<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
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
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
TIMELINE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] 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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with 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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
[TIMELINE LOGO]
June 24, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Timeline, Inc. to be held on Thursday, July 29, 1999, at 4:00 P.M., PDT, at
Timeline, Inc., 3055 112th Avenue N.E., Ste. 106, Bellevue, Washington 98004.
The accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement describe the matters to be presented at the meeting. In addition to
the formal business to be transacted, management will make a presentation on
developments of the past year and respond to comments and questions of general
interest to shareholders. I personally look forward to greeting those Timeline
shareholders able to attend the meeting.
Whether or not you plan to attend the Annual Meeting, it is important
that your shares be represented and voted. THEREFORE, PLEASE SIGN, DATE AND
PROMPTLY MAIL AS SOON AS POSSIBLE THE ENCLOSED PROXY IN THE PREPAID ENVELOPE
PROVIDED.
Thank you.
Sincerely,
/s/ Charles R. Osenbaugh
Charles R. Osenbaugh
President, Chief Executive Officer & Director
<PAGE> 3
TIMELINE, INC.
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 29, 1999
----------------------
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 29, 1999, at 4:00 P.M., PDT, at Timeline, Inc., 3055 112th Avenue
N.E., Ste. 106, Bellevue, Washington 98004, for the following purposes:
1. To elect one director to hold a three-year term expiring in 2002;
2. To approve amendments to the Company's 1994 Stock Option Plan and
Directors' Nonqualified Stock Option Plan;
3. To ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending March 31, 2000; 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 June 1, 1999
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 24, 1999
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND
THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A PROXY ISSUED IN YOUR
NAME.
<PAGE> 4
TIMELINE, INC.
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
--------------------
PROXY STATEMENT
--------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board of Directors") of Timeline, Inc., a Washington corporation (the
"Company"), for use at the Annual Meeting of Shareholders to be held on
Thursday, July 29, 1999, at 4:00 P.M., PDT, or at any continuation or
adjournment thereof (the "Annual Meeting"), for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. The Annual Meeting will be
held at Timeline, Inc., 3055 112th Avenue N.E., Ste. 106, Bellevue, Washington
98004.
VOTING AND OUTSTANDING SHARES
Only holders of record of the Company's common stock (the "Common
Stock") at the close of business on June 1, 1999, are entitled to notice of and
to vote at the Annual Meeting. At the close of business on June 1, 1999, there
were 3,191,387 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. All
votes will be tabulated by the inspector of election appointed for the Annual
Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
The presence in person or by proxy of holders of record of a majority
of the outstanding shares of Common Stock 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 to Shareholders (including
approval of the amendments to the 1994 Stock Option Plan, as amended (the "1994
Plan"), and the Directors' Nonqualified Stock Option Plan, as amended (the
"Directors' Plan")) requires that the votes cast in favor exceed the votes cast
against the proposal.
A shareholder who abstains from voting on any or all proposals will be
included in the number of shareholders present at the Annual Meeting for the
purpose of determining the presence of a quorum. Abstentions will not be counted
either in favor of or against the election of the nominees or other proposals.
Brokers holding stock for the accounts of their clients who have not been given
specific voting instructions as to a matter by their clients may vote their
clients' proxies in their own discretion, to the extent permitted under the
rules of the National Association of Securities Dealers. Broker non-votes will
be included in determining the presence of a quorum, but will not be counted in
determining whether a matter has been approved.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly and mailing of this Proxy Statement, the proxy
and any additional information furnished to shareholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding shares of the Common Stock in their names which are
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners for their costs of
forwarding the solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
The Company intends to mail this Proxy Statement and accompanying proxy
card on or about July 1, 1999, to all shareholders entitled to vote at the
Annual Meeting.
1
<PAGE> 5
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 2000 Annual Meeting of Shareholders (the "2000 Annual Meeting") must
be received by the Company not later than March 3, 2000 in order to be included
in the proxy statement and form of proxy relating to the 2000 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 directors' earlier death,
resignation or removal.
