Filed Pursuant to Rule 424(b)(3)
Registration No. 333-76620
PROSPECTUS
3,733,334 SHARES
PROBUSINESS SERVICES, INC.
COMMON STOCK
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This prospectus relates to the public offering by some of our current
stockholders, which is not being underwritten, of 3,733,334 shares of our common
stock. The selling stockholders purchased the shares offered under this
prospectus in a private placement with the first closing held in December 2001
and the second closing held in February 2002.
The prices at which the selling stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any proceeds from the sale of the shares. See
"Plan of Distribution" beginning on page 17.
Our common stock is listed on the Nasdaq National Market under the
symbol "PRBZ." The last reported sale price of our common stock on May 17, 2002
was $19.83 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Prospectus dated May 17, 2002.
TABLE OF CONTENTS
Page
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Where You Can Find More Information............................................2
Incorporation Of Certain Information By Reference..............................3
Forward-Looking Statements.....................................................4
Probusiness Services, Inc......................................................4
Risk Factors...................................................................6
Use of Proceeds...............................................................14
Selling Stockholders..........................................................14
Plan Of Distribution..........................................................17
Legal Matters.................................................................18
Experts ......................................................................18
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING
STOCKHOLDERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF OUR
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF THE COMMON STOCK.
In this prospectus "ProBusiness," "we," and the "Company" refer to
ProBusiness Services, Inc.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission, or the SEC. You
may read and copy any document we file with the SEC at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from the SEC's web site at
http://www.sec.gov.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below, and any future filings we
may make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, prior to the termination
of this offering.
(1) Our Annual Report on Form 10-K, for the fiscal year ended June 30, 2001,
filed on September 28, 2001;
(2) Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2001, filed on November 14, 2001;
(3) Our Quarterly Report on Form 10-Q for the quarter ended December 31,
2001, filed on February 14, 2002;
(4) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
filed on May 13, 2002;
(5) Our Current Report on Form 8-K dated January 7, 2002, filed on January
7, 2002, and as amended by the Current Report on Form 8-K/A filed on
February 19, 2002;
(6) The description of our common stock contained in our registration
statement on Form 8-A filed on September 4, 1997; and
(7) The description of our preferred stock purchase rights contained in our
registration statement on Form 8-A filed on August 17, 2001, as amended
by the registration statement on Form 8-A/A filed on January 8, 2002.
Any statement contained in a document incorporated by reference will be
modified or superseded for all purposes to the extent that a statement contained
in this prospectus (or in any other document that is subsequently filed with the
SEC and incorporated by reference) modifies or is contrary to that previous
statement. Any statement so modified or superseded will not be deemed part of
this prospectus except as so modified or superseded.
You may request, a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
4125 Hopyard Road
Pleasanton, California 94588
(925) 737-3500
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FORWARD-LOOKING STATEMENTS
This prospectus, including the documents incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of
the Exchange Act. These forward-looking statements are based on current
expectations, estimates and projections about our industry, management's
beliefs, and certain assumptions made by management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and actual
actions or results may differ materially. These statements are subject to
certain risks, uncertainties and assumptions that are difficult to predict,
including those set forth herein under "Risk Factors" as well as those noted in
the documents incorporated herein by reference. We undertake no obligation to
update publicly any forward-looking statements as a result of new information,
future events or otherwise, unless required by law. Readers should, however,
carefully review the risk factors included in other reports or documents filed
by us from time to time with the SEC.
PROBUSINESS SERVICES, INC.
We are a leading provider of comprehensive administrative outsourced
services to large employers nationwide, providing solutions that include
corporate employee payroll processing, payroll tax filing and other critical
human resources, or HR, and benefits functions. Our comprehensive and integrated
outsourced payroll processing and tax filing solution has expanded to include a
multitude of other similarly integrated products including payroll
administration, HR Service and benefits administration, including the
enrollment and processing of flexible benefits plans and COBRA benefits, and
Web-based self-service applications for employers which allow employees to
access personal information and perform routine administrative tasks online such
as viewing current and historical paychecks, changing a direct deposit
authorization and verifying paid time off balances. These services are combined
into a single, technology platform combining sophisticated transaction
processing and Internet-enabled workstations to form a comprehensive HR
outsourcing product. We derive our revenue from fees charged to clients for
services and income earned from investing payroll tax funds. During fiscal year
2001, we processed 37 million paychecks for employees, filed over 3.5 million
Form W-2s with the Internal Revenue Service and managed the flow of over $90
billion in payroll and tax collections.
Below is a description of our services:
PAYROLL PROCESSING. We process time and attendance data to calculate and
produce employee paychecks, direct deposits and reports for our clients. Our
clients receive paychecks and reports within approximately 24 to 48 hours of our
receipt of their electronically submitted data. Our system is highly
configurable to meet the specialized and, often times, complex needs of large
employers, yet maintains the ability to provide high-volume processing. The
system integrates easily with the client's general ledger, HR, and time and
attendance systems. In addition, we offer many sophisticated features, including
the automatic enrollment and tracking of paid time off, prorating of
compensation for new hires and integrated garnishment processing.
