of
certain transactions, including certain mergers and business combinations
involving the Company, unless the options are assumed by the acquiring company.
In addition, if any option granted under the Stock Option Plans expires or
otherwise terminates without having been exercised in full, the Common Stock
not purchased under the option shall again become available for issuance under
the Stock Option Plans.
The Stock Option Plans, as they are proposed to be amended, do not
differ in any material respect from the existing Stock Option Plans, other than
with respect to the number of shares which are authorized and reserved for
option grants. The foregoing description of the Stock Option Plans is only a
summary and is qualified in its entirety by reference to the full text of the
Stock Option Plans, copies of which are available upon request from the
Company.
The following table sets forth summary information as of May 31, 1997,
concerning the number of shares underlying options granted pursuant to the
Stock Option Plans to (i) executive officers, (ii) directors and nominees for
election as director, and (iii) all eligible employees as a group.
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OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
UNDER STOCK OPTION PLANS
NUMBER OF
SHARES OF COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED (1)
---- ------------------------------
Charles R. Osenbaugh, President, Chief Executive
Officer, Chief Financial Officer, and Director 9,000
John W. Calahan, Executive Vice President - Business
Development and Director 10,000
Donald K. Babcock, Senior Technologist and Director --
Frederick W. Dean, Vice President - Product Management 17,000
Robert B. Wallace, Vice President - Consulting 6,500
Michael R. Hallman, Director 3,000
Kent L. Johnson, Director 3,000
All Executive Officers as a Group (6 persons) 66,500
All Directors not Executive Officers (2 persons) 6,000
All Other Employees as a Group (34 persons) 94,250
(1) Represents shares underlying options granted and outstanding
on May 31, 1997.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1994 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase an optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are transferred
to the optionee upon exercise of the option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the
optionee disposes of the stock before the expiration of either of the holding
periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (i) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (ii) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss, which will be long-term or
short-term depending on whether the stock was held for more than one year.
Long- term capital gains currently are generally subject to lower tax rates
than ordinary income. The maximum capital gains rate for federal income tax
purposes is currently 28% while the maximum ordinary income rate is effectively
39.6% at the present time. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
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To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition
occurs.
Nonqualified Stock Options. There are generally no tax consequences
to the optionee or the Company by reason of the grant of a nonqualified stock
option under the Stock Option Plans. In general, upon exercise of a
nonqualified stock option, the optionee will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. Generally, with respect to employees, the
Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. Although the Company
does not believe that it currently compensates any employee at a level that
would approach the limitation set by Section 162(m), it is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may in future
years cause this limitation to be exceeded.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
PROPOSAL 3: RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the year ending March 31, 1998, and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Arthur Andersen
LLP has audited the Company's financial statements since the Company's
inception in 1993. Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Arthur Andersen LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Arthur Andersen
LLP to the shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection were
ratified, the Board in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board determines
that such a change would be in the best interests of the Company and its
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of May 31, 1997 by: (i) each
director; (ii) the Company's Chief Executive Officer and each of its other four
most highly compensated executives (collectively, the "Named Executive
Officers") for the fiscal year ended March 31, 1997; and (iii) all directors
and executive officers of the Company as a group. The Company is not aware of
any person who is a beneficial owner of more than 5% of its Common Stock other
than certain of its executive officers who are identified below.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-----------------------
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF TOTAL
---------------- --------- --------
John W. Calahan (2) 403,876 12.8%
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
Charles R. Osenbaugh (3) 332,037 10.5
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
Donald K. Babcock 187,175 6.0
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
Frederick W. Dean (4) 153,475 4.9
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
Michael R. Hallman (5) 86,273 2.7
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
Kent L. Johnson (6) 65,648 2.1
c/o Alexander Hutton Capital, L.L.C.
1325 4th Avenue, Suite 535
Seattle, WA 98101
Robert B. Wallace (7) 23,692 0.7
c/o Timeline, Inc.
3055 112th Avenue N.E., Suite 106
Bellevue, WA 98004
All directors and executive officers as a group 1,256,176 37.8
(eight persons) (8)
(1) This table is based upon information supplied by executive officers,
directors and principal shareholders. Unless otherwise indicated in
the footnotes to this table and subject to community property laws
where
8
12
applicable, each of the shareholders named in this table has sole
voting and investment power with respect to the shares shown as
beneficially owned by him or her.
(2) Includes (i) 13,776 shares issuable under stock options held by Mr.
Calahan which are exercisable within 60 days of May 31, 1997, and (ii)
6,600 shares issuable upon exercise of warrants granted to Mr. Calahan
in connection with certain Company loan guarantees.
(3) Includes (i) 13,276 shares issuable under stock options held by Mr.
Osenbaugh which are exercisable within 60 days of May 31, 1997, and
(ii) 17,325 shares issuable upon exercise of warrants granted to Mr.
Osenbaugh in connection with certain Company loan guarantees. Does
not include 15,015 shares held in an individual retirement account
belonging to Mr. Osenbaugh's spouse; for which shares Mr. Osenbaugh
disclaims beneficial interest.
(4) Includes (i) 8,475 shares issuable under stock options held by Mr.
Dean which are exercisable within 60 days of May 31, 1997, and (ii)
6,600 shares issuable upon exercise of warrants granted to Mr. Dean in
connection with certain Company loan guarantees.
(5) Includes (i) 43,098 shares issuable under stock options held by Mr.
Hallman which are exercisable within 60 days of May 31, 1997, and (ii)
4,125 shares issuable upon exercise of warrants granted to Mr. Hallman
in connection with a loan he made to the Company.
(6) Includes 43,098 shares issuable under stock options held by Mr.
Johnson which are exercisable within 60 days of May 31, 1997.
(7) Includes 20,062 shares issuable under stock options held by Mr.
Wallace which are exercisable within 60 days of May 31, 1997, and
which expire by their terms on June 30, 1997 unless earlier exercised.
