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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 20, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Timeline, Inc. to be held on Thursday, July 19, 2001, at 4:00 P.M., Pacific
Time, 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
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 19, 2001
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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
Thursday, July 19, 2001, at 4:00 P.M., Pacific Time, at Timeline, Inc., 3055
112th Avenue N.E., Ste. 106, Bellevue, Washington 98004, for the following
purposes:
1. To elect two directors, each to hold a three-year term expiring
in 2004;
2. To approve an amendment to the Company's 1994 Stock Option Plan
and Directors' Nonqualified Stock Option Plan to increase the
number of shares of common stock available for issuance from
475,000 to 600,000 shares;
3. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending March 31,
2002; 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, 2001
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/ Paula H. McGee
Paula H. McGee
Secretary
Bellevue, Washington
June 20, 2001
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 A BROKER, BANK OR OTHER NOMINEE IS
THE RECORD HOLDER OF YOUR SHARES AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM SUCH BROKER, BANK OR OTHER
NOMINEE.
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TIMELINE, INC.
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors") of Timeline, Inc., a Washington corporation (the
"Company"), for use at the Annual Meeting of Shareholders to be held on
Thursday, July 19, 2001, at 4:00 P.M., Pacific Time, 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, 2001, are entitled to notice of and
to vote at the Annual Meeting. At the close of business on May 15, 2001, there
were 4,040,998 shares of Common Stock outstanding and entitled to vote.
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. The
inspector of election appointed for the Annual Meeting will tabulate all votes
and 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 constitutes 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 of Annual Meeting 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
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and custodians holding shares of the Common Stock in their names that 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, email 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 26, 2001, to all shareholders entitled to vote at the
Annual Meeting
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 2002 Annual Meeting of Shareholders (the "2002 Annual Meeting") must
be received by the Company not later than February 1, 2002 in order to be
included in the proxy statement and form of proxy relating to the 2002 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 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. Vacancies on the Board may be
filled 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 until the next annual meeting of
shareholders at which directors are elected, or until such director's successor
is elected and qualified, or until such director's earlier death, resignation or
removal.
The Board of Directors is presently composed of five members. In October
2000, following the Company's acquisition of Analyst Financials Limited, the
Board increased the size of the Board from four to five and appointed Terry
Harvey to fill the vacancy caused by such increase. The director nominees, Mr.
Frederick W. Dean and Mr. Terry Harvey, are the nominees for the class of
directors to be elected at the Annual Meeting for a three-year term expiring at
the 2004 annual meeting of shareholders. 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 shares voted 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 that currently is not
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anticipated by the Board, the proxies will be voted for the election of such
substitute nominee as the Board of Directors may propose. Mr. Dean and Mr.
Harvey 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 Mr. Dean and Mr. Harvey:
FREDERICK W. DEAN, age 49, has served as a Director of the Company since
April 1998. He also serves as Executive Vice President and has been a Vice
President since the Company's inception in April 1993. From 1979 to April 1993,
Mr. Dean served as Vice President at Timeline Services, Inc. He practiced public
accounting at Calahan, Reed & Gunn from 1978 to 1979, and at Arthur Andersen &
Co. from 1973 to 1977. From 1977 to 1978, Mr. Dean was the Controller of the
Seattle Mariners Baseball Club. Mr. Dean holds a B.A. degree in accounting from
the University of Washington.
TERRY HARVEY, age 50, has served as a Director of the Company since
October 2000. Mr. Harvey is currently Managing Director of Terry Harvey
Associates Ltd., an information technology consulting firm specializing in the
banking sector and based in the United Kingdom, which he co-founded in October
2000. From 1989 through 1999, Mr. Harvey was Founder and Managing Director of
Harvey Consultants Ltd., which was sold to the Olsten Corporation in 1996. Mr.
Harvey holds several other non-executive roles in information technology
companies where he has invested. Mr. Harvey has fulfilled an operational role in
informational technology from 1970 to 1992. He holds an ONC in sciences.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF MR. DEAN AND MR. HARVEY
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and certain biographical information for
directors whose terms continue after the Annual Meeting and the executive
officers of the Company.
DIRECTOR WITH TERM EXPIRING AT THE 2002 ANNUAL MEETING
CHARLES R. OSENBAUGH, age 52, has served as Chief Financial Officer,
Treasurer 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.
Mr. Osenbaugh also previously served as Secretary of the Company. 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, Washington 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.