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PAYROLL TAX FILING. We calculate and collect contributed employer and
employee payroll tax funds from clients and deposit such funds with tax
authorities when due. We also file all payroll tax returns and reconcile the
client's account. Additionally, we will represent the client before tax
authorities in disputes or inquiries. A substantial portion of our existing
payroll clients utilize our payroll tax service.
HR SERVICE. Our HR Service support a client in tracking and reporting
employee information including job and salary events and history, benefit plan
enrollment, leave of absence, education and skills, disciplinary actions,
performance and worker's compensation incidents. HR data can be transferred to
the payroll services system to eliminate the need for duplicate data entry.
BENEFITS ADMINISTRATION SERVICES. Our benefits administration services
include flexible benefits enrollment and processing, COBRA administration, and
consolidated billing and eligibility tracking. These services include data
management, reconciliation, transaction processing, employee inquiry management
and client service.
COMPREHENSIVE OUTSOURCING. Our Comprehensive Outsourcing service
offering, which includes payroll administration, serves as an extension of our
client's business as we fully manage employee inquiries and other departmental
administrative functions for payroll, HR and benefits in addition to our
traditional back-office processing services. When a client adopts Comprehensive
Outsourcing service offering, we assume the management of such transactional
administration as the recording and verification of time, the issuance of manual
checks, the enrollment of employees in flexible spending benefit programs and
the auditing and balancing of payroll.
WEB-BASED SELF-SERVICE APPLICATIONS. Our self-service applications
provide employers with a complete range of employee relationship management
applications. Employers have a Web-based tool, which not only facilitates HR and
payroll processes, but also allows employees to utilize self-directed
administration services such as viewing current and historical paychecks,
changing a direct deposit authorization, activating a new authorization or
terminating an existing authorization, verifying paid time off balances,
reviewing time taken in previous pay periods, accessing information related to
and dates of company events, changing W-4 information, downloading state tax
forms and accessing W-2 records.
We were incorporated in California in October 1984 and reincorporated in
Delaware in September 1997. Our executive offices are located at 4125 Hopyard
Road, Pleasanton, California 94588, and our telephone number is (925) 737-3500.
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RISK FACTORS
You should carefully consider the risks described below, together with
other information contained in or incorporated by reference into this
prospectus, before making an investment decision. If any of the following risks
actually occurs, our business, financial condition and results of operations
could be seriously harmed. This could cause the trading price of our common
stock to decline, and you may lose all or part of your investment. In assessing
these risks, you should also refer to the other information contained or
incorporated by reference in this prospectus, including our consolidated
financial statements and related notes.
RISKS RELATED TO OUR BUSINESS
We have sustained a history of operating losses and may not achieve
profitability in the future. We have experienced significant operating losses
since our inception. Historically, we have incurred operating losses due to
continued investments in client acquisition costs and research and development.
We also incurred costs associated with expanding our sales efforts, service
offerings and operations to new geographic regions. As of March 31, 2002,
we had an accumulated deficit of $120.0 million. While our current target
is to achieve profitability for FY2003, we may fail to achieve profitability by
such time and it is possible that we may never achieve or sustain profitability
in the future. Failure to generate profit would harm our financial condition and
results of operations.
Investment risks, such as interest rate fluctuations, could harm our
business. We invest funds, including payroll tax funds transferred to us by our
clients, in short-term, top-tier, high quality financial instruments. Among
other instruments, we invest in overnight U.S. government direct and agency
obligations, commercial paper and institutional money market funds. Our
investments are subject to credit risks and interest rate fluctuations. For
example, if borrowers fail to meet the terms of their obligations under
financial instruments in which we have invested, we would be liable for any
losses on those investments. Interest income earned from the investment of
client payroll tax funds represents a significant portion of our revenue. As a
result, interest rate fluctuations could significantly impact our results of
operations. For example, our future results may be adversely affected as a
result of recent declines in interest rates. We have historically entered into
interest rate swap agreements to minimize the impact of interest rate
fluctuations. However, these swap agreements will not protect us from all
interest rate risks. In some circumstances, if interest rates rise, we would
have payment obligations under our interest rate swap agreements, and these
payments may exceed the interest we earn on deposited funds. Any payment
obligation under our swap agreements could harm our results of operations. If we
default under our swap agreements, the default could result in acceleration and
setoff by the bank of all outstanding contracts under the swap agreements and
could result in cross-defaults of other debt agreements. Additionally, if the
party to our swap agreements fails to meet the terms of its obligations under
our executed swap agreements, all amounts hedged under the swap agreements would
then be subject to market interest rate fluctuation and the swap agreements
could become ineffective. In the future, we may increase or reduce the level of
funds hedged with interest rate swap agreements. If we do decrease our level of
investments covered under interest rate swap agreements, we could be subject to
greater interest rate fluctuations. Any of these consequences could harm our
business and financial condition.
Our operating results have fluctuated, and will continue to fluctuate,
from quarter to quarter, and negative fluctuations could materially lower the
price of our common stock. Our quarterly operating results have fluctuated in
the past and will continue to fluctuate in the future depending on a variety of
factors, including the following:
- interest rates;
- a reduction in the number of employees of our clients;
- the decision of one or more clients to delay or cancel implementation
or ongoing services;
- the number and size of new clients starting services;
- seasonality;
- our ability to timely design, develop, introduce and implement
services and features for new and existing services;
- services offerings provided by competitors:
- costs associated with strategic acquisitions and alliances or
investments in technology;
- the success of strategic acquisitions, alliances or investments;
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- costs to transition to new technologies;
- expenses incurred for geographic expansion;
- risks associated with the administration of third-party funds for our
payroll tax and benefits administration services;
- price competition; and
- general economic factors.