(8) Consists of Messrs. Calahan, Osenbaugh, Babcock, Dean, Wallace,
Hallman, Johnson, and Evans. Includes an aggregate of 1,256,176
shares issuable under stock options held by such persons which are
exercisable within 60 days of May 31, 1997.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the three fiscal years ended March 31,
1997, 1996 and 1995, respectively, certain compensation awarded or paid to, or
earned by, the Named Executive Officers:
9
13
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION
------ ------------ ALL OTHER
COMPENSATION SECURITIES COMPENSATION
------------ UNDERLYING ------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTION (1) ($)(2)
- --------------------------- ---- ---------- ---------- --------
Charles R. Osenbaugh, President, 1997 $115,000 75,000(3) $ 6,000
Chief Executive Officer, Chief 1996 145,030 9,000 6,000
Financial Officer 1995 100,000 17,325(3) 6,732
John W. Calahan, Executive Vice 1997 119,776(4) -- 10,082
President - Business 1996 183,035 10,000 10,515
Development 1995 111,702 6,600(3) 5,665
Donald K. Babcock, Senior 1997 104,766(4) -- 5,857
Technologist 1996 124,390 -- 2,613
1995 104,836 -- 3,959
Frederick W. Dean, Vice 1997 84,269 5,000 4,549
President - Product Management 1996 106,869 12,000 4,549
1995 106,367 6,600(3) 8,548
Robert B. Wallace, Vice 1997 93,044 5,000 --
President - Consulting(5) 1996 128,813 26,000 --
1995 113,918 -- 2,023
(1) All referenced options granted are exercisable at prices equal to the
fair market value of the Common Stock on the respective dates of
grant.
(2) Represents dollar value of medical, disability, and life insurance
premiums paid by the Company for the benefit of the respective Named
Executive Officers.
(3) Represents warrants to purchase the indicated number of shares of
Common Stock, at the fair market value at the date of grant, as
consideration for certain personal guarantees of loans incurred by the
Company. See "Certain Transactions".
(4) Includes $32,083 and $29,024 of deferred salary earned by Messrs.
Calahan and Babcock, respectively, in fiscal year ending March 31,
1997.
(5) Mr. Wallace resigned from the Company effective March 31, 1997.
10
14
STOCK OPTION GRANTS AND EXERCISES
The following table shows certain information regarding options
granted to the Named Executive Officers during the fiscal year ended March 31,
1997:
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PERCENTAGE OF PRICE
UNDERLYING TOTAL OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO PRICE PER EXPIRATION OPTION TERM (1)
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
- ---- ------- --------- ----- ---- -- ---
Charles R. Osenbaugh 75,000 34.0% $1.63 1/06/2007(2) $76,500 $194,250
John W. Calahan -- -- -- -- -- --
Donald K. Babcock -- -- -- -- -- --
Frederick W. Dean 5,000 2.3% 2.19 12/01/2006 4,998 17,500
Robert B. Wallace -- (3) -- -- -- -- --
(1) These assumed rates of appreciation are provided in order to comply
with the requirements of the SEC and do not represent the Company's
expectation as to the actual rate of appreciation of the Common Stock.
These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over
the full option term. The actual value of the options will depend on
the performance of the Common Stock and may be greater or less than
the amounts shown.
(2) Option representing 75,000 shares of Common Stock was exercised in
full by Mr. Osenbaugh on March 31, 1997. See "Certain Transactions".
(3) Mr. Wallace received a grant of an option to purchase 5,000 shares of
Common Stock on December 2, 1996. Mr. Wallace's employment was
terminated on March 31, 1997, and the option expired by its terms.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END 1997 OPTION VALUES
The following table shows certain information regarding the exercise
of stock options during fiscal 1997 and the value of unexercised options held
at fiscal year end by each of the Named Executive Officers.
NUMBER OF SHARES
NUMBER OF COMMON STOCK VALUE OF UNEXERCISED
OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Charles R. Osenbaugh 75,000 $(33,000) 30,601 4,500 $ 36,339 $ 5,344
John W. Calahan -- -- 20,376 5,000 24,197 5,938
Donald K. Babcock 8,776 $ (5,529) -- -- -- --
Frederick W. Dean -- -- 15,075 11,825 17,902 14,042
Robert B. Wallace -- -- 20,062 -- 23,824 --
11
15
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1997, the Company did not
compensate its directors for their service as directors. Pursuant to the terms
of the Directors' Plan, the non-employee directors of the Company were each
granted options to purchase 3,000 shares of Common Stock on May 1, 1995. In
addition, under the terms of the Directors' Plan, each new non-employee
director will receive an automatic one-time grant of options to purchase 3,000
shares of Common Stock 90 days after he or she becomes a director.
EMPLOYMENT AGREEMENTS
Messrs. Calahan and Babcock have entered into employment agreements
with the Company. Mr. Calahan's agreement, dated April 19, 1993, supersedes a
prior employment agreement dated September 29, 1994, as amended. Mr. Babcock's
employment agreement became effective February 1, 1995.
Effective April 1, 1997, Mr. Calahan and the Company agreed to
renegotiate his employment agreement. Until the new agreement is signed, the
terms of his prior agreement remain in effect. However, since April 1, 1997,
Mr. Calahan has drawn an annual base salary of $80,000 plus commissions equal
to ten percent of the Company's net contribution certain sales through VARs and
resellers. It is anticipated these amounts are indicative of his compensation
under the new agreement. It is also anticipated Mr. Calahan's new agreement
will be executed prior to July 1, 1997 for a term of one year. Under Mr.
Calahan's current employment agreement, by the terms of a noncompetition
agreement with the Company, he has agreed not to compete with the Company for a
period of two years following termination of his employment. In addition,
under his current agreement, if there is a change of control in the Company
which results in removal of Mr. Calahan as an executive officer or director of
the Company, the agreement provides that the Company will pay Mr. Calahan
$250,000.
Mr. Babcock's five-year agreement provides for an annual salary of
$127,000, and permits Mr. Babcock to defer up to $25,000 of his salary each
year. In the event of involuntary termination of Mr. Babcock's employment,
except in the case of termination for cause as specified in the agreement, he
will continue to receive $70,000 annually for each year remaining on his
employment contract from the date of termination. He has agreed not to compete
with the Company for a period of 10 years following the termination of his
employment.
CERTAIN TRANSACTIONS
The Company has granted warrants to certain of its executive officers
and directors in connection with various loans made to the Company and personal
guarantees of third-party debt incurred by the Company. The number of shares
subject to each such warrant, and the exercise price of each, was negotiated at
the respective times each such warrant was granted. In August 1993, Mr.
Hallman was granted a warrant to purchase 4,125 shares of Common Stock, at an
exercise price of $3.64 per share, in connection with a loan he made to the
Company. In July 1994, Messrs. Calahan, Osenbaugh and Dean were granted
warrants to purchase 6,600, 17,325 and 6,600 shares of Common Stock,
respectively, each at an exercise price of $3.64 per share, as consideration
for certain personal guarantees of loans incurred by the Company.
