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 Section 240.14a-11(c) or
Section 240.14a-12
AUTOMATIC DATA PROCESSING, 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)(1) and 0-11.
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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
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/ / Fee paid previously with preliminary materials.
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paid previously. Identify the previous filing by registration statement
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[ADP logo]
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard - Roseland, New Jersey 07068
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
PLEASE TAKE NOTICE that the 2003 Annual Meeting of Stockholders of
AUTOMATIC DATA PROCESSING, INC. (the "Company") will be held at 10:00 a.m.,
Tuesday, November 11, 2003 at the Company's corporate headquarters, ONE ADP
BOULEVARD, ROSELAND, NEW JERSEY, for the following purposes:
1. To elect a Board of Directors (Proposal 1);
2. To approve amendments to the Company's 2000 Key Employees' Stock
Option Plan to increase by 35,000,000 shares the number of shares of
Common Stock of the Company that may be acquired upon the exercise of
options that may be granted to participants under such plan and to
permit option grants to non-employee directors (Proposal 2);
3. To approve an amendment to the Company's Employees' Savings-Stock
Purchase Plan to increase by 10,000,000 shares the number of shares of
Common Stock of the Company that may be acquired by employees under
such plan (Proposal 3);
4. To approve the Company's 2003 Director Stock Plan, which provides for
the grant of restricted stock units in lieu of the annual cash
retainer (Proposal 4);
5. To ratify the appointment of Deloitte & Touche LLP to serve as the
Company's independent certified public accountants for the fiscal year
that began on July 1, 2003 (Proposal 5); and
6. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only the holders of Common Stock of record at the close of business on
September 12, 2003 (the "Record Date") are entitled to vote at the meeting. Each
stockholder is entitled to one vote for each share of Common Stock held on the
Record Date.
As a result of heightened security, to gain admission to the Annual
Meeting, you will need to show that you are a stockholder of the Company. If
your shares are registered in your name and you plan to attend the Annual
Meeting, please retain and bring the top portion of the proxy card as your
admission ticket. If your shares are in the name of your broker or bank or you
received your proxy materials electronically, you will need to bring evidence of
your stock ownership, such as your most recent brokerage account statement. All
stockholders will be required to show valid picture identification. If you do
not have valid picture identification and either an admission ticket or proof
that you own Company stock, you will not be admitted to the Annual Meeting.
Packages and bags will be inspected and they may have to be checked, among other
security measures that may be used for the security of those attending the
Annual Meeting. Please arrive early enough to allow yourself adequate time to
clear security.
By order of the Board of Directors
James B. Benson
Secretary
September 22, 2003
Roseland, New Jersey
The presence in person and/or the representation by proxy of the holders of
a majority of the issued and outstanding shares of stock entitled to vote is
necessary and sufficient to constitute a quorum. Accordingly, if you do not
expect to be present at the meeting, you may vote your shares of stock by phone,
the Internet or by executing the accompanying proxy and returning it promptly in
the enclosed envelope, which requires no postage if mailed in the United States.
[ADP logo]
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard - Roseland, New Jersey 07068
TO BE HELD ON NOVEMBER 11, 2003
SOLICITATION AND REVOCATION OF PROXY
The accompanying proxy is being solicited by the Board of Directors of the
Company for use at the forthcoming Annual Meeting of Stockholders. Each
stockholder giving such a proxy has the power to revoke the same at any time
before it is voted by so notifying the Secretary of the Company in writing. All
expenses in connection with the solicitation will be borne by the Company. This
Proxy Statement and the accompanying proxy are being mailed to stockholders on
or about September 22, 2003.
The Company has one class of securities outstanding and entitled to vote at
the Annual Meeting of Stockholders, its Common Stock, par value $.10 per share.
At the close of business on September 12, 2003, the record date for determining
stockholders entitled to notice of and to vote at the meeting, the Company had
issued and outstanding 594,906,745 shares of Common Stock (excluding 43,795,924
treasury shares not entitled to vote). Each outstanding share of Common Stock is
entitled to one vote with respect to each matter to be voted on at the meeting.
The representation in person or by proxy of a majority of the issued and
outstanding shares of stock entitled to vote shall constitute a quorum at the
Annual Meeting of Stockholders. Directors are elected by a plurality of the
affirmative votes cast. The affirmative vote of the holders of a majority of the
outstanding shares present in person or by proxy and entitled to vote thereon is
required to (i) approve the amendments to the Company's 2000 Key Employees'
Stock Option Plan to increase by 35,000,000 shares the number of shares of
Common Stock of the Company that may be acquired upon the exercise of options
that may be granted to participants under such plan and to permit option grants
to non-employee directors under such plan, (ii) approve the amendment of the
Company's Employees' Savings-Stock Purchase Plan to increase by 10,000,000
shares the number of shares of Common Stock of the Company that may be acquired
by employees under such plan, (iii) approve the Company's 2003 Director Stock
Plan, which provides for the grant of restricted stock units in lieu of the
annual cash retainer and (iv) ratify the appointment of Deloitte & Touche LLP as
the Company's independent certified public accountants. Under the Company's
Amended and Restated Certificate of Incorporation and By-Laws and under Delaware
law, abstentions and "non-votes" are counted as present in determining whether
the quorum requirement is satisfied. With regard to the election of directors,
votes may be cast in favor or withheld. Votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
any proposal (other than the election of directors) and will have the effect of
a negative vote. Under applicable Delaware law, a non-vote will have no effect
on the outcome of any of the matters referred to in this Proxy Statement. A
non-vote occurs when a nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
The Company's Board of Directors has adopted a policy whereby stockholders'
proxies are received by the Company's independent tabulators and the vote is
certified by independent inspectors of election. Proxies and ballots that
identify the vote of individual stockholders will be kept confidential from the
Company's management and directors, except as necessary to meet legal
requirements in cases where stockholders request disclosure or in a contested
election.
PROPOSAL 1
ELECTION OF DIRECTORS
Properly executed proxies will be voted as marked, and if not marked, will
be voted in favor of the election of the persons named below (each of whom is
now a director) as directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified. If any
nominee does not remain a candidate at the time of the meeting (a situation that
management does not anticipate), proxies solicited hereunder will be voted in
favor of those nominees who do remain as candidates and may be voted for
substitute nominees designated by the Board of Directors.
Served as a
Director
Continuously
Name Age Since Principal Occupation
- ----------------------- --- ------------- ---------------------------------------------------------------------------------
Gregory D. Brenneman 41 2001 Chairman and Chief Executive Officer of TurnWorks, Inc., a private equity
firm (1)
Leslie A. Brun 51 2003 Founder and Chairman of Hamilton Lane, a global private equity/advisor
company (2)
Gary C. Butler 56 1996 President and Chief Operating Officer of the Company (3)
Joseph A. Califano, Jr. 72 1982 Chairman of the Board and President of The National Center on Addiction and
Substance Abuse at Columbia University (4)
Leon G. Cooperman 60 1991 Chairman and Chief Executive Officer of Omega Advisors, Inc., an investment
partnership (5)
Ann Dibble Jordan 68 1993 Consultant (6)
Harvey M. Krueger 74 1967 Vice Chairman of Lehman Brothers, investment bankers (7)
Frederic V. Malek 66 1978 Chairman of Thayer Capital Partners, a merchant banking firm (8)
Henry Taub 76 1961 Honorary Chairman of the Board of the Company (9)
Arthur F. Weinbach 60 1989 Chairman of the Board and Chief Executive Officer of the Company (10)
Josh S. Weston 74 1977 Honorary Chairman of the Board of the Company (11)
(1) Mr. Brenneman has been Chairman and Chief Executive Officer of TurnWorks,
Inc. since October 2002 and was also Chairman and Chief Executive Officer
of TurnWorks, Inc. from May 2001 to June 2002. Mr. Brenneman was President
and Chief Executive Officer of PwC Consulting from June 2002 to October
2002. Mr. Brenneman was the President and Chief Operating Officer of
Continental Airlines, Inc. from May 1995 to May 2001. Mr. Brenneman also
serves on the Board of Directors of The Home Depot, Inc.
(2) Mr. Brun has been the Chairman of Hamilton Lane since 1991. Mr. Brun is
also a director of Episcopal Academy and a trustee of the University of
Buffalo Foundation.
(3) Mr. Butler became President and Chief Operating Officer of the Company in
April 1998. Mr. Butler is also a director of Convergys Corp. and Liberty
Mutual Group.
(4) Mr. Califano has been Chairman of the Board and President of The National
Center on Addiction and Substance Abuse at Columbia University since 1992.
Mr. Califano also serves on the Board of Directors of Viacom, Inc.
(5) Mr. Cooperman has been Chairman and Chief Executive Officer of Omega
Advisors, Inc. since 1991.
2
(6) Ms. Jordan is the former Director, Social Services Department, Chicago
Lying-In Hospital, University of Chicago Medical Center, a position she
assumed in 1970. Ms. Jordan is also a director of Johnson & Johnson
Corporation and Citigroup Inc.
(7) Mr. Krueger is Vice Chairman of Lehman Brothers and has been a senior
officer of Lehman Brothers and its predecessor companies for more than the
past five years. Mr. Krueger is also a director of Bernard Chaus, Inc. and
Delta Galil Industries Ltd.
(8) Mr. Malek has been Chairman of Thayer Capital Partners since 1992. Mr.
Malek is also a director of American Management Systems, Inc., CB Richard
Ellis Services, Inc., FPL Group, Inc., Manor Care, Inc., Northwest Airlines
Corporation, Federal National Mortgage Association and various UBS Brinson
mutual funds.
(9) Mr. Taub has been Honorary Chairman of the Company's Board of Directors
since 1986.
(10) Mr. Weinbach became Chairman of the Board and Chief Executive Officer of
the Company in April 1998. Mr. Weinbach is also a director of First Data
Corporation and Schering Plough Corp.
(11) Mr. Weston became Honorary Chairman of the Company's Board of Directors in
April 1998. Mr. Weston is also a director of Gentiva Health Services, Inc.,
J. Crew Group, Inc., Russ Berrie & Company, Inc. and Aegis Communications,
Inc.
Stockholder Approval Required
Directors shall be elected by a plurality of the affirmative votes cast at
the meeting of stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
3
Corporate Governance
During the last fiscal year, the Board of Directors held six meetings. All
directors attended at least 75%, in the aggregate, of the meetings of the Board
of Directors and the committees of which they were members.
The Board of Directors has adopted categorical standards of director
independence, which are attached as Appendix A to this Proxy Statement.
Directors who meet these standards are considered to be "independent." Messrs.
Brenneman, Brun, Califano, Cooperman, Malek and Laurence A. Tisch (who is
retiring at this Annual Meeting in accordance with the retirement policy of the
Board of Directors) and Ms. Jordan meet these standards and are, therefore,
considered to be independent directors. Messrs. Butler, Krueger, Taub, Weinbach
and Weston do not meet these standards and are, therefore, not considered to be
independent directors. Based on the foregoing categorical standards, all current
members of the Audit, Compensation and Nominating/Corporate Governance
Committees are independent.
The table below provides membership and meeting information for each of the
committees of the Board of Directors.
Nominating/Corporate
Name* Audit Compensation Governance Executive
- ----------------------------------------------------------------------------------------------------------------------------
Gregory D. Brenneman X(FE) X(C)
Leslie A. Brun X
Gary C. Butler
Joseph A. Califano, Jr. X
Leon G. Cooperman X(C) (FE) X X
Ann Dibble Jordan X
Harvey M. Krueger X(C)
Frederic V. Malek X X(C) X
Henry Taub X
Laurence A. Tisch** X
Arthur F. Weinbach X
Josh S. Weston X
Meetings held in fiscal 2003 6 4 2 2
(C) Chairperson of the committee.
(FE) Audit Committee financial expert.
* Dr. George H. Heilmeier, who resigned from the Board of Directors in March
2003, served on the Compensation, the Executive and the
Nominating/Corporate Governance Committees during the last fiscal year.
** Mr. Tisch is retiring at the 2003 Annual Meeting in accordance with the
retirement policy of the Board of Directors.
The Audit Committee acts under a written charter (the "Audit Committee
Charter"), which is required to be provided to stockholders every three fiscal
years, unless amended earlier. The members of the Audit Committee satisfy the
independence requirements of the New York Stock Exchange (NYSE) rules currently
in effect. The Audit Committee Charter may be viewed online on the Company's
website at www.adp.com under "Corporate Governance" in the Corporate Overview
section. The principal functions of the Audit Committee are to:
(i) assist the Board of Directors in fulfilling its oversight
responsibilities with respect to (a) the Company's systems of
internal controls regarding finance, accounting, legal compliance and
ethical behavior, (b) the Company's auditing, accounting and
financial reporting processes generally, (c) the Company's financial
statements and other financial information provided by the Company to
its stockholders, the public and others, (d) the Company's compliance
with legal and regulatory requirements and (e) the performance of the
Company's corporate audit department and independent auditors;
4
(ii) appoint, compensate and oversee the work of the independent auditors
(including resolution of disagreements between management and the
independent auditors regarding financial reporting) for the purpose
of preparing its audit report or related work;
(iii) review in advance and pre-approve (a) all auditing services to be
provided by the independent auditors and (b) all non-audit services
to be provided by the independent auditors, as permitted by
applicable rules and regulations and the Auditor Independence Policy
(which is discussed in further detail below under "Independent
Auditors' Fees"), and in connection therewith to approve all fees and
other terms of engagement;
(iv) review and approve disclosures required to be included in the
Securities and Exchange Commission (the "SEC") periodic reports filed
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and
(v) review the performance of the internal auditors and the independent
auditors on at least an annual basis.
The Compensation Committee acts under a written charter, which may be
viewed online on the Company's website at www.adp.com under "Corporate
Governance" in the Corporate Overview section. The principal function of the
Compensation Committee is to assist the Board of Directors in discharging its
responsibilities in respect of compensation of the Company's executive officers
by:
(i) evaluating the Chief Executive Officer's performance and setting the
Chief Executive Officer's compensation based on such evaluation;
(ii) developing guidelines and reviewing the compensation and performance
of officers of the Company and other Company associates; and
(iii) reviewing and approving criteria for granting bonuses and options to
officers of the Company.
The Compensation Committee also develops plans for managerial succession.
The Nominating/Corporate Governance Committee acts under a written charter,
which may be viewed online on the Company's website at www.adp.com under
"Corporate Governance" in the Corporate Overview section. The principal
functions of the Nominating/Corporate Governance Committee are to:
(i) develop policies on the size and composition of the Board of
Directors;
(ii) identify individuals qualified to become members of the Board of
Directors and review candidates for Board membership;
(iii) recommend a slate of nominees to the Board of Directors annually;
(iv) ensure that the Audit, Compensation and Nominating/Corporate
Governance Committees of the Board of Directors have the benefit of
qualified and experienced independent directors;
(v) review and reassess the adequacy of the Board of Directors' corporate
governance principles (which principles may be viewed online on the
Company's website at www.adp.com under "Corporate Governance" in the
Corporate Overview section) and recommend changes to such principles
annually; and
(vi) advise the full Board of Directors on corporate governance matters.
When the Board of Directors decides to recruit a new member it seeks strong
candidates who, ideally, meet all of its categorical standards of director
independence and are senior executives of large companies who have significant
technology, international or marketing backgrounds directly related to the
Company's technologies, markets and/or clients. The Board of Directors will
consider any such strong candidate provided he or she possesses the following
personal characteristics: (i) business community respect for his or her
integrity, ethics, principles, insights and analytical ability; and (ii) ability
and initiative to frame insightful questions, speak out and challenge
questionable assumptions and disagree without being disagreeable. If the
Committee does not believe that a candidate possesses the above personal
characteristics, that candidate will not be considered. Stockholders who wish
the Nominating/Corporate Governance Committee to consider their recommendations
for nominees for the position of director should
5
submit their recommendations in writing to the Nominating/Corporate Governance
Committee in care of the Secretary of the Company at the Company's principal
executive offices.
The Executive Committee acts under a written charter, which may be viewed
online on the Company's website at www.adp.com under "Corporate Governance" in
the Corporate Overview section. The function of the Executive Committee is to
act in the absence of the Board of Directors.
During the last fiscal year, non-employee directors were paid an annual
retainer of $35,000, plus $1,500 for each Board of Directors meeting attended.
In addition, non-employee directors were paid $1,000 for each committee meeting
attended if such committee meeting was held on the same day a Board of Directors
meeting was held; otherwise, non-employee directors were paid $1,500 for each
committee meeting attended. Further, each non-employee director acting as
chairperson of a committee was paid an additional annual retainer of $5,000.