DIRECTORS WITH TERM EXPIRING AT THE 2003 ANNUAL MEETING
DONALD K. BABCOCK, age 64, is a founder of the Company and has served as
a Director since its inception in April 1993. Mr. Babcock returned to the
position of Senior Technologist with the Company in October 1999 after working
for Seagate Software, Inc. for 18 months as a Program Manager. He previously was
Senior Vice President of Research & Development and Chief Technologist for
Timeline, Inc. He was also a founder of Timeline Services, Inc. and served as a
director from its
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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, age 57, has been a Director of the Company since its
inception. He is Chairman and Managing Director of Alexander Hutton Venture
Partners, LP, a Seattle, Washington-based venture capital firm he co-founded in
1999. From October 1994 to December 1999, Mr. Johnson was President and
co-founder of Alexander Hutton Capital, L.L.C., an investment banking firm that
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 tenure 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.
EXECUTIVE OFFICERS
In addition to Mr. Dean and Mr. Osenbaugh, following is the biographical
information on the Company's other executive officers.
CRAIG R. PERKINS, age 45, has been with the Company since its inception
in April 1993. He served as Director of Consulting Services until 1998 and
Director of Product Management until 1999. In November 1999, Mr. Perkins was
named Vice President of Products and Technology. From 1988 to April 1993, he was
a member of the Consulting department for Timeline Services, Inc. Mr. Perkins
previously practiced public accounting with Ernst Young & Co. in Winnipeg,
Canada and Bermuda. He has a Bachelors degree with honors in accounting from the
University of Manitoba and is a Chartered Accountant.
MICHAEL G. EVANS, age 47, has been associated with the Company since
1995. He managed international operations from 1995 until the management buy-out
of the London-based operations (Analyst Financials) took place in 1997. From
1997 until March 2000, Mr. Evans acted as Managing Director of Analyst
Financials, in which the Company held a 12.5% interest. Mr. Evans rejoined
Timeline in March 2000, and was appointed Vice President of World-Wide Sales in
the fall of 2000. Prior to joining Timeline in 1995, Mr. Evans was a director of
Comshare, Inc. for a period of 10 years, responsible for the Financial
Applications Division. Between 1979 and 1985, he was employed by Esso and The
Wellcome Foundation, occupying positions in accounting, finance and corporate
planning. Mr. Evans qualified as a chartered accountant with Ernst & Whinney in
1979 and holds an ACA certificate. He earned a Bachelors degree in political
science at the University of Kent at Canterbury.
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BOARD COMMITTEES AND MEETINGS
The Board of Directors, which held six meetings during the fiscal year
ended March 31, 2001, has an Audit Committee and a Compensation Committee. The
Board of Directors does not have a Nominating Committee. Messrs. Babcock and
Johnson served as members of each of the Audit Committee and the Compensation
Committee through September 2000. Upon appointment of Mr. Harvey to the Board of
Directors in October 2000, Mr. Babcock resigned his position on the Audit and
Compensation Committees and Mr. Harvey was appointed to serve in his place.
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. The Board
has not adopted a written charter for the Audit Committee. The members of the
Audit Committee are considered "Independent Directors" as defined in Rule
4200(a)(15) of the National Association of Securities Dealers listing standards.
During the 2001 fiscal year, the Audit Committee met one time.
The Compensation Committee makes recommendations to the Board of
Directors concerning compensation, including stock option grants for executive
officers of the Company. During the 2001 fiscal year, the Compensation Committee
met one time.
During the 2001 fiscal year, all of the directors with the exception of
Mr. Harvey, attended at least 75% of the total number of meetings of the Board
of Directors and committees on which they served. Mr. Harvey attended one
meeting of the Board of Directors and one meeting of the Compensation Committee,
and was absent from one meeting of the Board of Directors from the date of his
appointment to the Board in October 2000 through March 31, 2001.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of our Board of Directors serves as the
representative of the Board for general oversight of our financial accounting
and reporting process, system of internal control, audit process, and process
for monitoring compliance with laws and regulations. Management has primary
responsibility for preparing our financial statements, our internal controls and
our financial reporting process. Our independent accountants, Arthur Andersen
LLP, are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to issue its report.
In this context, the Audit Committee has met and held discussions with
management and the independent accountants. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the independent accountants. The Audit Committee discussed with
the independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees).
The Company's independent accountants also provided to the Audit
Committee the written disclosures and letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), and the
Audit Committee discussed with the independent accountants that firm's
independence.
