SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</Table>
Probusiness Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[ProBusiness Logo]
ProBusiness Services, Inc.
4125 Hopyard Road
Pleasanton, CA 94588
Dear Stockholder:
I am pleased to invite you to the Annual Meeting of Stockholders of
ProBusiness Services, Inc. The meeting will be held on Friday, November 30,
2001, at 3:00 p.m., local time, at the ProBusiness corporate headquarters at
4125 Hopyard Road, Pleasanton, California.
At this meeting, Stockholders will be asked to elect a Class I director,
approve an amendment to our stock option plan and ratify the selection of Ernst
& Young LLP as our independent auditors for fiscal year 2002. The accompanying
Notice and Proxy Statement describes these proposals. I encourage you to read
this information carefully.
I am very pleased you have chosen to invest in ProBusiness Services, Inc.
Your vote is important, regardless of how many shares you own. Please take a few
minutes now to vote your Proxy by following the instructions on the enclosed
proxy card.
Sincerely,
/s/ Thomas H. Sinton
Thomas H. Sinton
Chairman of the Board,
President, Chief Executive
Officer and Director
[ProBusiness Logo]
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 30, 2001
---------------------
To the Stockholders:
Notice is hereby given that the 2001 Annual Meeting of Stockholders
("Annual Meeting") of ProBusiness Services, Inc., a Delaware corporation, will
be held on Friday, November 30, 2001 at 3:00 p.m., local time, at our corporate
headquarters, 4125 Hopyard Road, Pleasanton, California, for the following
purposes:
1. To elect a Class I director to serve for a term of three years.
2. To approve an amendment to our 1996 Stock Option Plan to increase
the number of shares reserved for issuance thereunder by 2,000,000.
3. To ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending June 30, 2002.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting of Stockholders. Only
stockholders of record at the close of business on October 16, 2001 are entitled
to notice of, and to vote at, our Annual Meeting.
All stockholders are cordially invited to attend our Annual Meeting in
person. However, to assure your representation at our Annual Meeting, you are
urged to vote your Proxy as promptly as possible by following the instructions
on the enclosed proxy card. Any stockholder attending our Annual Meeting may
vote in person even if he or she has returned a proxy card, voted by phone or
voted on-line.
By Order of the Board of Directors
/s/ Steven E. Klei
Steven E. Klei
Executive Vice President, Finance,
Chief Financial Officer and Secretary
Pleasanton, California
October 25, 2001
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
VOTE YOUR PROXY BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
PROBUSINESS SERVICES, INC.
---------------------
PROXY STATEMENT
FOR THE
2001 ANNUAL MEETING OF STOCKHOLDERS
---------------------
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
ProBusiness Services, Inc., a Delaware corporation (the "Company"), for use at
the 2001 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Friday, November 30, 2001 at 3:00 p.m., local time, and at any postponement or
adjournment thereof, for the purposes set forth in the Proxy Statement and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at our corporate headquarters, 4125 Hopyard Road, Pleasanton,
California, 94588 where our principal executive offices are located, and the
telephone number at that location is (925) 737-3500.
This Proxy Statement and the enclosed proxy card were mailed on or about
October 25, 2001 together with our 2001 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record at the close of business on October 16, 2001 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date 24,255,843 shares of our common stock, $0.001 par value (the
"Common Stock"), and 1,132,075 shares of our 6.9% Senior Redeemable Convertible
Preferred Stock, $0.001 par value (the "Preferred Stock") were issued and
outstanding and entitled to be voted at the Annual Meeting. For information
regarding security ownership by management and by the beneficial owners of more
than 5% of our Common Stock, see "Security Ownership of Certain Beneficial
Owners and Management." The closing price of our Common Stock on the Nasdaq
National Market on the Record Date was $18.80 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted by delivering to our Secretary a
written notice of revocation or a duly executed proxy bearing a date later than
that of the previously submitted proxy, or by attending the Annual Meeting and
voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock or
Preferred Stock held on the Record Date on all matters presented at the Annual
Meeting, except that stockholders are not entitled to vote their Preferred Stock
on the election of the Class I director. Stockholders do not have the right to
cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by us. We reimburse brokerage
firms and other persons representing beneficial owners of our Common Stock for
their reasonable expenses in forwarding solicitation materials to such
beneficial owners. Certain of our directors, officers and regular employees,
without additional compensation, may also solicit proxies personally or by
telephone, telegram, letter or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the outstanding shares of our Common Stock entitled to
vote shall constitute a quorum for the transaction of
business. We intend to include abstentions and broker non-votes as present for
purposes of establishing a quorum for the transaction of business and to include
abstentions and to exclude broker non-votes from the calculation of shares
entitled to vote with respect to any proposal for which authorization to vote
was withheld.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Any proposal of a stockholder which is intended to be presented by such
stockholder at our 2002 Annual Meeting of Stockholders, either pursuant to
inclusion in the proxy statement and form of proxy relating to such meeting or
otherwise, must be received by our Corporate Secretary no later than June 27,
2002. The submission of a stockholder proposal does not guarantee that it will
be included in our proxy statement.
In addition, our bylaws establish an advance notice procedure with regard
to certain matters, including stockholder proposals and director nominations,
not included in our proxy statement which are proposed to be properly brought
before an annual meeting of stockholders. Such stockholder must deliver written
notice to our Corporate Secretary not less than 120 days in advance of the
one-year anniversary of the date at which the notice of the previous year's
annual meeting was mailed to our stockholders (in the case of the 2002 annual
meeting this date is June 27, 2002). This notice must contain specified
information concerning the matters proposed to be brought before such annual
meeting and concerning the stockholder proposing such matters.
In the event that either (i) we did not have an annual meeting during the
immediately previous year, or (ii) the date of the current year annual meeting
is more than 30 days from the one year anniversary of the immediately prior
annual meeting, then the deadline for our receipt of the notice required by the
bylaws shall instead be the later of (a) the date that is 120 days prior to the
current year annual meeting, and (b) the date that is 10 days following the
first public notice of the date of such annual meeting. A copy of the full text
of the bylaw provision discussed above may be obtained by writing to our
Secretary at our address provided above. All notices of proposals by
stockholders, whether or not included in our proxy materials, should be sent to
us at our address provided above, Attention: Corporate Secretary.
PROPOSAL NO. 1
ELECTION OF CLASS I DIRECTOR
DIRECTORS AND NOMINEES FOR CLASS I DIRECTOR
Our Board of Directors currently consists of five members who are divided
into three classes serving staggered terms. Class I consists of one director,
and Class II and Class III consist of two directors each. The Class I director
will be elected at the Annual Meeting for a term of three years.