In August 2003, the Compensation Committee recommended, and the Board of
Directors approved, a new compensation program for non-employee directors, which
became effective on August 11, 2003. Under the new compensation program,
non-employee directors will be paid an annual retainer of $55,000, payable in
the form of restricted stock units of the Company's Common Stock pursuant to the
Company's 2003 Director Stock Plan (the "2003 Director Stock Plan"), subject to
stockholder approval of such plan at this Annual Meeting. In accordance with the
terms of the 2003 Director Stock Plan, on the date established by the Board of
Directors for payment of the annual retainer, each non-employee director will
receive a credit of restricted stock units equal to the annual retainer divided
by the fair market value of a share of the Company's Common Stock on such date.
At such time as a non-employee director ceases to be a member of the Board of
Directors he or she will receive the number of shares of the Company's Common
Stock equal to the number of restricted stock units credited to such
non-employee director under the terms of the 2003 Director Stock Plan. In
addition, a non-employee director shall receive a cash payment equal to
dividends, if any, that such non-employee director would have received had he or
she received actual shares of the Company's Common Stock (instead of restricted
stock units) at the time of payment of the annual retainer, plus interest
credited under the terms of the 2003 Director Stock Plan from the date such
dividend equivalents were credited to the date of payment. In addition to awards
under the 2003 Director Stock Plan, each non-employee director will be paid
$1,500 in cash for each Board of Directors meeting attended and $1,000 in cash
for each committee meeting attended on the same day a Board of Directors meeting
is held or $1,500 in cash for all other committee meetings attended. The
chairperson of the Audit Committee will be paid an additional annual retainer of
$10,000 in cash and the chairperson of each of the Executive Committee,
Compensation Committee and Nominating/Corporate Governance Committee will be
paid an additional annual retainer of $5,000 in cash. Non-employee directors may
elect to defer receipt of the above amounts. There are no fees paid to employee
directors or other fee arrangements provided by the Company. In recommending and
approving the new compensation program for non-employee directors, the
Compensation Committee and the Board of Directors considered the increased
responsibilities of directors under the Sarbanes-Oxley Act of 2002 and other
recently promulgated regulations. The Compensation Committee and the Board of
Directors also examined the compensation paid to non-employee directors of other
companies included in the S&P 500 with the goal of providing the Company's
non-employee directors with comparable compensation. To encourage ownership of
the Company's Common Stock and better align the interests of the Company's
directors with those of other stockholders, the Compensation Committee and the
Board of Directors chose to provide a significant portion of non-employee
director compensation under this new compensation program in the form of
restricted stock units.
During fiscal 2003, the non-employee directors of the Company were entitled
to participate in the 1989 Non-Employee Director Stock Option Plan (the
"Directors' Option Plan"). Following stockholder approval of the amendment to
the 2000 Key Employees' Stock Option Plan at this Annual Meeting, the Directors'
Option Plan will be amended to prohibit any future stock option grants
thereunder. Under the Directors' Option Plan, options to purchase 12,500 shares
of Common Stock were automatically granted to persons who became non-employee
directors. In addition, each non-employee director was granted an additional
option to purchase 12,500 shares on the first business day after each fifth
anniversary of the date of the initial grant to each such non-employee director,
provided that he or she was then still serving in such capacity. All options
were granted at the fair market
6
value of the Common Stock, determined on the basis of the closing price of the
Common Stock in consolidated trading on the date of grant, as reported in The
Wall Street Journal. Twenty percent of the options granted under the Directors'
Option Plan become exercisable on the first anniversary of the date such options
were granted, and twenty percent become exercisable on each successive
anniversary date thereafter until all such options become exercisable, provided
that options become exercisable only if the director is then still serving in
such capacity, unless certain specified events occur, such as the death,
disability or retirement of a director, in which case the options shall
immediately vest and become fully exercisable. All options granted under the
Directors' Option Plan have a term of ten years. Options to purchase 12,500
shares of Common Stock were granted to each of Mr. Brun and Ms. Jordan at an
exercise price of $34.81 per share and $36.40 per share, respectively, under the
Directors' Option Plan in fiscal 2003.
In August 2003, the Compensation Committee recommended and the Board of
Directors approved, subject to stockholder approval at this Annual Meeting, an
amendment to the 2000 Key Employees' Stock Option Plan to provide for stock
option grants to non-employee directors. The Board of Directors has determined
that, upon initial election to the Board of Directors, a director will receive a
grant of options to purchase 5,000 shares of Common Stock. Thereafter, a
director will receive an annual grant of options to purchase 5,000 shares of
Common Stock.
Any person who became a non-employee director after August 13, 1997 will
not be eligible to receive a pension from the Company. A non-employee director
(who was a director on August 13, 1997) who retires after 20 years of service in
such capacity and having attained the age of 70 will receive a pension of
$25,000 per year for the remainder of his or her life. If such non-employee
director retires after having attained the age of 65 with 15 years of service,
he or she will receive a pension of $12,500 per year.
The mandatory retirement age for directors is 72, except as noted below.
The Board of Directors may, upon the recommendation of the Nominating/Corporate
Governance Committee made annually, waive the mandatory retirement age
requirement for any director, except persons who first became directors after
May 14, 2002. The Board of Directors waived the mandatory retirement age
requirement for Messrs. Califano, Krueger, Taub and Weston based on their
respective contributions to and involvement in the Board of Directors so that
they may be nominated at this Annual Meeting to serve as directors for the
upcoming year. Notwithstanding the foregoing annual waiver procedure, the oldest
member of the Board of Directors, Mr. Tisch, after serving as a director since
1973, shall automatically retire at this Annual Meeting. The next oldest member
of the Board of Directors shall automatically retire at the Company's 2004
Annual Meeting of Stockholders. This "then oldest director" automatic retirement
process shall continue until there are no directors over the age of 72.
Thereafter, all directors will automatically retire from the Board of Directors
at the Company's Annual Meeting of Stockholders following the date he or she
turns 72. This "then oldest director" automatic retirement procedure portion of
the Board of Directors' retirement policy does not apply to Henry Taub, the
Company's founder. Management directors who are no longer officers of the
Company are required to resign from the Board of Directors. However, the
Company's Chief Executive Officer may, provided the Board of Directors approves,
continue to serve as a director for a transition period of up to one year after
the date he or she ceases to be the Company's Chief Executive Officer.
Executive sessions are held during each Board of Directors and committee
meeting. The Company has adopted a procedure by which the presiding director at
executive sessions of the Board of Directors shall change each meeting and shall
rotate, consecutively, among the independent chairpersons of the Audit,
Compensation and Nominating/Corporate Governance Committees.
7
Security Ownership of Certain Beneficial Owners and Managers
The following table contains information as of August 31, 2003 with respect
to the beneficial ownership of Common Stock by (i) each director and nominee for
director of the Company, (ii) each of the executive officers of the Company
named in the Summary Compensation Table and (iii) all directors and executive
officers of the Company as a group (including the named individuals). To the
knowledge of the management of the Company, as of August 31, 2003, no person
beneficially owned more than 5% of the outstanding shares of the Company's
Common Stock. Unless otherwise noted in the footnotes following the table, the
persons as to whom the information is given had sole voting and investment power
over the shares of Common Stock shown as beneficially owned.
Shares of Common Stock
Name Beneficially Owned (1) Percent
- --------------------------------------------------------------------------------------------------------------------------
Gregory D. Brenneman 5,000 *
Leslie Brun 0 *
Gary C. Butler 889,253 *
Joseph A. Califano, Jr. (2) 28,100 *
Leon G. Cooperman (3) 98,466 *
Richard J. Daly 387,395 *
Russell P. Fradin 573,673 *
Eugene A. Hall 261,785 *
John Hogan 366,628 *
Ann Dibble Jordan 30,400 *
Harvey M. Krueger (4) 132,016 *
Frederic V. Malek (5) 32,500 *
S. Michael Martone 173,333 *
Henry Taub (6) 6,102,528 1.0258%
Laurence A. Tisch 4,000 *
Arthur F. Weinbach (7) 1,475,216 *
Josh S. Weston 636,413 *
Directors and executive officers as a group (27 persons,
including those directors and executive officers named above) (8) 12,557,635 2.1097%
* Indicates less than one percent.
(1) Includes shares that may be acquired upon the exercise of options granted
by the Company that are exercisable on or prior to October 30, 2003. The
shares beneficially owned include: (i) the following shares subject to such
options granted to the directors and executive officers indicated: 5,000
(Mr. Brenneman), 479,899 (Mr. Butler), 24,500 (Mr. Califano), 42,983 (Mr.
Cooperman), 313,364 (Mr. Daly), 372,449 (Mr. Fradin), 222,800 (Mr. Hall),
332,564 (Mr. Hogan), 15,000 (Ms. Jordan), 59,758 (Mr. Krueger), 24,500 (Mr.
Malek), 90,834 (Mr. Martone) and 867,123 (Mr. Weinbach); and (ii) 3,841,145
shares subject to such options granted to the directors and executive
officers as a group.
(2) Excludes an aggregate of 2,800 shares of Common Stock of the Company that
are owned outright by members of Mr. Califano's immediate family or by
charitable trusts of which members of Mr. Califano's immediate family were
potential beneficiaries. Mr. Califano disclaims beneficial ownership of
such shares.
(3) Includes 30,483 shares, representing the gain resulting from the exercise
of an option to purchase 38,000 shares of Common Stock on October 15, 2001.
Mr. Cooperman has elected to defer receipt of the shares representing such
gain.
(4) Includes 35,258 shares, representing the gain resulting from the exercise
of an option to purchase 40,000 shares of Common Stock on November 1, 1999.
Mr. Krueger has elected to defer receipt of the shares representing such
gain.
8
(5) Excludes an aggregate of 3,200 shares of Common Stock of the Company that
are owned outright by members of Mr. Malek's immediate family or by
charitable trusts of which members of Mr. Malek's immediate family were
potential beneficiaries. Mr. Malek disclaims beneficial ownership of such
shares.
(6) Excludes an aggregate of 299,358 shares of Common Stock of the Company that
are owned outright by members of Mr. Taub's immediate family or by
charitable trusts of which members of Mr. Taub's immediate family were
potential beneficiaries. Mr. Taub disclaims beneficial ownership of such
shares.
(7) Includes 78,616 shares, representing (i) a gain of 42,877 shares resulting
from the exercise of an option to purchase 50,000 shares of Common Stock on
August 19, 1999 and (ii) a gain of 35,739 shares resulting from the
exercise of an option to purchase 40,000 shares of Common Stock on October
6, 2000. In each case, Mr. Weinbach has elected to defer receipt of the
shares representing such gain.
(8) Excludes an aggregate of 3,382 shares of Common Stock of the Company
owned by members of the immediate families of non-director officers of the
Company. The non-director officers of the Company disclaim beneficial
ownership of such shares.
9
COMPENSATION OF EXECUTIVE OFFICERS
The following sections of this Proxy Statement cover the components of the
total compensation of the Company's Chief Executive Officer and the six other
most highly compensated executive officers of the Company. These sections
include: (i) a series of tables covering annual and long-term compensation; (ii)
a pension plan table summarizing the annual benefits payable under the Company's
defined benefit retirement plans; and (iii) a report by the Compensation
Committee of the Board of Directors describing the Company's compensation
policies for fiscal 2003 for its executive officers and the rationale upon which
its Chief Executive Officer's compensation for fiscal 2003 was based. Also
included is a performance graph comparing the Company's total stockholder return
to the S&P 500 and a Peer Group Index over a five year period.
Summary Compensation Table
The following table summarizes the compensation of the Company's Chief
Executive Officer and the six other most highly compensated executive officers
for services in all capacities to the Company for the three years ended June 30,
2003.
Annual
Compensation (1) Long-Term Compensation
--------------------------------------------------------------
Number of
Securities
Year Restricted Underlying
Name and Ended Stock Options All other
Principal Position June 30, Salary Bonus Awards Granted Compensation
- ----------------------------------------------------------------------------------------------------------------------------
(2) (3) (4)
Arthur F. Weinbach 2003 $759,438 $167,500 $ 844,240 184,998 $20,664
Chairman and Chief 2002 $735,000 $173,500 $1,452,776 182,125 $ 6,833
Executive Officer 2001 $721,250 $450,000 $ -- 170,000 $ 7,089
Gary C. Butler 2003 $641,882 $120,000 $1,425,520 109,899 $ 6,312
President and Chief 2002 $620,000 $108,500 $ -- 108,000 $ 6,289
Operating Officer 2001 $607,500 $299,000 $2,424,105 100,000 $ 6,443
Russell P. Fradin 2003 $510,909 $111,864 $1,384,000 47,949 $ 5,845
Group President 2002 $493,750 $112,600 $ -- 46,500 $ 5,149
2001 $483,750 $214,500 $2,353,500 40,000 $ 5,242
Eugene A. Hall 2003 $381,663 $119,437 $ -- 30,375 $ 5,027
Senior Vice President 2002 $363,600 $118,271 $ -- 29,325 $ 5,019
2001 $355,000 $240,021 $ -- 50,000 $ 5,066
S. Michael Martone 2003 $375,754 $113,145 $ 622,800 30,459 $ 6,082
Group President 2002 $362,308 $117,058 $ -- 29,375 $ 6,073
2001 $354,615 $153,000 $1,063,620 25,000 $ --
Richard J. Daly 2003 $403,004 $ 62,677 $ -- 30,039 $ 6,165
Group President 2002 $392,308 $ 72,023 $1,286,064 29,125 $ 6,148
2001 $383,269 $147,700 $ -- 25,000 $ 6,240
John Hogan 2003 $403,004 $ 60,993 $ -- 30,039 $ 6,115
Group President 2002 $392,308 $ 64,750 $1,286,064 29,125 $ 6,105
2001 $383,269 $148,500 $ -- 25,000 $ 6,165
(1) None of the named executive officers received any perquisites or other
personal benefits of an amount, or any other annual compensation of a type,
required to be reported by the SEC pursuant to applicable rules and
regulations.
10
(2) The dollar values shown in the Restricted Stock Awards column are based on
the closing market price of the Common Stock on the date the restricted
shares were granted. Restricted shares may not be transferred or pledged,
but such Company-imposed restrictions lapse with the passage of time
(generally over periods of up to six years) and continued employment with
the Company.
As of June 30, 2003, the aggregate number of shares of restricted stock
held by a named executive officer and the aggregate fair market value of
such shares (calculated by multiplying the aggregate number of shares held
by such named executive officer by the difference between $33.86, the
closing price of the Common Stock on June 30, 2003, and $.10, the
consideration paid per share of restricted stock) was: Mr. Weinbach, 48,800
shares ($1,647,488); Mr. Butler, 61,800 shares ($2,086,368); Mr. Fradin,
60,000 shares ($2,025,600); Mr. Hall, 20,000 shares ($675,200); Mr.
Martone, 27,000 shares ($911,520); Mr. Daly, 21,600 shares ($729,216); and
Mr. Hogan, 21,600 shares ($729,216).
The restricted stock awards to the named executive officers reported in the
table that vest, in whole or in part, in under four years from the date of
grant, together with their vesting schedule, are as follows:
(i) Mr. Weinbach received a grant of 24,400 shares of restricted stock in
fiscal 2003, 24,400 of which will vest in fiscal 2005. Mr. Weinbach
received a grant of 24,400 shares of restricted stock in fiscal 2002,
24,400 of which will vest in fiscal 2004.
(ii) Mr. Butler received a grant of 41,200 shares of restricted stock in
fiscal 2003, 20,600 of which will vest in each of fiscal 2005 and
2006. Mr. Butler received a grant of 41,200 shares of restricted
stock in fiscal 2001, 20,600 of which vested in 2003 and 20,600 of
which will vest in fiscal 2004.
(iii) Mr. Fradin received a grant of 40,000 shares of restricted stock in
fiscal 2003, 20,000 of which will vest in each of fiscal 2005 and
2006. Mr. Fradin received a grant of 40,000 shares of restricted
stock in fiscal 2001, 20,000 of which vested in 2003 and 20,000 of
which will vest in fiscal 2004.
(iv) Mr. Martone received a grant of 18,000 shares of restricted stock in
fiscal 2003, 9,000 of which will vest in each of fiscal 2005 and
2006. Mr. Martone received a grant of 18,000 shares of restricted
stock in fiscal 2001, 9,000 of which vested in 2003 and 9,000 of
which will vest in fiscal 2004.
(v) Mr. Daly received a grant of 21,600 shares of restricted stock in
fiscal 2002, 10,800 of which will vest in each of fiscal 2004 and
2005.
(vi) Mr. Hogan received a grant of 21,600 shares of restricted stock in
fiscal 2002, 10,800 of which will vest in each of fiscal 2004 and
2005.