Mr. Osenbaugh is a 50% shareholder of SoftForce Inc., an Iowa-based
distributor of software which currently employs eight persons. The remaining
shares of SoftForce Inc. are owned by a brother of Mr. Osenbaugh. SoftForce
Inc. distributes Company products pursuant to a standard Company distribution
agreement. The Company believes its distribution agreement with SoftForce Inc.
was made on terms no less favorable to the Company than could have been
obtained from unaffiliated third party distributors.
In December 1996, the Company granted a warrant to Mr. Osenbaugh to
purchase 75,000 shares of common stock, at an exercise price of $1.63 per
share, as consideration for personally guaranteeing certain loans incurred by
the Company. Mr. Osenbaugh exercised the warrant in full in March 1997. The
closing trading price of the common stock on such date was $1.19 In connection
with the exercise of the warrant, Mr. Osenbaugh executed a promissory note for
$95,603 in favor of the Company.
12
16
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and change in
ownership with the SEC and with the National Association of Securities Dealers,
Inc. Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all forms they file pursuant
to Section 16(a).
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during the fiscal year ended March 31, 1997, all such filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows
of no other business that will be presented for consideration at the Annual
Meeting. If other matters are properly brought before the Annual Meeting, it
is the intention of the persons named in the accompanying proxy to vote the
shares represented thereby on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Charles R. Osenbaugh
Charles R. Osenbaugh
President and Chief Executive Officer
June 17, 1997
13
17
TIMELINE, INC.
1994 STOCK OPTION PLAN
This 1994 Stock Option Plan (the "Plan") provides for the grant of
options to acquire shares of Common Stock, $.01 par value (the "Common Stock"),
of Timeline, Inc., a Washington corporation (the "Company"). Stock options
granted under this Plan that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), are referred to in this Plan as
"Incentive Stock Options." Incentive Stock Options and stock options that do
not qualify under Section 422 of the Code ("Non-Qualified Stock Options")
granted under this Plan are referred to as "Options."
1. Purposes. The purposes of this Plan are to retain the
services of valued key employees and consultants of the Company, and such other
persons as the Plan Administrator shall select in accordance with Section 3
below, to encourage such persons to acquire a greater proprietary interest in
the Company, thereby strengthening their incentive to achieve the objectives of
the shareholders of the Company, and to serve as an aid and inducement in the
hiring of new employees, consultants and other persons selected by the Plan
Administrator.
2. Administration. This Plan shall be administered by the Board of
Directors of the Company (the "Board"), except that the Board may, in its
discretion, establish a committee composed of members of the Board or other
persons to administer this Plan, which committee (the "Committee") may be an
executive, compensation or other committee, including a separate committee
especially created for this purpose. The Committee shall have such of the
powers and authority vested in the Board hereunder as the Board may delegate to
it (including the power and authority to interpret any provision of this Plan
or of any Option). The members of any such Committee shall serve at the
discretion of the Board. The Board, or the Committee if one has been
established by the Board, are referred to in this Plan as the "Plan
Administrator." Following registration of any of the Company's securities under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), no person shall serve as a member of the Plan Administrator if his or
her service would disqualify this Plan from eligibility under Securities and
Exchange Commission Rule 16b-3, as amended from time to time, or any successor
rule or regulatory requirements; provided, that the Plan Administrator shall
consist of at least the minimum number of persons required by Securities and
Exchange Commission Rule 16b-3, as amended, or any successor rule or regulatory
requirements.
Subject to the provisions of this Plan, and with a view to effecting
its purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to: (a) construe and interpret this Plan; (b) define the terms
used in this Plan; (c) prescribe, amend and rescind rules and regulations
relating to this Plan; (d) correct any defect, supply any omission or reconcile
any inconsistency in this Plan; (e) determine the individuals to whom Options
shall be granted under this Plan and whether the Option is an Incentive Stock
Option or a Non- Qualified Stock Option; (f) determine the time or times at
which Options shall be granted under this Plan; (g) determine the number of
shares of Common Stock subject to each Option, the exercise price of each
- 1 -
18
Option, the duration of each Option and the times at which each Option shall
become exercisable; (h) determine all other terms and conditions of Options;
and (i) make all other determinations necessary or advisable for the
administration of this Plan. All decisions, determinations and interpretations
made by the Plan Administrator shall be binding and conclusive on all
participants in this Plan and on their legal representatives, heirs and
beneficiaries.
3. Eligibility. Incentive Stock Options may be granted to any
individual who, at the time the Option is granted, is an employee of the
Company or any Related Corporation (as defined below), including employees who
are directors of the Company ("Employees"). Non- Qualified Stock Options may
be granted to Employees and to such other persons other than directors who are
not Employees as the Plan Administrator shall select. Options may be granted
in substitution for outstanding Options of another corporation in connection
with the merger, consolidation, acquisition of property or stock or other
reorganization between such other corporation and the Company or any subsidiary
of the Company. Options also may be granted in exchange for outstanding
Options. Any person to whom an Option is granted under this Plan is referred
to as an "Optionee."
As used in this Plan, the term "Related Corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock of one
of the other corporations in such chain. When referring to a parent
corporation, the term "Related Corporation" shall mean any corporation (other
than the Company) in an unbroken chain of corporations ending with the Company
if, at the time of granting of the Option, each of the corporations other than
the Company owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock of one of the other corporations
in such chain.
4. Stock. Subject to approval of the Plan by shareholders of the
Company, options to purchase a maximum of 400,000 shares of the Company's
authorized but unissued, or reacquired, Common Stock may be issued pursuant to
the Plan, subject to adjustment as provided in Section 5.13(a) below, less any
shares issuable upon the exercise of Options granted pursuant to the Company's
Directors' Non-qualified Stock Option Plan; provided, that any shares of Common
Stock received or withheld by the Company as payment for shares of Common Stock
purchased upon exercise of Options pursuant to Section 5.9 below shall be added
to the number of such shares as to which Options may be granted. The number of
shares with respect to which Options may be granted hereunder is subject to
adjustment as set forth in Section 5.13 below. In the event that any
outstanding Option expires or is terminated for any reason, the shares of
Common Stock allocable to the unexercised portion of such Option may again be
subject to an Option to the same Optionee or to a different person eligible
under Section 3 above.
5. Terms and Conditions of Options. Each Option granted under
this Plan shall be evidenced by a written agreement approved by the Plan
Administrator (the "Agreement").
- 2 -
19
Agreements may contain such additional provisions, not inconsistent with this
Plan, as the Plan Administrator in its discretion may deem advisable. All
Options also shall comply with the following requirements:
5.1 Number of Shares and Type of Option. Each Agreement
shall state the number of shares of Common Stock to which it pertains and
whether the Option is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option. In the absence of action to the contrary by the
Plan Administrator in connection with the grant of an Option, all Options shall
be Non-Qualified Stock Options. The aggregate fair market value (determined at
the Date of Grant, as defined below) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other Incentive Stock
Option plans of the Company, a Related Corporation or a predecessor
corporation) shall not exceed such limit as may be prescribed by the Code as it
may be amended from time to time. Any Option which exceeds the annual limit
shall not be void but rather shall be a Non-Qualified Stock Option.