The Board of Directors has selected the nominee listed below to be
re-elected at the Annual Meeting as the Class I director. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for this
nominee. In the event that the nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy; however, we have no reason to believe that the listed nominee will be
unable or will decline to serve as a director. The director elected at this
Annual Meeting will serve until the term of that director's class expires in
2004 or until such director's successor has been elected and qualified.
2
The name of the nominee for the Class I director and the names of each of
our other directors whose term of office continues after the Annual Meeting,
their ages as of October 16, 2001, and certain other related information are set
forth below. There are no family relationships between any director, executive
officer or the nominee.
<Table>
<Caption>
NAME AGE POSITION WITH OUR COMPANY
---- --- -------------------------
NOMINEE FOR CLASS I DIRECTOR FOR A
TERM EXPIRING IN 2004
Thomas H. Sinton...................... 53 Chairman of the Board, President,
Chief Executive Officer and Director
CLASS II DIRECTORS WHOSE TERM EXPIRES
IN 2002
William T. Clifford................... 55 Director
David C. Hodgson...................... 44 Director
CLASS III DIRECTORS WHOSE TERM EXPIRES
IN 2003
Ronald W. Readmond.................... 58 Director
Thomas P. Roddy....................... 66 Director
</Table>
Mr. Sinton, our founder, has served as one of our directors since we
incorporated in October 1984. Since March 1993, Mr. Sinton has served as our
President and Chief Executive Officer. 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. Clifford has served as one of our directors since August 1997. Mr.
Clifford has served as a Managing Member of New Vista Capital, a venture capital
firm, from April 2000 to present. Mr. Clifford also serves as Chairman of
Authentor Systems, Inc., a security management and authentication software
company. Mr. Clifford served as President and Chief Executive Officer of
Warrantycheck.com, an internet provider, from November 1999 to April 2000. From
January 1999 to October 1999, Mr. Clifford served as the Chief Executive Officer
of Gartner Group, Inc., a provider of information and analysis on the technology
industries, and as the President there since October 1997. From April 1995 to
January 1999, he was the Chief Operating Officer of Gartner Group, Inc., and he
was Executive Vice President, Operations there from October 1993 to September
1997. 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 one of our directors since March 1997. Mr.
Hodgson is a Managing Member of General Atlantic Partners, LLC ("GAP LLC"), a
private equity investment firm that invests in Internet and information
technology on a global basis, and has been with GAP LLC or its predecessor since
1982. Mr. Hodgson is also a director of Atlantic Data Services, Inc., a provider
of professional computer services for the banking industry, ScreamingMedia,
Inc., a developer of proprietary technologies for the aggregation and
distribution of digital content over the Internet, and several other
privately-held information technology 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 one of our directors since February 1997. From
January 2001 to June 2001, Mr. Readmond served as a director and Chief Executive
Officer of TruMarkets Inc., an automated bond trading company. Mr. Readmond
previously served as a director and Vice Chairman of Wit Soundview Group, an
investment bank, from June 2000 to October 2000 and as President and Chief
Operating Officer there from June 1998 to June 2000. From August 1989 to
December 1996, Mr. Readmond held various
3
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 one of our directors 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 pursuant to an
agreement entered into between us, GAP LLC and Thomas H. Sinton and his
affiliates, in connection with the sale of our preferred stock 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 our initial public
offering. This agreement has terminated. Mr. Hodgson's current term as a Class
II director expires at our 2002 annual meeting.
Under the terms of the August 2000 investment by affiliates of GAP LLC in
our Preferred Stock, as long as GAP LLC or its affiliates own a majority of the
Preferred Stock, the holders of the Preferred Stock are entitled to elect one
director to our Board of Directors and are not entitled to vote their Preferred
Stock on the election of the other directors. We have agreed with GAP LLC that
the holders of the Preferred Stock will be entitled to elect one of the Class II
directors.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors held a total of five meetings during fiscal 2001.
Each incumbent director attended 100% of the aggregate of (i) the total number
of meetings of the Board of Directors and (ii) the total number of meetings of
the committees upon which he served. Certain matters were approved by the Board
of Directors and its committees by unanimous written consent. Our Board of
Directors has two standing committees: an Audit Committee and a Compensation
Committee.
The Audit Committee currently consists of Mr. Hodgson, Mr. Readmond and Mr.
Roddy. Each member of the Audit Committee is an "independent director" as
defined in Rule 4200 of the National Association of Securities Dealers' listing
standards, as applicable and as may be modified or supplemented to date. The
Audit Committee is responsible for (i) recommending engagement of our
independent auditors, (ii) approving the services performed by such independent
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examinations, (iv) reviewing and approving any material
accounting policy changes affecting our operating results, (v) reviewing our
control procedures and personnel and (vi) reviewing and evaluating our
accounting principles and our system of internal accounting controls. The Audit
Committee held five meetings during fiscal 2001. The Board of Directors has
adopted a written charter for the Audit Committee which is attached as Appendix
A hereto.
The Compensation Committee currently consists of Mr. Hodgson and Mr.
Readmond. The Compensation Committee is responsible for (i) reviewing and
approving the compensation and benefits for our officers and other employees,
(ii) administering our stock option plans and (iii) making recommendations to
the Board of Directors regarding such matters. The Compensation Committee held
one meeting during fiscal 2001, excluding Actions by Unanimous Written Consent.
DIRECTOR COMPENSATION
Directors who are not officers each receive an annual retainer of $15,000,
in addition to $1,000 for attendance at each Board of Directors' meeting and
$500 for attendance at each committee meeting. Our officers do not receive
additional compensation for attendance at Board of Directors' meetings or
committee meetings.
Certain directors who are not officers have been granted options to
purchase Common Stock in the past, and options may be granted to our directors
in the future. In fiscal year 2001, Mr. Clifford, Mr. Hodgson, Mr. Readmond and
Mr. Roddy all received options to purchase 10,000 shares of our Common Stock, at
an exercise price of $28.375 per share. In fiscal year 2002, Mr. Clifford, Mr.
Hodgson, Mr. Readmond and
4
Mr. Roddy all received options to purchase 10,000 shares of our Common Stock, at
an exercise price of $13.23 per share.
REQUIRED VOTE
The nominee for the Class I director receiving the highest number of
affirmative votes of the shares of Common Stock entitled to be voted shall be
elected to the Board of Directors. Votes withheld are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they otherwise have no legal effect under Delaware law in connection with
the election of directors.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE ELECTION OF MR. SINTON.
