-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfHDJ7AYIRBWMHFVkwLUolyAjZ9f9J7oaylzs8hQAWTZxsO/fvKgGR5sDgGW++cA O2NXJhsE/kCe8r6m2KMGgA== 0000950142-03-000092.txt : 20030115 0000950142-03-000092.hdr.sgml : 20030115 20030115170859 ACCESSION NUMBER: 0000950142-03-000092 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030115 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PROBUSINESS SERVICES INC CENTRAL INDEX KEY: 0001028751 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 942976066 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-53099 FILM NUMBER: 03515437 BUSINESS ADDRESS: STREET 1: 4125 HOPYARD RD CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 9257373500 MAIL ADDRESS: STREET 1: 4125 HOPYARD RD CITY: PLEASANTON STATE: CA ZIP: 94588 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AUTOMATIC DATA PROCESSING INC CENTRAL INDEX KEY: 0000008670 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 221467904 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: ONE ADP BOULVARD CITY: ROSELAND STATE: NJ ZIP: 07068 BUSINESS PHONE: 9739747849 MAIL ADDRESS: STREET 1: ONE ADP BOULEVARD CITY: ROSELAND STATE: NJ ZIP: 07068 SC 13D 1 sc13d-probusiness.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 PROBUSINESS SERVICES, INC. -------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $0.001 PER SHARE ---------------------------------------- (Title of Class of Securities) 742674104 --------- (CUSIP Number) Richard S. Borisoff, Esq. Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 -------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) JANUARY 5, 2003 --------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [_]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See ss. 240.13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("ACT") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 CUSIP NO. 742674104 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON AUTOMATIC DATA PROCESSING, INC. (22-1467904) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- NUMBER OF ------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY EACH REPORTING 8,497,622 (1) PERSON WITH ------------------------------------------------ 9 SOLE DISPOSITIVE POWER -0- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,497,622 (1) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 28.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - -------------------------------------------------------------------------------- - ------------------------- (1) No shares of common stock, par value $0.001 per share, of ProBusiness Services, Inc. have been purchased, directly or indirectly, by the reporting person. Rather, the reporting person may be deemed to have beneficial ownership of the shares reported herein pursuant to two stockholder support agreements (as described in the Introduction and in Items 3 and 4 of this Statement), entered into in connection with the proposed acquisition by the reporting person of all of the outstanding shares of ProBusiness Services, Inc. Any such beneficial ownership is expressly denied by the reporting person. 3 INTRODUCTION No shares of common stock, par value $0.001 per share (the "COMMON STOCK"), of ProBusiness Services, Inc., a Delaware corporation (the "ISSUER"), have been purchased, directly or indirectly, by the reporting person. Automatic Data Processing, Inc., a Delaware corporation ("ADP"), is making this filing solely because it may be deemed to have beneficial ownership of the shares reported herein pursuant to the Stockholder Support Agreements (as defined below). On January 5, 2003, the Issuer, ADP and ADP Merger Corp., a Delaware corporation and indirect wholly owned subsidiary of ADP ("MERGER CORP."), entered into an Agreement and Plan of Merger, in the form attached hereto as Exhibit 1 (the "MERGER AGREEMENT"), which is incorporated herein by reference. Under the terms of the Merger Agreement, Merger Corp. will be merged with and into the Issuer (the "MERGER"), and in connection therewith, among other things, each outstanding share of Common Stock will be converted into the right to receive $17.00 in cash, and each outstanding share of the Issuer's 6.9% Senior Convertible Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK"), will be converted into the right to receive $26.50 in cash. Completion of the Merger is subject to the satisfaction of a number of conditions, including the approval of the Merger Agreement by the holders of shares