5.2 Date of Grant. Each Agreement shall state the date
the Plan Administrator has deemed to be the effective date of the Option for
purposes of this Plan (the "Date of Grant").
5.3 Option Price. Each Agreement shall state the price
per share of Common Stock at which it is exercisable. The exercise price shall
be fixed by the Plan Administrator at whatever price the Plan Administrator may
determine in the exercise of its sole discretion; provided, that the per share
exercise price for any Option granted following the effective date of
registration of any of the Company's securities under Section 12 of the
Securities Exchange Act of 1934 shall not be less than the fair market value
per share of the Common Stock at the Date of Grant as determined by the Plan
Administrator in good faith; provided further, that the per share exercise
price for an Incentive Stock Option shall not be less than the fair market
value per share of the Common Stock at the Date of Grant as determined by the
Plan Administrator in good faith; provided further, that with respect to
Incentive Stock Options granted to greater-than-ten-percent (>10%) shareholders
of the Company (as determined with reference to Section 424(d) of the Code),
the exercise price per share shall not be less than one hundred ten percent
(110%) of the fair market value per share of the Common Stock at the Date of
Grant; and, provided further, that Incentive Stock Options granted in
substitution for outstanding Options of another corporation in connection with
the merger, consolidation, acquisition of property or stock or other
reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted Option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur.
5.4 Duration of Options. At the time of the grant of the
Option, the Plan Administrator shall designate, subject to Section 5.7 below,
the expiration date of the Option, which date shall not be later than ten (10)
years from the Date of Grant in the case of Incentive Stock Options; provided,
that the expiration date of any Incentive Stock Option granted to a
greater-than-ten-percent (>10%) shareholder of the Company (as determined with
reference to
- 3 -
20
Section 424(d) of the Code) shall not be later than five (5) years from the
Date of Grant. In the absence of action to the contrary by the Plan
Administrator in connection with the grant of a particular Option, and except
in the case of Incentive Stock Options as described above, all Options granted
under this Plan shall expire ten (10) years from the Date of Grant.
5.5 Vesting Schedule. No Option shall be exercisable
until it has vested. The vesting schedule for each Option shall be specified
by the Plan Administrator at the time of grant of the Option; provided, that if
no vesting schedule is specified at the time of grant, the Option shall vest
according to the following schedule:
Number of Years Following Date of Grant Percentage of Total Option to be Exercisable
--------------------------------------- --------------------------------------------
1 20%
2 40%
3 60%
4 80%
5 100%
5.6 Acceleration of Vesting. The vesting of one or more
outstanding Options may be accelerated by the Plan Administrator at such times
and in such amounts as it shall determine in its sole discretion. If an
Employee Optionee's employment terminates by reason of death or Disability (as
defined in Section 5.7 below), any Option held by such Employee Optionee who
has been Continuously Employed by the Company or Related Corporation for a
minimum of two (2) years shall become fully vested and exercisable and may
thereafter be exercised during the term of the Option set forth in Section 5.7
below. "Continuously Employed" shall mean the absence of any interruption or
termination of service. Continuous Employment with the Company or Related
Corporation shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Company or Related
Corporation or in the case of transfers between locations of the Company or
between the Company, Related Corporations or their successors, provided that
the Optionee continues to be an employee of the Company or any Related
Corporation. The vesting of Options also shall be accelerated under the
circumstances described in Sections 5.13 and 5.14 below.
5.7 Term of Option. Vested Options shall terminate, to
the extent not previously exercised, upon the occurrence of the first of the
following events: (i) the expiration of the Option, as designated by the Plan
Administrator in accordance with Section 5.4 above; (ii) the expiration of
ninety (90) days from the date of an Optionee's termination of employment or
contractual relationship with the Company or any Related Corporation for any
reason whatsoever other than death or Disability (as defined below) unless, in
the case of a Non-Qualified Stock Option, the exercise period is extended by
the Plan Administrator until a date not later than the expiration date of the
Option; or (iii) the expiration of one (1) year from (A) the date of death of
the Optionee or (B) cessation of an Optionee's employment or contractual
relationship by reason of Disability (as defined below) unless, in the case of
a Non-Qualified Stock Option, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the Option.
If an Optionee's employment or contractual relationship is terminated by death,
any
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21
Option held by the Optionee shall be exercisable only by the person or persons
to whom such Optionee's rights under such Option shall pass by the Optionee's
will or by the laws of descent and distribution of the state or county of the
Optionee's domicile at the time of death. "Disability" shall mean that a
person is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a continuous
period of not less than twelve (12) months. The Plan Administrator shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence acceptable to the Plan Administrator. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date
of an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 5.6 above,
unvested Options shall terminate immediately upon termination of employment of
the Optionee by the Company for any reason whatsoever, including death or
Disability.
If, in the case of an Incentive Stock Option, an Optionee's
relationship with the Company changes (e.g., from an Employee to a
non-Employee, such as a consultant), such change shall not constitute a
termination of an Optionee's employment with the Company but rather the
Optionee's Incentive Stock Option. For purposes of this Section 5.7, transfer
of employment between or among the Company and/or any Related Corporation shall
not be deemed to constitute a termination of employment with the Company or any
Related Corporation. For purposes of this Section 5.7, employment shall be
deemed to continue while the Optionee is on military leave, sick leave or other
bona fide leave of absence (as determined by the Plan Administrator). The
foregoing notwithstanding, with respect to Incentive Stock Options, employment
shall not be deemed to continue beyond the first ninety (90) days of such
leave, unless the Optionee's re-employment rights are guaranteed by statute or
by contract.
5.8 Exercise of Options. Options shall be exercisable,
either all or in part, at any time after vesting, until termination; provided,
that after registration of any of the Company's securities under Section 12 of
the Exchange Act, Optionee must comply with the six (6) month holding period
requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder.
If less than all of the shares included in the vested portion of any Option are
purchased, the remainder may be purchased at any subsequent time prior to the
expiration of the Option term. No portion of any Option for less than fifty
(50) shares (as adjusted pursuant to Section 5.13 below) may be exercised;
provided, that if the vested portion of any Option is less than fifty (50)
shares, it may be exercised with respect to all shares for which it is vested.
