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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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PROBUSINESS SERVICES, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 94-2976066
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4125 HOPYARD ROAD
PLEASANTON, CA 94588
(Address of principal executive offices)
(925) 737-3500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
As of September 10, 1999, there were 22,984,603 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended June
30, 1999 are incorporated by reference into Parts II and IV. Portions of the
Proxy Statement for Registrant's 1999 Annual Meeting of Stockholders to be held
November 18, 1999 are incorporated by reference into Part III.
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PROBUSINESS SERVICES, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART I
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 8
Item 3. Legal Proceedings........................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......................... 9
PART II
Item 5. Market for Registrant's Equity and Related Stockholder Matters.............. 9
Item 6. Selected Financial Data..................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 10
Item 8. Financial Statements and Supplementary Data................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 10
PART III
Item 10. Directors and Executive Officers of the Company............................. 11
Item 11. Executive Compensation...................................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 13
Item 13. Certain Relationships and Related Matters................................... 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K............. 15
Signatures............................................................................. 16
2
PROBUSINESS SERVICES, INC.
PART I.
THE FOLLOWING REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. POTENTIAL RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, THOSE SET FORTH IN THE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ON
PAGE 2 OF EXHIBIT 13.1 HERETO.
ITEM 1. BUSINESS
OVERVIEW
ProBusiness is a leading provider of employee outsourced administrative
services for large employers. The Company's primary service offerings are
payroll processing, payroll tax filing, benefits administrative services, human
resources software and self-service applications. The Company's proprietary
PC-based payroll system offers the cost-effective benefits of outsourcing and
high levels of client service, while providing the flexibility, control,
customization and integration of an in-house system. As of June 30, 1999, the
Company provided services to approximately 1,750 clients. As of June 30, 1999,
the Company provided payroll processing services to approximately 560 clients
with an aggregate of approximately 840,000 active employees and an average of
approximately 1,500 employees. For the quarter ended June 30, 1999, the Company
processed 5.8 million checks for the Company's payroll clients. In addition to
providing tax filing services for its payroll clients, as of June 30, 1999 the
Company provided national tax filing services to 119 clients with an aggregate
of approximately 1.7 million employees and an average of more than 14,400
employees.
The Company differentiates itself from its competitors through its
proprietary PC-based technology, high quality, responsive and professional
client service and focus on the needs of large employers. ProBusiness develops a
business partnership with each client by assessing each client's payroll
processing needs, reengineering and designing the client's payroll systems and
processes and implementing a cost-effective solution. The Company maintains an
ongoing relationship with each client using a strategic team of specialists led
by a personal account manager who proactively manages each client's account and
marshals the resources of the team to meet the client's specific needs.
ProBusiness maintains a low client-to-account manager ratio to offer clients
accessible and responsive account management. The Company believes that its low
client-to-account manager ratio and its focus on client service are key factors
in enabling the Company to achieve a high payroll client retention rate, which
was approximately 90% for fiscal 1999.
The Company provides large employers with the cost-effective benefits of
outsourcing and high levels of client service, while providing the flexibility,
system control, customization and integration of an in-house system. The Company
combines its PC-based technology and personalized client service to provide a
broad range of service offerings, including payroll processing, payroll tax
filing, benefits administrative services, human resources software and
self-service applications.
The Company's objective is to be the premier provider of employee
administrative services for large employers. The Company's strategy is to
continue providing clients with high levels of personal service and developing a
comprehensive and fully integrated suite of employee administrative services.
The Company also intends to expand its client base and provide additional
services to its existing clients.
The Company was incorporated in California in October 1984 and
reincorporated in Delaware in September 1997. The Company's executive offices
are located at 4125 Hopyard Road, Pleasanton, California 94588, and its
telephone number is (925) 737-3500.
3
SERVICE OFFERINGS
The Company provides a broad range of employee administrative services,
including payroll processing, tax filing, benefits administrative services,
human resources software and self-service applications. The Company intends to
expand its service offerings through future acquisitions, alliances and
investments and to develop enhancements to its existing services internally.
PAYROLL PROCESSING
The Company processes time and attendance data to calculate and produce
employee paychecks, direct deposits and reports for its clients. Clients receive
paychecks and reports within 24 to 48 hours of the Company's receipt of the data
electronically submitted from the client. The Company's system is highly
configurable to meet the specialized needs of each client yet maintains the
ability to provide high volume processing. The system integrates easily with the
client's general ledger, human resources and time and attendance systems. In
addition, the Company offers many sophisticated features, including the
automatic enrollment and tracking of paid time off, proration of compensation
for new hires and integrated garnishment processing.