The Board of Directors is presently composed of four members. The
director nominee, Charles R. Osenbaugh, President and a current director, is the
nominee for the class of directors to be elected at the Annual Meeting for a
three-year term expiring at the 2002 annual meeting of shareholders. If elected
at the Annual Meeting, Mr. Osenbaugh would serve until his successor is elected
and qualified, or until his 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 nominee named below. If, prior to the Annual Meeting, such
nominee should become unavailable for election, an event which currently is not
anticipated by the Board, the proxies will be voted for the election of such
substitute nominee as the Board of Directors may propose. Mr. Osenbaugh has
agreed to serve if elected and management has no reason to believe that he will
be unable to serve.
Set forth below is biographical information for Mr. Osenbaugh:
CHARLES R. OSENBAUGH, age 50, has served as Chief Financial Officer,
Treasurer, Secretary and a Director since the Company's inception in April 1993,
and has held the position of President and Chief Executive Officer since
November 1996. From April 1988 to April 1993, Mr. Osenbaugh served as Executive
Vice President, Chief Executive Officer and a Director, and from April 1993 to
July 1994 as President and a Director, of Timeline Services, Inc. From 1975 to
1988, Mr. Osenbaugh was a partner of Lasher & Johnson, a Seattle law firm. From
1973 to 1975, Mr. Osenbaugh practiced public accounting with Arthur Andersen &
Co. He holds a B.B.A. degree in economics and a J.D. degree, both from the
University of Iowa, and received his CPA certificate in 1974.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF MR. OSENBAUGH
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<PAGE> 6
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.
DIRECTORS WITH TERMS EXPIRING AT THE 2000 ANNUAL MEETING
DONALD K. BABCOCK, age 62, is a founder of the Company and has served
as a Director since its inception in April 1993. Mr. Babcock left his position
as Senior Technologist with the Company in April 1998, and is currently employed
by Seagate Software, Inc. 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 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 55, has been a Director of the Company since its
inception. He is President of Alexander Hutton Capital, L.L.C., a Seattle-based
investment banking firm that he co-founded in October 1994 and that specializes
in equity capital formation for emerging growth companies. From April 1989 to
June 1994, he served as Senior Vice President and Chief Operating Officer of
Brazier Forest Industries, Inc., a Seattle-based forest products company. From
1987 to 1989, he was President and Chief Executive Officer of OverDrive Systems,
Inc., an electronic publishing software company based in Cleveland, Ohio, and
from 1982 to 1987, was President and Chief Executive Officer of Microrim, Inc.,
a database software company located in Bellevue, Washington. Prior to entering
the software industry, Mr. Johnson was Chief Financial Officer of Fiberchem,
Inc., a wholesale distributor, from 1977 to 1982. Following his military career
as an officer in the U.S. Army, Mr. Johnson began his professional career as a
management consultant with Arthur Andersen & Co., where he was employed from
1970 to 1977. Mr. Johnson currently serves as a director of several private
companies, and devotes considerable time to private investment activities. Mr.
Johnson has a B.B.A. degree in Business Administration from the University of
Washington and an M.B.A. degree from Seattle University, where he serves on the
Business Advisory Board. He received his CPA certificate in 1970.
DIRECTOR WITH TERM EXPIRING AT THE 2001 ANNUAL MEETING
FREDERICK W. DEAN, age 47, 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.
EXECUTIVE OFFICERS
Other than Messrs. Osenbaugh and Dean, there are no executive officers
of the Company.
BOARD COMMITTEES AND MEETINGS
The Board of Directors, which held 9 meetings during the fiscal year
ended March 31, 1999, 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 for the 1999 fiscal year.
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
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<PAGE> 7
independent auditors, and reviews and evaluates the Company's internal control
functions. During the 1999 fiscal year, the Audit Committee met one time.