Only whole shares may be issued pursuant to an Option, and to the extent that
an Option covers less than one (1) share, it is unexercisable. Options or
portions thereof may be exercised by giving to the Company an executed notice
of election to exercise, which notice shall specify the number of shares to be
purchased, and be accompanied by payment in the amount of the aggregate
exercise price for the Common Stock so purchased, which payment shall be in the
form specified in Section 5.9 below. The Company shall not be obligated to
issue, transfer or deliver a certificate of Common Stock to any Optionee, or to
his personal representative, until the aggregate exercise price has been paid
for all shares for which the Option shall have been exercised and adequate
- 5 -
22
provision has been made by the Optionee for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee.
5.9 Payment upon Exercise of Option. Upon the exercise
of any Option, the aggregate exercise price shall be paid to the Company in
cash or by certified or cashier's check. In addition, upon approval of the
Plan Administrator, an Optionee may pay for all or any portion of the aggregate
exercise price by (i) delivering to the Company shares of Common Stock
previously held by such Optionee, (ii) having shares withheld from the amount
of shares of Common Stock to be received by the Optionee, (iii) delivering an
irrevocable subscription agreement obligating the Optionee to take and pay for
the shares of Common Stock to be purchased within one (1) year of the date of
such exercise or (iv) complying with any other payment mechanisms as the Plan
Administrator may approve from time to time. The shares of Common Stock
received or withheld by the Company as payment for shares of Common Stock
purchased upon the exercise of Options shall have a fair market value at the
date of exercise (as determined by the Plan Administrator) equal to the
aggregate exercise price (or portion thereof) to be paid by the Optionee upon
such exercise.
5.10 Rights as a Shareholder. An Optionee shall have no
rights as a shareholder with respect to any shares covered by an Option until
such Optionee becomes a record holder of such shares, irrespective of whether
such Optionee has given notice of exercise. Subject to the provisions of
Sections 5.13 and 5.14 below, no rights shall accrue to an Optionee and no
adjustments shall be made on account of dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
declared on, or created in, the Common Stock for which the record date is prior
to the date the Optionee becomes a record holder of the shares of Common Stock
covered by the Option, irrespective of whether such Optionee has given notice
of exercise.
5.11 Transfer of Option. Options granted under this Plan
and the rights and privileges conferred by this Plan may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and
distribution, as defined by the Code, or the Employee Retirement Income
Security Act, or the rules and regulations thereunder, and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any Option or of any right
or privilege conferred by this Plan contrary to the provisions hereof, or upon
the sale, levy or any attachment or similar process upon the rights and
privileges conferred by this Plan, such Option shall thereupon terminate and
become null and void.
5.12 Securities Regulation and Tax Withholding
5.12.1 Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of 1933,
as amended, the Exchange Act, as amended, the rules and regulations
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23
thereunder and the requirements of any stock exchange upon which such shares
may then be listed, and such issuance shall be further subject to the approval
of counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of
such shares. The inability of the Company to obtain from any regulatory body
the authority deemed by the Company to be necessary for the lawful issuance and
sale of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale
of such shares.
As a condition to the exercise of an Option, the Plan Administrator
may require the Optionee to represent and warrant in writing at the time of
such exercise that the shares are being purchased only for investment and
without any then-present intention to sell or distribute such shares. At the
option of the Plan Administrator, a stop-transfer order against such shares may
be placed on the stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold or otherwise transferred
unless an opinion of counsel is provided stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on the
certificates representing such shares in order to assure an exemption from
registration. The Plan Administrator also may require such other documentation
as may from time to time be necessary to comply with federal and state
securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF
OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS.
5.12.2 As a condition to the exercise of any Option
granted under this Plan, the Optionee shall make such arrangements as the Plan
Administrator may require for the satisfaction of any federal, state or local
withholding tax obligations that may arise in connection with such exercise.
5.12.3 The issuance, transfer or delivery of
certificates of Common Stock pursuant to the exercise of Options may be
delayed, at the discretion of the Plan Administrator, until the Plan
Administrator is satisfied that the applicable requirements of the federal and
state securities laws and the withholding provisions of the Code have been met.
5.13 Stock Dividend, Reorganization or Liquidation
5.13.1 If (i) the Company shall at any time be
involved in a transaction described in Section 424(a) of the Code (or any
successor provision) or any "corporate transaction" described in the
regulations thereunder, (ii) the Company shall declare a dividend payable in,
or shall subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, then the Plan Administrator shall
proportionately adjust the number of shares of Common Stock authorized for
issuance under this Plan pursuant to Section 4 above, and shall further
proportionately adjust the number of shares of Common Stock and/or the exercise
price per share with respect to each Option then outstanding so as to preserve
the rights of the Optionee substantially proportionate to the rights of the
Optionee prior to such
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24
event, all without further action on the part of the Plan Administrator, the
Company or the Company's shareholders.
5.13.2 If the Company is liquidated or dissolved,
the Plan Administrator shall allow the holders of any outstanding Options to
exercise all or any part of the unvested portion of the Options held by them;
provided, that such Options must be exercised prior to the effective date of
such liquidation or dissolution. If the Option holders do not exercise their
Options prior to such effective date, each outstanding Option shall terminate
as of the effective date of the liquidation or dissolution.
5.13.3 The foregoing adjustments in the shares
subject to Options shall be made by the Plan Administrator, or by any successor
administrator of this Plan, or by the applicable terms of any assumption or
substitution document.
5.13.4 The grant of an Option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
5.14 Change in Control; Declaration of Extraordinary Dividend
5.14.1 Change in Control. If at any time there is a
Change in Control (as defined below) of the Company, all Options shall
accelerate and become fully vested and immediately exercisable for the duration
of the Option term. For purposes of this Subsection 5.14.1, "Change in
Control" shall mean either one of the following: (i) When any "person," as
such term is used in sections 13(d) and 14(d) of the Exchange Act (other than a
shareholder of the Company on the date of this Plan, the Company, a Subsidiary
or an employee benefit plan of the Company, including any trustee of such plan
acting as trustee) becomes, after the date of this Plan, the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or (ii) the
occurrence of a transaction requiring shareholder approval, and involving the
sale of all or substantially all of the assets of the Company or the merger of
the Company with or into another corporation.
5.14.2 Declaration of Extraordinary Dividend. If at
any time the Company declares an Extraordinary Dividend (as defined below), all
Options shall accelerate and thereupon become fully vested and immediately
exercisable for the duration of the Option term. For purposes of this
Subsection 5.14.2, "Extraordinary Dividend" shall mean a cash dividend payable
to holders of record of the Common Stock in an amount in excess of ten percent
(10%) of the then fair market value of the Company's Common Stock. The fair
market value of the Company's Common Stock shall be determined in good faith by
the Board.