PAYROLL TAX FILING
The Company collects contributed employer and employee tax funds from
clients, deposits such funds with tax authorities when due, files all tax
returns and reconciles the client's account. The Company will also represent the
client before tax authorities in disputes or inquiries. Substantially all
existing payroll clients utilize the Company's payroll tax service. In addition,
as of June 30, 1999, the Company provided national tax services to 119 clients
with an aggregate of more than 1.7 million employees and an average of more than
14,400 employees.
ADMINISTRATIVE SERVICES
The Company's benefits administrative services include flexible benefits
enrollment and processing, COBRA administration and consolidated billing and
eligibility tracking. Employees can enroll in and choose their flexible spending
benefits through traditional paper-based forms or through Internet-accessible
enrollment sites using the Company's Enrollnet-TM- service.
HUMAN RESOURCES SOFTWARE
The Company's human resources software tracks and reports general employee
information, including compensation, benefits, skills, performance, training,
job titles and medical history. For clients that also use the Company's payroll
service, the human resources data can be transferred to the payroll services
system, thus eliminating the need for duplicate data entry.
SELF-SERVICE APPLICATIONS
The Company's self-service applications provide employers with a complete
range of employee relationship management applications. Employers have a
web-based tool to facilitate HR and payroll processes and to empower employees
with self-directed administration services.
The Company continually evaluates the addition of add-on service offerings
to expand the breadth of its solution through alliances, acquisitions or
internal development. Such additional services include administrative services
related to time and attendance, travel and entertainment, unemployment insurance
and 401(k) plans.
4
CLIENT SERVICE
The Company believes that its focus and dedication to providing high levels
of client service is a competitive advantage in the large employer market.
ProBusiness develops a business partnership with each client by assessing each
client's payroll processing needs, reengineering and designing the client's
payroll system and process and implementing a value-added solution. The Company
maintains an ongoing relationship with each client using a strategic team that
includes a sales representative, a sales analyst, an implementation manager, an
account manager and numerous functional, regulatory and technical support
specialists. The Company intends to continue providing its clients with a high
level of service by hiring professionals who are experienced in their fields.
Most service personnel have experience in payroll, accounting, human resources
or financial services industries, and many hold Certified Public Accountant or
Certified Payroll Professional accreditation.
The Company continually monitors the quality of its service through client
feedback mechanisms. The Company obtains valuable insights into the needs of its
clients through its partnership with each client and from client responses to
surveys, which are conducted semi-annually. The Company uses this information to
help develop, identify and optimize new service offerings provided to existing
clients and improve the level of service provided to clients. The Company also
uses client feedback as a basis for incentive compensation and recognition of
achievements.
SALES
The Company believes that client service begins with the sales process. A
sales representative and a sales analyst work together to assess a potential
client's payroll processing needs. Based on this assessment, the sales team then
identifies opportunities to reengineer the prospective client's payroll
processes and to design a payroll solution that integrates effectively with its
other systems. The payroll sales cycle typically ranges from three to twelve
months or longer.
IMPLEMENTATION
Upon engagement by a client, the Company assigns a team of technical support
specialists, headed by an implementation manager who leads the transition from
the client's former payroll system to the Company's system. The implementation
manager works with the client, the sales analyst and technical support
specialists to integrate the Company's payroll system with the client's other
systems and to customize the system to improve the client's payroll processes.
The Company uses its systems integration expertise to facilitate the integration
of its payroll processing system with the client's existing hardware and
software. The implementation process generally takes three to nine months or
longer, depending on the complexity of the client's payroll processes and
systems and the size of the client.
ACCOUNT MANAGEMENT
An account manager is assigned to each client during the implementation
process and serves as the client's day-to-day contact at the Company. The
account manager coordinates the efforts of the Company's functional, regulatory
and technical support specialists as necessary. The account manager visits each
client regularly and establishes an annual business plan with the client that
details scheduled payroll events such as open enrollment periods for employee
benefits plans or software system changes. This annual business plan allows the
Company to provide clients with uninterrupted payroll services during these
periods. Account managers use the Company's proprietary CallLog system to record
and track all client calls, record client feedback and help ensure that the
client's needs are addressed promptly and thoroughly. The Company maintains a
low client-to-account manager ratio to offer clients accessible and responsive
account management.
5
SUPPORT SPECIALIST
The Company supports each client with functional and regulatory specialists
in payroll, payroll tax and employee benefits, as well as pay data interfaces,
general ledger interfaces, paid-time-off, report writing and system integration.
Each of these specialists is available to speak directly with clients as needed,
meet with clients onsite or support clients indirectly through the account
manager.