The Compensation Committee administers the Company's stock option plans
and makes recommendations to the Board of Directors concerning compensation for
executive officers and consultants of the Company. During the 1999 fiscal year,
the Compensation Committee met two times.
During the 1999 fiscal year, all of the directors attended at least 75%
of the total number of meetings of the Board of Directors and committees on
which they served.
PROPOSAL 2: APPROVAL OF AMENDMENT
TO THE COMPANY'S 1994 STOCK OPTION PLAN AND
DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
BACKGROUND
In September 1994, the Company adopted its 1994 Plan and its Directors'
Plan (collectively, the "Stock Option Plans"). In May 1997, the Board of
Directors unanimously adopted, and the shareholders subsequently approved, an
amendment to the Stock Option Plans to increase the number of shares available
under the Stock Option Plans. An aggregate of 400,000 shares of Common Stock are
reserved for issuance upon exercise of options granted to the Company's
employees, directors and consultants under the Stock Option Plans, as amended.
In May, 1999, the Board of Directors unanimously adopted, subject to shareholder
approval, an amendment to the Stock Option Plans to increase the number of
shares from 400,000 to 475,000, to enhance the flexibility of the Board of
Directors and the Compensation Committee in granting options to the Company's
employees and consultants.
PROPOSED AMENDMENT
The proposed amendment increases the aggregate number of shares of
Common Stock authorized for issuance under the Stock Option Plans from 400,000
shares to 475,000 shares, subject to adjustment from time to time for stock
dividends and certain other changes in capitalization as provided in the Stock
Option Plans. The Board of Directors adopted this proposed amendment to ensure
that there will be a sufficient reserve of shares to permit further option
grants to existing and new employees and consultants at levels determined
appropriate by the Board of Directors and the Compensation Committee. It is
anticipated that the proposed increase will provide a sufficient number of
shares to cover grants made over a period of approximately one year. Stock
options have for years 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. As of
June 1, 1999, options for an aggregate of 365,500 shares had been granted and
10,375 shares had been exercised under the Stock Option Plans, leaving 24,125
shares available for future issuance.
DESCRIPTION OF STOCK OPTION PLANS AS AMENDED
The 1994 Plan provides for options to purchase Common Stock and is
administered by the Plan Administrator, which may be either the Company's Board
of Directors or a committee designated by the Board of Directors. Currently, the
Plan Administrator is the Board of Directors. Under the 1994 Plan, the Plan
Administrator determines the employees and consultants to whom options are
granted, the number of shares subject to each option, the price at which each
option may be exercised, and the vesting schedule for each option. Options
generally vest over a four-year period, but the Plan Administrator has
discretion under the 1994 Plan to allow options to vest over a different period,
and has discretion to accelerate vesting in the case of death or disability.
Options granted under the 1994 Plan are 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 generally must be not less
than the fair market value of the Common Stock on
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<PAGE> 8
the date of grant and, in the case of greater than ten percent shareholders of
the Company, not less than 110% of the fair market value of the Common Stock on
the date of grant. Upon exercise, the exercise price may be paid immediately in
cash, or, at the discretion of the Plan Administrator, in cash over a one-year
period, in shares of Common Stock, or by withholding from the optionee that
number of shares of Common Stock the fair market value of which on the date of
exercise is equal to the exercise price of the option. The 1994 Plan provides
for the granting of both incentive stock options intended to qualify as such
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and for stock options which do not so qualify.