6. Effective Date; Term. This Plan shall be effective as of the
closing of the initial public offering of securities of the Company under the
Securities Act of 1933. Incentive Stock
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Options may be granted by the Plan Administrator from time to time thereafter
until ten (10) years after such approval. Non-Qualified Stock Options may be
granted until this Plan is terminated by the Board in its sole discretion.
Termination of this Plan shall not terminate any Option granted prior to such
termination.
7. No Obligations to Exercise Option. The grant of an Option
shall impose no obligation upon the Optionee to exercise such Option.
8. No Right to Options or to Employment. The grant of any
Options under this Plan shall be exclusively within the discretion of the Plan
Administrator, and nothing contained in this Plan shall be construed as giving
any person any right to participate under this Plan. The Plan shall not confer
on any Optionee any right with respect to continuation of any employment or
contractual relationship with the Company or any Related Corporation, nor shall
it interfere in any way with the Company's or, where applicable, a Related
Corporation's right to terminate any Optionee's employment or contractual
relationship at any time, which right is hereby reserved.
9. Application of Funds. The proceeds received by the Company
from the sale of Common Stock issued upon the exercise of Options shall be used
for general corporate purposes, unless otherwise directed by the Board.
10. Indemnification of Plan Administrator. In addition to all
other rights of indemnification they may have as members of the Board, members
of the Plan Administrator shall be indemnified by the Company for all
reasonable expenses and liabilities of any type or nature, including reasonable
attorneys' fees, incurred in connection with any action, suit or proceeding to
which they or any of them are a party by reason of, or in connection with, this
Plan or any Option granted under this Plan, and against all amounts paid by
them in settlement thereof (provided that such settlement is approved by
independent legal counsel selected by the Company), except to the extent that
such expenses relate to matters for which it is adjudged that such Plan
Administrator member is liable for willful misconduct; provided, that within
fifteen (15) days after the institution of any such action, suit or proceeding,
the Plan Administrator member involved therein shall, in writing, notify the
Company of such action, suit or proceeding, so that the Company may have the
opportunity to make appropriate arrangements to prosecute or defend the same.
11. Amendment of Plan. The Plan Administrator may, at any time,
modify, amend or terminate this Plan and Options granted under this Plan,
including, without limitation, such modifications or amendments as are
necessary to maintain compliance with applicable statutes, rules or
regulations; provided, that no amendment with respect to an outstanding Option
shall be made over the objection of the Optionee thereof; and provided further,
that, following registration of any of the Company's securities under Section
12 of the Exchange Act, the approval of the holders of a majority of the
Company's outstanding shares of voting capital stock represented at a meeting
at which a quorum is present is required within twelve (12) months before or
after the adoption by the Plan Administrator of any amendment that will permit
the granting of Options to a class of persons other than those currently
eligible to receive Options
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26
under this Plan or that would cause this Plan to no longer comply with
Securities and Exchange Commission Rule 16b-3, as amended, or any successor
rule or other regulatory requirements. Without limiting the generality of the
foregoing, the Plan Administrator may modify grants to persons who are eligible
to receive Options under this Plan who are foreign nationals or employed
outside the United States to recognize differences in local law, tax policy or
custom.
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27
TIMELINE, INC.
DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
This Nonqualified Stock Option Plan (the "Plan") provides for the
grant of options to acquire shares of Common Stock, $.01 par value (the "Common
Stock"), of Timeline, Inc., a Washington corporation (the "Company"). Stock
options granted under this Plan (the "Options" or "Option") are intended to be
nonstatutory stock options which do not qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
1. Purpose. The purpose of this Plan is to compensate certain
directors of the Company (the "Optionees" or "Optionee").
2. Eligibility. Persons eligible to receive options under this
Plan shall be all directors of the Company who are not otherwise employed by
the Company or any Related Corporation, as defined below (the "Directors" or
"Director"). Options may be granted in substitution for outstanding Options of
another corporation in connection with the merger, consolidation, acquisition
of property or stock or other reorganization between such other corporation and
the Company or any subsidiary of the Company. Options also may be granted in
exchange for outstanding Options.
As used in this Plan, the term "Related Corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock of one
of the other corporations in such chain. When referring to a parent
corporation, the term "Related Corporation" shall mean any corporation (other
than the Company) in an unbroken chain of corporations ending with the Company
if, at the time of granting of the Option, each of the corporations other than
the Company owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock of one of the other corporations
in such chain.
3. Stock. Subject to approval of the Plan by shareholders of the
Company, each current Director of the Company, and each individual who
subsequently becomes a Director of the Company, who is not otherwise an
employee of the Company or any Related Corporation, shall, automatically be
issued options to acquire 3,000 shares (subject to adjustment as provided in
the Company's 1994 Stock Option Plan) of the Company's authorized but unissued,
or reacquired, Common Stock. Options to purchase a maximum of 15,000 shares of
Common Stock (subject to adjustment as provided in the Company's 1994 Stock
Option Plan) in the aggregate may be issued pursuant to the Plan, less any
shares issuable upon the exercise of Options granted under the Company's 1994
Stock Option Plan. The number of options available for a grant hereunder is
further subject to adjustment as set forth in Section 4.12 hereof. In the
event that any outstanding Option expires or is terminated for any reason,
those shares of Common Stock allocable to the unexercised portion of such
Option may be subject to one or
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more other Options issued pursuant to the Plan.
4. Terms and Conditions of Options. Each Option shall be
evidenced by a written agreement (the "Agreement") in the form approved by the
Company. Agreements may contain such additional provisions, not inconsistent
herewith, as the Company in its discretion may deem advisable. All Options
shall also comply with the following requirements:
4.1 Number of Shares. Each Agreement shall state the number of shares to
which it pertains.
4.2 Date of Grant. Each Option shall state the date the
Company and the Director entered into the Agreement (the "Date of Grant"),
which shall be the date that is ninety (90) days following the closing of the
initial public offering of securities of the Company under the Securities Act
of 1933, or, in the case of new Directors, the date the individual becomes a
Director, whichever is applicable.
4.3 Option Price. The exercise price for all Options
granted hereunder shall be the fair market value on Date of Grant. Such fair
market value shall be the closing price at which it was traded on a national
securities exchange or the last sale price quoted on the National Association
of Securities Dealers Automated Quotation System or any successor or
substantially similar market thereto on the Date of Grant. If the Common Stock
shall be traded on more than one such market, the exercise price shall be
determined on the basis of the most active market. If no such market exists,
the exercise price shall be established at fair market value based on the most
recent arms-length transaction occurring within eighteen (18) months preceding
the Date of Grant by or among the Company or any greater-than-ten-percent
(>10%) shareholders of the Company or, if unavailable, by a qualified appraiser
selected by the Company.