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Based upon the Audit Committee's discussion with management and the
independent accountants, and upon the Audit Committee's review of the
representations of management and the report of the independent accountants to
the Audit Committee, the Audit Committee recommended that the Board of Directors
include the audited consolidated financial statements in the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 2001 for filing with
the Securities and Exchange Commission.
Audit Committee of the Board of Directors
Terry Harvey
Kent L. Johnson
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES
ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY
INCORPORATES IT BY REFERENCE INTO SUCH FILING.
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 (collectively, the "Stock Option Plans"). As originally adopted, the Stock
Option Plans reserved a total of 100,000 shares for issuance under the plans. In
April 1995, the Board of Directors unanimously adopted, and the shareholders
subsequently approved, an amendment to the Stock Option Plans to increase the
aggregate number of shares available under the Stock Option Plans from 100,000
to 250,000. In May 1997, the Board of Directors again unanimously adopted, and
the shareholders subsequently approved, an amendment to the Stock Option Plans
to increase the aggregate number of shares available under the Stock Option
Plans from 250,000 to 400,000 shares. Then, in May 1999, the Board of Directors
unanimously adopted, and the shareholders subsequently approved, a further
amendment to the Stock Option Plans to increase the aggregate number of shares
available under the Stock Option Plans from 400,000 to 475,000 shares. Recently,
in June 2001, the Board of Directors unanimously adopted, subject to shareholder
approval, an amendment to the Stock Option Plans to increase the number of
shares from 475,000 to 600,000 reserved under the plans, to allow the Company to
remain competitive in attracting and retaining high-quality 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 475,000
shares to 600,000 shares (subject to adjustment from time to time for stock
dividends and certain other changes in capitalization as provided in the Stock
Option Plans). Currently, there are 475,000 shares reserved for issuance under
the Stock Option Plans. As of June 1, 2001, the Company had granted and there
were outstanding options for an aggregate of 365,750 shares under the 1994 Plan
and options for an aggregate of 13,000 shares under the Directors' Plan, and a
total of 25,625 shares have been issued upon exercise of previously granted
options or retired under the Stock Option Plans. Accordingly, as of June 1,
2001, there were 70,625 shares available for future issuance under the Stock
Option Plans.
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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, directors 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 two years. Stock
options have traditionally been an important part of the Company's overall
compensation program. The Board of Directors believes that, in the current
highly competitive labor market, 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.
DESCRIPTION OF STOCK OPTION PLANS
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 (including directors who are also
employees) and consultants are eligible to receive options under the 1994 Plan.
The Plan Administrator has authority to determine 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 vest over a five-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 generally 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 may not be
less than the fair market value of the Common Stock (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, by any of the following: payment in cash over a one-year
period; delivery of previously-held shares of Common Stock; 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; or such other
method approved by the Plan Administrator, which may include a brokers' cashless
exercise. 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 that 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
generally exercisable for a period of ten years from the date of grant. Vested
options terminate 90 days 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 previously-held 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.
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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 that 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 June 1, 2001,
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.
OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
UNDER STOCK OPTION PLANS
NUMBER OF SHARES
OF COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED
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Charles R. Osenbaugh, President,
Chief Executive Officer, Chief Financial Officer, and Director 36,000
Frederick W. Dean, Executive Vice President 44,000
Craig R. Perkins, Vice President of Products 49,000
and Technology
Michael G. Evans, Vice President of 1,000
World-Wide Sales
Donald K. Babcock, Director 2,000
Kent L. Johnson, Director 3,000
Terry Harvey, Director 10,000
All Executive Officers as a Group (4 persons) 130,000
All Directors not Executive Officers (3 persons) 15,000
All Other Employees as a Group (51 persons) 226,250
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options granted under the 1994
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
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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 to the optionee. 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 39.4% 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.
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.
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13
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 fiscal year ending March 31, 2002, 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 are expected to 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
to retain that firm. Even if the selection is 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.
AUDIT AND RELATED FEES
The aggregate fees billed by Arthur Andersen LLP for professional
services rendered to the Company for fiscal year 2001 are as follows:
Audit Fees (for the audit of the Company's annual financial statements for
the year ended March 31, 2001 and for the reviews of the financial
statements included in the Company's Forms 10-QSB filed during fiscal 2001) ......... $62,500
Financial Information Systems Design and Implementation Fees ............................ N/A
All Other Fees (for all other services) ................................................. $93,172
The Audit Committee has considered that the provision of the above
services is compatible with maintaining the independence of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
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14
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 15, 2001 by: (i) each current
director and nominee for election as director; (ii) the Company's Chief
Executive Officer and each of the executive officers identified in the Summary
Compensation Table (collectively, the "Named Executive Officers"); (iii) all
directors and executive officers of the Company as a group; and (iv) each person
known by the Company to beneficially own more than 5% of its Common Stock.