of Common Stock of the Issuer voting together with the holders of shares of Preferred Stock of the Issuer voting on an as-converted to Common Stock basis. In connection with entering into the Merger Agreement, ADP (i) entered into a Stockholder Support Agreement, dated as of January 5, 2003 (the "FIRST STOCKHOLDERS AGREEMENT"), among ADP, General Atlantic Partners 39, L.P. and the other stockholders of the Issuer signatory thereto (collectively, the "GA Stockholders") and (ii) entered into a Stockholder Support Agreement, dated as of January 5, 2003 (the "SECOND STOCKHOLDERS AGREEMENT" and, together with the First Stockholders Agreement, the "STOCKHOLDER SUPPORT AGREEMENTS"), among ADP, Thomas H. Sinton and the other stockholders of the Issuer signatory thereto (collectively, the "SINTON STOCKHOLDERS" and, together with the GA Stockholders, the "STOCKHOLDERS"). The First Stockholders Agreement and the Second Stockholders Agreement are attached hereto as Exhibits 2 and 3, respectively, and are incorporated herein by reference. Pursuant to the Stockholder Support Agreements, each Stockholder agreed that at any meeting of the stockholders of the Issuer, however called, and regardless of whether such meeting is a special or annual meeting of stockholders of the Issuer, or at any adjournment thereof, or in connection with any action by written consent by the stockholders of the Issuer, such Stockholder will vote, or cause to be voted, all shares of Common Stock and any other Subject Securities (as defined in the Stockholder Support Agreements, but which includes shares of Preferred Stock) held by such Stockholder (i) in favor of the approval of the Merger and the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement and (ii) against any Acquisition Proposal (as defined in the Merger Agreement) with respect to the Issuer. In addition, each Stockholder has granted to ADP a proxy to vote such Stockholder's shares of Common Stock (and any other Subject Securities) in a manner consistent with the covenants set forth in the Stockholder Support Agreements. 4 Each Stockholder further agreed that, except as provided in the Stockholder Support Agreements or as may otherwise be agreed to by ADP in writing, such Stockholder will not transfer or consent to any transfer of ownership of any or all of the shares of Common Stock (or other Subject Securities) held by such Stockholder, or any interest therein, if such transfer would result in such Stockholder no longer having the power to vote, or cause to be voted, the shares of Common Stock (or other Subject Securities) held by such Stockholder in accordance with the terms of the Stockholder Support Agreements; PROVIDED, HOWEVER, that a Stockholder may transfer shares of Common Stock (or other Subject Securities) held by such Stockholder to any person so long as such person shall have (i) executed a counterpart of the applicable Stockholder Support Agreement and (ii) agreed to hold such shares of Common Stock (or other Subject Securities) held by such Stockholder subject to the terms and provisions of the applicable Stockholder Support Agreement to the same extent as such Stockholder. Each Stockholder also agreed that, except as otherwise provided in the Stockholder Support Agreements, such Stockholder will not (i) grant any proxy, power-of-attorney or other authorization with respect to the shares of Common Stock (or other Subject Securities) held by such Stockholder that is inconsistent with the proxy granted pursuant to the applicable Stockholder Support Agreement or (ii) deposit any of the shares of Common Stock (or other Subject Securities) held by such Stockholder into a voting trust or enter into a voting agreement or arrangement with respect to any of the shares of Common Stock (or any other Subject Securities) held by such Stockholder that would impair such Stockholder's ability to comply with its obligations pursuant to the applicable Stockholder Support Agreement. Each Stockholder Support Agreement terminates upon the earlier to occur of (i) the date upon which the Merger Agreement is validly terminated in accordance with its terms, (ii) the Effective Time (as defined in the Merger Agreement) of the Merger or (iii) the date upon which the Merger Agreement is amended to reduce either the Per Share Amount or the Preferred Per Share Liquidation Amount (each as defined in the Merger Agreement), if a Stockholder party to such Stockholder Support Agreement (or its