A substantial majority of our operating expenses, particularly personnel
and related costs, depreciation and rent, are relatively fixed in advance of any
particular quarter. As a result, we may not be able to timely cut costs in
response to any decrease in revenue. For example, any decision by a client to
delay or cancel our services, or our under-utilization of personnel, may cause
significant variations in operating results and could result in additional
losses for the applicable quarters. Additionally, as we secure larger clients,
the time and expense required to implement our services increases, which could
contribute to larger fluctuations in results of operations.
The general condition of the United States economy and the current weakness
in the economy has and will continue to affect our business. These effects have
taken the forms of declines in interest rates, client staff reductions, strikes,
and acquisitions of our clients by other companies, among others. In addition,
potential clients and existing clients are also less likely to switch service
providers and in some cases are delaying or postponing purchasing decisions.
These factors could result in the reduction of the aggregate amount of payroll
that we process and the amount of interest that we earn on such funds. In
addition, the general condition of the United States economy is affected by
social, political and military conditions, including terrorist threats and acts
and any response by the United States to such threats and acts. Our future
revenue and results of operations may vary substantially. In some future quarter
our results of operations could be below the expectations of public market
analysts and investors, which could cause the market price of our common stock
to decrease dramatically.
We need to incur substantial expenses to gain more clients and expand our
offerings, but we may not realize profits from these expenses. Our ability to
achieve profitability will depend in part upon our ability to attract and retain
new clients, offer new services and features and achieve market acceptance of
new services. Establishing new client relationships is a time-consuming and
expensive process. It generally takes three to twelve months or longer, and
implementing our services generally takes an additional three to nine months or
longer. These sales cycles may lengthen as the economy continues to weaken. As
we acquire each new client, we incur substantial client acquisition costs, which
consist primarily of sales and implementation expenses and, to a lesser extent,
marketing expenses. We incur these costs in advance of revenue, and we cannot
guarantee how long it will take to fully recoup these costs. If we cannot
maintain our historically high client retention rate, our return on customer
acquisition cost will be significantly lower. As we expand our service
offerings, we incur substantial operating costs associated with hiring the
management and building the operational infrastructure. We may not realize
profits from these investments, and failure to do so would harm our financial
condition and results of operations.
We incur substantial costs investing in new technologies but may fail to
successfully introduce new offerings. We will incur substantial costs in
developing or acquiring new technologies and in deploying new services and
features to our clients. These costs include costs associated with acquiring
in-process technology and amortization expenses related to intangible assets and
costs of additional personnel. If we cannot develop or acquire and successfully
introduce new services and new features of existing services in a cost-effective
manner, our business will suffer. We have spent and will continue to spend
significant time and money in the development of our next generation core
payroll processing system, GOLDEN GATE, and in the development and staffing of
our outsourced employee administrative services offering, Comprehensive
Outsourcing. We may not successfully develop this service or the underlying
system on a timely basis. Even if successfully developed, our ability to realize
profits from these investments still depend on our ability to acquire and retain
a critical number of clients. We only recently began offering Comprehensive
Outsourcing to clients and have minimal experience in selling, implementing and
providing the related services. Our inability to successfully
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sell, implement or provide these and other new services on a timely basis to
existing or potential clients could harm our growth strategy as well as our core
operations.
Failure to develop new services and enhancements to existing services may
render our offerings obsolete and harm our business. Our industry involves
increasingly sophisticated and varied needs of clients, frequent new service and
feature introductions and emerging industry standards. The introduction of
services with new technologies and the emergence of new industry standards and
practices can render existing services obsolete and unmarketable. Our future
success will depend in part on our ability to develop or acquire advanced
technologies and enhance our existing services with new features. We will also
need to add new services that address the changing needs of our clients and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. If we cannot meet these needs in a timely
manner, our business will suffer. In addition, several of our competitors invest
substantially greater amounts in research and development than we do, which may
allow them to introduce new services or features before we do and therefore
capture additional market share.
Our revenue and expenses vary seasonally, and our stock price may fluctuate
correspondingly. We face significant seasonality in our industry. Our revenue
has fluctuated dramatically from quarter to quarter. We realize the largest
percentage of annual revenue in our third and fourth fiscal quarters, primarily
due to new clients beginning services in the beginning of the tax year (our
third fiscal quarter) and higher interest income earned on higher amounts of
payroll tax funds invested. Our operating expenses typically are higher as a
percentage of revenue in the first and second fiscal quarters. This results
partly from our increasing personnel to acquire new clients and to implement and
provide services to these new clients, particularly a large percentage of new
clients that begin services in the third quarter. Seasonal fluctuation in our
revenue and expenses, especially unexpected fluctuation, could cause volatility
or a decrease in the price of our common stock.