Dividends are paid on restricted stock at the same rate as other
outstanding shares of the Company's Common Stock. In the event of a
termination of their employment following a change in control of the
Company, the unvested portion of the restricted stock of Messrs. Weinbach
and Butler will be subject to accelerated vesting as further described in
this Proxy Statement under the heading "Employment Agreements." In the
event of a termination of their employment following a change in control of
the Company, the unvested portion of the restricted stock of Messrs.
Fradin, Hall, Martone, Daly and Hogan will be subject to accelerated
vesting as further described in this Proxy Statement under the heading
"Change in Control Severance Plan for Corporate Officers."
(3) The Company does not award Stock Appreciation Rights (SARs).
(4) For the year ended June 30, 2003, all other compensation consists of the
sum of: (i) Company matching contributions to the Company's Retirement and
Savings Plan (401(k)) in the following amounts: Mr. Weinbach, $5,916, Mr.
Butler, $5,916, Mr. Fradin, $5,576, Mr. Hall, $4,896, Mr. Martone, $5,916,
Mr. Daly, $5,916, and Mr. Hogan, $5,916; and (ii) compensatory split-dollar
insurance premiums (with a statistically calculated economic benefit to the
executive determined by Phoenix Home Life Insurance Company for W-2 income
purposes) in the following amounts: Mr. Weinbach, $994, Mr. Butler, $396,
Mr. Fradin, $269, Mr. Hall, $131, Mr. Martone, $166, Mr. Daly, $249, and
Mr. Hogan, $199. The Company
11
ceased paying split-dollar insurance premiums during the last fiscal year
and surrendered all the related split-dollar insurance policies. Mr.
Weinbach received a cash payment of $13,754 upon the surrender of his
insurance policy in fiscal 2003 in accordance with the terms of his policy.
None of the other executive officers received a payment upon the surrender
of their policies in fiscal 2003.
Stock Option Plans
The Company has in effect a 1990 Key Employees' Stock Option Plan (the
"1990 Plan") and a 2000 Key Employees' Stock Option Plan (the "2000 Plan"). The
1990 Plan and the 2000 Plan collectively are referred to as the "Option Plans."
Officers and key employees are eligible to participate in the Option Plans,
which permit the issuance, in addition to non-qualified options, of "incentive
stock options" ("ISOs") within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company has ceased granting
options under the 1990 Plan, but outstanding options under the 1990 Plan remain
valid. In the event of a termination of their employment following a change in
control of the Company, the unvested portion of the stock options of Messrs.
Weinbach and Butler will be subject to accelerated vesting as further described
in this Proxy Statement under the heading "Employment Agreements." In the event
of a termination of their employment following a change in control of the
Company, the unvested portion of the stock options of Messrs. Fradin, Hall,
Martone, Daly and Hogan will be subject to accelerated vesting as further
described in this Proxy Statement under the heading "Change in Control Severance
Plan for Corporate Officers." The 2000 Plan has been amended, subject to
stockholder approval at this Annual Meeting, to allow grants of stock options to
non-employee directors. See Proposal 2 below.
The Option Plans are administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has the authority to determine
the employees to whom options will be granted and, subject to the Option Plans,
the terms and amount of options granted.
ISOs and non-qualified options expire no more than ten years from their
date of grant, with an exercise price no less than 100% of the fair market value
on the date of grant. The Board of Directors has resolved that, once granted, no
ISO or non-qualified option may be repriced.
An optionee has no rights as a stockholder with respect to any shares
covered by his or her options until the date of issuance of a stock certificate
to him or her for such shares. During the life of the optionee, the option is
exercisable only by him or her. Except as otherwise provided in the applicable
award agreement or described in the following sentence, no option is exercisable
more than 60 days after termination of employment, or (if termination is due to
the death of an optionee) more than six months after the appointment and
qualification of an executor or administrator of the deceased optionee's estate
or 12 months after the death of the optionee, whichever occurs earlier.
12
The following table sets forth certain information concerning stock option
grants to the named executive officers during the fiscal year ended June 30,
2003.
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------
Number of Percent of Total
Securities Options
Underlying Granted
Options to Employees Exercise Grant Date
Granted in Fiscal Year Price Expiration Value
Name (#)(1) (%) ($/Share) Date ($)(2)
- ----------------------------------------------------------------------------------------------------------------------------
Arthur F. Weinbach 170,000 1.07% $36.8500 8/12/2012 $1,879,877
14,998 0.09% $32.2450 7/22/2012 $ 162,685
Gary C. Butler 100,000 0.63% $36.8500 8/12/2012 $1,136,352
9,899 0.06% $32.2450 7/22/2012 $ 107,375
Russell P. Fradin 40,000 0.25% $42.4150 11/12/2012 $ 519,719
7,949 0.05% $32.2450 7/22/2012 $ 86,224
Eugene A. Hall 25,000 0.16% $42.4150 11/12/2012 $ 324,824
5,375 0.03% $32.2450 7/22/2012 $ 58,303
S. Michael Martone 25,000 0.16% $34.3300 5/13/2013 $ 255,911
5,459 0.03% $32.2450 7/22/2012 $ 59,214
Richard J. Daly 25,000 0.16% $42.4150 11/12/2012 $ 324,824
5,039 0.03% $32.2450 7/22/2012 $ 54,658
John Hogan 25,000 0.16% $42.4150 11/12/2012 $ 324,824
5,039 0.03% $32.2450 7/22/2012 $ 54,658
(1) 463,758 options were granted pursuant to the 2000 Plan. The options were
granted at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. The options were granted for
terms of ten years, and vest during periods of up to six years subsequent
to the date of grant.
(2) The grant date values were calculated on the basis of the Black-Scholes
option pricing model. Options were assumed to be exercised 6.3 years after
the date of grant, based on historical experience, except for Mr. Martone's
grant that expires in May of 2013, which was assumed to be exercised 6.5
years after the date of grant. A risk-free interest rate of 3.65%, stock
price volatility of 30.37% and a dividend yield of 0.75% was used in the
calculation of the option grants to Messrs. Weinbach and Butler expiring on
August 12, 2012. A risk-free interest rate of 3.26%, stock price volatility
of 31.70% and a dividend yield of 0.78% was used in the calculation for the
option grants to Messrs. Fradin, Hall, Daly and Hogan expiring on November
12, 2012. A risk-free interest rate of 3.19%, stock price volatility of
30.62% and a dividend yield of 0.87% was used in the calculation for the
option grant to Mr. Martone expiring on May 13, 2013. A risk-free interest
rate of 4.05%, stock price volatility of 29.49% and a dividend yield of
0.75% was used in the calculation of the option grants to Messrs. Weinbach,
Butler, Fradin, Hall, Martone, Daly and Hogan expiring on July 22, 2012. A
discount factor of 3% was applied to the calculated value to reflect the
risk of forfeiture during the option term. The actual value of the options
will depend on the market value of the Company's Common Stock on the dates
the options are exercised. No realization of value from the options is
possible without an increase in the price of the Company's Common Stock
from the date of grant, which increase would benefit all stockholders
commensurately.
13
Aggregated Option Exercises
For Fiscal Year Ended June 30, 2003
And Option Values As Of June 30, 2003
The following table sets forth certain information concerning option
exercises during the last fiscal year by the named executive officers and
unexercised options held by such officers at the end of the last fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 6/30/03 at 6/30/03
(#) ($)
--------------------------------------------------------------
Shares Acquired
On Exercise Value Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
Arthur F. Weinbach 40,000 $1,208,692 772,125 824,998 $11,297,650 $ 24,222
Gary C. Butler 0 $ -- 356,000 459,899 $ 1,917,980 $129,037
Russell P. Fradin 0 $ -- 336,500 207,949 $ 3,213,588 $ 77,438
Eugene A. Hall 0 $ -- 165,825 198,875 $ 0 $ 49,056
S. Michael Martone 9,000 $ 69,210 80,375 143,459 $ 91,500 $108,141
Richard J. Daly 0 $ -- 310,125 180,039 $ 3,758,950 $ 93,053
John Hogan 0 $ -- 299,325 180,039 $ 3,793,280 $ 93,053
Equity Compensation Plan Information
The following table sets forth information as of June 30, 2002 regarding
compensation plans under which the Company's equity securities are authorized
for issuance:
Number of securities
remaining available for
Number of securities Weighted average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding outstanding plans (excluding
options, warrants options, warrants securites reflected
Plan category and rights and rights in Column (a))
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------
Equity compensation plans approved by security holders 60,958,390 $40.58 1,792,200(1)
Equity compensation plans not approved by security
holders (2) 163,500 $30.93 4,899,176(3),(4),(5)
-------------------------------------------------------------------------
Total 61,121,890 $40.55 6,691,376
=========================================================================
(1) Includes 603,200 shares of Common Stock remaining available for future
issuance under the Company's Employees' Savings-Stock Purchase Plan, which
shares and weighted average exercise prices are not reflected in Columns
(a) and (b) of this table.
(2) Represents (i) the Company's Directors' Option Plan, (ii) the Key
Employees' Restricted Stock Plan, and (iii) the French Employees'
Saving-Stock Option Plan (the "French Plan"), none of which have been
approved by the Company's stockholders. The terms of the Directors' Option
Plan are described under "Corporate Governance" in this Proxy Statement,
the terms of the Key Employees' Restricted Stock Plan are described in Note
9 to the Company's Consolidated Financial Statements included in the
Company's 2003 Annual Report and the terms of the French Employees'
Saving-Stock Option Plan are described in footnote (5) below.
(3) At June 30, 2003, there were 263,000 shares of Common Stock reserved for
issuance pursuant to the terms of the Directors' Option Plan. Following
stockholder approval of the amendment to the 2000 Plan at this Annual
Meeting, the Directors' Option Plan will be amended to prohibit any future
stock option grants thereunder.
(4) Includes 3,566,761 shares of Common Stock reserved for issuance pursuant to
the Key Employees' Restricted Stock Plan.
14
(5) Includes 1,069,415 shares of Common Stock reserved for issuance pursuant to
the French Plan. The French Plan is similar to the Company's Employees'
Savings-Stock Purchase Plan; French tax law prevents employees based in
France from participating in the Company's Employees' Savings-Stock
Purchase Plan. In January 1996, the Board of Directors adopted the French
Plan. Employees of the Company based in France are entitled to purchase
shares of Common Stock (such rights referred to as "Stock Options") under
the French Plan under annual offerings that commence on January 1 of each
calendar year and close on December 31 of the following calendar year
(each, an "Offering"). In October 2002, the French Employees' Saving-Stock
Option Plan Committee (appointed by the Board of Directors) (the "French
Stock Option Committee") amended the French Plan to extend the offering
period from 24 months to 48 months for the Offering commencing on January
1, 2003 and each Offering commenced thereafter. Each eligible employee is
granted Stock Options in each Offering that would generally entitle such
employee to purchase a whole number of shares of Common Stock equivalent in
value to 10% of his or her base salary, based upon a price per share (in
U.S. dollars) determined in advance of such Offering by the French Stock
Option Committee, subject to adjustment for currency rate changes over the
term of the Offering. Participating employees pay for the exercise of the
Stock Options through monthly payroll deductions taken during the two-year
period or four-year period, as the case may be, of each Offering, and have
the opportunity upon the close of the Offering to exercise their Stock
Options (or any portion thereof) and purchase the associated number of
shares of Common Stock. To the extent a participating employee elects to
purchase fewer shares of Common Stock than would be available under his or
her full allotment of Stock Options, such employee would receive the cash
remaining from the aggregate payroll deductions after taking into account
his or her purchase of shares of Common Stock.
Defined Benefit Plans
The following table shows the estimated annual retirement benefits payable
under the Company's retirement program, consisting of the Retirement Capital
Accumulation Plan (the "Pension Plan") and the Supplemental Officers' Retirement
Plan (the "Supplemental Retirement Plan"), to persons in specified average
compensation and credited service classifications, assuming retirement at age
65.
Years of Credited Service at Retirement
----------------------------------------------------------------------------------------------------
Final
5-Year Average
Compensation 10 15 20 25 30
- ------------------------------------------------------------------------------------------------------------------------------------
$ 400,000 $ 69,000 $108,000 $132,000 $152,000 $181,000
500,000 84,000 131,000 157,000 177,000 206,000
600,000 99,000 153,000 182,000 202,000 231,000
700,000 114,000 176,000 207,000 227,000 256,000
800,000 129,000 198,000 230,000 252,000 281,000
900,000 144,000 221,000 257,000 277,000 306,000
1,000,000 159,000 243,000 282,000 302,000 331,000
Compensation covered by the Pension Plan is limited to January 1 base
salary up to the current compensation limit in effect for the plan year.
Compensation covered under the Supplemental Retirement Plan includes cash
compensation (paid or deferred) and compensation from restricted stock vesting
during the year. Benefits under the Supplemental Retirement Plan are subject to
reduction for social security, Pension Plan and 401(k) benefits under certain
circumstances.
Messrs. Weinbach, Butler, Fradin, Hall, Martone, Daly and Hogan have 22,
27, 5, 3, 15, 13 and 9 years of credited service, respectively, under the
Pension Plan and 14, 14, 6, 4, 8, 9 and 8 years of credited service,
respectively, under the Supplemental Retirement Plan. In addition, unless his
employment is terminated for cause, Mr. Weinbach will receive the maximum
benefits available under the Supplemental Retirement Plan, and his benefit will
not be reduced for commencement prior to age 65 as long as the Compensation
Committee deems his retirement prior to age 65 is in the Company's best
interest. The figures shown on the table above are for a straight-life annuity
commencing at age 65. Reduced benefits are available at earlier ages and in
other forms of benefits.
15
Change in Control Severance Plan for Corporate Officers
To aid the Company in retaining its officers, the Company has in effect the
Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate
Officers (the "CIC Plan"), which provides for the payment of specified benefits
to officers selected by the Board of Directors if their employment terminates
after a "change in control" (as defined below) of the Company. All corporate
officers of the Company ("Participants") participate in the CIC Plan. As of
August 31, 2003, there were 30 Participants in the CIC Plan.
The CIC Plan provides that Participants who are terminated by the Company
without "cause" (as defined in the CIC Plan) or by the Participant for "good
reason" (as defined in the CIC Plan) (a "Qualifying Termination") during the
two-year period following the occurrence of a change in control will receive a
payment equal to 150% of such Participant's "current total annual compensation."
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will receive a payment equal to 100% of
such Participant's current total annual compensation. A Participant's "current
total annual compensation" equals his or her highest rate of annual salary
during the calendar year in which his or her employment terminates or the year
immediately prior to the year of such termination plus his or her average annual
bonus compensation earned in respect of the two most recent calendar years
immediately preceding the calendar year in which his or her employment
terminates.
In addition to the payments described in the preceding paragraph, options
to purchase Company stock held by Participants who have a Qualifying Termination
during the two-year period following the occurrence of a change in control will
become fully vested and exercisable. Options to purchase Company stock held by
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will become fully vested and exercisable
to the extent that such options would have otherwise vested within one year
after the Qualifying Termination.
Likewise, restricted shares of Company stock ("Restricted Shares") held by
Participants who have a Qualifying Termination during the two-year period
following the occurrence of a change in control will become fully vested as to
those Restricted Shares for which vesting restrictions would otherwise have
lapsed within two years after the Qualifying Termination. Restricted Shares held
by Participants who have a Qualifying Termination during the third year
following the occurrence of a change in control will become fully vested to the
extent that vesting restrictions would have lapsed within one year after the
Qualifying Termination.
Generally, the CIC Plan supersedes any other change in control severance
plans, policies and practices of the Company with respect to the Participants.
Messrs. Weinbach and Butler are entitled to receive the greater of the benefits
and payments and more favorable conditions provided under their employment
agreements and the CIC Plan on an item-by-item basis.
A "change in control" as defined in the CIC Plan will have occurred if (i)
any "Person" (as defined in Section 3(a)(9) of the Exchange Act), excluding the
Company, any subsidiary of the Company, or any employee benefit plan sponsored
or maintained by the Company (including any trustee of any such plan acting in
its capacity as trustee), becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 35% or
more of the total combined voting power of the Company's then outstanding
securities; (ii) there occurs a merger, consolidation or other business
combination of the Company (a "Transaction"), other than a Transaction
immediately following which the stockholders of the Company immediately prior to
the Transaction continue to be the beneficial owners of securities of the
resulting entity representing more than 65% of the voting power in the resulting
entity, in substantially the same proportions as their ownership of Company
voting securities immediately prior to the Transaction; or (iii) there occurs
the sale of all or substantially all of the Company's assets, other than a sale
immediately following which the stockholders of the Company immediately prior to
the sale are the beneficial owners of securities of the purchasing entity
representing more than 65% of the voting power in the purchasing entity, in
substantially the same proportions as their ownership of Company voting
securities immediately prior to the Transaction. If instructed by a Participant,
the Company will reduce payments under the CIC Plan to avoid the application of
excise taxes pursuant to section 4999 of the Code.