TECHNOLOGY
The Company's proprietary PC-based technology for its payroll services
provides a platform for delivering high levels of service together with the
flexibility and control of an in-house system. The Company creates a mirrored
version of each client's system, which allows the Company's account managers to
access client information using the same data, programs and screens as the
client uses on its PC network. This enables the Company to quickly and easily
identify client problems or modify application programs in response to client
requests. The client maintains control by having direct access to all
calculation programs and all historical and transactional data, which also
provides the client with flexibility to respond quickly to employee and
third-party inquiries, to fully analyze payroll data and to generate management
reports. The Company's intuitive Windows-based interface makes navigation simple
and allows new users to be trained quickly. The Company is developing a new
suite of online self-service administrative services applications accessible
through the Internet that enable clients' employees to view paychecks and other
compensation and benefits data.
The Company's system architecture is designed to distribute payroll
processing tasks to multiple low cost, high performance PCs, which enables the
Company to scale its system continually to handle increasing transaction
volumes. The Company's PC-based application software supports the development of
customized solutions for each client that can be easily upgraded and integrated
with a client's other systems. In addition, multiple networked PCs facilitate
exception processing and rapid response that large employers require.
CLIENTS
The Company targets large companies with complex and changing business needs
in diverse industries. As of June 30, 1999, the Company provided services to
approximately 1,750 clients. Of these clients, approximately 560 were payroll
processing clients, with an aggregate of approximately 848,000 active employees
and an average of approximately 1,500 employees. For the quarter ended June 30,
1999, the Company processed 5.8 million payroll checks for the Company's payroll
clients. The Company began providing national tax filing services to clients in
1996 and, as of June 30, 1999, provided these services to 119 clients with an
aggregate of more than 1.7 million employees and an average of more than 14,400
employees. Substantially all existing payroll clients utilize the Company's
payroll tax filing service. For fiscal 1999, no client accounted for more than
3% of the Company's revenue.
The Company believes that its low client-to-account manager ratio and its
focus on client service are key factors in enabling the Company to achieve a
high payroll client retention rate, which was approximately 90% for fiscal 1999.
Historically, the Company's client retention rates have been negatively impacted
primarily due to clients ceasing to use the Company's services following a
merger or sale of the client. The Company does not have long-term contracts with
its clients, and the Company's existing contracts do not have significant
penalties for cancellation.
SALES AND MARKETING
The Company employs a direct sales force to gain new payroll and payroll tax
clients and increase the number of services provided to existing clients. The
Company currently targets large employers through direct marketing, trade shows
and active participation in local chapters of the American Payroll Association.
The Company uses a team selling approach, whereby sales analysts and sales
representatives
6
collaborate to assess a potential client's needs and develop a cost-effective
solution. The payroll sales cycle typically ranges from three to twelve months
or longer. The Company primarily utilizes insurance brokers to attract new
administrative services clients.
The Company seeks to attract and retain experienced industry sales
representatives. The Company believes that its long-term competitiveness depends
on increasing further its national presence. The Company believes that
continuing to add direct sales representatives in major metropolitan areas
throughout the United States is the most effective means of increasing its
national client base. Over the past two years, the Company has added sales and
implementation representatives covering major metropolitan areas, including
Atlanta, Chicago, Dallas, New York and Seattle. To support its sales growth in
the eastern United States, the Company opened a satellite sales and
implementation center in New Jersey during the first quarter of calendar 1999.
The Company's marketing department provides support materials and marketing
communications to sales representatives, promotes public relations, conducts
direct mail campaigns, manages trade show participation, and develops and
manages its corporate Web site.
As part of its strategy to provide a comprehensive suite of employee
administrative services, the Company has recently entered into strategic
alliances with two industry leaders. The Company has formed an alliance with
Oracle to provide full connectivity between the Company's payroll and payroll
tax solution and Oracle's human resources applications programs. The Company has
also formed an alliance to provide services to clients jointly with Sheakly
UniService, a leading provider of unemployment cost control services.
RESEARCH AND DEVELOPMENT
The Company intends to continue investing substantial resources to further
develop a comprehensive and fully integrated suite of employee administrative
services and extend the functionality of its proprietary payroll processing
systems. For example, the Company is developing a new suite of online
self-service administrative services applications accessible through the
Internet that enable clients' employees to view paychecks as well as other
compensation and benefits data. In addition, the Company expects to introduce an
integrated payroll and human resources system utilizing client/server technology
that will run on Windows 95, Windows 98 and Windows NT.
The foregoing information contains forward-looking statements that involve
risks and uncertainties. Actual events could differ materially from those
anticipated in these forward-looking statements, as a result of certain factors
including those discussed in the paragraph below.