PROPOSAL NO. 2
AMENDMENT TO 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors adopted our 1996 Stock Option Plan (the "Option
Plan") in February 1996. The Option Plan provides for the granting to employees
(including officers and employee directors) of incentive stock options and for
the granting to employees, directors and consultants of non-statutory stock
options. The number of shares reserved for issuance under the Option Plan is
6,943,658 plus any shares which were forfeited after our initial public offering
and which were issued or subject to issuance pursuant to options granted under
the 1989 Stock Option Plan (the "1989 Plan") (which plan terminated in
connection with our initial public offering of Common Stock), plus annual
increases equal to the lesser of (a) 375,000 shares, (b) two percent (2%) of the
number of outstanding shares of Common Stock on each anniversary of the adoption
of the Option Plan or (c) a lesser amount determined by the Board. As of October
16, 2001, a total of 6,943,658 shares of Common Stock were reserved for issuance
under the Option Plan and a total of 699,676 shares remained available for
future grant.
PROPOSAL
In August 2001, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Option Plan to increase the number of shares
reserved for issuance by an additional 2,000,000 shares of Common Stock, for an
aggregate of 8,943,658 shares reserved for issuance thereunder and 2,699,676
shares available for future grant as of October 16, 2001. This amendment will
enable us to continue to grant options to eligible employees and consultants
under the terms and conditions of the Option Plan.
The Board of Directors believes that the approval of the amendment to the
Option Plan is in our best interest and our stockholders, as the availability of
an adequate number of shares for issuance under the Option Plan and the ability
to grant stock options are important factors in attracting, motivating and
retaining qualified personnel essential to our success.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote on the subject matter is
required to approve the amendment to the Option Plan.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE AMENDMENT TO THE OPTION PLAN.
SUMMARY OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by
the specific language of the Option Plan, a copy of which is available to any
stockholder upon written request to our Secretary.
5
Purposes. The purposes of the Option Plan are to attract and retain the
best available directors and personnel for positions of substantial
responsibility, to provide additional incentive to our employees and consultants
and to promote the success of our business.
Administration. The Option Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator"), which
committee is required to be constituted to comply with Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable
laws. Subject to the provisions of the Option Plan, the Administrator has the
authority to determine the individuals to whom stock options are to be granted,
the number of shares to be covered by each option, the exercise price, the fair
market value of the Common Stock, the type of option, the term of the option,
the restrictions, if any, on the exercise of the option, the terms for the
payment of the option price and other terms and conditions. The Administrator
also has the power to reprice options if the exercise price of outstanding
options exceeds the fair market value of our Common Stock.
Eligibility; Limitations. The Option Plan provides that nonstatutory stock
options may be granted to employees, directors and consultants. Incentive stock
options may be granted only to employees. An optionee who has been granted an
option may, if he or she is otherwise eligible, be granted additional options.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of compensation we pay to certain executive
officers. To maximize our deduction attributable to options granted to such
persons, the Option Plan provides that no employee may be granted, in any fiscal
year, options to purchase more than 187,500 shares of Common Stock. Over the
remaining term of the Option Plan, an employee may be granted options to
purchase up to an additional 375,000 shares of Common Stock that shall not count
against the above limit.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written stock option agreement between the optionee and us and
is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price
of options to purchase shares of Common Stock at the time the options are
granted. However, the exercise price of an incentive stock option must not
be less than 100% (110% if issued to any person possessing more than 10% of
the voting power of all of our classes of stock (a "10% Stockholder")) of
the fair market value of the Common Stock on the date the option is
granted. For so long as our Common Stock is traded on the Nasdaq National
Market, the fair market value of a share of Common Stock will be the
closing sales price for such stock (or the closing bid if no sales were
reported) on the last trading day prior to the date of grant, as reported
in The Wall Street Journal or such source as the Administrator deems
reliable.
(b) Exercise of the Option. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. The terms of such vesting are to be determined by the
Administrator. Options granted under the Option Plan to date generally
become exercisable over four years at a rate of one-fourth of the shares
subject to the options at the end of one year from the date of grant and
1/48 at the end of each month thereafter and have a ten-year term. The
maximum term of an incentive stock option granted to a 10% Stockholder is
five years. An option is exercised by giving written notice of the exercise
to us, specifying the number of full shares of Common Stock to be purchased
and by tendering full payment of the purchase price to us.
(c) Form of Consideration. The consideration to be paid for the
shares of Common Stock issued upon exercise of an option shall be
determined by the Administrator and is set forth in the stock option
agreement. Such form of consideration may vary for each option, and may
consist entirely of cash, check, promissory note, other shares of our
Common Stock, any combination thereof, or any form of consideration as may
be provided in the stock option agreement.
(d) Termination of Employment. In the event an optionee's continuous
status as an employee, consultant or director terminates for any reason
(other than upon the optionee's death or disability), the optionee may
exercise his or her option within such period of time as is specified in
such optionee's stock option agreement but only to the extent that the
optionee was entitled to exercise the option at the date of such
termination (but in no event later than the expiration of the term of such
option as set forth in the
6
stock option agreement). Options granted under the Option Plan to date have
generally provided that optionees may exercise their options within sixty
days from the date of termination of employment (other than for death or
disability).
(e) Disability. In the event an optionee's continuous status as an
employee, consultant or director terminates as a result of permanent and
total disability (as defined in Section 22(e)(3) of the Code), the optionee
may exercise his or her option, but only within twelve months from the date
of such termination, unless otherwise provided in the stock option
agreement, and only to the extent that the optionee was entitled to
exercise it at the date of such termination (but in no event later than the
expiration of the term of such option as set forth in the stock option
agreement).
(f) Death. In the event of an optionee's death, the optionee's estate
or a person who acquired the right to exercise the deceased optionee's
option by bequest or inheritance may exercise the option, but only within
twelve months following the date of death, unless otherwise provided in the
stock option agreement, and only to the extent that the optionee was
entitled to exercise it at the date of death (but in no event later than
the expiration of the term of such option as set forth in the stock option
agreement).
(g) Term of Options. The term of each option is the term stated in
the stock option agreement; provided, however, that the term may not exceed
ten years from the date of grant. In the case of an incentive stock option
granted to a 10% Stockholder, the term may not exceed five years from the
date of grant. No option may be exercised by any person after the
expiration of its term.
(h) Nontransferability of Options. An option is nontransferable by
the optionee unless determined otherwise by the Administrator, other than
by will or the laws of descent and distribution, and is exercisable during
the optionee's lifetime only by the optionee. In the event of the
optionee's death, options may be exercised by a person who acquires the
right to exercise the option by bequest or inheritance.
(i) Value Limitation. If the aggregate fair market value (as
determined on date of grant) of all shares of Common Stock subject to an
optionee's incentive stock option which are exercisable for the first time
during any calendar year exceeds $100,000, the excess options shall be
treated as nonstatutory options.
(j) Other Provisions. The stock option agreement may contain such
other terms, provisions and conditions not inconsistent with the Option
Plan as may be determined by the Administrator.