16
Employment Agreements
Mr. Weinbach entered into an employment agreement with the Company as of
August 13, 2001. The agreement provides for successive one-year terms unless
terminated by the Company or Mr. Weinbach at least six months prior to the end
of the applicable one-year term. Mr. Weinbach's annual base salary is to be no
less than $750,000, and his annual target bonus is to be no less than $485,000.
The actual bonus paid to Mr. Weinbach is based upon his accomplishment of
pre-established performance goals that include business growth and increased
profitability. The agreement provides that Mr. Weinbach is to be granted
performance-based restricted stock awards for a number of shares so that
restrictions may lapse in each fiscal year of the Company on shares with a
market value on the date of the award of at least $1,000,000. The agreement also
provides that Mr. Weinbach will at all times own sufficient shares of restricted
stock such that restrictions may lapse during each of the following two fiscal
years on a number of shares having a market value on the date of their award of
at least $1,000,000. The agreement further provides that Mr. Weinbach is to be
granted, on an annual basis, a minimum of 170,000 options to purchase shares of
Common Stock and that all options to purchase Common Stock not yet vested at the
time of Mr. Weinbach's retirement would fully vest upon his retirement. If the
Company terminates Mr. Weinbach's employment without cause, then he is entitled
to receive his base salary for 18 months and continue to vest in his restricted
stock awards and stock options. If Mr. Weinbach's employment is terminated
following a "change in control" (as defined below) of the Company, he will
receive a termination payment equal to a percentage, ranging from 300% if such
termination occurs within two years after such change in control to 100% if it
occurs after the third year, of his annual base salary and his "current total
annual compensation" (as defined below). In addition, all of his stock options
will become fully vested and all of his restricted stock having restrictions
lapsing within three years after such termination shall have such restrictions
automatically removed.
The definition of a "change in control" in Mr. Weinbach's employment
agreement is the same as the definition of a "change in control" under the CIC
Plan except for the percentage in clause (i) of such CIC Plan definition which
is 25% under Mr. Weinbach's employment agreement.
Mr. Weinbach's "current total annual compensation" equals his highest rate
of annual salary during the calendar year in which his employment terminates or
the year immediately prior to the year of such termination plus his average
annual bonus compensation earned in respect of the two most recent calendar
years immediately preceding the calendar year in which his employment
terminates. Mr. Weinbach's employment agreement provides that in the event any
payment from the Company to him results in the imposition of an excise tax under
section 4999 of the Code, he will receive an additional payment such that after
the payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
Mr. Butler entered into an agreement with the Company that provides that if
his employment is terminated following a "change in control" (as defined below)
of the Company, he will receive a termination payment equal to a percentage,
ranging from 200% if such termination occurs within two years of such change in
control to 100% if it occurs after the third year, of his annual base salary and
his average annual bonus for the prior two years. In addition, all of his stock
options will become fully vested and all of his restricted stock having
restrictions lapsing within three years after such termination shall have such
restrictions automatically removed.
The definition of a "change in control" in Mr. Butler's employment
agreement, as modified by the CIC Plan, is the same as the definition of a
"change in control" under Mr. Weinbach's employment agreement noted above.
Mr. Butler's employment agreement provides that in the event any payment
from the Company to him results in the imposition of an excise tax under section
4999 of the Code, he will receive an additional payment such that after the
payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
Certain Transactions
Mr. Krueger, a director of the Company, is Vice Chairman of Lehman
Brothers, which provided various investment banking and brokerage services to
the Company in the past fiscal year.
17
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Compensation Committee of the Board of Directors is comprised of three
independent directors: Messrs. Brenneman, Malek and Tisch.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") acts
under a written charter adopted by the Board of Directors, which may be viewed
online on the Company's website at www.adp.com under "Corporate Governance" in
the Corporate Overview section. The Committee is responsible for setting, on
behalf of the Board of Directors, the base salaries and the total compensation
levels of the Chairman and Chief Executive Officer, the President and Chief
Operating Officer, the Senior Vice President and the Group Presidents of the
Employer Services, Brokerage Services and Dealer Services businesses, as well as
a structure for other key executives of the Company. The Committee grants all
stock options and reviews all recommendations for grants of restricted stock to
these and other key executives.
Compensation Policies
The Company's executive compensation policies for fiscal 2003, which were
reviewed by the Committee, were designed to emphasize both competitive and
variable compensation, with direct links to business objectives and exceptional
performance.
The primary components of the compensation package for key executives for
fiscal 2003 were base salary, bonus, restricted stock and stock options. The
Company and the Committee have always believed that stock ownership in the form
of restricted stock and longer-term stock option vesting is vital in linking
management to stockholder interests. The Company sets its total annual
compensation target (as described below) at the median of market range levels of
comparable sized companies. The Company's executives may derive more economic
benefit from stock option price appreciation, as a percentage of total
compensation, than from base salary and bonus combined. The Committee generally
intends to cause all eligible compensation to be exempt from the limitations of
section 162(m) of the Code, but reserves the right to make non-exempt awards
where appropriate.
Annual Compensation
Total annual compensation consists of base salary, cash bonus and yearly
vesting of restricted stock. The base salaries for executives for fiscal 2003
were determined based upon the job grade of the position, the salary range of
the job grade and the performance of the executive.
Key executives earned cash bonuses in fiscal 2003 based upon both
individual and business annual accomplishments versus pre-established goals.
Long-Term Compensation
Long-term compensation is comprised of restricted stock and the expected
value of stock options. The Company has from time to time sold shares of
restricted stock to executive officers and other key employees, at par value, in
recognition of their individual levels of relative responsibility and
prospective contributions to the business. Company-imposed restrictions on
transfer or pledge of the restricted stock generally lapse over a period of up
to six years, and are subject to continued employment. The restricted stock plan
is designed to encourage stock ownership, longevity and long-term performance.
Stock options are granted to executive officers and other key employees in
amounts based upon their job grade and individual performance. Stock options are
granted at fair market value as of the date of grant, and have a term of up to
ten years. Stock options provide incentive for the creation of stockholder value
over the long-term, and also significantly aid in executive recruiting and
retention.
Restricted stock and stock option grants were made to individual key
executives during fiscal 2003 on a basis consistent with the above guidelines.
18
Benefits
The Company provided certain supplemental benefits to key executives during
fiscal 2003 to ensure that it could compete effectively for executive talent.
These supplemental benefits included additional Company-paid life insurance as
described in the "Summary Compensation Table" section of this Proxy Statement
and certain additional retirement benefits described in the "Defined Benefit
Plans" section of this Proxy Statement.
CEO Compensation
The Committee meets annually to evaluate the performance of the Chief
Executive Officer and to determine his compensation.
Mr. Weinbach received a base salary of $759,438 and a bonus of $167,500
during fiscal 2003. Mr. Weinbach's compensation is based on the satisfaction of
specific performance objectives and the terms of his employment agreement. Mr.
Weinbach's compensation is below the median base salary and bonus compensation
of chief executive officers at companies with annual revenues between $3 and $12
billion, as surveyed by the Company.
The incentives provided to the Chief Executive Officer are provided in the
form of restricted stock and stock options. This ensures that the Chief
Executive Officer and the Company's stockholders have a commonality of purpose
in enhancing stockholder value.
Compensation Committee
of the Board of Directors
Gregory D. Brenneman, Chairman
Frederic V. Malek
Laurence A. Tisch
19
PERFORMANCE GRAPH
The following graph compares the cumulative return on the Common Stock of the
Company for the most recent five years with the cumulative total return on the
S&P 500 Index and a Peer Group Index* comprised of industry participants over
the same period, assuming an initial investment of $100 on June 30, 1998, with
all dividends reinvested.
EDGAR PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AUTOMATIC DATA PROCESSING S&P 500 INDEX PEER GROUP
6/30/98 100.00 100.00 100.00
6/30/99 121.52 122.72 127.21
6/30/00 148.93 131.58 130.47
6/30/01 139.14 112.13 175.52
6/30/02 123.00 92.00 172.77
6/30/03 96.96 92.26 156.82
* The Peer Group Index is comprised of the following companies:
Ceridian Corp. First Data Corporation
Computer Sciences Corporation Fiserv, Inc.
Concord EFS, Inc. Paychex, Inc.
DST Systems, Inc. SunGard Data Systems Inc.
Electronic Data Systems Corporation Total System Services, Inc.
20
PROPOSAL 2
APPROVAL OF AMENDMENT OF THE
2000 KEY EMPLOYEES' STOCK OPTION PLAN
The Board of Directors approved amendments (the "2000 Plan Amendment") to
the 2000 Plan, subject to stockholder approval at this Annual Meeting, which (i)
increased the number of shares of the Company's Common Stock that can be issued
under the 2000 Plan by 35,000,000 shares, so that after the 2000 Plan Amendment
the total number of authorized shares that can be issued under the 2000 Plan,
currently 36,750,000, would be increased to 71,750,000 and (ii) provided for
stock option grants to non-employee directors. Following stockholder approval of
this amendment, the name of the 2000 Plan will be changed to the "2000 Stock
Option Plan" and the Directors' Option Plan will be amended to prohibit any
future stock option grants thereunder.
Summary of the 2000 Plan
The principal features of the 2000 Plan are summarized below, but such
summary is qualified in its entirety by reference to its full text, a copy of
which is filed with the SEC.
Shares Subject to the 2000 Plan. As of August 31, 2003, there were no
shares of the Company's Common Stock available for issuance upon the grant of
new options under the 1990 Plan and there were only 669,326 shares of the
Company's Common Stock available for issuance upon the grant of new options
under the 2000 Plan. As of such date, after taking into account the 2000 Plan
Amendment, the Company would have under its stock option plans a total of
96,338,626 shares reserved for issuance, which reserved shares are allocated as
follows: (i) 35,669,326 shares are available for issuance upon the grant of new
options under the 2000 Plan; and (ii) 60,669,300 shares are subject to
outstanding stock option grants under the 1990 Plan and the 2000 Plan.
Each option granted pursuant to the 2000 Plan shall be in writing and shall
have such terms and conditions as are not inconsistent with the provisions of
the 2000 Plan as the Committee (as defined below) shall provide.
Exercise Price. The exercise price under the options shall not be less than
the fair market value (as defined in the 2000 Plan) of the Company's Common
Stock on the date the option is granted. As of August 31, 2003, the fair market
value of the Company's Common Stock was $39.91. No options granted pursuant to
the 2000 Plan shall be repriced, replaced or re-granted through cancellation
without the prior approval of the stockholders of the Company.
Eligibility. Options may be granted to any non-employee director of the
Company or key employee of the Company or any of its subsidiaries. There are
seven non-employee directors and approximately 9,000 employees eligible to be
granted options under the 2000 Plan. Employees who are also officers or
directors of the Company or its subsidiaries shall not, by reason of holding
such offices, be ineligible to receive options. However, any person who would
own, directly or indirectly, at the time the option is granted to him or her,
more than 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries (a "10% owner") shall only be eligible to
receive any incentive stock options under the 2000 Plan if the option satisfies
the requirements of section 422(c)(5) of the Code.
Rights as a Stockholder and Assignability. An optionee will have no rights
as a stockholder with respect to any shares covered by his or her options until
the date of issuance of a stock certificate to the optionee for such shares.
During the life of the optionee, the option is exercisable only by the optionee.
Exercisability of Options. Options granted under the 2000 Plan shall become
exercisable as the Committee in its discretion may provide upon the granting
thereof.
Duration of Options. Except as otherwise provided in the applicable award
agreement, the unexercised portion of any option granted under the 2000 Plan
shall automatically terminate and expire on the earliest to occur of (i) ten
years (or, in the case of an incentive stock option ("ISO") under section 422 of
the Code, five years with respect to a 10% owner) from the date of grant, (ii)
60 days after termination of employment or service (or such longer period as the
Committee may provide in the event of the optionee's permanent and total
disability), (iii) if termination is due to the death of an optionee or during
the period following termination of
21
employment or service referred to in clause (ii), six months after the
appointment and qualification of an executor or administrator of the deceased
optionee's estate or twelve months after the death of the optionee, whichever
occurs earlier, or (iv) at such earlier time upon the occurrence of such earlier
events as the Committee may provide upon granting of such option.
Administration of the 2000 Plan. Except to the extent required in order to
qualify for exemptive relief under Rule 16b-3 or its successor provision under
the Exchange Act or to satisfy the requirements for performance-based
compensation under section 162(m) of the Code, in which case the Board of
Directors of the Company (or a committee appointed by the Board of Directors
which satisfies the requirements of such provisions) shall administer the 2000
Plan, the 2000 Plan shall be administered by the Compensation Committee (the
"Committee"). The Committee shall have the authority to determine the employees
to whom options will be granted, whether the options granted shall be incentive
stock options or non-qualified stock options, the number of shares that may be
purchased under each option, the dates options become exercisable and the option
price, except that the option price of each share of Common Stock purchasable
under any stock option shall not be less than 100% of the fair market value
thereof at the time the option is granted. Subject to the requirements of
applicable law, the exercise price for all stock options under the 2000 Plan can
be paid for in cash or with shares of the Company's Common Stock that have been
held for at least six months or previously acquired in the open market or by
delivering to the Committee a copy of irrevocable instructions to a stock broker
to deliver promptly to the Company any amount of loan proceeds, or proceeds of
the sale of the shares subject to the option, sufficient to pay the exercise
price. The Committee shall interpret and generally administer the 2000 Plan.
Options may be granted under the 2000 Plan at any time prior to August 10, 2011,
on which date the 2000 Plan will expire, except as to options then outstanding
under the 2000 Plan. The 2000 Plan may be amended or terminated at any time by
the Board of Directors without stockholder action, provided that any such
amendment is in compliance with all applicable laws and the rules of the New
York Stock Exchange and other exchanges upon which the shares of the Company are
listed. No termination, modification or amendment of the 2000 Plan or any
outstanding agreements which may adversely affect the rights of any optionee may
be made without the consent of the optionee. Provisions are made in the 2000
Plan for appropriate adjustments in the event of changes in the Company's
outstanding Common Stock by reason of merger, stock splits or similar events.
The 2000 Plan also provides that the Committee may, in its sole discretion,
establish procedures whereby optionees may elect to defer the receipt of shares
upon the exercise of an option for a specified time or until the occurrence of a
specified event.
Incentive Stock Options. The 2000 Plan permits the Company to grant ISOs
and contains specific provisions applicable thereto.
Non-Qualified Stock Options. The Committee may grant non-qualified stock
options under the 2000 Plan. The Committee is given the authority to determine
the price at which non-qualified stock options may be granted, which will be no
less than the fair market value of the Company's Common Stock on the day the
option is granted.
Federal Income Tax Consequences Relating to Options. The following summary
of the federal income tax consequences of the grant and exercise of
non-qualified and incentive stock options awarded under the 2000 Plan, and the
disposition of shares of Common Stock purchased pursuant to the exercise of such
stock options, is intended to reflect the current provisions of the Code and the
regulations thereunder. This summary is not intended to be a complete statement
of applicable law, nor does it address foreign, state or local tax
considerations.
No income will be realized by an optionee upon grant of a non-qualified
stock option. Upon exercise of a non-qualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitations on
deductibility under sections 280G and 162(m) of the Code for compensation paid
to executives designated in those sections. The optionee's tax basis in the
underlying shares acquired by exercise of a non-qualified stock option will
equal the exercise price plus the amount taxable as compensation to the
optionee. Upon sale of the shares received by the optionee upon exercise of the
non-qualified stock option, any
22
gain or loss is generally long-term or short-term capital gain or loss,
depending on the holding period. The optionee's holding period for shares
acquired pursuant to the exercise of a non-qualified stock option will begin on
the date of exercise of such option.
Pursuant to currently applicable rules under Section 16(b) of the Exchange
Act, the grant of an option (and not its exercise) to a person who is subject to
the reporting and short-swing profit provisions under Section 16 of the Exchange
Act (a "Section 16 Person") begins the six-month period of potential short-swing
liability. The taxable event for the exercise of an option that has been
outstanding at least six months ordinarily will be the date of exercise. If an
option is exercised by a Section 16 Person within six months after the date of
grant, however, taxation ordinarily will be deferred until the date which is six
months after the date of grant, unless the person has filed a timely election
pursuant to section 83(b) of the Code to be taxed on the date of exercise.
However, the six month period of potential short-swing liability may be
eliminated if the option grant (i) is approved in advance by the Company's Board
of Directors (or a committee composed solely of two or more non-employee
directors) or (ii) is approved in advance, or subsequently ratified by the
Company's stockholders no later than the next Annual Meeting of Stockholders.