Unless otherwise indicated, each person's address is: c/o Timeline, Inc., 3055
112th Avenue N.E., Ste. 106, Bellevue, WA 98004.
Shares of Common Stock
Beneficially Owned (1)
-------------------------------
Number Percent
Beneficial Owner of Shares of Total
---------------- --------- --------
Charles R. Osenbaugh(2) 563,603 13.2%
Frederick W. Dean(3) 157,249 3.9%
Craig R. Perkins(4) 59,411 1.5%
Michael G. Evans 13,462 0.3%
Donald K. Babcock(5) 140,461 3.5%
Kent L. Johnson(6) 66,649 1.6%
Terry Harvey 214,741 5.3%
Infinium Software, Inc. 300,000 7.4%
25 Communications Way
Hyannis, MA 02601
Oralis.com, Inc. 225,000 5.6%
146 North Canal Street, Ste. 200
Seattle, WA 98103
All directors and executive officers as a group 1,215,576 27.7%
(seven persons)(7)
- ---------------
(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
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.
(2) Includes (i) 94,276 shares issuable under stock options held by Mr.
Osenbaugh which are exercisable within 60 days of May 15, 2001, (ii) an
aggregate of 100,000 shares issuable under two performance-based stock
options held by Mr. Osenbaugh which vest and become exercisable when the
common stock closes trading at $5.00 or more per share for 10
consecutive days, or on the
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15
seventh anniversary of their original grant provided Mr. Osenbaugh is
currently in our employment; (iii) 25,000 shares issuable under a
performance-based stock option held by Mr. Osenbaugh which vests and
becomes exercisable when the common stock closes trading at $7.50 or
more per share for 10 consecutive days, or on the seventh anniversary of
their original grant provided Mr. Osenbaugh is currently in our
employment; (iv) 17,325 shares issuable upon exercise of warrants
granted to Mr. Osenbaugh in connection with certain Company loan
guarantees, and (v) 8,566 shares held in the Timeline, Inc. Employee
Stock Ownership Plan for Mr. Osenbaugh's account. Does not include
135,473 shares held in the Timeline, Inc. Employee Stock Ownership Plan
for which Mr. Osenbaugh serves as a trustee and shares investment power,
all of which shares Mr. Osenbaugh disclaims beneficial interest except
to the extent of his pecuniary interest. Does not include 15,015 shares
held in an individual retirement account belonging to Mr. Osenbaugh's
spouse, 5,000 shares held in trust for Mr. Osenbaugh's niece, and 1,000
shares held in each of Mr. Osenbaugh's two daughters' accounts, for all
of which shares Mr. Osenbaugh disclaims beneficial interest.
(3) Includes (i) 34,300 shares issuable under stock options held by Mr. Dean
which are exercisable within 60 days of May 15, 2001, (ii) 6,600 shares
issuable upon exercise of warrants granted to Mr. Dean in connection
with certain Company loan guarantees, and (iii) 2,949 shares held in the
Timeline, Inc. Employee Stock Ownership Plan for Mr. Dean's account.
(4) Includes (i) 55,100 shares issuable under stock options held by Mr.
Perkins which are exercisable within 60 days of May 15, 2001, and (ii)
2,991 shares held in the Timeline, Inc. Employee Stock Ownership Plan
for Mr. Perkins' account.
(5) Includes (i) 1,500 shares issuable under stock options held by Mr.
Babcock that are exercisable within 60 days of May 15, 2001, and (ii)
1,785 shares held in the Timeline, Inc. Employee Stock Ownership Plan
for Mr. Babcock's account.
(6) Includes 11,776 shares issuable under stock options held by Mr. Johnson
that are exercisable within 60 days of May 15, 2001.
(7) Consists of Messrs. Osenbaugh, Dean, Perkins, Evans, Babcock, Johnson,
and Harvey. Includes an aggregate of 345,877 shares issuable under stock
options and warrants held by such persons which are exercisable within
60 days of May 15, 2001, and an aggregate of 16,291 shares held in the
Timeline, Inc. Employee Stock Ownership Plan.