COMPETITION
The market for the Company's services is intensely competitive, subject to
rapid change and significantly affected by new service introductions and other
market activities of industry participants. The Company primarily competes with
several public and private payroll service providers such as Automatic Data
Processing, Inc., Ceridian Corporation and Paychex, Inc., as well as smaller,
regional competitors. 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 the Company. In addition,
certain of these companies offer more services or features than the Company and
have processing facilities located throughout the United States. The Company
also competes with in-house employee services departments and, to a lesser
extent, banks and local payroll companies. With respect to benefits
administration services, the Company competes with insurance companies, benefits
consultants and other local benefits outsourcing companies. The Company may also
compete with marketers of related products and services that may offer payroll
or administrative services in the future. The Company has experienced, and
expects to continue to experience, competition from new entrants into its
markets. Increased competition could result
7
in pricing pressures, loss of market share and loss of clients, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes that the principal competitive factors affecting its
market include client service, system functionality and performance, system
scalability, reputation, system cost and geographic location. The failure of the
Company to compete successfully would have a material adverse effect on the
Company's business, financial condition and results of operations.
PROPRIETARY RIGHTS
The Company's success is dependent in part upon its proprietary software
technology. The Company relies on a combination of contract, copyright and trade
secret laws to establish and protect its proprietary technology. The Company has
no patents, patent applications or registered copyrights. The Company
distributes its services under software license agreements that grant clients
licenses to use the Company's services and contain various provisions protecting
the Company's ownership and the confidentiality of the underlying technology.
The Company generally enters into confidentiality and/or license agreements with
its employees and existing and potential clients, and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology.
There can be no assurance that the Company's services and technology do not
infringe any existing patents, copyrights or other proprietary rights or that
third parties will not assert infringement claims in the future. If any such
claims are asserted and upheld, the costs of defense could be substantial and
any resulting liability to the Company could have a material adverse effect on
the Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1999, the Company had approximately 790 full-time employees.
The Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Pleasanton, California and consist
of approximately 130,000 square feet of office space leased through September
2008. The Company has signed a lease through April 2015 for a building adjacent
to its headquarters which consists of approximately 76,000 square feet of office
space. The Company also has a sales, implementation and production facility and
a back-up payroll facility in Irvine, California, where it leases approximately
14,000 square feet under a lease which terminates May 2002. In addition, the
Company has a sales office in Kettering, Ohio pursuant to a lease which
terminates in September 2000. The Company opened a satellite sales and
implementation center in Bridgewater, New Jersey, where it leases approximately
8,000 square feet of office space through April 2001.
The Company's administrative services processing operations are located in
Bothell, Washington, where the Company leases approximately 30,000 square feet
under a lease that will terminate in May 2006.
The Company's employee self service center is located in Norcross, Georgia,
where the Company leases approximately 15,000 square feet through June 2001.
The Company believes that its existing facilities are adequate for its
current needs and that additional facilities can be leased to meet future needs.
8
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended June 30, 1999.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PRBZ." The following table sets forth, for the fiscal periods
indicated, the high and low sales prices of the Common Stock as reported by the
Nasdaq National Market since the Company's initial public offering of Common
Stock at $7.33 per share on September 19, 1997 (after giving effect to the stock
split effected on August 7, 1998). Prior to September 19, 1997, there was no
public trading market for the Common Stock.
HIGH LOW
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FISCAL 1998:
First Quarter (from September 19, 1997).................................... $ 12.92 $ 7.67
Second Quarter............................................................. $ 15.33 $ 12.08
Third Quarter.............................................................. $ 20.00 $ 14.00
Fourth Quarter............................................................. $ 32.58 $ 17.33
FISCAL 1999:
First Quarter.............................................................. $ 43.13 $ 22.38
Second Quarter............................................................. $ 47.50 $ 27.25
Third Quarter.............................................................. $ 44.75 $ 29.75
Fourth Quarter............................................................. $ 42.00 $ 24.50
On September 13, 1999, there were 5,265 beneficial holders of record of the
Company's Common Stock. The last reported sale price per share of the Common
Stock on September 23, 1999 on the Nasdaq National Market was $27.375.
(b) On September 25, 1998, the Company commenced a secondary public offering
(the "Secondary Offering"), which consisted of 3,191,250 shares of its Common
Stock at $27.00 per share pursuant to a registration statement (No. 333-60745)
declared effective by the Securities and Exchange Commission on September 25,
1998. As of April 1, 1999, $80.7 million, all of the Company's net proceeds from
the offering were invested in short-term financial instruments. During the
period April 1, 1999 to June 30, 1999 approximately $7.1 million of the proceeds
was used for working capital. At July 1, 1999, approximately $73.6 million of
the net offering proceeds from the Secondary Offering were invested in
short-term financial instruments.