designee to the board of directors of the Issuer) in his or its designee's capacity as a director of the Issuer did not vote in favor of or consent to such amendment. The description of the transactions summarized above are qualified in their entirety by reference to the Exhibits attached hereto. ITEM 1. SECURITY AND ISSUER. The class of equity securities to which this Statement on Schedule 13D (the "STATEMENT") relates is the common stock, par value $0.001 per share (defined above as the "COMMON STOCK"), of ProBusiness Services, Inc., a Delaware corporation (defined above as the "ISSUER"). The principal executive offices of the Issuer are located at 4125 Hopyard Road, Pleasanton, California 94588. ITEM 2. IDENTITY AND BACKGROUND. (a)-(c), (f). This Statement is filed by Automatic Data Processing, Inc., a Delaware corporation (defined above as "ADP"). The principal business of ADP is computing 5 services. The address of the principal business and principal office of ADP is One ADP Boulevard, Roseland, New Jersey 07068. The name, residence or business address, present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted and citizenship of each executive officer and director of ADP are set forth in Schedule 1 hereto, which is incorporated herein by reference. (d) During the last five years, neither ADP nor, to the best of its knowledge, any of the persons listed on Schedule 1 hereto has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years, neither ADP nor, to the best of its knowledge, any of the persons listed on Schedule 1 hereto has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. No shares of the Issuer's Common Stock have been purchased, directly or indirectly, by ADP. Rather, as an inducement and a condition to its entering into the Merger Agreement, ADP and the Stockholders have entered into the Stockholder Support Agreements, pursuant to which the Stockholders have agreed to vote their respective shares of Common Stock (and other Subject Securities) in favor of the Merger Agreement (as more fully described in the Introduction of this Statement, which is incorporated by reference herein). ITEM 4. PURPOSE OF TRANSACTION. No shares of the Issuer's Common Stock have been purchased, directly or indirectly, by ADP. ADP could be deemed to have "acquired" beneficial ownership of the shares of Common Stock to which this Statement relates only in the sense that it and the Stockholders have entered into the Stockholder Support Agreements (as more fully described in the Introduction of this Statement, which is incorporated by reference herein) in order to facilitate the Merger pursuant to the Merger Agreement. Except as specifically set forth herein, ADP disclaims beneficial ownership over any shares of the Common Stock, including the power to vote, to direct the voting of, to dispose, or to direct the disposition of, any shares of the Common Stock. Each of Paragraphs (a) through (j) of Item 4 may be applicable to the transactions contemplated by the Merger Agreement. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) ADP may be deemed to beneficially own 8,497,622 shares of Common Stock (which amount includes 1,176,654 shares of Common Stock into which the shares of Preferred Stock held by the GA Stockholders are currently convertible) as a result of entering into 6 the Stockholder Support Agreements, which, based on calculations made in accordance with Rule 13d-3 promulgated under the Exchange Act and there being 28,602,857 shares of Common Stock outstanding on January 5, 2003 (as represented to ADP by the Issuer in the Merger Agreement), represents approximately 28.5% of the outstanding Common Stock. To the knowledge of ADP, none of the persons identified in Schedule 1 beneficially owns any securities of the Issuer. Except as specifically set forth herein, ADP disclaims beneficial ownership over any shares of the Common Stock, including the power to vote, to direct the voting of, to dispose, or to direct the disposition of, any shares of the Common Stock. ADP disclaims membership in any group with respect to the Common Stock, by virtue of ADP's execution of the Stockholder Support Agreements or otherwise. (b) As a result of entering into the Stockholder Support Agreements, ADP may be deemed to have shared power to vote or to direct the vote of the shares of Common Stock herein reported as beneficially owned by it. The Stockholders share the power to vote the shares of Common Stock herein