4.4 Vesting Schedule. All Options shall vest according to the
following schedule.
Number of Years Following Date of Grant Percentage of Total Option to be Exercisable
--------------------------------------- --------------------------------------------
1 33-1/3%
2 33-1/3%
3 33-1/3%
4.5 Acceleration of Vesting. Options granted pursuant to the Plan
shall become immediately vested and fully exercisable upon the Directors
termination as a director of the Company by reason of the death or Disability
(as defined in Section 4.6 below) of the Director. The vesting of Options
shall also be accelerated under the circumstances described in Sections 4.12
and 4.13 below.
4.6 Termination of Option. A vested Option shall terminate, to
the extent not previously exercised, upon the occurrence of the first of the
following events:
(i) ten (10) years from the Date of Grant;
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(ii) the expiration of ninety (90) days from the date of
Optionee's termination as a Director of the Company for any reason other than
death or Disability (as defined below); or
(iii) the expiration of one (1) year from the date of death
of Optionee or the cessation of Optionee's service as a Director by reason of
Disability (as defined below).
"Disability" shall mean that a person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or that has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months. If Optionee's service as a Director is terminated by death, any Option
held by Optionee shall be exercisable only by the person or persons to whom
such Optionee's rights under such Option shall pass by Optionee's will or by
the laws of descent and distribution of the state or country of Optionee's
domicile at the time of death. Each unvested Option granted pursuant hereto
shall terminate upon Optionee's termination as a Director for any reason
whatsoever, including death or Disability.
4.7 Exercise of Options. Options shall be exercisable, either all
or in part, at any time after vesting. If less than all of the shares included
in the vested portion of any Option are purchased, the remainder may be
purchased at any subsequent time prior to the expiration of the Option term.
No portion of any Option of less than fifty (50) shares (as adjusted pursuant
to Section 4.12 hereof) may be exercised; provided, that if the vested portion
of any Option is less than fifty (50) shares, it may be exercised with respect
to all shares for which it is vested. Only whole shares may be issued pursuant
to an Option, and to the extent that an Option covers less than one share, it
is unexercisable. Options or portions thereof may be exercised by giving to
the Company an executed notice of election to exercise, which notice shall
specify the number of shares to be purchased, and be accompanied by payment in
the amount of the aggregate option price for the Common Stock so purchased and
in the form specified in Section 4.8 below. The Company shall not be obligated
to issue, transfer or deliver a certificate of Common Stock to any Director, or
to his personal representative, until the aggregate option price has been paid
for all shares for which the Option shall have been exercised and adequate
provision has been made by the Optionee for the satisfaction of any tax
withholding obligations associated with such exercise. During the lifetime of
an Optionee, Options are exercisable only by Optionee.
4.8 Payment upon Exercise of Option. Upon exercise of any option,
the aggregate option price shall be paid to the Company in cash or by certified
or cashier's check. Alternatively, a Director may pay for all or any portion
of the aggregate option exercise price by (i) delivering to the Company shares
of Common Stock previously held by such Director, (ii) having shares withheld
from the amount of shares of Common Stock to be received by the Director or
(iii) delivering an irrevocable subscription agreement obligating the Director
to take and pay for the shares of common Stock to be purchased within one (1)
year of the date of exercise. The shares of Common Stock received or withheld
by the Company as payment for shares of Common Stock purchased upon the
exercise of Options shall have a fair market value at the date of exercise(as
determined in accordance with Section 4.3 above) equal to the aggregate option
exercise price (or portion thereof) to be paid by the Director upon exercise.
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30
4.9 Rights as a Shareholder. An Optionee shall have no rights as
a shareholder with respect to any shares covered by the Option until such
Optionee becomes a record holder of such shares, irrespective of whether such
Optionee has given notice of exercise. Subject to the provisions of Sections
4.12 and 4.13 below, no rights shall accrue to an Optionee and no adjustments
shall be made on account of dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights declared
on, or created in, the Common Stock for which the record date is prior to the
date the Optionee becomes a record holder of the shares of Common Stock covered
by the Option, irrespective of whether such Optionee has given notice of
exercise.
4.10 Transfer of Option. Options granted under this Plan and the
rights and privileges conferred by this Plan may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and
distribution, as defined by the Code, or the Employee Retirement Income
Security Act, or the rules and regulations thereunder, and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any Option or of any right
or privilege conferred by this Plan contrary to the provisions hereof, or upon
the sale, levy or any attachment or similar process upon the rights and
privileges conferred by this Plan, such Option shall thereupon terminate and
become null and void.
4.11 Securities Regulation and Tax Withholding
4.11.1 Shares shall not be issued with respect to an Option
unless the exercise of such Option and the issuance and delivery of such shares
shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations thereunder and the requirements of any stock exchange upon which
such shares may then be listed, and such issuance shall be further subject to
the approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of such shares. The inability of the Company to obtain from any
regulatory body the authority deemed by the Company to be necessary for the
lawful issuance and sale of any shares under this Plan, or the unavailability
of an exemption from registration for the issuance and sale of any shares under
this Plan, shall relieve the Company of any liability with respect to the
non-issuance or sale of such shares.
As a condition to the exercise of an Option, the Company may require
the Optionee to represent and warrant in writing at the time of such exercise
that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Company, a stop-transfer order against such shares may be placed on the stock
books and records of the Company, and a legend indicating that the stock may
not be pledged, sold or otherwise transferred unless an opinion of counsel is
provided stating that such transfer is not in violation of any applicable law
or regulation, may be stamped on the certificates representing such shares in
order to assure an exemption from registration. The Company also may require
such other documentation as may from time to time be necessary to comply with
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31
federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE
REGISTRATION OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF
OPTIONS.
4.11.2 As a condition to the exercise of any Option granted
under this Plan, the Optionee shall make such arrangements as the Company may
require for the satisfaction of any federal, state or local withholding tax
obligations that may arise in connection with such exercise.
4.11.3 The issuance, transfer or delivery of certificates of
Common Stock pursuant to the exercise of Options may be delayed, at the
discretion of the Board, until the Company is satisfied that the applicable
requirements of the federal and state securities laws and the withholding
provisions of the Code have been met.