9
ITEM 6. SELECTED FINANCIAL DATA
1995 1996 1997 1998 1999
--------- ---------- ---------- ---------- ----------
Revenue................................................ $ 7,095 $ 14,098 $ 27,675 $ 46,534 $ 70,145
Loss from operations................................... $ (893) $ (2,820) $ (7,495) $ (9,984) $ (18,393)**
Net loss............................................... $ (979) $ (3,238) $ (8,643) $ (9,840) $ (16,109)
Gross margin........................................... $ 4,392 $ 7,509 $ 13,763 $ 22,484 $ 35,636
Operating profit before client acquisition and merger
costs................................................ $ 2,050 $ 3,453 $ 4,757 $ 8,836 $ 14,969
Net loss per share*.................................... $ (0.78) $ (0.60) $ (0.77)
Shares used in computing basic and diluted net loss per
share*............................................... 11,079 16,535 21,033
Total assets........................................... $ 4,134 $ 118,036 $ 201,499 $ 377,475 $ 710,424
Payroll tax funds...................................... -- $ 106,339 $ 177,626 $ 332,667 $ 580,452
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* Amounts are pro forma for 1997 and 1998.
** Loss includes a $3.5 million charge for merger related costs. (See Note 11
of Notes to Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required is set forth in the Company's Annual Report under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required are identified in Item 14(a), and are set
forth in the Company's Annual Report and incorporated herein by reference.
Supplementary data required is set forth in the Company's Annual Report under
"Quarterly Financial Data (Unaudited)" and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants or reported disagreements on
accounting principles or practices or financial statement disclosures.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of August 1, 1999.
NAME AGE POSITION
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Thomas H. Sinton.......................... 51 Chairman of the Board, President, Chief Executive Officer,
Director
Jeffrey M. Bizzack........................ 39 Senior Vice President, Sales
Jerry W. Blalock.......................... 50 Senior Vice President, Operations and Group General Manager
Leslie A. Johnson......................... 50 Senior Vice President, Client Services and Chief Service
Officer
Steven E. Klei............................ 39 Senior Vice President, Finance, Chief Financial Officer and
Secretary
Robert E. Schneider....................... 41 Senior Vice President, Product Development and Chief Technical
Officer
William T. Clifford(1).................... 53 Director
David C. Hodgson(2)....................... 42 Director
Ronald W. Readmond(1)(2).................. 56 Director
Thomas P. Roddy(1)........................ 64 Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
MR. SINTON, founder of the Company, has served as a Director of the Company
since the Company's incorporation in October 1984, and from March 1993 to
present, Mr. Sinton has served as the President and Chief Executive Officer of
the Company. Since December 1996 and for a period between September 1989 and
February 1993, Mr. Sinton served as Chairman of the Board. Mr. Sinton holds a
B.A. degree in English Literature, Magna Cum Laude, from Harvard University, an
M.S. degree in Food Science from the University of California at Davis and an
M.B.A. degree from Stanford University. Mr. Sinton received a Fulbright
Fellowship to study at the University of Vienna in Vienna, Austria.
MR. BIZZACK has served as Senior Vice President, Sales of the Company since
July 1993. From October 1992 to July 1993, Mr. Bizzack served as Vice President,
Sales of the Company. From October 1988 to October 1992, Mr. Bizzack served as a
District Sales Manager of the Company. Mr. Bizzack attended Saint Mary's
College.
MR. BLALOCK has served as Senior Vice President, Operations and General
Group Manager of the Company since August 1999 and as Senior Vice President and
General Manager, Payroll and Tax from August 1998 to August 1999. From October
1996 to August 1998, Mr. Blalock served as Vice President and Regional General
Manager for Anacomp Corporation, a provider of document imaging services. From
January 1995 to October 1996 Mr. Blalock served as president and founder of the
Axion Group, a provider of resume scanning services. From March 1992 to December
1994 Mr. Blalock served as Divisional President of Delphi Information Systems, a
provider of automation systems to property and casualty insurers. Mr. Blalock
attended the University of La Verne.
11
MS. JOHNSON has served as Senior Vice President, Client Services and Chief
Service Officer of the Company since August 1997 and served as Vice President,
Client Services of the Company from September 1993 to August 1997. From May 1992
to September 1993, Ms. Johnson was Director, National Accounts for Automatic
Data Processing. From January 1976 until her division was acquired by Automatic
Data Processing in May 1992, Ms. Johnson held several positions at BankAmerica
Corporation, most recently as Vice President, Northern California National
Accounts. Ms. Johnson holds a B.A. degree in Communications from the University
of Colorado.