Adjustment Upon Changes in Capitalization; Corporate Transactions. In the
event of changes in our outstanding Common Stock by reason of any stock splits,
reverse stock splits, stock dividends, combinations, reclassifications or any
other increase or decrease in the number of issued shares of Common Stock issued
without receipt of consideration by us, an appropriate adjustment shall be made
by the Administrator in the following: (i) the number of shares of Common Stock
subject to the Option Plan, (ii) the number and class of shares of stock subject
to any option outstanding under the Option Plan, (iii) and the exercise price of
any such outstanding option. The determination of the Board as to which
adjustments made shall be conclusive. In the event of our proposed dissolution
or liquidation, the Administrator will notify the holders of options as soon as
practicable prior to the effective date of such action, and all outstanding
options will terminate immediately prior to the consummation of such proposed
action. Notwithstanding the above, in the event of our merger with or into
another corporation or the sale of substantially all of our assets, the Option
Plan requires that each outstanding option be assumed or an equivalent option be
substituted by the successor corporation; provided, however, if such successor
or purchaser refuses to assume or substitute the then outstanding options, the
Option Plan provides for the full acceleration of the exercisability of all
outstanding options for a period of fifteen days from the date of notice of
acceleration to the holder and all options will terminate upon the expiration of
such period.
Amendment and Termination of the Option Plan. The Board may at any time
amend, alter, suspend or terminate the Option Plan. We shall obtain stockholder
approval of any amendment to the Option Plan in such a manner and to such a
degree as is necessary and desirable to comply with Rule 16b-3 under the
Exchange Act and Sections 162(m) and 422 of the Code (or any other applicable
law or regulation, including
7
the requirements of any exchange or quotation system on which the Common Stock
is traded). Any amendment or termination of the Option Plan shall not affect
options already granted and such options shall remain in full force and effect
as if the Option Plan had not been amended or terminated, unless mutually agreed
otherwise between the optionee and us, which agreement must be in writing and
signed by the optionee and us. In any event, the Option Plan shall terminate in
February 2006. Any options outstanding under the Option Plan at the time of its
termination shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. Long-term capital gains are grouped and netted by holding
periods. Net capital gains on assets held for more than twelve months are
currently taxed at a maximum federal rate of 20%. Capital losses are allowed in
full against capital gains and up to $3,000 against other income. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also one of our officers, directors, or 10% Stockholders. We
are entitled to a deduction in the same amount as the ordinary income recognized
by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by our employee
is subject to us withholding tax. We are entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on assets held for more than
twelve months are currently taxed at a maximum federal rate of 20%. Capital
losses are allowed in full against capital gains and up to $3,000 against other
income.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND US WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS UNDER
THE OPTION PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE
TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF
THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
PARTICIPATION IN THE OPTION PLAN IN FISCAL 2001
The grant of options under the Option Plan to employees, including the
Named Executive Officers (as defined under "Executive Officer Compensation"), is
subject to the discretion of the Administrator. As of the date of this proxy
statement, there has been no determination by the Administrator with respect to
future awards under the Option Plan, as amended. Accordingly, future awards are
not determinable. Non-employee directors are eligible to participate in the
Option Plan. The following table sets forth information with respect to the
grant of options pursuant to the Option Plan to our chief executive officer and
nominee for Class I director, each of our three other most highly compensated
executive officers, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees,
including all current officers who are not executive officers, as a group. In
addition, in fiscal 2002, the following executive officers received options to
purchase Common Stock at an exercise price of $13.23 per share: Mr. Bizzack,
8
Mr. Blalock and Mr. Klei received options to purchase 50,000 shares of our
Common Stock and Mr. Sinton received an option to purchase 75,000 shares of our
Common Stock.
<Table>
<Caption>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE PRICE
NAME OF INDIVIDUAL AND POSITION OPTIONS GRANTED ($ PER SHARE)
------------------------------- --------------- --------------
Thomas H. Sinton............................................ 60,000 $32.00
Chairman of the Board, President and Chief Executive
Officer
Jeffrey M. Bizzack.......................................... -- --
Executive Vice President, Sales and Services
Jerry W. Blalock............................................ -- --
Executive Vice President and Group General Manager
Steven E. Klei.............................................. -- --
Executive Vice President, Finance, Chief Financial Officer
and Secretary
All current executive officers as a group (4 persons)....... 60,000 $32.00
All current directors who are not executive officers as a
group (4 persons)......................................... 40,000 $28.375
All employees, including all current officers who are not
executive officers, as a group............................ 1,665,974 $23.31(1)
</Table>
---------------
(1) Represents a weighted average per share exercise price.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit our financial statements for the fiscal year ending June 30,
2002. Ernst & Young LLP have been our independent auditors since June 1996.
Representatives of Ernst & Young LLP are expected to attend the Annual Meeting
and will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
We have been informed by Ernst & Young LLP that neither the firm nor any of
its members or their associates has any direct financial interest or material
indirect financial interest in our company.
FEE DISCLOSURE
Audit Fees. Ernst & Young LLP billed us an aggregate of $359,494 in fees
for professional services rendered in connection with the audit of our financial
statements for the fiscal year ended June 30, 2001 and for the reviews of the
financial statements included in each of our quarterly reports on Form 10-Q
during that year.
All Other Fees. Ernst & Young LLP billed us $218,804 for services rendered
to us, other than for the services described above, for the fiscal year ended
June 30, 2001. These other services consisted of tax return preparation and
consultation and the review of other SEC filings.
The audit committee considered the provision of the services listed above
by Ernst & Young LLP and determined that the provision of the services was
compatible with maintaining the independence of Ernst & Young LLP.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of our independent
auditors upon the receipt of the affirmative vote by the holders of a majority
of the shares present in person or represented by proxy and entitled to vote at
the Annual Meeting. In the event that the stockholders do not approve the
selection of
9
Ernst & Young LLP, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT AUDITORS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock, as of June 30, 2001 by (a) each person known by
us to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (b) each director and nominee for director, (c) each of the
executive officers named in the Summary Compensation Table and (d) all of our
directors and executive officers as a group. Unless otherwise noted in the
footnotes to the table, we believe that the persons named in the table have sole
voting and investing power with respect to all shares of Common Stock indicated
as being beneficially owned by them and officers and directors can be contacted
at our principal office. All of our Preferred Stock is owned by entities
affiliated with General Atlantic Partners, LLC.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) TOTAL
------------------------ --------------------- ----------
Thomas H. Sinton(2)......................................... 3,511,976 14.5%
Entities Affiliated with General Atlantic Partners,
LLC(3).................................................... 3,806,274 15.1%
Franklin Resources, Inc.(4)................................. 1,930,271 8.0%
Jeffrey M. Bizzack(5)....................................... 228,624 *
Jerry Blalock (6)........................................... 106,870 *
Steven E. Klei(7)........................................... 133,880 *
William T. Clifford(8)...................................... 25,834 *
David C. Hodgson(3)......................................... 3,832,108 15.2%
Ronald W. Readmond(9)....................................... 35,278 *
Thomas P. Roddy(10)......................................... 208,420 *
All executive officers and directors as a group (8
persons)(11).............................................. 8,082,989 31.4%
</Table>
---------------
* Represents beneficial ownership of less than one percent.