Major catastrophes and other similar problems may cause us to lose client
data and materially adversely interrupt our operations. We currently conduct
substantially all of our payroll and payroll tax processing at our headquarters
in Pleasanton, California. We divide the payroll printing and finishing between
our Pleasanton and Irvine, California facilities. The Irvine facility serves
both as an alternative processing center and a backup payroll center. We conduct
our Comprehensive Outsourcing operations in Bothell, Washington. We do not have
a benefits administration back-up facility. For each payroll client, we
establish a complete set of payroll data at our Pleasanton processing center, as
well as at the client's site. In the event of a disaster in Pleasanton,
each client would have the ability to process payroll checks based on the data
they have at their own site, if necessary. In addition, we have developed
business continuity plans for each of our mission-critical business units. Our
disaster recovery procedures, however, may not be sufficient, and the payroll
data recovered at the client site may not be sufficient to allow the client to
calculate and produce payroll in a timely fashion.
Our operations depend on our ability to protect our computer systems
against damage from a major catastrophe (such as an earthquake or other natural
or man-made disaster), fire, power loss, security breach, telecommunications
failure or similar event. The precautions we have taken to protect ourselves
from or minimize the impact of these and other events may be inadequate. Any
damage to our data centers, failure of telecommunications links or breach of the
security of our computer systems could result in an interruption of our
operations, including a loss of data. Our insurance may not cover these losses.
The loss of personnel may lead to loss of clients and proprietary
information. Our success depends on the performance of our senior management and
other employees. The loss of the services of any senior management or other
employees, particularly key employees in our research and development group, or
a significant number of our account management employees who work directly with
our clients, could harm our business. If one or more of these employees resigns
to join or form a competitor, our business could suffer due to the loss of
personnel and any resulting loss of existing or potential clients. In addition,
we may be unable to prevent the unauthorized disclosure or use of our technical
knowledge, practices, procedures or client lists by the former employee.
Disclosure of this information could harm our business.
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Our success depends on our ability to compete effectively in the
marketplace. The market for our services is intensely competitive. It is also
subject to change and affected by new service and technology introductions and
other market activities of industry participants. In payroll processing and tax
filing, we primarily compete with several public and private service providers
such as Automatic Data Processing, Inc. and Ceridian Corporation. Many of these
companies have longer operating histories, greater financial, technical,
marketing and other resources, greater name recognition and a larger number of
clients than we do. In addition, some of these companies offer more services or
features than we do and have processing facilities located throughout the United
States. We also compete with in-house employee services departments and, to a
lesser extent, banks and local payroll companies. With respect to benefits
administration services, we compete with insurance companies, benefits
consultants and other local benefits outsourcing companies. We may also compete
with companies that market related products and services that may offer payroll
or administrative services in the future. We have experienced, and expect to
continue to experience, competition from new entrants into our markets.
Increased competition from these and other competitors will result in pricing
pressures, loss of market share or loss of clients, any of which could harm our
business. We believe the principal competitive factors affecting our market
include the following:
- system functionality and performance;
- system and service flexibility;
- breadth of service offering;
- client service;
- reputation and experience; and
- service cost.
Our inability to compete successfully will harm our business and results of
operations. Additionally, a significant portion of our historic revenue growth
resulted from new client acquisition. A majority of our new clients have
historically come from our competitors. If we would have to rely more on clients
that are moving from in-house operations to outsourcing, this could change our
sales timeframe and our customer acquisition costs.
Our success depends on our ability to manage growing and changing
operations. Our growth strategy has focused on serving large employers that have
more than 1,000 employees. These employers are sophisticated and have
complex needs. As our business has grown significantly in size and complexity
over the past five years, the growth has placed, and will continue to place,
significant demands on our management, systems, internal controls and financial
and physical resources as we must expand them to handle the substantially
increased volume and complexity of the services we provide to large employers.
We also plan to continue spending on research and development, invest in new
equipment and make other capital expenditures. In addition, we expect that we
will need to further develop our financial and managerial controls, reporting
systems and procedures to accommodate future growth. Our failure to expand
successfully in any of these areas in an efficient manner would harm our
business.
Changes in governmental policies could reduce the need for our service
offerings or otherwise harm our business. Our services, particularly tax filing
and benefits plan administration, depend upon government regulations that
continually change. Failure to timely implement corresponding changes to our
services and technology would harm our business and results of operations.
Changes in regulations could also reduce or eliminate the need for our services
and substantially decrease our revenue. In addition, since we derive a
significant portion of our revenue from interest earned from investing collected
but unremitted payroll tax funds, changes in policies relating to withholding
federal or state income taxes, reductions in the time allowed to remit tax
payments owed to government authorities, or tax cuts harm our business and
results of operations. The federal government's recent disaster relief for
taxpayers, which delays the due date for certain taxes, as well as recent tax
cuts and other measures approved by the federal government, could harm our
business and results of operations by reducing the amount of collected but
unremitted payroll tax funds and delaying the collection of, and
correspondingly, the interest we would earn on these funds.