MR. KLEI has served as Senior Vice President, Finance of the Company since
August 1997, as Chief Financial Officer of the Company since July 1995 and as
Secretary of the Company since August 1996. Mr. Klei served as Vice President,
Finance from July 1995 to August 1997. From April 1993 to July 1995, Mr. Klei
was Corporate Controller for Esprit de Corp, an apparel company. Mr. Klei holds
a B.S. degree in Accounting from Central Michigan University and is a Certified
Public Accountant.
MR. SCHNEIDER has served as Senior Vice President, Product Development and
Chief Technical Officer of the Company since August 1997 and served as Vice
President, Research and Development and Chief Technical Officer of the Company
from November 1996 to August 1997. From April 1995 to July 1996, Mr. Schneider
served as Senior Vice President of Product Development at Premenos Technology
Corporation, an electronic commerce software company. From February 1989 to
March 1995, Mr. Schneider held several positions at Sybase Inc., most recently
as Vice President and Business Unit Manager of the Server Products Group. Mr.
Schneider holds a B.S. degree in Computer Science from the University of San
Francisco.
MR. CLIFFORD has served as a Director of the Company since August 1997. Mr.
Clifford has served as the Chief Executive Officer of Gartner Group, Inc. since
January 1999 and as the President of Gartner Group, Inc. since October 1997.
From April 1995 to January 1999, he was the Chief Operating Officer of Gartner
Group, Inc., and from October 1993 to September 1997, he was Executive Vice
President, Operations of Gartner Group, Inc. From December 1988 to October 1993,
Mr. Clifford held various positions at Automatic Data Processing, Inc.,
including President of National Accounts and Corporate Vice President,
Information Services. Mr. Clifford holds a B.A. degree in Economics from the
University of Connecticut.
MR. HODGSON has served as a Director of the Company since March 1997. Mr.
Hodgson is a Managing Member of General Atlantic Partners LLC ("GAP LLC") and
has been with GAP LLC since 1982. Mr. Hodgson is also a director of Baan
Company, N.V., a publicly-traded software company, Atlantic Data Services, Inc.,
a publicly-traded information technology consulting company, and several other
privately-held software companies, in which GAP LLC or one of its affiliates is
an investor. Mr. Hodgson holds an A.B. degree in Mathematics from Dartmouth
College and an M.B.A. degree from Stanford University.
MR. READMOND has served as a Director of the Company since February 1997.
Since June 1998, Mr. Readmond has been President and Chief Operating Officer of
Wit Capital Group Incorporated and has been an advisor of Barbour Griffith &
Rogers, a lobbying firm, and Chairman of International Equity Partners, L.P., a
private equity and project development company since January, 1997. From August
1989 to December 1996, Mr. Readmond held various positions at Charles Schwab &
Co. Inc., most recently serving as Vice Chairman. Mr. Readmond holds a B.A.
degree in Economics from Western Maryland College.
MR. RODDY has served as a Director of the Company since 1992. Since 1988,
Mr. Roddy has served as President and Chief Executive Officer of Lafayette
Investments Inc., an investment banking and investment advisory company. Mr.
Roddy holds a B.S. degree in Biochemistry from Villanova University.
Mr. Hodgson was nominated and elected as a Director of the Company pursuant
to an agreement entered into between the Company, GAP LLC and Thomas H. Sinton
and his affiliates, in connection with
12
the sale of Preferred Stock by the Company to GAP LLC. Under such agreement, GAP
LLC and Mr. Sinton and his affiliates agreed to vote their shares to elect one
director to the Board of Directors designated by GAP LLC until the third annual
meeting of stockholders after the Company's initial public offering.
The Board of Directors presently consists of five members who hold office
until the annual meeting of stockholders or until a successor is duly elected
and qualified. The Board of Directors is divided into three classes. One class
of directors is elected annually and its members hold office for a three-year
term or until their successors are duly elected and qualified, or until their
earlier removal or resignation. The number of directors may be changed by a
resolution of the Board of Directors. Executive officers are elected by the
Board of Directors. There are no family relationships among any of the directors
and executive officers of the Company.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee recommends the engagement of auditors and reviews
the results and scope of the audit and other services provided by the Company's
independent auditors, reviews and evaluates the Company's control functions and
reviews the Company's investment policy. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for employees and consultants of the Company. The Compensation
Committee also administers the Company's 1996 Stock Option Plan and 1997
Employee Stock Purchase Plan.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors and greater than 10% stockholders are
required by SEC rules to furnish the Company with copies of all forms they file.