(1) Based on 24,138,617 shares of Common Stock outstanding as of June 30, 2001.
As of June 30, 2001, 1,132,075 shares of Preferred Stock were outstanding,
all of which were owned by entities affiliated with General Atlantic
Partners, LLC. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days of June 30, 2001 upon
the exercise of warrants or vested options or the conversion of Preferred
Stock. Calculations of percentage of beneficial ownership assume the
exercise by only the respective named stockholder of all options and
warrants for the purchase of Common Stock held by such stockholder, which
are exercisable within 60 days of June 30, 2001, and the conversion of
Preferred Stock held by such stockholder into Common Stock.
(2) Includes 98,541 shares issuable upon exercise of vested options, 168,948
shares held by the Silas D. Trust Estate, 942,897 shares held by the Thomas
H. Sinton, Jane Nibley Sinton 1989 Irrevocable Trust and 50,502 shares held
by Jane N. Sinton as a custodian for minor children, and 15,950 shares held
by an unnamed trust. Also includes 500,000 of the 1,000,000 shares held by
Interpro Holdings, LLC, of which Mr. Sinton is a member. Mr. Sinton has the
right to designate 50% of the Board of Managers of InterPro Holdings, LLC.
(3) Includes 1,851,009 shares held by General Atlantic Partners 39, L.P. ("GAP
39"), 323,190 shares held by GAP Coinvestment Partners, L.P. ("GAPCO I"),
915,515 shares of our Preferred Stock held by General Atlantic Partners 70,
L.P. ("GAP 70"), 70,755 shares of our Preferred Stock held by GapStar, LLC
("GapStar"), 145,805 shares of our Preferred Stock held by GAP Coinvestment
Partners II, L.P. ("GAPCO II") and 500,000 shares held by InterPro
Holdings, LLC ("InterPro Holdings"). General
10
Atlantic Partners, LLC ("GAP LLC") is the general partner of GAP 39 and GAP
70. GAP LLC is also the managing member of GapStar. The managing members of
GAP LLC are also the general partners of each of GAPCO I and GAPCO II.
David C. Hodgson is a managing member of GAP LLC and a general partner of
each of GAPCO I and GAPCO II. InterPro Holdings owns 1,000,000 shares of
our Common Stock, and GAP 39, General Atlantic Partners 59, L.P. ("GAP
59"), General Atlantic Partners 73, L.P. ("GAP 73"), GapStar, GAPCO I and
GAPCO II, as a group, have the right to designate 50% of the Board of
Managers of InterPro Holdings. GAP LLC is also the general partner of GAP
59 and GAP 73. GAP 39, GAP 59, GAP 70, GAP 73, GapStar, GAP LLC, GAPCO I
and GAPCO II (collectively, "General Atlantic") are a "group" within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended.
Mr. Hodgson disclaims beneficial ownership of all such securities except to
the extent of his pecuniary interest therein. In addition, Mr. Hodgson owns
directly 22,084 shares of our common stock and holds options to purchase
20,416 shares of our common stock of which 3,750 are vested. The address of
Mr. Hodgson and General Atlantic is c/o General Atlantic Service
Corporation, 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(4) As indicated in the Schedule 13G filed by Franklin Resources, Inc. pursuant
to the Exchange Act on February 12, 2001. As disclosed in the Schedule
13G/A filed by Franklin Resources, Inc. on September 10, 2001, it
beneficially owns 2,474,880 shares. The address of Franklin Resources, Inc.
is 777 Mariners Island Blvd., San Mateo, CA 94404.
(5) Includes 102,344 shares issuable upon exercise of vested options held by
Mr. Bizzack.
(6) Includes 105,625 shares issuable upon exercise of vested options held by
Mr. Blalock.
(7) Includes 99,453 shares issuable upon exercise of vested options held by Mr.
Klei.
(8) Includes 25,834 shares issuable upon exercise of vested options held by Mr.
Clifford.
(9) Includes 25,834 shares issuable upon exercise of vested options held by Mr.
Readmond.
(10) Includes (i) 123,277 shares held by Thomas P. Roddy, (ii) 10,602 shared
held by Thomas P. Roddy and Mary W. Roddy, (iii) 70,207 shares held by
Guarantee and Trust Co. and (iv) 1,000 shares held by Lafayette Investments
Inc. of which Mr. Roddy is President and Chief Executive Officer, and (v)
3,334 shares issuable upon exercise of vested options held by Mr. Roddy.
(11) Includes 464,715 shares issuable upon exercise of vested options and
1,132,075 shares issuable upon conversion of Preferred Stock.
11
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to our Chief Executive
Officer and each of our three other most highly compensated executive officers
determined as of the end of the last fiscal year (referred to herein as the
"Named Executive Officers") for services rendered to us in all capacities during
the last three fiscal years.
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
FISCAL -------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1)
--------------------------- ------ --------- -------- -------------
Thomas H. Sinton................................... 2001 $300,000 $187,000 60,000
Chairman of the Board, President, 2000 300,000 121,500 62,500
Chief Executive Officer and Director 1999 300,000 162,000 30,000
Jeffrey M. Bizzack................................. 2001 250,000 156,250 --
Executive Vice President, 2000 237,500 152,500 250,000
Sales and Services 1999 200,000 185,000 22,500
Jerry W. Blalock................................... 2001 250,000 156,250 --
Executive Vice President, 2000 292,752 109,614 250,000
and Group General Manager 1999 196,875 108,000 67,500
Steven E. Klei..................................... 2001 250,000 156,250 --
Executive Vice President, Finance, Chief 2000 237,495 90,000 250,000
Financial Officer and Secretary 1999 200,000 96,000 18,750
</Table>
---------------
(1) The options generally vest over four years as follows: 25% of the shares one
year from the grant date and as to 1/48 of the shares in each successive
month thereafter, with full vesting occurring on the fourth anniversary
date. The options have a term of ten years, subject to earlier termination
in certain situations related to termination of employment.
The options granted in fiscal year 2000 vest either (1) over five years as
follows: 20% of the shares one year from the grant date and 1/60 of the shares
in each successive month thereafter, with full vesting occurring on the fifth
anniversary date or (2) four years from grant date; shares may vest early
depending upon our performance.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during the fiscal year ended June 30, 2001 to each of the Named Executive
Officers.