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We may make errors and omissions in performing our services, which could
subject us to fines and harm our reputation. We have made errors and omissions
in the past and may make errors and omissions in performing our services. For
example, we may underpay taxes on behalf of our clients, or we may file benefits
plan forms late. In addition to client liability, governmental authorities may
impose large cash penalties on our errors and omissions and may preclude us from
doing business in the relevant jurisdiction. These errors and omissions are
often not identified for several years following the provision of the services,
and there may be a significant delay between the time an error or omission
occurs and when a penalty is imposed. To date, penalties have not been
significant. However, liabilities associated with penalties for errors and
omissions that occurred in the past and those that may occur in the future could
harm our business and results of operations. Our reserves or insurance for any
penalties may not adequately protect us. Errors and omissions may also damage
our reputation and could harm our relationships with existing clients and our
ability to gain new clients.
Our employees may violate our relationship of trust with our clients and
lead to lawsuits against us. We have access to confidential information and to
client funds. Actions taken by our employees in breach of our relationships with
our clients may damage the clients' businesses. For example, if one or more of
our employees violates confidentiality agreements or misappropriate funds, our
clients may assert claims against us. Our fidelity bond and errors and omissions
insurance may not adequately cover claims like these. Claims of these types
could damage our client relationships and harm our business and financial
condition.
We may need to raise additional capital that might not be available and, if
it is, may cause our stockholders to experience dilution. We may choose to raise
additional capital to fund our investments and/or operations through public or
private equity or debt financing. We cannot assure you that additional financing
will be available if needed on acceptable terms, or at all. If additional
capital is needed and not available, we may need to change our business strategy
or reduce our operations. If we raise additional funds by issuing equity
securities, our stockholders will experience dilution.
Acquisitions and investments, especially unsuccessful ones, could harm our
financial results. We have in the past and intend in the future to make
additional acquisitions and investments. Future acquisitions could result in the
issuance of dilutive equity securities, the incurrence of debt or contingent
liabilities. Furthermore, strategic acquisitions or investments may not be
successfully integrated into our existing operations, or we may not realize the
anticipated benefits. If unsuccessful, they could harm our business and
financial condition.
We rely on third party couriers, whose failure to deliver paychecks to our
clients would harm our business. We depend on third-party courier services to
deliver paychecks to clients. We do not have formal written agreements with any
of the courier services that we use. These courier services have failed in the
past and may fail in the future to pick up or deliver the paychecks in a timely
fashion. This failure could occur as a result of many factors, including
employee strikes, storms or other adverse weather conditions, earthquakes or
other natural or man-made disasters, logistical or mechanical failures or
accidents. Failure to deliver client paychecks in a timely manner could damage
our reputation and harm our business.
Failure to improve our systems to accommodate our geographic expansion
would harm our business. Our ability to achieve significant future revenue
growth will in large part depend on our ability to gain new clients throughout
the United States. Growth and expansion have placed and will continue to place a
strain on our operating and financial systems. To accommodate the increased
number of transactions and clients and the increased size of our operations, we
need to continue to implement and improve our systems on a timely basis.
We may not have taken all necessary steps to protect our intellectual
property. Our success depends in part upon our proprietary software technology.
We rely on a combination of contract, copyright and trade secret laws to
establish and protect our proprietary technology. We have no patents, patent
applications or registered copyrights. We distribute our services under software
license agreements that grant clients licenses to use our services and contain
various provisions protecting our ownership and the confidentiality of the
applicable technology. We generally enter into confidentiality agreements with
our employees and confidentiality and/or license agreements with existing and
potential clients. We also limit access to and distribution of our software,
documentation and other proprietary information. The steps taken to protect our
proprietary
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technology may not be adequate to deter misappropriation. Even if they are,
third parties may develop similar or competing technologies independently.
Claims from third parties relating to infringement of intellectual property
could harm our business. We cannot guarantee that our services and technology do
not infringe any existing patents, copyrights or other proprietary rights of
others. Third parties may assert infringement claims against us in the future,
which could require us to incur substantial costs of defense and divert
management attention. Any resulting liabilities could also harm our business or
results of operations.
Our stock price has fluctuated and is likely to continue to fluctuate. The
market price of our common stock has been and is likely to continue to be highly
volatile. Our stock price could fluctuate in response to various factors,
including the following:
- quarterly variations in operating results;
- announcements of technological innovations or new services by us or our
competitors;
- market conditions in the information services industry;
- trading volume of our common stock, including transactions by our large
institutional stockholders;
- changes in securities analysts' estimates of our financial
performance and that of our competitors; and
- changes in our competitors' stock prices.
Many of these factors are outside our control. We have filed a registration
statement to which this prospectus relates to cover the resale of shares sold in
our private placement. Our stock price will likely decrease if any of the
selling stockholders or their transferees sell a significant number of shares
covered by the registration statement to which this prospectus relates. In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology and services companies. These fluctuations are
sometimes unrelated to the operating performance of these companies. The market
price of our common stock could decline as a result of these broad market
fluctuations.
A handful of our stockholders have significant control over our company,
and their interests may differ from yours. As of March 31, 2002, our directors,
executive officers, and affiliated stockholders together controlled
approximately 32% of our voting stock. If these stockholders acted or voted
together, they would have the power to exercise a significant influence over the
election of our directors. They would also have significant control over other
matters requiring stockholder approval, including the approval of major
corporate transactions. In addition, this concentration of ownership may delay
or prevent a change in control of our company, even when a change may be in the
best interests of the stockholders. Furthermore, the interests of these
stockholders may not always coincide with the interests of our company or other
stockholders.