The Directors' Plan provides that directors of the Company who are not
officers or otherwise employees of the Company will be granted options to
purchase shares of Common Stock according to a formula set forth in the
Directors' Plan. Options granted under the Directors' Plan vest over a
three-year period. Options may vest immediately if a director is terminated by
reason of death or disability. Options granted under the Directors' Plan are
generally exercisable for a period of ten years from the date of grant. Vested
options terminate three months after a director's termination as a director of
the Company for any reason other than death or disability, and one year after
termination upon death or disability. The exercise price of options granted
under the Directors' Plan is the fair market value of the Common Stock on the
date of grant. Upon exercise, the exercise price may be paid immediately in
cash, in cash over a one-year period, in shares of Common Stock, or by
withholding from the director that number of shares of Common Stock the fair
market value of which on the date of exercise is equal to the exercise price of
the option. Stock options granted under the Directors' Plan are not intended to
qualify as incentive stock options.
Under both the 1994 Plan and the Directors' Plan, outstanding options
not otherwise already vested will vest immediately upon the occurrence of
certain transactions, including certain mergers and business combinations
involving the Company, unless the options are assumed by the acquiring company.
In addition, if any option granted under the Stock Option Plans expires or
otherwise terminates without having been exercised in full, the Common Stock not
purchased under the option shall again become available for issuance under the
Stock Option Plans.
The Stock Option Plans, as they are proposed to be amended, do not
differ in any material respect from the existing Stock Option Plans, other than
with respect to the number of shares which are authorized and reserved for
option grants. The foregoing description of the Stock Option Plans is only a
summary and is qualified in its entirety by reference to the full text of the
Stock Option Plans, copies of which are available upon request from the Company.
The following table sets forth summary information as of June 1, 1999,
concerning the number of shares underlying options granted pursuant to the Stock
Option Plans to (i) executive officers, (ii) directors and nominees for election
as director, and (iii) all eligible employees as a group.
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<PAGE> 9
OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
UNDER STOCK OPTION PLANS
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED(1)
---- -----------------------------
<S> <C>
Charles R. Osenbaugh, President, Chief Executive Officer,
Chief Financial Officer, and Director 11,000
Frederick W. Dean, Executive Vice President 44,000
Donald K. Babcock, Director 2,000
Kent L. Johnson, Director 3,000
All Executive Officers as a Group (2 persons) 55,000
All Directors not Executive Officers (2 persons) 5,000
All Other Employees as a Group (35 persons) 262,450
</TABLE>
- ----------
(1) Represents shares underlying options granted and outstanding on
June 1, 1999.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1994 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase an optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of the holding periods (a
"disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum capital gains rate for federal income tax purposes is currently 28%
while the maximum ordinary income rate is effectively 39.4% 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
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<PAGE> 10
market value on the date of exercise over the option exercise price. Generally,
with respect to employees, the Company is required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the optionee. Upon disposition of stock,
the optionee will recognize a capital gain or loss equal to the difference
between the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of the option. Such gain or
loss will be long or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. Although the Company
does not believe that it currently compensates any employee at a level that
would approach the limitation set by Section 162(m), it is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may in future
years cause this limitation to be exceeded.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
PROPOSAL 3: RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending March 31, 2000, and
has further directed that management submit the selection of independent
auditors for ratification by the shareholders at the Annual Meeting. Arthur
Andersen LLP has audited the Company's financial statements since the Company's
inception in 1993. Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Arthur Andersen LLP
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Board will reconsider whether
to retain that firm. Even if the selection were ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would be
in the best interests of the Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
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<PAGE> 11
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 June 1, 1999 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.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF TOTAL
---------------- --------- --------
<S> <C> <C>
Charles R. Osenbaugh(2) 479,037 14.3%
Frederick W. Dean(3) 163,300 5.1%
Donald K. Babcock(4) 187,675 6.0%
Kent L. Johnson(5) 66,649 2.1%
John W. Calahan(6) 341,432 10.6%
c/o CFOsoft, Inc.
P.O. Box 881056
Steilacoom, WA 98388
All directors and executive officers as a group
(four persons)(7) 1,238,093 36.0%
</TABLE>
- ----------
(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) 18,276 shares issuable under stock options held by Mr.