OPTION GRANTS IN YEAR ENDED JUNE 30, 2001
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NO. OF OPTIONS EXERCISE STOCK PRICE
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PER OPTION TERM ($)(3)
OPTIONS IN FISCAL SHARE EXPIRATION ---------------------
NAME GRANTED YEAR 2001(1) ($)(2) DATE 5% 10%
---- ---------- ------------ -------- ---------- -------- ----------
Thomas H. Sinton............ 60,000 3.6 $32.00 10/17/10 $551,266 $1,836,211
Jeffrey M. Bizzack.......... -- -- -- -- -- --
Jerry W. Blalock............ -- -- -- -- -- --
Steven E. Klei.............. -- -- -- -- -- --
</Table>
12
---------------
(1) Based on a total of options granted to all employees, consultants and
directors during fiscal year 2001.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the last reported sales price of $26.55 share on June 29, 2001
appreciates at the indicated rate for the remaining portion of the term of
the option and that the option is exercised at the exercise price and sold
on the last day of its term at the appreciated price. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by the
Securities and Exchange Commission and does not represent our prediction of
our stock price performance.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Executive Officers, certain
information concerning stock options exercised during fiscal year 2001 and the
number of shares subject to exercisable and unexercisable stock options as of
June 30, 2001. The table also sets forth certain information with respect to the
value of stock options held by such individuals as of June 30, 2001.
FISCAL YEAR AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Thomas H. Sinton...... -- $ -- 94,114 110,886 $ 818,309 $ 266,818
Jeffrey M. Bizzack.... -- -- 95,157 207,343 1,004,354 1,660,896
Jerry W. Blalock...... -- -- 97,814 219,686 408,758 1,634,992
Steven E. Klei........ 22,000 568,121 92,422 206,328 1,004,354 1,660,896
</Table>
---------------
(1) The amount set forth represents the difference between the closing Common
Stock share price of $26.55 on June 29, 2001, as reported by the Nasdaq
National Market, and the applicable exercise price, multiplied by the
applicable number of options.
CERTAIN TRANSACTIONS
RELATED TRANSACTIONS AND COMMERCIAL RELATIONSHIP
Thomas H. Sinton and certain affiliates of GAP LLC are the principal
stockholders of InterPro Business Solutions, Inc., a Delaware corporation
("InterPro"), purchased rights to certain time and attendance expense processing
software. Mr. Sinton is our President, Chief Executive Officer and Chairman of
the Board. David C. Hodgson, our director, is a managing member of GAP LLC,
affiliates of which hold more than 5% of our outstanding stock. Because Mr.
Sinton is an officer and Mr. Hodgson and Mr. Sinton are each directors, their
investment in InterPro was required to be, and was, approved by our
disinterested directors. Any future transaction or relationship between InterPro
and us would be entered into on an arms-length basis and would be approved by
our disinterested directors.
Pursuant to the 6.9% Senior Convertible Preferred Stock Purchase Agreement,
GAP LLC and certain of its affiliates purchased an aggregate of 1,132,075 shares
of Preferred Stock from ProBusiness on August 1, 2000 for an aggregate purchase
price of $29,999,988. Mr. Hodgson is a Managing Member of GAP LLC.
LOANS TO OFFICERS
On January 31, 1997, we loaned $250,000 under a full recourse note
agreement at an interest rate of 6.1% per year to Jeffrey M. Bizzack, one of our
executive officers, to permit Mr. Bizzack to purchase a residence.
13
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 was due January
31, 2001. We are in the process of renegotiating this loan.
On September 8, 1998, we loaned $250,000 under a full recourse note
agreement at an interest rate of 5.42% per year to Jerry W. Blalock, one of our
executive officers, to permit Mr. Blalock to purchase a residence. All principal
and accrued but unpaid interest was due September 8, 2001. We are in the process
of renegotiating this loan.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We have entered into employment agreements with certain of our executive
officers. These agreements set forth varying severance pay arrangements and
provide for acceleration of certain unvested options in the event the executive
officer is terminated without cause. The agreements provide for accelerated
vesting of certain unvested options in the event of a change of control, as well
as accelerated vesting of any remaining unvested options in the event the
executive officer is involuntarily terminated following such change of control.
INDEMNIFICATION
Our certificate of incorporation limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Delaware General Corporation Law.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we may indemnify our directors and officers to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. We have also
entered into indemnification agreements with our officers and directors
containing provisions that may require us, among other things, to indemnify such
officers and directors against certain liabilities that may arise.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than 10% stockholders are required by the
Securities and Exchange Commission rules to furnish us with copies of all forms
they file. Based solely on our review of the copies of such forms received by us
and written representations from certain reporting persons, we believe that,
during fiscal year 2001, all Section 16(a) filing requirements applicable to our
executive officers, directors and 10% stockholders were satisfied, except that
the Form 3 for Glenda Citragno, Chief Accounting Officer, for August 2000 and
Form 4 for January and April 2001, Form 5 for David C. Hodgson, Director, for
October 2000 and for each of GapStar, LLC and General Atlantic Partners 73,
L.P., both 10% stockholders, for March 2001 were filed late.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees our financial reporting process on behalf of
the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed the audited financial statements for the fiscal year
ended June 30, 2001, with management and Ernst & Young LLP, our independent
auditors.
The Audit Committee has also discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, as modified
or supplemented. This discussion included, among other topics, the quality, not
just the acceptability, of our accounting principles, the reasonableness of
significant judgments, the clarity of disclosures in the financial statements
and changes to significant accounting policies.
14
The Audit Committee has discussed with Ernst & Young LLP the auditors'
independence and received and reviewed the written disclosures and the letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in our Annual Report on Form 10-K for the fiscal year ended June 30,
2001.
While the Audit Committee has performed the above functions, management,
and not the Audit Committee, has the primary responsibility for the financial
statements and the reporting process, including the system of internal
accounting controls. Similarly, it is the responsibility of the independent
auditors, and not the Audit Committee, to conduct the audit and express an
opinion as to the conformity of the financial statements with accounting
principles generally accepted in the United States.
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
David C. Hodgson
Ronald W. Readmond
Thomas P. Roddy
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in November 1996 and is currently
composed of Messrs. Hodgson and Readmond. No interlocking relationship exists
between any member of our Compensation Committee and any member of any other
company's board of directors or compensation committee.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee") was
established in November 1996 and is responsible for reviewing the compensation
and benefits for our executive officers, as well as supervising and making
recommendations to the Board on compensation matters generally. The Committee
also administers our stock plans.
COMPENSATION PHILOSOPHY AND POLICY
The policy of the Committee is to attract and retain executive officers and
employees through the payment of competitive base salaries and to encourage and
reward performance through bonuses and stock ownership. The objectives of the
Committee are to:
- attract, retain and motivate highly qualified executive officers and
employees who contribute to our long-term success;
- align the compensation of executive officers with business objectives and
performance; and
- align incentives for executive officers with the interests of
stockholders in maximizing value.