Holders of our preferred stock have rights senior to holders of our common
stock, including the right to receive dividends that will dilute the ownership
of holders of common stock. In August 2000, we sold 1,132,075 shares of
Preferred Stock to entities affiliated with General Atlantic Partners, LLC. In
the event of a merger or acquisition, the holders of the Preferred Stock will
receive $26.50 per share before any amounts may be paid to holders of our common
stock. The holders of the Preferred Stock also will receive cumulative dividends
at an annual rate of 6.9% in the form of additional shares of Preferred Stock.
At March 31, 2002 there were 115,229 additional shares of Preferred Stock
accrued as dividends distributable. Therefore, the longer our Preferred Stock is
outstanding, the more dilution the holders of our common stock will experience.
Our charter documents and Delaware law could make an acquisition of our
company difficult, even if an acquisition may benefit our stockholders.
Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
benefit our stockholders. In particular, our certificate of incorporation
provides for three classes of directors. Each director in each class is elected
for a three-year term, and a different class is elected each year. These
provisions make it difficult for a third party to gain control of our board of
directors.
-11-
We recently adopted a preferred stock rights plan, which has anti-takeover
effects. We have adopted a preferred stock rights plan. The plan has the
anti-takeover effect of causing substantial dilution to a person or group that
attempts to acquire us on terms not approved by our board of directors. The
existence of the plan could limit the price that certain investors might be
willing to pay in the future for shares of our common stock and could
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable.
-12-
USE OF PROCEEDS
We will not receive any of the proceeds from the sale from time to time
of the shares offered by this prospectus. All proceeds from the sale of the
shares offered by this prospectus will be for the account of the selling
stockholders. See "Selling Stockholders" and "Plan of Distribution."
SELLING STOCKHOLDERS
The following table sets forth as of May 6, 2002, the names of the
selling stockholders, the number of shares of common stock that each selling
stockholder beneficially owns, the number of shares of common stock owned by
each selling stockholder that may be offered for sale from time to time by this
prospectus, and the number of shares of common stock to be held by each selling
stockholder assuming the sale of all the common stock offered hereby. None of
the selling stockholders has held any position or office or had a material
relationship with us within the past three years other than as described below
or as a result of the ownership of our securities.
The selling stockholders may distribute their shares, from time to time,
to their limited and/or general partners or members, who may sell shares
pursuant to this prospectus. The selling stockholders may also transfer shares
owned by them by gift or pledge, and upon such transfer the donee or pledgee, as
the case may be, would have the same right of sale as the selling stockholders.
We may amend or supplement this prospectus from time to time to update the
disclosure set forth herein.
The shares being offered for sale by the selling stockholders were
acquired in a private placement with the first closing held in December 2001 and
the second closing held in February 2002. The purchase agreement used in
connection with the private placement provides that no later than 30 days
following the first closing, we will file a registration statement on Form S-3
to enable the resale of the shares purchased by the selling stockholders in the
private placement and that we will use all reasonable efforts to cause the
registration statement to be declared effective as promptly as possible after
filing. We also agreed to cause the registration statement to remain effective
until the earlier of (i) the second anniversary of the first closing or (ii)
such time as the shares included in the registration statement have been sold.
-14-
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER OF SHARES AFTER OFFERING(1)
NAME OF SELLING STOCKHOLDER NUMBER PERCENT BEING OFFERED(2) NUMBER PERCENT
--------------------------- ------------ ------------ ---------------- ------------ ------------
Bessemer Sand Hill Investor's Fund(3) 133,000 - 60,000 73,000 -
Bessemer Sand Hill Investor Fund II(3) 212,100 - 115,000 97,100 -
Blue Ridge Limited Partnership(4) 1,000,000 3.5% 200,000 800,000 2.8%
Cypress International Partners Limited(5) 180,300 - 180,300 0 -
Far West Capital Partners, L.P.(6) 140,000 - 130,000 10,000 -
GAP Coinvestment Partners II, L.P.(7) 152,307 - 152,307 0 -
GapStar, LLC(7) 83,333 - 83,333 0 -
GAPCO GmbH & Co. KG(7) 2,027 - 2,027 0 -
General Atlantic Partners 74, L.P.(7) 1,095,667 3.9% 1,095,667 0 -
Glenhill Capital L.P.(8) 205,488 - 80,726 124,762 -
Glenhill Capital Overseas Partners Ltd.(9) 50,212 - 19,274 30,938 -
Lone Balsam, L.P.(10) 122,919 - 39,500 83,419 -
Lone Cypress, Ltd.(10) 1,274,278 4.5% 409,500 864,778 3.1%
Lone Sequoia, L.P.(10) 102,690 - 33,000 69,690 -
Lone Spruce, L.P.(10) 56,013 - 18,000 38,013 -
Robert G. Schiro 40,000 - 40,000 0 -
T. Rowe Price New Horizons Fund, Inc. 725,000 2.6% 625,000 100,000 -
The Cypress Partners, L.P.(5) 310,300 1.1% 310,300 0 -
The Fox Investment Fund(11) 81,800 - 37,700 44,100 -
The Glynn Emerging Opportunity Fund(3) 79,600 - 30,000 49,600 -
The Hare Investment Fund, L.P.(11) 22,400 - 13,200 9,200 -
W.M. Keck Foundation(11) 100,000 - 58,500 41,500 -
------------ ------------ ------------
TOTAL 6,169,434 3,733,334 2,436,100
- --------------
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Under such rule, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also
any shares which the individual has the right to acquire within 60 days of
the date of this prospectus through the exercise of any stock option or
other right. Unless otherwise indicated in the footnotes, each person has
sole voting and investment power (or shares such powers with his or her
spouse) with respect to the shares shown as beneficially owned. Percentage
of beneficial ownership is based on 28,201,568 shares of common stock
outstanding as of April 17, 2002.