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EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the three fiscal years ended March 31,
2001, 2000, and 1999, respectively, certain compensation awarded or paid to, or
earned by, the Named Executive Officers. Other than the Named Executive Officers
listed below, no executive officer earned more than $100,000 in salary and bonus
for the 2001 fiscal year:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Securities
Name and Fiscal ----------------------------- Underlying All Other
Principal Position Year Salary ($) Bonus ($) Option(1) Compensation ($)
------------------ ------ ---------- ---------- ------------ ----------------
Charles R. Osenbaugh, President, 2001 $140,250 $ 76,000(2) 25,000(3) $ --
Chief Executive Officer, Chief 2000 150,500 250,000 50,000(4) --
Financial Officer 1999 153,611 -- 125,000(5) --
Frederick W. Dean, Executive Vice 2001 119,167 12,578 -- --
President 2000 100,000 80,506 -- --
1999 99,167 26,656 25,000 --
Craig R. Perkins, Vice President 2001 109,080 24,462 -- --
of Products and Technology 2000 100,000 25,000 -- --
1999 102,293 5,869 38,000 --
Michael G. Evans, Vice President 2001 122,322 14,766 1,000 6,433(6)
of World-Wide Sales
- --------------
(1) All referenced options granted are exercisable at prices equal to or
higher than the fair market value of the common stock on the respective
dates of grant.
(2) Accrued bonus of $76,000 due Mr. Osenbaugh at March 31, 2001.
(3) Mr. Osenbaugh received a grant of a performance-based option to purchase
25,000 shares of common stock on January 1, 2001. This option will vest
when the Company's stock closes trading at $7.50 or more per share for
10 consecutive days. In any event, all options shall vest if Mr.
Osenbaugh is employed by the Company on the seventh anniversary of their
original grant.
(4) Mr. Osenbaugh received a grant of a performance-based option to purchase
50,000 shares of common stock on November 1, 1999. This option will vest
when the Company's stock closes trading at $5.00 or more per share for
10 consecutive days. In any event, all options shall vest if Mr.
Osenbaugh is employed by the Company on the seventh anniversary of their
original grant.
(5) Mr. Osenbaugh received a grant of a performance-based option to purchase
50,000 shares of common stock on February 1, 1999. This option will vest
when the Company's stock closes trading at $5.00 or more per share for
10 consecutive days, or on the seventh anniversary of their
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original grant if Mr. Osenbaugh is employed by the Company. In addition,
on February 1, 1999 the vesting schedule was revised on a grant of a
performance-based option to purchase 75,000 shares made to Mr. Osenbaugh
in fiscal 1998. Under the revised vesting schedule, 50% vested and
became exercisable when the common stock closed trading at $2.00 or more
per share for 10 consecutive days and the remainder vested and became
exercisable when the Company's stock closed trading at $3.00 or more per
share for 10 consecutive days.
(6) Car allowance paid to Mr. Evans.
STOCK OPTION GRANTS
The following table shows certain information regarding options granted
to the Named Executive Officers during the 2001 fiscal year:
No. of Shares Percentage of Total
Underlying Options Exercise
Options Granted to Price Per Expiration
Name Granted Employees Share Date
- -------------------- ------------- ------------------- ---------- ----------
Charles R. Osenbaugh 25,000(1) 30.3% $ 1.156 12/31/2010
Frederick W. Dean -- -- -- --
Craig R. Perkins -- -- -- --
Michael G. Evans 500(2) 0.6% $ 2.875 9/30/2010
500(2) 0.6% $ 1.156 12/31/2010
- ---------------
(1) Mr. Osenbaugh received a grant of a performance-based option to purchase
25,000 shares of common stock on January 1, 2001. This option will vest
when the Company's stock closes trading at $7.50 or more per share for
10 consecutive days. In any event, all options shall vest if Mr.
Osenbaugh is employed by the Company on the seventh anniversary of their
original grant.
(2) Mr. Evans received options granted under the 1994 Employee Stock Option
Plan, which vest ratably over a four year period beginning with the date
of grant.
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AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END 2001 OPTION VALUES
The following table shows certain information regarding the value of
unexercised options held at fiscal year end by each of the Named Executive
Officers. No stock options were exercised by any of the Named Executive Officers
during the 2001 fiscal year.
No. of Shares of
Common Stock Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End
------------------------------------ -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Charles R. Osenbaugh 111,601 125,500 $ 2,668 $ 1,716
Frederick W. Dean 40,900 13,000 967 406
Craig R. Perkins 55,100 500 328 16
Michael G. Evans -- 1,000 -- --
COMPENSATION OF DIRECTORS
During the first three quarters of fiscal year ended March 31, 2001, the
Company did not compensate its directors for their service as directors.