Consequently, the taxable event for the exercise of an option that satisfies
either of the conditions described in clauses (i) or (ii) above will be the date
of exercise.
The payment by an optionee of the exercise price, in full or in part, with
previously acquired shares of Common Stock will not affect the tax treatment of
the exercise described above. Notwithstanding the foregoing, shares of Common
Stock may not be used by Canadian optionees to pay the exercise price of the
shares being purchased pursuant to the exercise of an option. No gain or loss
generally will be recognized by the optionee upon the surrender of the
previously acquired shares to the Company, and shares received by the optionee,
equal in number to the previously surrendered shares, will have the same tax
basis as the shares surrendered to the Company and will have a holding period
that includes the holding period of the shares surrendered. The value of shares
of Common Stock received by the optionee in excess of the number of shares
surrendered to the Company will be taxable to the optionee as ordinary
compensation income. Such additional shares will have a tax basis equal to the
fair market value of such additional shares as of the date ordinary income is
recognized, and will have a holding period that begins on the date ordinary
income is recognized.
The Code requires that, for ISO treatment, shares of Common Stock acquired
through exercise of an ISO cannot be disposed of before two years from the date
of grant and one year from the date of exercise. ISO holders will generally
incur no federal income tax liability at the time of grant or upon exercise of
such options. However, the Spread will be an "item of tax preference" which may
give rise to "alternative minimum tax" liability at the time of exercise. If the
optionee does not dispose of the shares before two years from the date of grant
and one year from the date of exercise, the difference between the exercise
price and the amount realized upon disposition of the shares will constitute
long-term capital gain or loss, as the case may be. Assuming both the holding
periods are satisfied, no deduction will be allowable to the Company for federal
income tax purposes in connection with the grant or exercise of the option. If,
within two years of the date of grant or within one year from the date of
exercise, the holder of shares acquired through the exercise of an ISO disposes
of such shares, the optionee will generally realize ordinary compensation income
at the time of such disposition equal to the difference between the exercise
price and the lesser of the fair market value of the stock on the date of
initial exercise or the amount realized on the subsequent disposition, and such
amount will generally be deductible by the Company for federal income tax
purposes, subject to the possible limitations on deductibility under sections
280G and 162(m) of the Code for compensation paid to executives designated in
those sections.
New Plan Benefits. Because awards to key employees under the 2000 Plan are
made in the full discretion of the Committee, it is not currently possible to
ascertain the number of options to be granted to any key employees. Although the
Committee will have full discretion to make awards to non-employee directors
under the 2000 Plan, at a meeting on August 11, 2003, the Board of Directors
determined that (i) stock option grants to purchase 5,000 shares will be made
annually to each current non-employee director and (ii) each new non-employee
director will receive an initial stock option grant to purchase 5,000 shares and
annual option grants to purchase 5,000 shares thereafter. The Company has not
historically granted options to purchase the Company's common stock to
non-employee directors under the 2000 Plan and, consequently, none of Messrs.
Brenneman, Brun, Califano, Cooperman, Krueger, Malek, Taub, Tisch and Weston and
Ms. Jordan has been granted any
23
options to purchase shares of the Company's Common Stock under the 2000 Plan in
the past. Between May, 2000 and June 30, 2003, the Company has granted an
aggregate of 39,640,713 options to employees who were not executive officers and
an aggregate of 2,371,078 options to the Company's current executive officers
(including 387,899 to Mr. Butler and 537,123 to Mr. Weinbach). The Company has
not granted options to any associates of its current directors, director
nominees or executive officers, and no individual has received, or is expected
to receive, in excess of 5% of the options granted or to be granted under the
2000 Plan.
Stockholder Approval Required
The 2000 Plan Amendment must be approved by the affirmative vote of the
holders of a majority of the shares present in person or by proxy and entitled
to vote thereon at the meeting of stockholders in order to be adopted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 2000 PLAN AMENDMENT.
24
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
EMPLOYEES' SAVINGS-STOCK PURCHASE PLAN
Amendment of the Purchase Plan
At the 1968 Annual Meeting of Stockholders, the stockholders of the Company
adopted the Automatic Data Processing, Inc. Employees' Savings-Stock Purchase
Plan, as amended (the "Purchase Plan"). The Board of Directors of the Company
approved an amendment to the Purchase Plan (the "Purchase Plan Amendment"),
subject to stockholder approval at this Annual Meeting, that increased the
number of shares of the Company's Common Stock which can be sold pursuant to the
Purchase Plan by 10,000,000 shares, so that after the Purchase Plan Amendment,
the total number of shares allocated to the Purchase Plan is 60,000,000. Prior
to the Purchase Plan Amendment there remained available for sale under the
Purchase Plan as at August 31, 2003 an aggregate of 603,200 shares, exclusive of
shares under election for purchase pursuant to prior offerings. The Company
intends to use the shares authorized by the Purchase Plan Amendment for future
offerings under the Purchase Plan.
Summary of the Purchase Plan
The principal features of the Purchase Plan are summarized below, but such
summary is qualified in its entirety by reference to its full text, a copy of
which is filed with the SEC.
Eligible Employees. Under the Purchase Plan, eligible employees of the
Company and its subsidiaries may be given the opportunity to purchase, through
installment payments to be deducted from the eligible employee's salary, shares
of the Company's Common Stock. Eligible employees include all worldwide
employees of the Company and each of its subsidiaries (except subsidiaries
employing as a service for clients any worksite, leased or similar type
employees under a professional employer, employee leasing or similar type of
employment relationship) whose customary employment is 10 or more hours per
week. Employees working in any country in which the participation by such
employee in the Purchase Plan is prohibited by law, or where an alternative
employee stock purchase plan of the Company or similar plan is offered, are not
eligible to participate in the Purchase Plan. In no event shall an employee who
owns 5 percent or more of the total combined voting power or value of all
classes of stock of the Company be an eligible employee and no participant in
the Purchase Plan may purchase shares of the Company's Common Stock that,
following the purchase, shall cause such participant to own 5 percent or more of
the total combined voting power or value of all classes of stock of the Company.
On August 31, 2003, there were 16,416 eligible employees participating in the
2001 offering of the Purchase Plan and 19,738 eligible employees participating
in the 2002 offering. The purpose of the Purchase Plan is to obtain for the
Company, through encouraging the purchase of shares of the Common Stock of the
Company by a large number of its employees, the benefits of the additional
incentive inherent in the ownership of the Company's stock by such employees.
The Purchase Plan provides for one or more offerings of the shares
authorized (including the shares to be added by the proposed Purchase Plan
Amendment) to eligible employees of the Company and such of its subsidiaries as
may be invited to participate by the Company. In connection with each such
offering, the Company will designate the number of shares available for purchase
and the period during which installment payments in fulfillment of the purchase
price shall be made. Eligible employees may elect to purchase on the last
business day of the offering up to the whole number of shares determined by
dividing (i) the amount equal to 10% of the eligible employee's base salary as
of the day on which the option to participate is granted by (ii) 85% of the
average market price on the day on which the option to participate is granted.
In addition, during any calendar year participating employees may not purchase
shares under the Purchase Plan which have a fair market value (determined as of
the date the option is granted) in excess of $25,000.
Purchase Price. The Purchase Plan provides that the price at which shares
of stock will be sold to eligible employees under each offering will be the
lesser of (i) 85% of the average market price on the last business day of the
purchase period specified in each offering and (ii) 85% of the average market
price on the day on which
25
the option to participate is granted. Payment for shares is collected through
uniform payroll deductions from each participating employee's pay with no right
of prepayment. In certain jurisdictions that do not allow the pricing of the
options as described in the preceding sentence, the price at which the stock
will be sold to eligible employees under each offering will be 85% of the
average market price on the day on which the option to participate is granted.
Interest is earned on the funds collected for payment of the purchase price of
the shares at a rate determined by the Company in connection with each offering
and credited on the last business day of each calendar year.
Failure to Make Payments. Any eligible employee's participation in the
Purchase Plan is subject to cancellation if such employee fails to make payments
when due. Cancellation for failure to make payments when due will be effected by
mailing a notice to the participant at his or her last known business or home
address.
Rights as Stockholder. An eligible employee participating in the Purchase
Plan will have no rights as a stockholder with respect to shares under election
to purchase in any offering until payment has been completed by the last
business day of such offering and the shares of the Company's Common Stock have
been issued to such participant.
Cancellation of Election to Purchase; Retirement or Death. Any employee who
has elected to purchase shares may cancel his or her election to purchase as to
any or all of such shares at any time prior to the last business day of the
purchase period and receive a cash refund of the amount credited to his or her
account with respect to the shares as to which he or she has canceled, plus any
interest credited in respect of such amount. An election to purchase is deemed
to be canceled in the event an employee dies, resigns or is dismissed and no
further amounts will be collected on behalf of such employee. In any such case,
Participants are entitled to receive a refund of funds collected on their behalf
plus any interest credited in respect of such amount. In the case of death or
retirement, the amounts collected plus any interest credited through the date of
death or retirement may be used to purchase as many whole shares as such amount
will purchase up to the maximum number of shares such employee elected to
purchase with the remainder paid in cash. The purchase price of such shares will
equal 85% of the average market price of the Company's Common Stock on the day
on which the option was granted.
Market Value of the Company's Common Stock. The closing price of the
Company's Common Stock on The New York Stock Exchange on August 31, 2003 was
$39.91.
Prior Offerings. Offerings under the Purchase Plan have been made in each
of the years 1968 through 2002. Thirty-three offerings made in the years 1968
through 2000 have been completed. The offerings made in 2001 and 2002 are still
in progress and, as of August 31, 2003, 2,114,510 and 3,472,245 shares were
under election for purchase at a maximum purchase price of $40.02 and $29.54 per
share, respectively, which represents 85% of the average market price of the
Company's Common Stock on the day on which the option to participate was
granted. If the average market price of the Company's Common Stock on the last
business day of December 2003 and 2004 is less than $47.08 and $34.75,
respectively, the purchase price per share will be equal to the 85% of the
average market price of the Company's Common Stock on such date.
Federal Income Tax Consequences Relating to the Purchase Plan. The Purchase
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of section 423(b) of the Code. The Plan is not qualified under section
401(a) of the Code.
If the optionee does not dispose of the shares transferred to him or her
under the Purchase Plan within two years after the date the right to purchase
the shares is granted and within one year after the purchase of such shares by
him or her, he or she will not realize taxable income upon the grant or exercise
of the option, and any gain or loss subsequently realized by him or her will be
treated as a long-term capital gain or loss, as the case may be, except that
upon a disposition of the shares purchased, or in the event of the employee's
death (whenever occurring) while owning such shares, the employee will be taxed
on an amount of ordinary income equal to the lesser of (i) the excess, if any,
of the fair market value of the shares on the first day of the offering period
over the purchase price or (ii) the excess, if any, of the fair market value of
the shares at the time the shares were disposed of or at the time of death, as
the case may be, over the purchase price. The basis of such shares will be
26
increased by an amount equal to the amount taxable as ordinary income, and any
further gain or loss on such a disposition would be taxable as a long-term
capital gain or loss. The Company will not be entitled to a deduction for
federal income tax purposes with respect to the offer of such shares, the sale
of such shares upon the completion of the offering period or the subsequent
disposition of shares purchased.
If the shares issued under the Purchase Plan are disposed of prior to the
expiration of the required holding periods described above, the employee will
realize ordinary income in the year in which the disqualifying disposition
occurs, the amount of which will generally be the excess of the fair market
value of such shares at the time of purchase over the purchase price. Such
amount will ordinarily be deductible by the Company for federal income tax
purposes. In addition, the excess, if any, of the amount realized on a
disqualifying disposition over the fair market value of the shares on the date
of purchase will be treated as a long-term or short-term capital gain. If the
amount received upon disposition is less than such fair market value, the
difference will be treated as a long-term or short-term capital loss.
Stockholder Approval Required
The Purchase Plan Amendment must be approved by the affirmative vote of the
holders of a majority of the shares present in person or by proxy and entitled
to vote thereon at the meeting of stockholders in order to be adopted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE PURCHASE PLAN AMENDMENT.
27
PROPOSAL 4
APPROVAL OF THE COMPANY'S 2003 DIRECTOR STOCK PLAN
The Board of Directors adopted the 2003 Director Stock Plan, subject to
stockholder approval at this Annual Meeting.
Summary of the 2003 Director Stock Plan
The principal features of the 2003 Director Stock Plan are summarized
below, but such summary is qualified in its entirety by reference to its full
text, a copy of which is filed with the SEC.
Purpose. The purpose of the 2003 Director Stock Plan is to enable the
Company to attract and retain well-qualified individuals as directors and to
align their interests more closely with those of other stockholders of the
Company through annual credits of restricted stock units to directors who are
not employees of the Company or any of its subsidiaries. Information regarding
other compensation provided to non-employee directors is described under the
heading "Corporate Governance" in this Proxy Statement.
Awards. The 2003 Director Stock Plan provides that each non-employee
director will be credited with an annual grant of restricted stock units on the
date established by the Board for the payment of the annual retainer, equal in
number to the annual retainer, which is currently $55,000 and may be adjusted by
the Board of Directors from time to time, divided by the fair market value of a
share of the Company's Common Stock on such date. When a non-employee director
ceases to be a member of the Board of Directors, he or she will receive a number
of shares of the Company's Common Stock equal to the number of restricted stock
units credited to such director under the terms of the 2003 Director Stock Plan.
In addition, the non-employee director shall receive a cash payment equal to the
dividends, if any, that such non-employee director would have received had he or
she received actual shares of the Company's Common Stock (instead of restricted
stock units) at the time of payment of the annual retainer, plus interest
credited under the terms of the 2003 Director Stock Plan from the date such
dividend equivalents were credited to the date of payment. Non-employee
directors will have no voting rights with respect to their restricted stock
units.
Market Value of the Company's Common Stock. The closing price on the New
York Stock Exchange of the Company's Common Stock on August 31, 2003, was $39.91
per share.
Shares Available for Grant. The total number of shares of the Company's
Common Stock available for issuance in respect of restricted stock units granted
under the 2003 Director Stock Plan is 150,000. The maximum number of shares
available for issuance under the 2003 Director Stock Plan and the number of
shares covered by outstanding awards are subject to appropriate adjustment in
the event of any stock dividend, stock split, stock change, reclassification,
recapitalization or combination of shares which changes the character or amount
of the Company's Common Stock.
Administration. The Board of Directors shall administer and enforce the
2003 Director Stock Plan in accordance with its terms, and shall have all powers
necessary to accomplish those purposes, including but not limited to the power
to: (i) compute the number of restricted stock units to be credited to each
non-employee director; (ii) maintain or to designate any person or entity to
maintain all records necessary for the administration of the 2003 Director Stock
Plan; (iii) establish rules for the regulation of the 2003 Director Stock Plan
that are consistent with the terms thereof; (iv) interpret the 2003 Director
Stock Plan and correct any defect or omission or reconcile any inconsistency in
the 2003 Director Stock Plan; and (v) provide for the disclosure of information
to participants or beneficiaries. The Board of Directors may amend, suspend or
terminate the 2003 Director Stock Plan or any portion of the 2003 Director Stock
Plan at any time. However, amendments to the 2003 Director Stock Plan are
subject to stockholder approval if such approval is required by applicable law
or the requirements of any securities exchange on which the Common Stock is then
listed. Amendment or termination of the 2003 Director Stock Plan will not
adversely affect the rights of directors under outstanding awards. Any
determinations made by the Board of Directors regarding the 2003 Director Stock
Plan shall be final and binding on all affected participants and beneficiaries.
28
Federal Income Tax Consequences Relating to the 2003 Director Stock
Plan. Generally, a director who is a U.S. resident will recognize ordinary
compensation income on the date shares of the Company Common Stock are received
by such director in respect of restricted stock units granted under the 2003
Director Stock Plan (when the director ceases to be a member of the Board of
Directors) in an amount equal to the fair market value of such shares, and the
Company will recognize a deduction in the same amount. No income will be
realized by non-employee directors upon the grant of restricted stock units. No
income will be realized by a non-employee director upon the crediting of
dividend equivalents and interest accruals thereon; rather, a director will
recognize ordinary compensation income on the date the cash payment of the
dividend equivalents and interest is made.
New Plan Benefits. As stated above, each non-employee director will
participate in the 2003 Director Stock Plan. Awards under the 2003 Director
Stock Plan are based on the fair market value of the Company's Common Stock and
the amount of the non-employee director annual retainer. Currently, the annual
retainer is $55,000, but the fair market value of the Company's Common Stock on
the date of the payment of the annual retainer is not determinable. Therefore,
the number of restricted stock units which will be granted in the future also is
not determinable. If the 2003 Director Stock Plan had been in effect during the
last completed fiscal year, then based on such year's annual retainer of $35,000
and the stock price of $42.54 on the date such retainer was paid, each
non-employee director would have been credited with 822 restricted stock units
under the 2003 Director Stock Plan.