4.12 Stock Dividend, Reorganization or Liquidation
4.12.1 If (i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or any successor
provision) or any "corporate transaction" described in the regulations
thereunder; (ii) the Company shall declare a dividend payable in, or shall
subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, the number of shares of Common Stock
and/or the exercise price per share of each outstanding Option shall be
proportionately adjusted so as to preserve the rights of the Optionee
substantially proportionate to the rights of the Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock subject to outstanding Options, the number of
shares available under Section 4 of this Plan shall automatically be increased
or decreased, as the case may be, proportionately, without further action on
the part of the Company or the Company's shareholders.
4.12.2 If the Company is liquidated or dissolved, the
holders of any outstanding Options may exercise all or any part of the unvested
portion of the Options held by them; provided, that such Options must be
exercised prior to the effective date of such liquidation or dissolution. If
the Option holders do not exercise their Options prior to such effective date,
each outstanding Option shall terminate as of the effective date of the
liquidation or dissolution.
4.12.3 The grant of an Option shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
4.13 Change in Control; Declaration of Extraordinary Dividend
4.13.1 Change in Control. If at any time there is a Change
in Control (as defined below) of the Company, all Options shall accelerate and
become fully vested and immediately exercisable for the duration of the Option
term. For purposes of this Subsection 4.13.1, "Change in Control" shall mean
either one of the following (i) When any "person," as such term is used in
sections 13(d) and 14(d) of the Exchange Act (other than a shareholder of the
Company on the
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32
date of this Plan, the Company, a Subsidiary or an employee benefit plan of the
Company, including any trustee of such plan acting as trustee) becomes, after
the date of this Plan, the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or (ii) the occurrence of a transaction
requiring shareholder approval, and involving the sale of all or substantially
all of the assets of the Company or the merger of the Company with or into
another corporation.
4.13.2 Declaration of Extraordinary Dividend. If at any
time the Company declares an Extraordinary Dividend (as defined below), all
Options shall accelerate and thereupon become fully vested and immediately
exercisable for the duration of the Option term. For purposes of this
Subsection 4.13.2, "Extraordinary Dividend" shall mean a cash dividend payable
to holders of record of the Common Stock in an amount in excess of ten percent
(10%) of the then fair market value of the Company's Common Stock. The fair
market value of the Company's Common Stock shall be determined in good faith by
the Board.
5. Effective Date; Term. Subject to approval of this Plan by
shareholders of the Company, this Plan shall be effective as of the date which
is the first Date of Grant specified in Section 4.2 above, and Options may be
issued then and from time to time thereafter until this Plan is terminated by
the Company. Termination of this Plan shall not terminate any Option granted
prior to such termination.
6. No Obligations to Exercise Option. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
7. Application of Funds. The proceeds received by the Company
from the sale of Common Stock, pursuant to the exercise of Options granted
hereunder, will be used for general corporate purposes.
8. Indemnification of Board. In addition to all other rights or
indemnification they may have as directors of the Company or as members of the
Board, members of the Board shall be indemnified by the Company for all
reasonable expenses and liabilities of any type and nature, including
reasonable attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to grantee for which it is adjudged that such
Board members are liable for willful misconduct; provided, that within fifteen
(15) days after the institution of any such action, suit or proceeding
member(s) of the Board shall, in writing notify the Company of such action,
suit or proceeding so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
9. Amendment of Plan. The Company may, at any time, modify,
amend or terminate this Plan and Options granted under this Plan, including,
without limitation, such modifications or amendments as are necessary to
maintain compliance with applicable statutes,
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33
rules or regulations; provided, that no amendment with respect to an
outstanding Option shall be made over the objection of the Optionee thereof and
provided further, that after registration of any of the Company's securities
under Section 12 of the Securities Exchange Act of 1934, as amended: (i) the
approval of the holders of a majority of the Company's outstanding shares of
voting capital stock represented at a meeting at which a quorum is present is
required within twelve (12) months before or after the adoption by the Board of
any amendment that will permit the granting of Options to a class of persons
other than those currently eligible to receive Options under this Plan or that
would cause this Plan to no longer comply with Securities and Exchange
Commission Rule 16b-3, as amended, or any successor rule or other regulatory
requirements and (ii) this Plan shall not be amended more than once every six
(6) months, other than to comport with changes in the Code, the Employee
Retirement Security Act, or the rules thereunder.
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TIMELINE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Timeline, Inc., a Washington corporation (the
"Company"), hereby appoints Charles R. Osenbaugh and John W. Calahan, or either
of them, with full power of substitution in each, as proxies to cast all votes
which the undersigned shareholder is entitled to cast at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Friday, July 11, 1997, at
4:00 P.M., PDT, at Timeline, Inc., 3055 112th Avenue N.E., Ste. 106, Bellevue,
Washington 98004 and any adjournments or postponements thereof upon the matters
set forth on the reverse side of this Proxy Card. THIS PROXY CARD, WHEN
PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. UNLESS DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, "FOR" PROPOSAL 2 AND
PROPOSAL 3, AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE
BOARD OF DIRECTORS AS TO OTHER MATTERS. The undersigned hereby acknowledges
receipt of the Company's Proxy Statement and hereby revokes any proxies
previously given.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
Please mark your
A [X] votes as in this
example
FOR ALL WITHHOLD
NOMINEES ALL NOMINEES
1. Directors
Recommend: [ ] [ ]
A vote for election of the following for Directors:
Nominees:
01 Donald K. Babcock
02 Kent L. Johnson
WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE.
WRITE NUMBER(S) OF NOMINEES BELOW
Use Number only _____________________________________
FOR AGAINST ABSTAIN
2. Approval of an amendment to the Company's
1994 Stock Option Plan and Directors' [ ] [ ] [ ]
Nonqualified Stock Option Plan, as amended.
3. Ratification of the selection of Arthur Andersen
LLP as independent auditors of the Company [ ] [ ] [ ]
for the year ending March 31, 1998.
4. In their discretion, the proxies are authorized to vote upon other matters
as may properly come before the meeting or any adjournments or
postponements thereof.
I PLAN TO ATTEND THE MEETING [ ]
If you receive more than one Proxy Card, please sign and return all such cards
in the accompanying envelope.
Please sign, date and return this Proxy Card today, using the enclosed
envelope.
Signature(s) ___________________________________________ Date __________________
Note: Please sign above exactly as your name appears on this Proxy Card. If
shares are registered in more than one name, the signature of all such
persons are required. A corporation should sign in its full corporate name
by a duly authorized official, stating his/her title. Trustee, guardians,
executors and administrators should sign in their official capacity,
giving their full title as such. If a partnership, please sign in the
partnership name by authorized person(s).