However, in November 2000, the Board of Directors unanimously approved a
quarterly fee for outside directors of $1,000 or the equivalent in Timeline
common stock. In addition, the Board of Directors unanimously approved
increasing from 3,000 to 10,000 the number of shares each of the non-employee
directors receives under an automatic one-time grant of options pursuant to the
terms of the Directors' Nonqualified Stock Option Plan.
CERTAIN TRANSACTIONS
In March 1998, in connection with a software development agreement
between Timeline and Infinium Software, Inc., Infinium purchased, at a purchase
price of $100,000, non-tradable warrants to acquire up to 300,000 shares of
common stock at an exercise price of $1.00 per share. This per share exercise
price represented the fair market value of the common stock at the time of the
original agreement. In February 2000, Infinium exercised the stock purchase
warrant for 300,000 shares of the Company's common stock.
On March 31, 2000, the Company reacquired an aggregate of 75,000 shares
of its outstanding common stock from Frederick R. Dean and Donald K. Babcock,
two members of the Company's Board of Directors. In exchange, Messrs. Dean and
Babcock received derivative ownership rights to 4,250 shares of restricted
Broadbase Software, Inc. stock held by the Company; i.e., Messrs. Dean and
Babcock assumed all market risk and reward for the Broadbase shares delivered in
the future. Based on the closing bid/ask prices of both stocks and the
restricted nature of the forward position in the Broadbase stock, the difference
in the valuations of the two stock positions at March 31, 2000 was determined to
be $130,000, which the Company paid in cash to Messrs. Dean and Babcock.
In May 2001, Charles R. Osenbaugh loaned the Company $65,000 to help
fund operations. This loan bears interest at 12% per annum. Principal and
interest under this loan is due in full 90 days from the execution of the loan.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Common Stock, to file
reports of ownership and change in ownership with the SEC. 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, except as set forth below, during the 2001 fiscal year, all such filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with. Mr. Perkins was late in filing the Initial
Statement of Beneficial Ownership of Securities, Form 3, following designation
by the Board of Directors as a reporting person in May 2000, and Mr. Osenbaugh
was late in filing a Statement of Changes in Beneficial Ownership of Securities,
Form 4, with regard to a purchase of stock for the accounts of his daughters,
for which he disclaims any beneficial interest.
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 20, 2001
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Attachment A
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 -
21
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 600,000 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 -
22
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
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23
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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24
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
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25
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
- 6 -
26
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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27
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
- 9 -
29
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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Attachment B
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 10,000 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 43,000 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. 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 more other Options
issued pursuant to the Plan.
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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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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 federal
and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE
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34
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 date of this Plan, the Company, a Subsidiary or an
employee benefit plan of the Company,
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35
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, rules or regulations; provided, that no
amendment with respect to an outstanding Option shall be
-6-
36
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.
-7-
37
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 Donald K. Babcock, 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 Thursday, July 19,
2001, at 4:00 P.M. Pacific Time 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, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF YOU SIGN THIS PROXY WITHOUT OTHERWISE GIVING
VOTING DIRECTION, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF BOTH NOMINEES
LISTED IN PROPOSAL 1, AND "FOR" PROPOSAL 2 AND "FOR" PROPOSAL 3, AND IN
ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS ON
ALL OTHER MATTERS TO BE CONSIDERED AT THE MEETING. The undersigned hereby
acknowledges receipt of the Company's Proxy Statement and hereby revokes any
proxy or proxies previously given.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
38
DIRECTORS
1. Directors Recommend: A vote for election of the following Directors
01. Frederick W. Dean 02. Terry Harvey
Mark X for only one box:
[ ] FOR ALL NOMINEES
[ ] WITHHOLD ALL NOMINEES
[ ] WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
NUMBER(S) OF NOMINEES BELOW
Use Number only ____________________________________
PROPOSALS
For Against Abstain.
[ ] [ ] [ ] 2. Approval of an amendment to the Company's
1994 Stock Option Plan and Directors'
Nonqualified Stock Option Plan, as amended,
to increase the total number of shares
available for issuance under the Plans from
475,000 to 600,000.
[ ] [ ] [ ] 3. Ratification of the selection of Arthur
Andersen LLP as independent auditors of the
Company for the year ending March 31, 2002.
4. In their discretion, the proxies are authorized to vote upon such 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, date 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_______________
Please sign above exactly as your name appears on this Proxy Card. If shares are
registered in more than one name, the signatures of all such persons are
required. A corporation should sign in its full corporate name by a duly
authorized officer, stating his/her title. Trustees, 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).