Stockholder Approval Required
The 2003 Director Stock Plan must be approved by the affirmative vote of
the holders of a majority of the shares present in person or by proxy and
entitled to vote thereon at the meeting of stockholders in order to be adopted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 2003 DIRECTOR STOCK PLAN.
29
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") is comprised of the four independent
members of the Board of Directors named below. Each member of the Audit
Committee satisfies the independence requirements of the NYSE rules currently in
effect. The Board of Directors has determined that Messrs. Brenneman and
Cooperman are audit committee financial experts. The Committee acts under a
written charter, which may be viewed online on the Company's website at
www.adp.com under "Corporate Governance" in the Corporate Overview section.
The Committee oversees the financial management, independent auditors and
financial reporting procedures of the Company on behalf of the Board of
Directors. In fulfilling its oversight responsibilities, the Committee reviewed
and discussed the Company's audited financial statements with management, which
has primary responsibility for the preparation of the financial statements. In
performing its review, the Committee discussed the propriety of the application
of accounting principles by the Company, the reasonableness of significant
judgments and estimates used in the preparation of the financial statements, and
the clarity of disclosures in the financial statements. Management represented
to the Committee that the Company's financial statements were prepared in
accordance with generally accepted accounting principles. The Committee also
reviewed and discussed the Company's audited financial statements with Deloitte
& Touche LLP, the Company's independent auditors for fiscal 2003, which is
responsible for expressing an opinion on the conformity of the Company's audited
financial statements with generally accepted accounting principles.
The Committee has discussed with Deloitte & Touche LLP the matters that are
required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees), as amended. Deloitte & Touche LLP has
provided to the Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Committee discussed with Deloitte & Touche LLP the firm's
independence, including the matters in those written disclosures. The Committee
also considered whether Deloitte & Touche LLP's provision of non-audit services
to the Company and its affiliates and the fees and costs billed and expected to
be billed by Deloitte & Touche LLP for those services, is compatible with
Deloitte & Touche LLP's independence. The Committee has discussed with the
Company's internal and independent auditors, with and without management
present, their evaluations of the Company's internal accounting controls and the
overall quality of the Company's financial reporting.
In addition, the Committee discussed with management, and took into
consideration when issuing this report, the Auditor Independence Policy, which
prohibits the Company or any of its affiliates from entering into most non-audit
related consulting arrangements with its independent auditors on a going-forward
basis. The Auditor Independence Policy is discussed in further detail below
under "Independent Auditors' Fees."
Based on the considerations referred to above, the Committee recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for fiscal 2003. In addition, the Committee
appointed Deloitte & Touche LLP as independent auditors for the Company for
fiscal 2004.
Audit Committee
of the Board of Directors
Leon G. Cooperman, Chairman
Gregory D. Brenneman
Joseph A. Califano, Jr.
Ann Dibble Jordan
30
INDEPENDENT AUDITORS' FEES
In addition to retaining Deloitte & Touche LLP to audit the consolidated
financial statements for fiscal 2003, Deloitte & Touche LLP were retained by the
Audit Committee to provide various services in fiscal 2003. The aggregate fees
billed by Deloitte & Touche LLP in fiscal 2003 and 2002 for these various
services were:
Type of Fees FY 2003 FY 2002
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Audit Fees $3,455 $4,310
Audit-Related Fees 2,672 484
Tax Fees 1,374 1,024
All Other Fees 824 1,395
--------------------------------------------------------------
Total $8,325 $7,212
==============================================================
In the above table, in accordance with new SEC definitions and rules which
the Company elected to adopt early for this fiscal year's Proxy Statement,
"audit fees" are fees the Company paid Deloitte & Touche LLP for professional
services for the audit of the Company's consolidated financial statements
included in the Company's Annual Report on Form 10-K and review of financial
statements included in the Company's Quarterly Reports on Form 10-Q, services
that are normally provided by Deloitte & Touche LLP in connection with statutory
and regulatory filings or engagements or any other services performed by
Deloitte & Touche LLP to comply with generally accepted auditing standards;
"audit-related fees" are fees billed by Deloitte & Touche LLP for assurance and
related services that are typically performed by the independent public
accountant (e.g., due diligence services, employee benefit plan audits and
internal control reviews); "tax fees" are fees for tax compliance, tax advice
and tax planning; and "all other fees" are fees billed by Deloitte & Touche LLP
to the Company for any services not included in the first three categories.
The Board of Directors has adopted a policy (the "Auditor Independence
Policy") that prohibits the Company's independent auditors from providing: (i)
bookkeeping or other services related to the accounting records or financial
statements of the Company; (ii) financial information systems design and
implementation services; (iii) appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal
audit outsourcing services; (vi) management functions or human resources; (vii)
broker or dealer, investment adviser or investment banking services; (viii)
legal services and expert services unrelated to the audit; and (ix) any other
service that the Public Company Accounting Oversight Board determines, by
regulation, is impermissible. The independent auditors are only permitted to
provide services to the Company that have been pre-approved by the Audit
Committee. The independent auditors may only perform non-prohibited non-audit
services that have been specifically approved in advance by the Audit Committee,
regardless of the dollar value of the services to be provided. In addition,
before the Audit Committee will consider granting its approval, the Company's
management must have determined that such specific non-prohibited non-audit
services can be best performed by the independent auditors based on its in-depth
knowledge of the Company's business, processes and policies. The Audit
Committee, as part of its approval process, considers the potential impact of
any proposed work on the auditors' independence.
31
PROPOSAL 5
APPOINTMENT OF AUDITORS
At the Annual Meeting of Stockholders, the stockholders will vote on the
ratification of the appointment by the Audit Committee of Deloitte & Touche LLP,
certified public accountants, as independent auditors to audit the accounts of
the Company and its subsidiaries for the fiscal year that began on July 1, 2003.
Deloitte & Touche LLP is a member of the SEC Practice Section of the American
Institute of Certified Public Accountants. A representative of Deloitte & Touche
LLP will be present at the Annual Meeting of Stockholders and will have an
opportunity to make a statement if he or she desires. He or she will be
available to answer appropriate questions.
Stockholder Approval Required
The affirmative vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote thereon at the meeting of stockholders
is required to ratify Deloitte & Touche LLP's appointment as independent
auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
OF THE COMPANY.
OTHER MATTERS
So far as the Board of Directors is aware, only the aforementioned matters
will be acted upon at the meeting. If any other matters properly come before the
meeting, the accompanying proxy may be voted on such other matters in accordance
with the best judgment of the person or persons voting said proxy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 2003, the Company believes that all
filing requirements under Section 16(a) of the Exchange Act applicable to its
officers, directors and beneficial owners have been complied with, except that
there was an inadvertent omission to report: (i) the transfer of funds
representing common stock of the Company in the 401(k) account on a Form 4
(Statement of Changes in Beneficial Ownership of Securities) filed on behalf of
Mr. Daly, an executive officer, which was subsequently reported in a Form 5
(Annual Statement of Changes in Beneficial Ownership) filed on behalf of Mr.
Daly in August 2003, and (ii) the purchase of common stock of the Company in
fiscal 2003 on a Form 4 filed on behalf of Mr. Op de Beeck, an executive
officer, which was subsequently reported in a Form 5 filed on behalf of Mr. Op
de Beeck in August 2003.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2004 Annual Meeting
must be received by the Company for inclusion in the 2004 Proxy Statement no
later than May 25, 2004.
For any stockholder proposal that is not submitted for inclusion in the
2004 Proxy Statement (as described in the preceding paragraph) but is instead
sought to be presented directly at the 2004 Annual Meeting, SEC rules permit
management to vote proxies in its discretion if the Company (a) receives notice
of the proposal before the close of business on August 9, 2004 and advises
stockholders in next year's proxy statement about the nature of the matter and
how management intends to vote on such matter, or (b) does not receive notice of
the proposal prior to the close of business on August 9, 2004.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended June 30, 2003, which
is not a part of the proxy soliciting material, is being mailed to the Company's
stockholders together with this Proxy Statement.
32
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT
This Proxy Statement and the Company's Annual Report may be viewed online
at www.adp.com under "Investor Information" in the Corporate Overview section.
Stockholders of record may elect to view future proxy statements and annual
reports over the Internet rather than receiving paper copies in the mail and can
thereby save the Company the cost of producing and mailing these documents. If
you vote your shares over the Internet this year, you will be given the
opportunity to choose electronic access at the time you vote. You can also
choose electronic access by following the instructions that you will receive in
connection with next year's annual meeting of stockholders. Stockholders who
choose electronic access will receive an e-mail next year containing the
Internet address to use to access the proxy statement and annual report. Your
choice will remain in effect until you cancel it. You do not have to elect
Internet access each year.
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS
In accordance with notices previously sent to stockholders, the Company is
delivering one annual report and proxy statement in one envelope addressed to
all stockholders who share a single address unless they have notified the
Company that they wish to "opt out" of the program known as "householding."
Householding is intended to reduce the Company's printing and postage costs.
If you are a registered stockholder and you choose not to have the
aforementioned disclosure documents sent to a single household address as
described above, you must "opt-out" by writing to ADP Investor Communication
Services, Sharelink Department, 51 Mercedes Way, Edgewood, New York 11717 or by
calling 1-800-542-1061 and we will cease householding all such disclosure
documents within 30 days. If we do not receive instructions to remove your
account(s) from this service, your account(s) will continue to be "householded"
until we notify you otherwise.
If you own the Company's Common Stock in nominee name (such as through a
broker), information regarding householding of disclosure documents should have
been forwarded to you by your broker.
For the Board of Directors
James B. Benson
Secretary
Roseland, New Jersey
September 22, 2003
33
APPENDIX A
AUTOMATIC DATA PROCESSING, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
A director who meets all of the following categorical standards shall be
presumed to be "independent":
o During the past five years, the Company has not employed the director,
and has not employed (except in a non-officer capacity) any of his or
her immediate family members.
o During the past five years, the director has not been employed (or
affiliated with) the Company's present or former auditors, nor has any
of his or her immediate family members been so employed or affiliated
(except in an non-officer capacity not involving the Company's
business).
o During the past five years, neither the director, nor any of his or her
immediate family members, has been part of an "interlocking
directorate" in which an executive officer of the Company serves on the
compensation (or equivalent) committee of another company that employs
the director.
o The director does not (directly or indirectly as a partner, shareholder
or officer of another company) provide consulting, legal or financial
advisory services to the Company or the Company's present or former
auditors.
o The director is not employed by (or affiliated with) a significant
supplier or customer of the Company. For the purposes of this
categorical standard, a supplier or customer shall be considered
significant if its sales to, or purchases from, the Company represent
more than (i) 1% of the sales of the customer or supplier or (ii) 1% of
the Company's revenues.
o During the past five years, the director has not had a personal
services contract with the Company, its chairman, chief executive
officer or other executive officer, or any affiliate of the Company.
o The director is not an employee, officer or director of a foundation,
university or other non-profit organization to which the Company gives
directly, or indirectly through the provision of services, more than
$100,000 per annum or 1% of the total annual donations received
(whichever is less).
o The director does not, either directly or indirectly as a partner,
shareholder or officer of another company, own more than 5% of the
Company's common stock.
A-1
APPENDIX B
Note: The plan set forth below is filed on a supplemental basis pursuant to
Instruction 3 to Item 10 of Schedule 14A and is not part of the Proxy Statement
distributed to stockholders.
AUTOMATIC DATA PROCESSING, INC.
2000 STOCK OPTION PLAN
(originally effective as of August 10, 1999,
and effective as amended and restated as of
August 11, 2003, subject to stockholder approval)
Automatic Data Processing, Inc., a Delaware corporation (the
"Company"), hereby formulates and adopts the following amended and restated 2000
Stock Option Plan (the "Plan") for employees of the Company and its Subsidiaries
(as defined in Paragraph 5) and non-employee directors of the Company:
1. PURPOSE. The purpose of the Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of common stock,
par value $.10, of the Company ("Common Stock") by selected employees of the
Company and its Subsidiaries, and non-employee directors of the Company, who, in
the judgment of the Committee (as defined in Paragraph 2), are important to the
success and the growth of the business of the Company and its Subsidiaries, and
to help the Company and its Subsidiaries secure and retain the services of such
persons.
2. ADMINISTRATION. Except to the extent required in order to qualify
for exemptive relief under Rule 16b-3 or its successor provision under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or to satisfy
the requirements for performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), in which case the Board
of Directors of the Company (the "Board of Directors"), or a committee appointed
by the Board of Directors which satisfies the requirements of such provisions
shall administer the Plan (and all applicable provisions of the Plan, including
any reference herein to the "Committee", shall be construed accordingly), the
Plan shall be administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee shall select one of its members as
Chairman and shall make such rules and regulations as it shall deem appropriate
concerning the holding of its meetings and transaction of its business. Any
member of the Committee may be removed at any time either with or without cause
by resolution adopted by the Board of Directors, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board of
Directors.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority to interpret the Plan, to prescribe, amend and rescind the
rules and regulations relating to it and to make all other determinations deemed
necessary and advisable for the administration of the Plan. The determinations
of the Committee shall be conclusive.
B-1
3. STOCK SUBJECT TO OPTIONS. Subject to the adjustment provisions of
Paragraph 13 below, a maximum of 71,750,000 shares of Common Stock may be made
subject to Options (as defined below) granted under the Plan. In addition,
subject to the adjustment provisions of Paragraph 13 below, no person may be
granted Options under the Plan during any of the Company's fiscal years with
respect to more than 500,000 shares of Common Stock.
If, and to the extent that, Options granted under the Plan shall
terminate, expire or be canceled for any reason without having been exercised,
new Options may be granted in respect of the shares covered by such terminated,
expired or canceled Options. The granting and terms of such new Options shall
comply in all respects with the provisions of the Plan.
Shares sold upon the exercise of any Option granted under the Plan may
be shares of authorized and unissued Common Stock, shares of issued Common Stock
held in the Company's treasury, or both.
There shall be reserved at all times for sale under the Plan a number
of shares of Common Stock, of either authorized and unissued shares of Common
Stock, shares of Common Stock held in the Company's treasury, or both, equal to
the maximum number of shares that may be purchased pursuant to Options granted
or that may be granted under the Plan.
4. GRANT OF OPTIONS. The Committee shall have the authority and
responsibility, within the limitations of the Plan, to determine the employees
and the non-employee directors to whom Options are to be granted, whether
Options granted to employees shall be "incentive stock options" ("Incentive
Options"), within the meaning of Section 422(b) of the Code, or Options which
are not Incentive Options ("Nonqualified Options" and together with Incentive
Options, "Options," individually, an "Option"), the number of shares that may be
purchased under each Option and the Option price.
In determining the officers, key employees and non-employee directors
to whom Options shall be granted and the number of shares to be covered by each
such Option, the Committee shall take into consideration the individual's
present and potential contribution to the success of the Company and its
Subsidiaries (as defined below) and such other factors as the Committee may deem
proper and relevant.
5. PERSONS ELIGIBLE. Incentive Options may be granted to any key
employee of the Company or any of its Subsidiaries. Nonqualified Options may be
granted to any key employee of the Company or any of its Subsidiaries or
Affiliates and to any non-employee director of the Company. Options may be
granted to employees and non-employee directors who hold or have held Options
under this Plan or any similar or other awards under any other plan of the
Company or any of its Subsidiaries or Affiliates. Employees who are also
officers or directors of the Company or any of its Subsidiaries or Affiliates
shall not by reason of such offices be ineligible as recipients of Options.
For purposes of the Plan, a "Subsidiary" of the Company shall mean any
"subsidiary corporation" as such term is defined in Section 424(f) of the Code.
An entity shall be deemed a
B-2
Subsidiary of the Company only for such periods as the requisite ownership
relationship is maintained.
For purposes of the Plan, an "Affiliate" of the Company shall mean any
corporation, partnership, or other entity controlled by the Company.
Any employee who would own, directly or indirectly, immediately after
the granting of an Option to such person, more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries
shall only be eligible to receive an Incentive Option under the Plan if it
satisfies the requirements of Section 422(c)(5) of the Code.
A person receiving an Option pursuant to the Plan is hereinafter
referred to as an "Optionee".
6. PRICE. The exercise price of each share of Common Stock purchasable
under any Option granted pursuant to the Plan shall not be less than the Fair
Market Value (as defined below) thereof at the time the Option is granted. In no
event shall the Committee cause or permit, without the prior approval of the
Company's stockholders, any Options granted pursuant to the Plan to be repriced,
replaced, or re-granted through cancellation, or to otherwise lower the exercise
price of a previously granted Option.