Osenbaugh which are exercisable within 60 days of June 1, 1999, (ii)
75,000 shares issuable under performance-based stock options held by
Mr. Osenbaugh 50% of which vest and become exercisable when the Common
Stock closes trading at $2.00 or more per share for 10 consecutive days
and the remainder of which vest and become exercisable when the
Company's stock closes trading at $3.00 or more per share for 10
consecutive days, but all of which vest on the seventh anniversary of
their original grant provided Mr. Osenbaugh is currently employed by
the Company; (iii) 50,000 shares issuable under 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 seventh anniversary of their original
grant provided Mr. Osenbaugh is currently employed by the Company; and
(iv) 17,325 shares issuable upon exercise of warrants granted to
Mr. Osenbaugh in connection with certain Company loan guarantees.
Does not include 15,015 shares held in an individual retirement
account belonging to Mr. Osenbaugh's spouse, for which shares
Mr. Osenbaugh disclaims beneficial interest.
(3) Includes (i) 18,300 shares issuable under stock options held by Mr.
Dean which are exercisable within 60 days of June 1, 1999, and (ii)
6,600 shares issuable upon exercise of warrants granted to Mr. Dean in
connection with certain Company loan guarantees.
(4) Includes (i) 500 shares issuable under stock options held by Mr.
Babcock which are exercisable within 60 days of June 1, 1999.
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<PAGE> 12
(5) Includes 44,098 shares issuable under stock options held by Mr. Johnson
which are exercisable within 60 days of June 1, 1999.
(6) Includes (i) 8,776 shares issuable under stock options held by Mr.
Calahan which are currently exercisable within 60 days of June 1, 1999,
and (iii) 6,600 shares issuable upon exercise of warrants granted to
Mr. Calahan in connection with certain Company loan guarantees.
(7) Consists of Messrs. Osenbaugh, Dean, Babcock and Johnson. Includes an
aggregate of 230,099 shares issuable under stock options held by such
persons which are exercisable within 60 days of June 1, 1999.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the three fiscal years ended March 31,
1999, 1998 and 1997, 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 of the Company earned more than $100,000 in
salary and bonus for the 1999 fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
SECURITIES ALL OTHER
FISCAL ANNUAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTION(1) ($)(2)
- --------------------------- ------ ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Charles R. Osenbaugh, President, 1999 $153,611 125,000(3) $ --
Chief Executive Officer, Chief 1998 70,670 86,000(3)(4) 6,000
Financial Officer 1997 115,000 75,000(5) 6,000
Frederick W. Dean, Executive Vice 1999 99,167 25,000 26,656
President 1998 108,109(6) 19,000(7) --
1997 84,269 5,000 4,549
</TABLE>
- ----------
(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. Certain options were repriced in November 1997, see
footnotes (4) and (7) below.
(2) Represents dollar value of medical, disability, and life insurance
premiums paid by the Company for the benefit of the respective Named
Executive Officers.
(3) 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. 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% vest and become exercisable when the
Common Stock closes trading at $2.00 or more per share for 10
consecutive days and the remainder vest and become exercisable when the
Company's stock closes trading at $3.00 or more per share for 10
consecutive days. In any event, all options shall vest if Mr. Osenbaugh
is in the employ of the Company on the seventh anniversary of their
original grant.
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<PAGE> 13
(4) Includes 9,000 shares underlying options granted in fiscal 1996
originally priced at $3.57 per share that were repriced at $1.00 per
share in fiscal 1998.
(5) Represents warrants to purchase the indicated number of shares of
Common Stock, at the fair market value at the date of grant, as
consideration for certain personal guarantees of loans incurred by the
Company.
(6) Includes $19,125 of deferred salary earned in fiscal 1998 by Mr. Dean.
(7) Includes 12,000 shares underlying options granted in fiscal 1996 at an
exercise price of $3.57, and 5,000 shares underlying options granted in
fiscal 1997 at an exercise price of $2.19 per share, , each of which
were repriced at $1.00 per share in fiscal 1998.