We have taken the necessary steps to conform our compensation practices to
comply with the $1 million compensation deduction cap under Section 162(m) of
the Internal Revenue Code, as amended.
ELEMENTS OF COMPENSATION
Compensation for executive officers includes both cash and equity elements.
Cash compensation consists of (i) base salary which is determined on the
basis of the level of responsibility, expertise and experience of the executive
officer, taking into account competitive conditions in the industry and (ii)
cash bonuses subject to meeting all or a portion of targeted objectives.
15
Ownership of our Common Stock is a key element of executive compensation.
Executive officers and our other employees are eligible to participate in the
Option Plan and the 1997 Employee Stock Purchase Plan (the "Purchase Plan"). The
Option Plan permits the Board of Directors or the Committee to grant stock
options to employees on such terms as the Board or the Committee may determine.
The Committee is currently administering stock option grants to all employees.
In determining the size of a stock option grant to a new executive officer or
other employee, the Committee takes into account equity participation by
comparable employees within our company, external competitive circumstances and
other relevant factors. Additional options may be granted to current executive
officers and employees to reward exceptional performance or to provide
additional unvested equity incentives. Options typically vest over a four-year
period and thus require the employee's continuing service with us. The Purchase
Plan permits employees to acquire our Common Stock through payroll deductions
and promotes broad-based equity participation throughout our company. The
Committee believes that such stock plans align the interests of the employees
with the long-term interests of the stockholders.
We also maintain a 401(k) retirement savings plan (the "401(k) Plan"). The
401(k) Plan provides that each participant may contribute up to 18% of his or
her pre-tax gross compensation (up to a statutory prescribed annual limit of
$10,500 in 2001).
FISCAL 2001 EXECUTIVE COMPENSATION
Executive compensation for fiscal 2001 included base salary and incentive
cash bonuses based upon achievement of corporate goals, individual performance
goals and financial performance goals. Executive officers, like other employees,
were eligible for option grants under the Option Plan and to participate in the
Purchase Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL 2001
Thomas H. Sinton founded our company in 1984 and has served as our
President and Chief Executive Officer since March 1993. In fiscal 2001, Mr.
Sinton earned $300,000 in salary and $187,000 in bonus awards. Mr. Sinton's
salary and bonus were based on the same factors considered for each executive
officer, as previously described. In addition, Mr. Sinton received an option
grant for 60,000 shares of Common Stock.
EMPLOYMENT AGREEMENTS
Mr. Klei, Mr. Bizzack, and Mr. Blalock have entered into employment
agreements with us. These agreements specify the terms of employment; including
pay factors listed above. The agreements provide that employment is at will, but
if employment is terminated without cause, the executive officer is entitled to
a single, lump-sum payment equal to twelve (12) months of the executive
officer's salary, and whichever causes the greatest number of shares to vest
under all outstanding options issued to the executive officer under our Option
Plan: (a) 50% of the unvested shares of our Common Stock subject to the options,
or (b) additional vesting that would have occurred had the executive officer
continued to have been employed for one year from the date of such involuntary
termination.
In the event of a Change of Control (as defined in each employment
agreement), up to 50% of the shares of our Common Stock subject to the options
shall vest and become exercisable for a period of 120 days following such Change
of Control. If, following such Change of Control, the executive officer's
employment with us is terminated in an involuntary termination, the remaining
50% of the shares of our Common Stock subject to the options shall vest and
become exercisable for a period of 120 days following such termination.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
David C. Hodgson
Ronald W. Readmond
16
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
our Common Stock with the cumulative total return of the Nasdaq Stock Market
U.S. Index and the Russell 2000 Index. The graph assumes that $100 was invested
on September 19, 1997 (the date of our initial public offering) in our Common
Stock, the Nasdaq Stock Market U.S. Index and the Russell 2000 Index, assuming
reinvestment of dividends, if any. No cash dividends have been declared or paid
on our Common Stock. Note that historic stock price performance is not
necessarily indicative of future stock price performance.
COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN*
AMONG PROBUSINESS SERVICES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
<Table>
<Caption>
PROBUSINESS NASDAQ STOCK
SERVICES, INC. MARKET (U.S.) RUSSELL 2000
-------------- ------------- ------------
9/19/97 100.00 100.00 100.00
9/97 173.94 100.00 101.54
12/97 208.05 93.62 98.14
3/98 266.60 109.57 108.01
6/98 425.19 112.58 102.97
9/98 463.85 101.58 82.23
12/98 620.74 132.00 95.64
3/99 572.99 148.03 90.45
6/99 489.43 161.93 104.52
9/99 366.64 165.96 97.91
12/99 491.13 245.30 115.97
3/00 352.16 275.36 124.19
6/00 362.39 239.43 119.49
9/00 412.69 220.32 120.81
12/00 362.39 147.53 112.47
3/01 299.29 110.13 105.15
6/01 362.21 129.80 120.17
</Table>
17
OTHER MATTERS
We know of no other matters to be submitted at the meeting. If any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed proxy card to vote the shares they represent as the Board
of Directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares held. You are, therefore, urged to execute and return,
at your earliest convenience, the accompanying proxy card in the enclosed
envelope or vote on-line by following the online voting instructions.
THE BOARD OF DIRECTORS
Pleasanton, California
October 25, 2001
18
APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
PROBUSINESS SERVICES, INC.
PURPOSE
The purpose of the Audit Committee of the Board of Directors of ProBusiness
Services, Inc. (the "Company") shall be:
- to provide oversight and monitoring of Company management and the
independent auditors and their activities with respect to the Company's
financial reporting process;
- to provide the Company's Board of Directors with the results of its
monitoring and recommendations derived therefrom;
- to nominate to the Board of Directors independent auditors to audit the
Company's financial statements and oversee the activities and
independence of the auditors; and
- to provide to the Board of Directors such additional information and
materials as it may deem necessary to make the Board of Directors aware
of significant financial matters that require the attention of the Board
of Directors.
The Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
may from time to time prescribe.
MEMBERSHIP
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three members
of the Board of Directors. On or before June 14, 2001, the members will meet the
following criteria:
1. Each member will be an independent director, in accordance with
the Nasdaq National Market Audit Committee requirements;
2. Each member will be able to read and understand fundamental
financial statements, in accordance with the Nasdaq National Market Audit
Committee requirements; and
3. At least one member will have past employment experience in
finance or accounting, requisite professional certification in accounting,
or other comparable experience or background, including a current or past
position as a chief executive or financial officer or other senior officer
with financial oversight responsibilities.