Based solely on its review of the copies of such forms received by the Company
and written representations from certain reporting persons, the Company believes
that, during fiscal 1999, all Section 16(a) filing requirements applicable to
its executive officers, directors and 10% stockholders were satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The information required is set forth in the Company's definitive Proxy
Statement in the sections entitled "Executive Officer Compensation" and
"Election of Class II Directors" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP
The information required is set forth in the Company's definitive Proxy
Statement in the section entitled "Security Ownership of Certain Beneficial
Owners and Management" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 5, 1996, the Company loaned $544,000 under a full recourse note
agreement at an interest rate of 6.31% per year to Robert E. Schneider, an
officer of the Company, to permit Mr. Schneider to exercise options to purchase
Common Stock of the Company. All principal and interest is due December 5, 2000.
As of June 30, 1999, Mr. Schneider had not paid any amount on the note.
On January 31, 1997, the Company loaned $250,000 under a full recourse note
agreement at an interest rate of 6.1% per year to Jeffrey M. Bizzack, an officer
of the Company, to permit Mr. Bizzack to purchase a residence. Accrued interest
must be paid on a monthly basis beginning two years from the date of the note.
All principal and accrued but unpaid interest is due January 31, 2001 unless Mr.
Bizzack's
13
employment with the Company terminates, in which case, the note may become due
earlier. As of June 30, 1999, Mr. Bizzack had not paid any amount on the note.
Thomas H. Sinton and certain affiliates of GAP LLC are the principal
stockholders of InterPro Expense Systems, Inc., a Delaware corporation
("InterPro"), which in April 1998 purchased rights to certain early-stage travel
and entertainment expense processing software. Mr. Sinton is the President,
Chief Executive Officer and Chairman of the Board of the Company. David C.
Hodgson, a Director of the Company, is a managing member of GAP LLC, affiliates
of which hold more than 5% of the Company's outstanding stock. Because Mr.
Sinton and Mr. Hodgson are officers and Directors of the Company, their
investment in InterPro was required to be, and was, approved by the
disinterested directors of the Company. Any future transaction or relationship
between the Company and InterPro would be entered into on an arms-length basis
and would be approved by the Company's disinterested directors.
On September 8, 1998, the Company loaned $250,000 under a full recourse note
agreement at an interest rate of 5.42% per year to Jerry W. Blalock, an officer
of the Company, to permit Mr. Blalock to purchase a residence. All principal and
accrued but unpaid interest is due September 8, 2001 unless Mr. Blalock's
employment with the Company terminates, in which case, the note may become due
earlier. As of June 30, 1999, Mr. Blalock had not paid any amount on the note.
On November 20, 1998, the Company loaned $450,000 to William M. Hewitt, an
executive of the Company, under full recourse note agreements with an interest
rate of 5.42% per year. The notes were to permit Mr. Hewitt to purchase a
residence. Principal and interest under the notes is due in two installments of
$200,000 and $250,000 plus interest on November 20, 2000 and November 20, 2003,
respectively. As of June 30, 1999 Mr. Hewitt had not paid any amount on the
notes.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS: The following Consolidated Financial Statements of
ProBusiness, Services, Inc. and Report of Ernst & Young LLP, Independent
Auditors, are incorporated by reference to the 1999 Annual Report to
Stockholders:
Consolidated Balance Sheets as of June 30, 1998 and 1999
Consolidated Statements of Operations for the years ended June 30, 1997,
1998 and 1999
Consolidated Statements of Stockholders' Equity for the years ended June 30,
1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1998 and 1999
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. FINANCIAL STATEMENT SCHEDULE: The following financial statement schedule of
ProBusiness Services, Inc. for the fiscal years ended June 30, 1997, 1998
and 1999 is filed as part of this Report and should be read in conjunction
with the consolidated Financial Statements of ProBusiness Services, Inc.
Schedule II Valuation Allowance Schedule S-1
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
3. EXHIBITS: The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedule are filed as part of,
or incorporated by reference into, this Report.
(b) REPORTS OF FORM 8-K:.
On May 12, 1999, the Company filed a report on form 8-K for announcing that
on April 27, 1999, the Company completed the acquisition of Conduit Parent.
On July 12, 1999, the Company filed on Form 8-K/A an amendment to the Form
8-K previously filed on May 12, 1999, for the required financial statement
disclosure.
(c) EXHIBITS: See Item (a) above.
(d) FINANCIAL STATEMENT SCHEDULES: See Item (a) above.
15
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Pleasanton, state of California, on this 28th day of September, 1999.
PROBUSINESS SERVICES, INC.