STOCK OPTION GRANTS
The following table shows certain information regarding options granted
to the Named Executive Officers during the 1999 fiscal year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SHARES PERCENTAGE OF APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM(2)
OPTIONS GRANTED TO PRICE PER -----------------------
NAME GRANTED(1) EMPLOYEES SHARE EXPIRATION DATE 5% 10%
- ---- ----------- ------------- --------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Osenbaugh 125,000(3) 29.0% $1.00 1/31/2009 $31,445 $79,687
Frederick W. Dean 25,000 14.5 1.00 10/31/2008 15,722 39,844
</TABLE>
- ----------
(1) Except as otherwise disclosed in the footnotes, options become fully vested
and exercisable four years from the date of grant, with 25% of the total
option vesting on each anniversary date of the grant for the four year
vesting period. The exercise price for the options is the closing trading
price of the Common Stock on the day prior to the grant or $1.00, whichever
is higher.
(2) These assumed rates of appreciation are provided in order to comply with
the requirements of the SEC and do not represent the Company's expectation
as to the actual rate of appreciation of the Common Stock. These gains are
based on assumed rates of annual compound stock price appreciation of 5%
and 10% from the date the options were granted over the full option term.
The actual value of the options will depend on the performance of the
Common Stock and may be greater or less than the amounts shown.
(3) 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. 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% vest and become exercisable when the Common Stock closes trading at
$2.00 or more per share for 10 consecutive days and the remainder vest and
become exercisable when the Company's stock closes trading at $3.00 or more
per share for 10 consecutive days. In any event, all options shall vest if
Mr. Osenbaugh is in the employ of the Company on the seventh anniversary of
their original grant.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END 1999 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 1999 fiscal year.
10
<PAGE> 14
<TABLE>
<CAPTION>
NUMBER 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
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <S> <S>
Charles R. Osenbaugh 33,351 128,750 -- --
Frederick W. Dean 21,900 32,000 -- --
</TABLE>
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1999, the Company did not
compensate its directors for their service as directors. Pursuant to the terms
of the Directors' Plan, each non-employee director of the Company receives an
automatic one-time grant of options to purchase 3,000 shares of Common Stock 90
days after he or she becomes a director.
EMPLOYMENT AND TERMINATION AGREEMENTS
Donald K.. Babcock resigned from the Company effective April 1, 1998,
pursuant to the Company's development and licensing agreement with Seagate
Software, and began employment with Seagate Software on April 15, 1998. In
connection with such resignation, Mr. Babcock's employment agreement with the
Company was terminated and neither the Company nor Mr. Babcock has any
continuing obligation under such agreement. The Company has agreed to continue
the vesting on Mr. Babcock's stock options for Company Common Stock while
employed at Seagate Software. In addition, in the event Mr. Babcock voluntarily
terminates his employment with Seagate Software prior to March 31, 2000, the
Company has agreed to pay a fee to Seagate Software of up to $50,000. The
Company waived Mr. Babcock's prior noncompetition agreement only to the extent
necessary for him to fulfill his employment obligations to Seagate Software.
CERTAIN TRANSACTIONS
Mr. Osenbaugh is a 50% shareholder of SoftForce Inc., an Iowa-based
distributor of software which currently employs six persons. The remaining
shares of SoftForce Inc. are owned by a brother of Mr. Osenbaugh. SoftForce Inc.
distributes Company products pursuant to a standard Company distribution
agreement. The Company believes its distribution agreement with SoftForce Inc.
was made on terms no less favorable to the Company than could have been obtained
from unaffiliated third party distributors.
In February 1999, the Company granted a performance-based stock option
to Mr. Osenbaugh to purchase 50,000 shares of common stock, at an exercise price
of $1.00 per share, as part of his compensation for employment as President and
CEO of the Company. The closing trading price of the common stock on such date
was $0.63. Under the terms of the grant, the option will vest when the Company's
stock closes trading at $5.00 or more per share for 10 consecutive days. In any
event, this option shall vest if Mr. Osenbaugh is in the employ of the Company
on the seventh anniversary of its original grant.