(2) This registration statement also shall cover any additional shares of
common stock that become issuable in connection with the shares registered
for sale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration that results in an increase in the number of our
outstanding shares of common stock.
(3) Glynn Capital Management LLC is the investment manager of these entities
and thus is deemed to beneficially own the shares held by these entities.
Steve Rosston, managing member of Glynn Capital Management LLC, exercises
voting and investment power with respect to the shares.
(4) JAG Holdings, LLC is the general partner of this entity and thus is deemed
to beneficially own the shares held by this entity. John Griffin, managing
member of JAG Holdings, LLC, exercises voting and investment power with
respect to the shares.
(5) Cypress Funds LLC is the general partner of these entities and thus is
deemed to beneficially own the shares held by these entities. Philip
Treick, the portfolio manager, exercises voting and investment power with
respect to the shares.
-15-
(6) Far West Capital Management, LP is the general partner of this entity and
thus is deemed to beneficially own the shares held by this entity. Robert
G. Schiro, general partner of Far West Capital Management, LP, exercises
voting and investment power with respect to the shares.
(7) GAP Coinvestment Partners II, L.P. ("GAPCO II"), GapStar, LLC,
("GapStar"), GAPCO GmbH & Co. KG ("GAPCO KG"), and General Atlantic
Partners 74, L.P. ("GAP 74"), are the record holders of these shares and
are part of a group for purposes of Rule 13d-5 of the Exchange Act. The
group includes General Atlantic Partners, LLC ("GAP LLC"), General
Atlantic Partners 39, L.P. ("GAP 39"), General Atlantic Partners 59, L.P.
("GAP 59"), General Atlantic Partners 70, L.P. ("GAP 70"), General
Atlantic Partners 73, L.P. ("GAP 73"), GAP 74, GAP Coinvestment Partners,
L.P. ("GAPCO I"), GAPCO II, GapStar, GAPCO KG and GAPCO Management GmbH
("GmbH Management"). As of the date hereof, GAP LLC, GAP 39, GAP 59, GAP
70, GAP 73, GAP 74, GAPCO I, GAPCO II, GapStar, GAPCO KG and GmbH
Management (collectively, the "GA Group") each owns of record no shares
of Common Stock, 1,851,009 shares of Common Stock, no shares of Common
Stock, no shares of Common Stock, no shares of Common Stock, 1,095,667
shares of Common Stock, 323,190 shares of Common Stock, 152,307 shares of
Common Stock, 83,333 shares of Common Stock, 2,027 shares of Common Stock
and no shares of Common Stock, respectively, or 0.0%, 6.6%, 0.0%, 0.0%,
0.0%, 3.9%, 1.1%, 0.5%, 0.3%, 0.0% and 0.0%, respectively, of our issued
and outstanding shares of Common Stock. In addition, as of the date
hereof, GAP 70 owns 915,515 shares of our 6.9% Senior Redeemable
Convertible Preferred Stock ("Preferred Stock") convertible into 951,566
shares of Common Stock (excluding any accrued but unpaid dividends),
GAPCO II owns 145,805 shares of Preferred Stock convertible into 151,547
shares of Common Stock (excluding any accrued but unpaid dividends) and
GapStar owns 70,755 shares of Preferred Stock convertible into 73,541
shares of Common Stock (excluding any accrued but unpaid dividends),
respectively, or 3.3%, 0.5%, and 0.3%, respectively, of our issued and
outstanding Common Stock. The holders of Preferred Stock are currently
entitled to elect one of our class II directors. The general partner of
GAP 39, GAP 59, GAP 70, GAP 73 and GAP 74 is GAP LLC. GAP LLC is also the
managing member of GapStar. GmbH Management is the general partner of
GAPCO KG. The managing members of GAP LLC are Steven A. Denning, Peter L.
Bloom, Peter Currie, Mark F. Dzialga, Erik Engstrom, Klaus Esser, William
E. Ford, William O. Grabe, David C. Hodgson, Braden R. Kelly, Rene M.
Kern, William J. Lansing, Matthew Nimetz, Clifton S. Robbins, Franchon M.