For purposes of the Plan, "Fair Market Value" of a share of Common
Stock means the average of the high and low sales prices of a share of Common
Stock on the New York Stock Exchange Composite Tape on the date in question. If
shares of Common Stock are not traded on the New York Stock Exchange on such
date, "Fair Market Value" of a share of Common Stock shall be determined by the
Committee in its sole discretion.
7. DURATION OF OPTIONS. Options granted hereunder shall become
exercisable, in whole or in part, all as the Committee in its discretion may
provide upon the granting thereof.
Notwithstanding any provision of the Plan to the contrary, except as
otherwise provided in the applicable award agreement, the unexercised portion of
any Option granted under the Plan shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(a) The expiration of 10 years (or, in the case of an Incentive Option,
five years, in the case of an Optionee described in Section 422(c)(5) of the
Code) from the date on which such Option was granted;
(b) The expiration of 60 days (or such longer period as the Committee
may provide in the event of the Optionee's Permanent and Total Disability (as
defined in Section 22(a)(3) of the Code) from the date of termination of the
Optionee's employment or service with the Company or any of its Subsidiaries;
provided, however, that if the Optionee shall die during such 60-day period (or
such longer period as the Committee may provide in the event of the Optionee's
Permanent and Total Disability) the provisions of subparagraph (c) below shall
apply;
B-3
(c) The expiration of six months after the appointment and
qualification of the executor or administrator of the Optionee's estate or 12
months after the date of the Optionee's death, whichever occurs earlier, if such
death occurs either during employment by, or service with, the Company or any of
its Subsidiaries or during the 60-day period (or such longer period as the
Committee may provide in the event of the Optionee's Permanent and Total
Disability) following the date of termination of such employment or service; and
(d) In whole or in part, at such earlier time or upon occurrence of
such earlier event as the Committee in its discretion may provide upon the
granting of such Option.
The Committee may determine whether any given leave of absence
constitutes a termination of employment or service. Options granted under the
Plan shall not be affected by any change of employment or service so long as the
Optionee continues to be an employee of the Company or any of its Subsidiaries
or non-employee director of the Company.
8. EXERCISE OF OPTIONS. Options shall be exercisable by the Optionee
(or the Optionee's executor or administrator), as to all or part of the shares
covered thereby, by the giving of written notice of the exercise thereof to the
Company at its principal business office, directed to the attention of its
Secretary. The Company shall cause certificates for the shares so purchased to
be delivered to the Optionee (or the Optionee's executor or administrator) at
the Company's principal business office, against payment in full of the purchase
price, which payment may be made by cash, check or money order and, subject to
the Committee's consent, by shares of the Company's Common Stock which are not
subject to any pledge or security interest and have been held for at least 6
months or previously acquired on the open market or by delivery to the Committee
of a copy of irrevocable instructions to a stockbroker to deliver promptly to
the Company any amount of loan proceeds or proceeds of the sale of the shares
subject to the Option sufficient to pay the exercise price on the date specified
in the notice of exercise. Notwithstanding the foregoing, shares of the
Company's Common Stock may not be used by Canadian Optionees to pay the exercise
price of the shares being purchased pursuant to the exercise of an Option.
9. NONTRANSFERABILITY OF OPTIONS. No Option or any right evidenced
thereby shall be transferable in any manner other than by will or the laws of
descent and distribution, and, during the lifetime of an Optionee, only the
Optionee (or the Optionee's court-appointed legal representative) may exercise
an Option.
10. RIGHTS OF OPTIONEE. Neither the Optionee nor the Optionee's
executor or administrator shall have any of the rights of a stockholder of the
Company with respect to the shares subject to an Option until certificates for
such shares shall actually have been issued upon the due exercise of such
Option. No adjustment shall be made for any cash dividend or other right for
which the record date is prior to the date of such due exercise and full payment
for such shares has been made therefor.
11. RIGHT TO TERMINATE EMPLOYMENT OR SERVICE. Nothing in the Plan or in
any Option shall confer upon any Optionee the right to continue in the
employment or service of the Company or any of its
B-4
Subsidiaries or affect the right of the Company or any of its Subsidiaries to
terminate an Optionee's employment at any time, subject, however, to the
provisions of any agreement of employment between the Company or any of its
Subsidiaries and the Optionee.
12. NONALIENATION OF BENEFITS. No right or benefit under the Plan shall
be subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. To the extent permitted by applicable law, no
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts, liabilities or torts of the person entitled to such benefits.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any
stock split, stock dividend, stock change, reclassification, recapitalization or
combination of shares which changes the character or amount of Common Stock
prior to exercise of any portion of an Option theretofore granted under the
Plan, such Option, to the extent that it shall not have been exercised, shall
entitle the Optionee (or the Optionee's executor or administrator) upon its
exercise to receive in substitution such number and kind of shares as the
Optionee would be entitled to receive if the Optionee had actually owned the
stock subject to such Option at the time of the occurrence of such change and
the Options shall be subject to such adjustments, as determined by the
Committee, as to the number, price or kind of stock as determined to be
equitable; provided, however, that if the change is of such a nature that the
Optionee, upon exercise of the Option, would receive property other than shares
of stock, then the Committee shall make an appropriate adjustment in the Option
to provide that the Optionee (or the Optionee's executor or administrator) shall
acquire upon exercise only shares of stock of such number and kind as the
Committee, in its sole judgment, shall deem equitable; and, provided further,
that any such adjustment shall be made so as to conform to the requirements of
Section 424(a) or 162(m) of the Code and the regulations promulgated thereunder.
The Committee shall also make appropriate adjustment in the number of shares
subject to Options under the Plan and the maximum number of shares to be granted
to any person in any fiscal year as determined to be equitable.
In the event that any transaction (other than a change specified in the
preceding paragraph) described in Section 424(a) of the Code affects the Common
Stock subject to any unexercised Option, the Board of the surviving or acquiring
corporation shall make such similar adjustment as is permissible and
appropriate.
If any such change or transaction shall occur, the number and kind of
shares for which Options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
14. PURCHASE FOR INVESTMENT. Whether or not the Options and shares
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an Option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
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The Company will endorse any necessary legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Optionee upon the exercise of any Option
granted under the Plan.
15. FORM OF AGREEMENTS WITH OPTIONEES. Each Option granted pursuant to
the Plan shall be in writing and shall have such form, terms and provisions, not
inconsistent with the provisions of the Plan, as the Committee shall provide for
such Option. Each Optionee shall be notified promptly of such grant, and a
written agreement shall be promptly executed and delivered by the Company and
the Optionee.
16. TERMINATION AND AMENDMENT OF PLAN AND OPTIONS. Unless the Plan
shall theretofore have been terminated as hereinafter provided, Options may be
granted under the Plan at any time, and from time to time, prior to the tenth
anniversary of the Effective Date (as defined below), on which date the Plan
will expire, except as to Options then outstanding under the Plan. Such Options
shall remain in effect until they have been exercised, have expired or have been
canceled.
The Plan may be terminated or modified at any time by the Board of
Directors; provided, however, that any such modification shall comply with all
applicable laws, applicable stock exchange listing requirements, and applicable
requirements for exemption (to the extent necessary) under Rule 16b-3 under the
Exchange Act.
No termination, modification or amendment of the Plan, without the
consent of the Optionee, may adversely affect the rights of such person with
respect to such Option. With the consent of an Optionee and subject to the terms
and conditions of the Plan, the Committee may amend outstanding award agreements
with such Optionee.
17. EFFECTIVE DATE OF PLAN. The Plan originally became effective on
August 10, 1999, the date of its adoption by the Board of Directors (the
"Effective Date"). The amendment and restatement of the Plan, generally
effective as of August 11, 2003, is subject to approval by the Company's
stockholders within 12 months of such date.
18. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
with respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any governmental
agency as may be required, including, without limitation, the effectiveness of
any registration statement required under the Securities Act of 1933, as
amended, and the rules and regulations of any securities exchange on which the
Common Stock may be listed.
19. WITHHOLDING. The Company's obligation to deliver shares of Common
Stock in respect of any Option granted under the Plan shall be subject to all
applicable federal, state, local and foreign tax withholding requirements.
Federal, state, local and foreign withholding taxes due upon the exercise of any
Option (or upon any disqualifying disposition of shares of Common Stock subject
to an Incentive Option), in the Committee's sole discretion, may be paid in
shares of Common Stock (including the withholding of shares subject to an
Option) upon such terms and conditions as the Committee may determine.
Notwithstanding the foregoing, shares of the
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Company's Common Stock may not be used by Canadian Optionees to pay any taxes
due upon the exercise of any Option.
20. SEPARABILITY. If any of the terms or provisions of the Plan
conflict with the requirements of Rule 16b-3 under the Exchange Act and/or
Section 422 of the Code, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3
under the Exchange Act and/or Section 422 of the Code. With respect to Incentive
Options, if the Plan does not contain any provision required to be included
herein under Section 422 of the Code, such provision shall be deemed to be
incorporated herein with the same force and effect as if such provision had been
set out at length herein; provided, further, that to the extent any Option which
is intended to qualify as an Incentive Option cannot so qualify such Option, to
the extent, shall be deemed to be a Nonqualified Option for all purposes of the
Plan.
21. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board of Directors nor the submission of the Plan to the stockholders of the
Company for approval shall be construed as creating any limitation on the power
of the Board of Directors to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options and
the awarding of stock and cash otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By
acceptance of an Option, each Optionee shall be deemed to have agreed that such
grant is special incentive compensation that will not be taken into account, in
any manner, as salary, compensation or bonus in determining the amount of any
payment under any pension, retirement or other employee benefit plan of the
Company or any of its Subsidiaries. In addition, each beneficiary of a deceased
Optionee shall be deemed to have agreed that such Option will not affect the
amount of any life insurance coverage, if any, provided by the Company on the
life of the Optionee which is payable to such beneficiary under any life
insurance plan covering employees of the Company or any of its Subsidiaries.
23. DEFERRAL. The Committee may, in its sole discretion, establish
procedures whereby one or more Optionees may elect to defer the receipt of
shares upon the exercise of Options for a specified period of time or until the
occurrence of a specified event.
24. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
B-7
APPENDIX C
Note: The plan set forth below is filed on a supplemental basis pursuant to
Instruction 3 to Item 10 of Schedule 14A and is not part of the Proxy Statement
distributed to stockholders.
AUTOMATIC DATA PROCESSING, INC.
2003 DIRECTOR STOCK PLAN
(effective as of August 11, 2003,
subject to stockholder approval)
Automatic Data Processing, Inc., a Delaware corporation (the
"Company"), hereby formulates and adopts the following 2003 Director Stock Plan
(the "Plan") for non-employee directors of the Company ("Non-employee
Directors"):
I. Purpose. The purpose of the Plan is to secure for the Company the benefits of
the additional incentive inherent in the payment of Non-employee Director annual
retainer fees in the form of restricted stock units ("Restricted Stock Units")
which entitle the Non-employee Directors to receive, under the terms and
conditions described herein, shares of the common stock of the Company, par
value $.10 per share ("Common Stock"). The Plan is first effective as of August
11, 2003, subject to the approval of the Company's stockholders at the Company's
2003 annual stockholder meeting.
II. Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
A. "Account" means the bookkeeping account established and maintained by the
Company for each Participant. In accordance with Section VI, amounts credited to
an Account will be expressed as a number of Restricted Stock Units.
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B. "Annual Retainer Dollar Amount" means a dollar amount established by the
Board of Directors from time to time as the amount of the annual retainer for
Non-employee Directors.
C. "Beneficiary" means the person or persons designated by a Participant in
accordance with Section VIII to receive the benefits specified hereunder in the
event of the Participant's death or, if there is no surviving designated
Beneficiary, the Participant's estate.
D. "Board of Directors" means the Board of Directors of the Company.
E. "Distribution Date" means, with respect to each Participant (or his
Beneficiary, if the Participant dies before distribution of his Account), the
date he receives a distribution in respect of his Account interests in
accordance with Section VII. A Participant's Distribution Date shall be the
earliest practicable date following the date on which Participant's service as a
Non-employee Director ceases.
F. "Dividend Equivalents" means, with respect to each Restricted Stock Unit, an
amount equal to the cash dividends, if any, which would have been paid with
respect to such Restricted Stock Unit, if such Restricted Stock Unit were an
actual share of Common Stock.
G. "Fair Market Value" of a share of Common Stock means the average of the high
and low sales prices of a share of Common Stock on the New York Stock Exchange
Composite Tape on the date in question. If shares of Common Stock are not traded
on the New York Stock Exchange on such date, "Fair Market Value" of a share of
Common Stock shall be determined by the Board of Directors in its sole
discretion.
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H. "Participant" means any Non-employee Director or former Non-employee Director
for whom the Company maintains an Account under the Plan.
I. "Payment Date" means an annual date established by the Board of Directors
from time to time for the crediting of the annual retainer to Non-employee
Directors in the form of Restricted Stock Units under the Plan.
III. Participation. Only Non-employee Directors may participate in the Plan, and
all Non-employee Directors shall participate in the Plan unless determined by a
majority vote of the entire Board of Directors.
IV. Administration.
A. Authority of the Board of Directors. The Board of Directors shall administer
-----------------------------------
and enforce the Plan in accordance with its terms, and shall have all powers
necessary to accomplish those purposes, including but not limited to the power
to: (i) compute the number of Restricted Stock Units to be credited to each
Account; (ii) maintain or to designate any person or entity to maintain all
records necessary for the administration of the Plan; (iii) establish rules for
the regulation of the Plan that are consistent with the terms hereof; (iv)
interpret the Plan and correct any defect or omission or reconcile any
inconsistency in the Plan; and (v) provide for the disclosure of information to
Participants or Beneficiaries. Any determinations made by the Board of Directors
regarding the Plan shall be final and binding on all affected Participants and
Beneficiaries.
Notwithstanding the above, no member of the Board of Directors shall
participate in any matter which involves solely a determination of the benefits
payable to him under the
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Plan. Any action of the Board of Directors with respect to the Plan shall be
conclusive and binding upon all persons interested in the Plan except to the
extent otherwise specifically indicated herein. The Board of Directors may
appoint agents and delegate thereto such powers and duties in connection with
the administration of the Plan as it may from time to time prescribe.
B. Indemnification of the Board of Directors. To the maximum extent permitted by
-----------------------------------------
applicable law, the Board of Directors, and each member thereof, shall not be
liable for, and the Company shall indemnify the Board of Directors, and each
member thereof, and agree to hold the Board of Directors, and each member
thereof, harmless from, all liabilities and claims (including reasonable
attorney's fees and expenses in defending against such liabilities and claims)
against the Board of Directors, and each member thereof, arising from any
actions taken thereby in connection with the administration of the Plan unless
such liabilities or claims are the result of the gross negligence or willful
misconduct thereof.
V. Common Stock Subject to the Plan. Subject to the adjustment provisions of
Section VI.B. below, a maximum of 150,000 shares of Common Stock may be
delivered under the Plan. There shall be reserved at all times for delivery
under the Plan a number of shares of Common Stock, of either authorized and
unissued shares of Common Stock, shares of Common Stock held in the Company's
treasury, or both, equal to the maximum number of shares that may be delivered
under the Plan.
VI. Participant Accounts.
A. Crediting of Restricted Stock Units. On each Payment Date, the Account of
-----------------------------------
each Non-employee Director shall be credited with a number of Restricted Stock
Units (rounded
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down to the nearest whole share) equal to the Annual Retainer Dollar Amount
divided by the Fair Market Value of a share of Common Stock on such Payment
Date.
B. Adjustments to Accounts. In the event of any stock split, stock dividend,
-----------------------
stock change, reclassification, recapitalization or combination of shares which
changes the character or amount of Common Stock prior to the distribution of any
Account, the number of Restricted Stock Units in each Account shall be adjusted
to entitle the Participant to receive the same number and kind of shares as the
Participant would be entitled to receive if the Participant had actually owned
the stock represented by such Restricted Stock Units at the time of the
occurrence of such change and the Restricted Stock Units shall be subject to
such adjustments, as determined by the Board of Directors, as to the number,
price or kind of stock as determined to be equitable; provided, however, that if
the change is of such a nature that the Participant, upon distribution of the
Account, would receive property other than shares of stock, then the Board of
Directors shall make an appropriate adjustment to provide that the Participant
(or the Participant's Beneficiary) shall acquire upon distribution of the
Account only shares of stock of such number and kind as the Board of Directors,
in its sole judgment, shall deem equitable. If any such change or transaction
shall occur, the number of shares of Common Stock specified in Section V and
kind of shares for which Restricted Stock Units may thereafter be granted under
the Plan shall be adjusted to give effect thereto.
C. Vesting. The interest of each Participant in any benefit payable with respect
-------
to an Account hereunder shall be at all times fully vested and non-forfeitable.