By: /s/ THOMAS H. SINTON
-----------------------------------------
Thomas H. Sinton
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ THOMAS H. SINTON Officer and Director
- ------------------------------ (Principal Executive September 28, 1999
Thomas H. Sinton Officer)
Senior Vice President,
/s/ STEVEN E. KLEI Finance, Chief Financial
- ------------------------------ Officer and Secretary September 28, 1999
Steven E. Klei (Principal Financial and
Accounting Officer)
/s/ WILLIAM T. CLIFFORD
- ------------------------------ Director September 28, 1999
William T. Clifford
/s/ DAVID C. HODGSON
- ------------------------------ Director September 28, 1999
David C. Hodgson
/s/ RONALD W. READMOND
- ------------------------------ Director September 28, 1999
Ronald W. Readmond
/s/ THOMAS P. RODDY
- ------------------------------ Director September 28, 1999
Thomas P. Roddy
16
SCHEDULE II
PROBUSINESS SERVICES, INC.
(IN THOUSANDS)
VALUATION ALLOWANCE
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
Deferred Tax Assets
Balance at beginning of year...................................................... $ 3,662 $ 6,560 $ 10,864
Additions......................................................................... 2,898 4,304 6,965
Reductions........................................................................ -- -- --
Balance at end of year............................................................ $ 6,560 $ 10,864 $ 17,829
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
Allowance for Doubtful Accounts
Balance at beginning of year...................................................... $ 12 $ 386 $ 443
Additions......................................................................... 419 127 397
Reductions........................................................................ 45 70 24
Balance at end of year............................................................ $ 386 $ 443 $ 816
S-1
INDEX TO EXHIBITS
FOOTNOTE NUMBER EXHIBIT DESCRIPTION
- --------- --------- ---------------------------------------------------------------------------------------------------
(1) 2.1 Agreement and Plan of Reorganization, dated May 23, 1996, between Registrant and Dimension
Solutions.
(1) 2.2 Stock Acquisition Agreement, dated January 1, 1997 between Registrant and BeneSphere
Administrators, Inc.
(4) 2.3 Agreement and Plan of Reorganization, dated as of April 27, 1999, among ProBusiness Services, Inc.
Runway Acquisition Corp., Clemco, Inc. and certain other parties.
(2) 3.1 Amended and Restated Certificate of Incorporation.
(1) 3.2 Bylaws of Registrant.
(1) 4.1 Specimen Common Stock Certificate of Registrant.
(1) 4.2 Amended and Restated Registration Rights Agreement, dated March 12, 1997, between Registrant,
General Atlantic Partners 39, L.P., GAP Coinvestment Partners, L.P. and certain stockholders of
Registrant.
(1) 4.3 Warrant to Purchase Stock, dated January 13, 1995, between Registrant and Silicon Valley Bank and
related Antidilution and Registration Rights Agreements.
(1) 4.4(a) Warrant to Purchase Stock, dated April 30, 1996, between Registrant and Coast Business Credit and
related Antidilution and Registration Rights Agreement.
(1) 4.4(b) Warrant to Purchase Stock, dated October 25, 1996, between Registrant and Coast Business Credit and
related Antidilution and Registration Rights Agreement.
(1) 4.5 Warrant to Purchase Series E Preferred Stock, dated July 31, 1996, between Registrant and LINC
Capital Management.
(1) 4.6(a) Warrant Purchase Agreement, dated November 14, 1996, between Registrant and certain purchasers.
(1) 4.6(b) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between Registrant and T.J.
Bristow and Elizabeth S. Bristow.
(1) 4.6(c) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between Registrant and SDK
Incorporated.
(1) 4.6(d) Warrant to Purchase Series E Preferred Stock, dated November 14, 1996, between Registrant and
Laurence Shushan and Magdalena Shushan.
(1) 4.7(a) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and Louis R. Baransky.
(1) 4.7(b) Warrant to Purchase Common Stock, dated January 7, 1997, between Registrant and Ben W. Reppond.
(1) 4.8 Form of Note issued by Registrant on October 20, 1995 and December 12, 1995.
(4) 4.9 Waiver and Amendment dated as of April 27, 1999, among ProBusiness Services, Inc., General Atlantic
Partners 39, L.P., GAP Coinvestment Partners, L.P. and certain stockholder.
(4) 4.10 Registration Rights Agreement dated as of April 27, 1999, between ProBusiness Services, Inc. and
certain stockholders.
(3) 10.28 Sublease agreement, dated December 9, 1998, between Registrant and Maritz, Inc.
13.1 Certain sections of the Annual Report to Stockholders for the fiscal year ended June 30, 1999,
expressly incorporated herein by reference.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
(4) 99.1 Press release of ProBusiness Services, Inc. dated April 27, 1999.
- ------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, as amended (File No. 333-23189), declared effective on September 18,
1997.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (File No. 333-37129) filed with the Securities and Exchange
Commission on October 3, 1997.
(3) Incorporated by reference from the Registrant's report on Form 10-Q for the
period ended March 31, 1999.
(4) Incorporated by reference from the Registrant's report on Form 8-K filed
with the Securities and Exchange Commission on May 12, 1999.