John W. Calahan, a greater than 5% shareholder, founder and former
President and Director of the Company, tendered his resignation effective April
1, 1998. The Company and Mr. Calahan entered into a termination agreement, which
replaced Mr. Calahan's prior employment agreement with the Company. Pursuant to
such termination agreement, the Company agreed to pay Mr. Calahan his deferred
salary and other accrued and unpaid amounts owing to him, and agreed to continue
coverage under the Company's directors' and officers' insurance policy for Mr.
Calahan. In addition, Mr. Calahan agreed to provide certain consulting services
to the Company for a period of six months following his resignation. Mr. Calahan
also entered into an Amended and Restated Noncompetition Agreement under which
he agreed to not compete with the Company for a period of 18 months from April
1, 1998. On March 31, 1998, the Company entered into a Distributorship Agreement
and Software License with John W. Calahan, under which Mr. Calahan can license
and distribute the Company's
11
<PAGE> 15
products. The Company believes this agreement with Mr. Calahan was made on terms
no less favorable to the Company than could have been obtained from unaffiliated
third party distributors.
On March 31, 1998, the Company entered into a Development and License
Agreement with Seagate Software, Inc., pursuant to which the Company released
Donald K. Babcock from his obligations under his employment agreement with the
Company and Mr. Babcock accepted employment with Seagate Software as a Program
Manager, effective April 15, 1998. The Company has agreed with Seagate Software
that, in the event Mr. Babcock voluntarily terminates his employment with
Seagate Software prior to March 31, 2000, the Company will pay a fee to Seagate
Software of up to $50,000.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Common Stock, to file
reports of ownership and change in ownership with the SEC and with the National
Association of Securities Dealers, Inc. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Company with copies
of all forms they file pursuant to Section 16(a).
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, except as set forth below, during the 1999 fiscal year, all such filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with. During the 1999 fiscal year, Mr. Dean
filed one Form 4 late to report a grant of an option to purchase 25,000 shares
of Common Stock.
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 24, 1999
12
<PAGE> 16
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 Frederick W. Dean, 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 29,
1999, at 4:00 P.M., PDT, at Timeline, Inc., 3055 112th Avenue N.E., Ste. 106,
Bellevue, Washington 98004 and any adjournments or postponements thereof upon
the matters set forth on the reverse side of this Proxy Card.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. UNLESS DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF THE NOMINEE LISTED IN PROPOSAL 1, "FOR" PROPOSAL 2
AND PROPOSAL 3, AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE
BOARD OF DIRECTORS AS TO OTHER MATTERS. The undersigned hereby acknowledges
receipt of the Company's Proxy Statement and hereby revokes any proxy or proxies
previously given.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 17
DIRECTORS
1. Directors Recommend: A vote for election of the following Director
Charles R. Osenbaugh
Mark X for only one box:
[ ] FOR THE NOMINEE
[ ] WITHHOLD THE NOMINEE
Proposals
2. Approval of an amendment to the Company's 1994 Stock Option Plan and
Directors' Nonqualified Stock Option Plan, as amended.
[ ] For [ ] Against [ ] Abstain.
3. Ratification of the selection of Arthur Andersen LLP as independent
auditors of the Company for the year ending March 31, 2000.
[ ] For [ ] Against [ ] Abstain.
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
Please sign below exactly as your name appears on this Proxy Card. If shares are
registered in more than one name, the signature of all such persons are
required. A corporation should sign in its full corporate name by a duly
authorized 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).
If you receive more than one Proxy Card, please sign and return all such cards
in the accompanying envelope.
Signature(s)___________________________________________ Date_______________
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD TODAY, USING THE ENCLOSED ENVELOPE.