Notwithstanding the previous sentence, a Participant's interest in his Account
constitutes an unsecured promise of the Company, and a Participant shall have
only the rights of a general unsecured creditor of the Company with respect to
his Account.
C-5
D. Dividend Equivalents. Each Account shall be credited with Dividend
--------------------
Equivalents on each date a dividend is paid on Common Stock, in respect of the
Restricted Stock Units credited to such Account on such payment date. Dividend
Equivalents credited to an Account shall accrue interest (compounding annually)
from the date of such crediting through the Distribution Date, with the
applicable interest rate for each twelve month period beginning on November 1
during such period, or any applicable portion thereof, being the rate for
five-year U.S. Treasury Notes published in The Wall Street Journal (or, in the
absence of such reference, such alternate publication the Board of Directors may
select from time to time) on the first business day of November of such twelve
month period plus 0.50%, rounded up to the nearest 0.25%.
VII. Distributions.
A. Distributions. On his Distribution Date, each Participant shall receive (i) a
-------------
number of shares of Common Stock equal to the number of Restricted Stock Units
in such Participant's Account and (ii) a cash payment equal to the accrued
Dividend Equivalents, plus interest then credited to such Account.
B. Receipt and Release. Any distribution to any Participant or Beneficiary in
accordance with the provisions of this Section VII shall be in full satisfaction
of all claims under the Plan against the Company and the Board of Directors. The
Board of Directors may require any Participant or Beneficiary, as a condition to
payment, to execute a receipt and release to such effect.
VIII. Beneficiaries. Each Participant may designate one or more Beneficiaries to
receive the amounts distributable from such Participant's Account under the Plan
in the event of such
C-6
Participant's death. Such designations shall be made on forms provided by the
Board of Directors. A Participant may from time to time change his designated
Beneficiaries, without the consent of such Beneficiaries, by filing a new
designation in writing with the Board of Directors. The Company and Board of
Directors may rely conclusively upon the Beneficiary designation last filed in
accordance with the terms of the Plan.
IX. Amendments to the Plan; Termination of the Plan. The Board of Directors may
amend, alter, suspend, discontinue or terminate the Plan without the consent of
any Participant; provided, however, that no such amendment, alteration,
-------- -------
suspension, discontinuation, or termination of the Plan shall materially and
adversely affect the rights of any Participant with respect to amounts already
credited to such Participant's Account. The Plan has no fixed termination date.
X. General Provisions.
A. Limits on Transfer of Rights; Beneficiaries. No right or interest of a
-------------------------------------------
Participant under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Participant or his Beneficiary, or shall be
transferable by a Participant otherwise than by will or the laws of descent and
distribution; provided, however, that a Participant may designate a Beneficiary
in accordance with Section VIII to receive any payment or distribution under the
Plan in the event of the death of the Participant. A Beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
applicable to such Participant, except to the extent the Plan otherwise provides
with respect to such persons.
C-7
B. No Rights of a Stockholder. No Participant shall have any of the rights or
--------------------------
privileges of a stockholder of the Company as a result of the establishing of or
crediting of any amounts to an Account under the Plan, until Common Stock is
actually distributed to the Participant pursuant to Section VII of the Plan.
C. No Right to Continued Election as a Director. Nothing contained in the Plan
--------------------------------------------
shall confer, and no establishment of or crediting of any amounts to an Account
shall be construed as conferring, upon any Participant, any right to continue as
a member of the Board of Directors, or to interfere in any way with the right of
the Board of Directors to increase or decrease the amount of the Annual Retainer
Dollar Amount, or any other compensation payable to Non-employee Directors.
D. Governing Law. The validity, construction and effect of the Plan and any
-------------
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of New Jersey, without giving effect to principles of
conflicts of laws.
E. Interpretation. Whenever necessary or appropriate in the Plan, where the
--------------
context admits, the singular term and the related pronouns shall include the
plural and the masculine gender shall include the feminine gender.
F. Nonalienation of Benefits. No right or benefit under the Plan shall be
-------------------------
subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. To the extent permitted by applicable law, no
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts, liabilities or torts of the person entitled to such benefits.
C-8
G. Separability. If any provision of the Plan is declared invalid, illegal or
------------
incapable of being enforced by any court of competent jurisdiction, all of the
remaining provisions of the Plan shall nevertheless continue in full force and
effect and no provisions shall be deemed dependent upon any other provision
unless expressly set forth herein.
C-9
APPENDIX D
Note: The plan set forth below is filed on a supplemental basis pursuant to
Instruction 3 to Item 10 of Schedule 14A and is not part of the Proxy Statement
distributed to stockholders.
[Conformed copy through August 11, 2003]
AUTOMATIC DATA PROCESSING, INC.
EMPLOYEES' SAVING - STOCK PURCHASE PLAN
The following are the terms and restrictions of the Employees' Saving -
Stock Purchase Plan as adopted by the Board of Directors of Automatic Data
Processing, Inc. (the "Company") on May 2, 1968 subject to the approval of the
stockholders of the Company:
1. The maximum number of shares of the Common Stock of the
Company that may be issued and sold under the Plan is 60,000,000. Payment for
shares will be made on an installment basis either by payroll allotments or by
direct cash payments, with no right of prepayment. Interest will be allowed on
employees' accounts at a rate to be determined by the Company in connection with
each offering under the Plan.
2. The Plan will be extended to regular employees of the Company
and such of its subsidiaries as may be invited to participate by the Company
pursuant to the terms of any offering, subject to the right of each employing
company to determine that the Plan, or any offering thereunder, shall not be
extended to any of the following categories or groups of its regular employees
and to change such determination from time to time: (a) employees who have been
employed less than 2 years; (b) employees whose customary employment is 10 hours
or less per week; (c) employees whose customary employment is for not more than
5 months in any calendar year; and (d) officers, persons whose principal duties
consist of supervising the work of other employees, or highly compensated
employees.
D-1
3. There will be one or more offerings under the Plan. In
connection with each offering the Company will designate the number of shares
available for purchase and the period during which installment payments shall be
made (the "purchase period").
4. The Company will specify with respect to each offering,
proportionately to the basic rates of pay, the maximum number of shares which
employees may elect to purchase. The Company may, in connection with any
offering under the Plan, fix a maximum number of shares that each employee may
elect to purchase thereunder.
If the total number of shares which employees elect to purchase under
any offering exceeds the shares available for purchase under the offering, the
Company may make allotments of shares among such employees.
5. The price (except as provided in Section Six and Seven) at
which shares will be sold to employees under each offering will be 85 percent of
the average market price* on the last business day** of the purchase period
specified in such offering, but not more than 85 percent of the average market
price on the day on which the option is granted. The Company may, in connection
with any offering under the Plan, fix a minimum price at which shares will be
sold to employees under the offering. Certificates
- ------------------------
* The phrase "average market price" as used herein means the average of the
high and low prices per share of the Company's Common Stock on the New York
Stock Exchange Composite Tape.
** The phrase "business day" as used herein means a day on which there is
trading on the stock of the Company on the American Stock Exchange (or, as
noted above, on the New York Stock Exchange).
D-2
representing the shares purchased will be issued as soon as practicable after
the end of the purchase period, and any remaining balance in an employee's
account will be paid to the employee.
6. Any employee who has elected to purchase shares may cancel his
election to purchase as to any or all of such shares, and shall receive a cash
refund of the amount credited to his account with respect to the shares as to
which he has cancelled. Cancellation of an election to purchase will not affect
the right of an employee to re-enter the Plan by filing a new election to
purchase under another offering.
An election to purchase will be deemed to be cancelled, and no further
allotments or payments thereunder will be permitted, if the employee dies,
resigns, or is dismissed, or if he transfers to a company other than the Company
or a subsidiary thereof, or if the company by which he is employed ceases to be
a subsidiary of the Company. In case an election to purchase is so deemed to be
cancelled, the employee will receive the cash refund as set out above.
7. An employee who has been granted a leave of absence by the
Company or the subsidiary employing him whether by reason of disability or
otherwise may suspend payments, or make payments in cash, for a period not to
exceed three months following the date of the commencement of such leave of
absence. After such period if the leave of absence continues the election will
be deemed to be cancelled, and the employee shall be given the options of (a)
receiving a cash refund of the amount credited to his account, or (b) taking
such number of shares as such amount will purchase and receiving the balance, if
any, of such amount in cash. When option (b) is elected, the cancellation will
not become effective until the close of business on the last business day
D-3
of the month in which the leave of absence commenced, and the price at which
shares will be sold will be 85 percent of the average market price for such day,
but not more than 85 percent of the average market price on the day on which the
option is granted. The price in no event, however, will be less than the minimum
price, if any, fixed with respect to the offering.
An employee who has retired will be permitted to continue payments for
a period not exceeding three months after retirement and if, at the expiration
of such period, payment for the shares has not been completed, either of the
options described in the preceding paragraph of this Section Seven may be
exercised with respect to the balance in his account.
8. In the event of a stock dividend or a subdivision or
combination of the shares of capital stock of the Company, the maximum number of
shares which may thereafter be issued and sold under the Plan and the number of
shares under elections to purchase will be proportionately increased or
decreased, the terms relating to the price at which shares under elections to
purchase will b sold will be appropriately adjusted, and such other action will
be taken as in the opinion of the Board of Directors of the Company will be
appropriate under the circumstances. In case of reclassification or other change
in the shares of the capital stock of the Company, the Board of Directors of the
Company will make appropriate adjustments.
In the event that any transaction (other than a change specified in the
preceding paragraph) described in section 425(a) of the Internal Revenue Code of
1954, as from time to time amended, affects the shares subject to election to
purchase, the Board of Directors of the surviving or acquiring corporation may,
but shall not be
D-4
required to, make such similar modification as is permissible, appropriate and
authorized by such section.
9. No employee shall be granted an option under any offering made
pursuant to this Plan if such employee, immediately after the option is granted,
owns stock possessing 5 percent or more of the total combined voting power or
value of all classes of stock of the Company.
10. No employee may be granted an option under any offering made
pursuant to this Plan which permits his rights to purchase stock under all such
plans of the Company and its subsidiaries to accrue at a rate which exceeds
$25,000 of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
11. No option granted under any offering made pursuant to this
Plan shall be transferable by such individual, and shall be exercisable, during
his lifetime, only by him.
12. Subject to the foregoing terms and restrictions, rules and
regulations and other matters relating to the Plan may be prescribed by the
Board of Directors of the Company.
D-5
September 22, 2003
Dear Stockholder:
You are cordially invited to join us at the 2003 Annual Meeting of
Stockholders of Automatic Data Processing, Inc. This year's meeting will be
held at the corporate offices of the Company at One ADP Boulevard, Roseland, New
Jersey, on Tuesday, November 11, 2003, starting at 10:00 a.m. I hope you will be
able to attend. At the meeting we will (i) elect directors, (ii) approve the
amendments to the Company's 2000 Key Employees' Stock Option Plan, (iii)
approve the amendment to the Company's Employees' Savings-Stock Purchase Plan,
(iv) approve the Company's 2003 Director Stock Plan and (v) vote on the
appointment of Deloitte & Touche LLP as independent auditors.
It is important that your shares be voted, whether or not you plan to be
present at the meeting. You should specify your choices by marking the
appropriate boxes on the proxy form on the reverse side, and date, sign and
return your proxy form in the enclosed, postage-paid return envelope as promptly
as possible. Alternatively, you may vote by phone or by the Internet, as
described on the reverse side. If you date, sign and return your proxy form
without specifying your choices, your shares will be voted in accordance with
the recommendation of your directors.
Please retain and present this top portion of the proxy card as your
admission ticket together with a valid picture identification to gain
admittance to the meeting. This ticket will admit only the stockholder listed
on the reverse side and is not transferable. If your shares are in the name of
your broker or bank or you received your proxy materials electronically, you
will need to bring evidence of your stock ownership, such as your most recent
brokerage account statement.
As in the past years, we will discuss the business of the Company and its
subsidiaries during the meeting. I welcome your comments and suggestions, and we
will provide time during the meeting for questions from stockholders. I am
looking forward to seeing you at the meeting.
Sincerely,
/s/ Arthur F. Weinbach
----------------------
Arthur F. Weinbach
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
[ADP logo]
Proxy
This proxy is solicited on behalf of the Board of Directors
Properly executed proxies received by the day before the cut-off date or the
meeting date will be voted as marked and, if not marked, will be voted FOR the
election of the nominees listed in the accompanying Proxy Statement and FOR
proposals (2), (3), (4) and (5) on the reverse side.
The undersigned hereby appoints Arthur F. Weinbach and Gary C. Butler, and each
of them, attorneys and proxies with full power of substitution, in the name,
place and stead of the undersigned, to vote as proxy at the 2003 Annual Meeting
of Stockholders of Automatic Data Processing, Inc. to be held at the corporate
offices of the Company, ONE ADP BOULEVARD, ROSELAND, NEW JERSEY, on Tuesday,
November 11, 2003 at 10:00 a.m., or at any adjournment or adjournments thereof,
according to the number of votes that the undersigned would be entitled to cast
if personally present.
If shares of Automatic Data Processing, Inc. Common Stock are issued to or held
for the account of the undersigned under employee plans and voting rights
attach to such shares (any of such plans, a "Voting Plan"), then the undersigned
hereby directs the respective fiduciary of each applicable Voting Plan to vote
all shares of Automatic Data Processing, Inc. Common Stock in the undersigned's
name and/or account under such Voting Plan in accordance with the instructions
given herein, at the Annual Meeting and at any adjournments or postponements
thereof, on all matters properly coming before the Annual Meeting, including but
not limited to the matters set forth on the reverse side.
Either of said attorneys and proxies or substitutes, who shall be present at
such meeting or at any adjournment or adjournments thereof, shall have all the
powers granted to such attorneys and proxies.
Please date, sign and mail the proxy promptly in the self-addressed return
envelope which requires no postage if mailed in the United States. When signing
as an attorney, executor, administrator, trustee or guardian, please give your
full title as such. If shares are held jointly, both owners should sign.
Alternatively, you may vote by phone or by the Internet, as described in the
instructions on the reverse side.
[ADP logo] VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
AUTOMATIC DATA PROCESSING, INC. instructions and for electronic delivery
PROXY SERVICES of information up until 11:59 P.M. Eastern
P.O. BOX 9122 Time the day before the cut-off date or
FARMINGDALE, NY 11735 meeting date. Have your proxy card in hand
when you access the web site. You will be
prompted to enter your 12-digit Control
Number which is located below to obtain
your records and to create an electronic
voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59
P.M. Eastern Time the day before the
cut-off date or meeting date. Have your
proxy card in hand when you call. You will
be prompted to enter your 12-digit Control
Number which is located below and then
follow the simple instructions the Vote
Voice provides you.
ADMISSION TICKET VOTE BY MAIL
- ---------------- Mark, sign, and date your proxy card and
Please retain and present this top return it in the postage-paid envelope we
portion of the proxy card as your have provided or return it to Automatic
admission ticket together with a Data Processing, Inc. c/o ADP, 51 Mercedes
valid picture identification to Way, Edgewood, NY 11717. All proxy cards
gain admittance to the Annual must be received by the day before the
Meeting. cut-off date or the meeting date.
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
AUTOMATIC DATA PROCESSING, INC.
The Board of Directors recommends a vote
FOR the proposals regarding:
(1) Election of Directors
Nominees: For Withhold For All To withhold authority to vote, mark "For All Except"
01) Gregory D. Brenneman 07) Harvey M. Krueger All All Except and write the nominee's number on the line below.
02) Leslie A. Brun 08) Frederic V. Malek
03) Gary C. Butler 09) Henry Taub [ ] [ ] [ ] ----------------------------------------------------
04) Joseph A. Califano, Jr. 10) Arthur F. Weinbach
05) Leon G. Cooperman 11) Josh S. Weston
06) Ann Dibble Jordan
For Against Abstain
(2) Approval of the amendments to the Company's 2000
Key Employees' Stock Option Plan [ ] [ ] [ ]
(3) Approval of the amendment to the Company's Employees'
Savings-Stock Purchase Plan [ ] [ ] [ ]
(4) Approval of the Company's 2003 Director Stock Plan [ ] [ ] [ ]
(5) Appointment of Deloitte & Touche LLP [ ] [ ] [ ]
(6) Upon any and all other matters which may properly come
before the meeting or any adjournment thereof.
Please sign below exactly as the name(s) appear on your stock certificate
(as indicated hereon). If the shares are issued in the names of two or
more persons, all such persons must sign the proxy.
Yes No
Please indicate if you plan to attend this meeting [ ] [ ]
HOUSEHOLDING ELECTION - Please indicate if you consent to
receive certain future investor communications in a single
package per household [ ] [ ]
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date