RESPONSIBILITIES
The responsibilities of the Audit Committee shall include:
- Providing oversight and monitoring of Company management and the
independent auditors and their activities with respect to the Company's
financial reporting process;
- Recommending the selection and, where appropriate, replacement of the
independent auditors to the Board of Directors;
- Reviewing fee arrangements with the independent auditors;
- Reviewing the independent auditors' proposed audit scope, approach and
independence;
- Reviewing the performance of the independent auditors, who shall be
accountable to the Board of Directors and the Audit Committee;
A-1
- Requesting from the independent auditors of a formal written statement
delineating all relationships between the auditor and the Company,
consistent with Independent Standards Board Standard No. 1, and engaging
in a dialogue with the auditors with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the auditors;
- Directing the Company's independent auditors to review before filing with
the SEC the Company's interim financial statements included in Quarterly
Reports on Form 10-Q, using professional standards and procedures for
conducting such reviews;
- Discussing with the Company's independent auditors the matters required
to be discussed by Statement on Accounting Standard No. 61, as it may be
modified or supplemented;
- Reviewing with management, before release, the audited financial
statements and Management's Discussion and Analysis in the Company's
Annual Report on Form 10-K;
- Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of Regulation S-K and Item 7(e)(3) of
Schedule 14A;
- Reviewing the Audit Committee's own structure, processes and membership
requirements; and
- Performing such other duties as may be requested by the Board of
Directors.
MEETINGS
The Audit Committee will meet at least quarterly. The Audit Committee may
establish its own schedule, which it will provide to the Board of Directors in
advance. The Audit Committee will meet separately with the independent auditors
as well as members of the Company's management as it deems appropriate in order
to review the financial controls of the Company.
MINUTES
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
REPORTS
Apart from the report prepared pursuant to Item 306 of Regulation S-K and
Item 7(e)(3) of Schedule 14A, the Audit Committee will summarize its
examinations and recommendations to the Board from time to time as may be
appropriate, consistent with the Committee's charter.
A-2
APPENDIX B
PROXY FOR ANNUAL
MEETING OF STOCKHOLDERS
[Insert Proxy Card]
PROBUSINESS SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, NOVEMBER 30, 2001
3:00 P.M.
PROBUSINESS CORPORATE HEADQUARTERS
4125 HOPYARD ROAD
PLEASANTON, CALIFORNIA
--------------------------------------------------------------------------------
PROBUSINESS SERVICES, INC.
4125 HOPYARD ROAD
PLEASANTON, CA 94588 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PROBUSINESS
SERVICES, INC. FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS ON NOVEMBER 30,
2001.
The undersigned stockholder of ProBusiness Services, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement each dated October 25, 2001 and hereby appoints
Thomas H. Sinton and Steven E. Klei or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned to represent the undersigned at the 2001 Annual Meeting
of Stockholders of ProBusiness Services, Inc. to be held on November 30, 2001 at
3:00 p.m., local time, at the ProBusiness Corporate Headquarters, 4125 Hopyard
Road, Pleasanton, California 94588 and at any postponement or adjournment
thereof, and to vote all shares of Common Stock and Preferred Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
See reverse for voting instructions.
------------------
COMPANY #
CONTROL #
------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. (ET) on November 29, 2001.
- You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above.
- Follow the simple instructions the voice provides you.
VOTE BY INTERNET -- HTTP://WWW.EPROXY.COM/PRBZ/ -- QUICK *** EASY *** IMMEDIATE
- Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on November 29, 2001.
- You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above to obtain your records
and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to ProBusiness Services, Inc., c/o Shareowner
Services(SM), P.O. Box 64945, St. Paul, MN 55164-0945.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. To elect a Class I director to 01 Thomas H. Sinton [ ] Vote FOR [ ] Vote WITHHELD
serve for a term of 3 years: the nominee from the nominee
2. To approve an amendment to our 1996 Stock Option Plan to increase the number
of shares reserved for issuance thereunder by 2,000,000. [ ] For [ ] Against [ ] Abstain
3. To ratify the appointment of Ernst & Young LLP as our independent auditors
for the fiscal year ending June 30, 2002. [ ] For [ ] Against [ ] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THE NAMED PROXIES MAY VOTE THE SHARES
REPRESENTED BY THIS PROXY FOR OR AGAINST SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING, OR ANY ADJOURNMENT THEREOF, IN THEIR DISCRETION.
Address Change? Mark Box [ ] Indicate changes below:
Date
-------------------------------
-----------------------------------
Signature(s) in Box
Please sign exactly as your name(s)
appears on the Proxy. If held in
joint tenancy, all persons must
sign. Trustees, administrators,
etc., should include title and
authority. Corporations should
provide the full name of the
corporation and the title of the
authorized officer signing the
proxy.
APPENDIX C
1996 STOCK OPTION PLAN
PROBUSINESS SERVICES, INC.
1996 STOCK OPTION PLAN
(As Amended, November 1998(1))
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means ProBusiness Services, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity, and any
Director of the Company whether compensated for such services or not.
----------
(1) The amendment to the 1996 Stock Option Plan was approved by the
Company's board of directors on July 23, 1998 and the Company's stockholders on
November 12, 1998.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
2
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1996 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 3,121,452 Shares(2), plus any
----------
(2) Includes (i) 90,290 Shares added pursuant to Shares issued or subject to
issuance pursuant to options under the 1989 Plan (as hereinafter defined) that
were forfeited to the Company between the Company's initial public offering and
September 25, 1998, (ii) 995,588 authorized and unused Shares from the 1989 Plan
(as hereinafter defined) that transferred into this Plan, (iii) 750,000
authorized Shares (of which 611,667 were issued and exercised, 130,753 were
issued and unexercised and
3
Shares issued or subject to issuance pursuant to options under the Company's
Amended 1989 Stock Option Plan (the "1989 Plan") that are forfeited to the
Company under the terms of such options subsequent to September 25, 1998. In
addition, the maximum aggregate number of Shares that may be optioned and sold
under the Plan shall be increased on each anniversary date of the adoption of
the Plan by a number of Shares equal to the lesser of (i) 375,000 Shares, (ii)
two percent (2%) of the outstanding Shares on such date or (iii) a lesser number
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
----------
7,580 were unissued as of the date the Executive Stock Option Plan became this
Plan) from the Executive Stock Option Plan, (iv) 335,574 Shares added pursuant
to an annual increase equal to 2% of the outstanding Shares on February 12, 1998
and (v) 950,000 Shares added pursuant to approval by the Company's board of
directors on July 23, 1998 and the Company's stockholders on November 12, 1998.
4
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan granted
pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
5
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 187,500 Shares.
(ii) Over the remaining term of the Plan, a Service Provider may
be granted Options to purchase up to an additional 375,000 Shares which shall
not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 14 of the Plan.
6
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
7
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
8
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
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11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such
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notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise
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that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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