Smithson, Tom C. Tinsley, Florian Wendelstadt and John Wong
(collectively, the "GAP Managing Members"). David C. Hodgson is one of
our directors. The GAP Managing Members (other than Mr. Esser) are also
the general partners of GAPCO I and GAPCO II. By virtue of the fact that
(i) the GA Group beneficially owns approximately 61% of the membership
interests of InterPro Holdings, LLC ("InterPro Holdings") and may
designate 50% of the managers of the Board of Managers of InterPro
Holdings, (ii) the GAP Managing Members (other than Mr. Esser) are also
the general partners authorized and empowered to vote and dispose of the
securities held by GAPCO I, GAPCO II and GapStar, (iii) GAP LLC is the
general partner of GAP 39, GAP 59, GAP 70, GAP 73 and GAP 74 and the
managing member of GapStar and (iv) the GAP Managing Members are
authorized and empowered to vote and dispose of the securities held by
GAPCO KG, the GA Group may be deemed to share voting power and the power
to direct the disposition of the shares of Common Stock owned by each
member of the GA Group and InterPro Holdings. InterPro Holdings owns of
record 1,000,000 shares of Common Stock. Accordingly, as of the date
hereof, each member of the GA Group may be deemed to own beneficially an
aggregate of 5,684,187 shares of Common Stock or 20.2% of our issued and
outstanding shares of Common Stock. Each member of the GA Group has the
shared power to direct the vote and the shared power to direct the
disposition of the 5,684,187 shares of Common Stock that may be deemed
to be owned beneficially by each of them. Mr. Hodgson disclaims
beneficial ownership of the securities owned by the GA Group and
InterPro Holdings except to the extent of his pecuniary interest therein.
(8) GJK Capital Management, LLC is the general partner of this entity and thus
is deemed to beneficially own the shares held by this entity. Glenn J.
Krevlin, managing member of GJK Capital Management, LLC, exercises voting
and investment power with respect to the shares.
(9) Glenhill Overseas Management LLC is the investment manager of this entity
and thus is deemed to beneficially own the shares held by this entity.
Glenn J. Krevlin, managing member of Glenhill Overseas Management LLC,
exercises voting and investment power with respect to the shares.
(10) Lone Pine Capital LLC is the investment manager of these entities and thus
is deemed to beneficially own the shares held by these entities. Stephen
F. Mandel, Jr., managing member of Lone Pine Capital LLC, exercises voting
and investment power with respect to the shares. The aggregate number of
shares owned by these entities is 1,555,900, which represents 5.5% of our
outstanding common stock.
(11) Aesop Capital Partners, LLC is the investment manager of these entities
and thus is deemed to beneficially own the shares held by these entities.
Philip Treick, the portfolio manager, exercises voting and investment
power with respect to the shares.
-16-
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered or sold from time
to time by the selling stockholders. As used in this prospectus, "selling
stockholders" includes the pledgees, donees, transferees of, or other successors
in interest that receive such shares as a gift, partnership distribution or
other non-sale related transfer. The selling stockholders will act independently
of us in making decisions with respect to the timing, manner and size of each
sale. The sales may be made on one or more exchanges, including the Nasdaq
National Market, or in the over-the-counter market or otherwise, at market
prices prevailing at the time, at negotiated prices, or at fixed prices, which
may be changed. The selling stockholders may effect such transaction by selling
the shares to or through broker-dealers. The shares may be sold by one or more
of, or a combination of, the following:
- a block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of the
exchange;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
- in privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution.
In connection with distributions of the shares offered hereby or
otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our common stock in the course of hedging the positions they assume
with selling stockholders. The selling stockholders may also sell our common
stock short and deliver the shares offered hereby to close out such short
positions. The selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or other financial institution of shares
offered hereby, which shares such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction). The selling stockholders may also pledge the shares offered
hereby to a broker-dealer or other financial institution, and, upon a default,
such broker-dealer or other financial institution, may effect sales of the
pledged shares pursuant to this prospectus (as supplemented or amended to
reflect such transaction). In addition, any shares offered hereby that qualify
for sale pursuant to Rule 144 may, at the option of the holder thereof, be sold
under Rule 144 rather than pursuant to this prospectus.
The selling stockholders may negotiate and pay broker-dealers or agents
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling stockholders may allow other broker-dealers to participate.
However, the selling stockholders and any broker-dealers or agents involved in
the sale or resale of the shares offered hereby may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act. In
addition, the broker-dealers' commissions, discounts or concessions may be
deemed to be underwriting compensation under the Securities Act.
-17-
In order to comply with the securities laws of certain states, if
applicable, the shares offered hereby will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the shares offered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of the shares
offered hereby in the market and to the activities of the selling stockholders
and their affiliates. In addition, we will make copies of this prospectus
available to the selling stockholders and have informed them of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby.
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
In connection with our registration of the resale of the shares offered
by this prospectus, we and the selling stockholders agreed to a
cross-indemnification of each other and our respective controlling persons
against specific liabilities in connection with the offer and sale of the
shares, including liabilities under the Securities Act.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling stockholders will bear all commissions,
discounts and transfer taxes, if any, attributable to the sales of the shares.
The selling stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
We cannot assure you that the selling stockholders will sell all or any
of the shares of common stock offered pursuant to this prospectus.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule incorporated by reference in our Annual Report
on Form 10-K for the year ended June 30, 2001, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements and schedule are incorporated
by reference in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
-18-
3,733,334 SHARES
PROBUSINESS SERVICES, INC.
COMMON STOCK
----------
PROSPECTUS
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May 17, 2002