reported as beneficially owned by ADP. The following paragraphs provide the applicable information required by Item 2 with respect to each Stockholder, which information is based on information disclosed by the Issuer and the Stockholders in their respective public filings with the Securities and Exchange Commission and on information provided by the Stockholders to ADP. The applicable information with respect to each of the GA Stockholders is as follows: General Atlantic Partners 39, L.P., a Delaware limited partnership ("GAP 39"), General Atlantic Partners 59, L.P., a Delaware limited partnership ("GAP 59"), General Atlantic Partners 70, L.P., a Delaware limited partnership ("GAP 70"), General Atlantic Partners 73, L.P., a Delaware limited partnership ("GAP 73"), General Atlantic Partners 74, L.P., a Delaware limited partnership ("GAP 74"), GAP Coinvestment Partners, L.P., a New York limited partnership ("GAPCO"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAPCO II"), GapStar, LLC, a Delaware limited liability company ("GAPSTAR"), GAPCO GmbH & Co. KG, a German limited partnership ("KG"), and InterPro Holdings, LLC , a Delaware limited liability company ("INTERPRO"), are located at 3 Pickwick Plaza, Greenwich, Connecticut 06830, except for KG which is located c/o General Atlantic Partners GmbH, Koenigsallee 62, 40212 Duesseldorf, Germany. Each of the GA Stockholders is engaged in acquiring, holding and disposing of interests in various companies for investment purposes. The general partner of GAP 39, GAP 59, GAP 70, GAP 73 and GAP 74 is General Atlantic Partners, LLC, a Delaware limited liability company ("GAP"). GAP is also the Managing Member of GapStar. GAPCO Management GmbH, a German corporation ("GMBH MANAGEMENT") is the general partner of KG. The managing members of GAP are Steven A. Denning, Peter L. Bloom, Peter Currie, Mark F. Dzialga, Erik Engstrom, Klaus Esser, William E. Ford, William O. Grabe, Braden R. Kelly, Rene M. Kern, William J. Lansing, Matthew Nimetz, Clifton S. Robbins, Franchon M. Smithson, Tom C. Tinsley, Florian Wendelstadt and John Wong (collectively, the "GAP MANAGING MEMBERS"). The GAP Managing Members (other than Mr. Esser) are also the general partners of GAPCO and GAPCO II. The business address of each of the GAP Managing Members (other than Messrs. Esser, Currie, Kelly, Lansing, Wendelstadt and Wong) is 7 3 Pickwick Plaza, Greenwich, Connecticut 06830. The business address of Mr. Esser is Koenigsallee 88, 40212 Duesseldorf, Germany. The business address of Mr.Wendelstadt is 83 Pall Mall, Sixth Floor, London SWIY 5ES, United Kingdom. The business address of Messrs. Currie, Kelly and Lansing is 630 Hansen Way, Palo Alto, California 94304. The business address of Mr. Wong is 24 Raffles Place, 29-04 Clifford Center, Singapore 048621. Messrs. Esser, Kern and Wendelstadt are citizens of Germany; Mr. Engstrom is a citizen of Sweden; and Mr. Wong is a citizen of Singapore. The present principal occupation or employment of each of the GAP Managing Members is as a managing member of GAP. Each of the GAP Managing Members, other than Messrs. Engstrom, Esser, Kern, Wendelstadt and Wong, is a citizen of the United States. Thomas H. Sinton, GAP 39, GAP 59, GAPCO, GAPCO II, GAP 73 and GapStar are members of InterPro, with Thomas Sinton having the right to designate fifty percent of the board of managers of InterPro and the other members of InterPro having the right to designate fifty percent of the board of managers of InterPro. The applicable information with respect to each of the Sinton Stockholders is as follows: Thomas H. Sinton is a citizen of the United States whose principal business address is 4125 Hopyard Road, Pleasanton, CA 94588. Thomas Sinton's principal occupation is serving as President and Chief Executive Officer of the Issuer. Jane H. Sinton is a citizen of the United States whose principal business address is c/o ProBusiness Services, Inc., 4125 Hopyard Road, Pleasanton, CA 94588. The principal business address of the Thomas H. Sinton & Jane H. Sinton 1989 Irrevocable Trust (the "1989 TRUST"), the Silas D. Sinton Trust Estate (the "TRUST ESTATE") and the Lee A. Nibley Trust (the "NIBLEY TRUST") is c/o ProBusiness Services, Inc., 4125 Hopyard Road, Pleasanton, CA 94588. Thomas Sinton is the trustee of the 1989 Trust and the Trust Estate. Jane Sinton is the trustee of the Nibley Trust. To the knowledge of ADP, the persons listed in response to this Item 5(b) have not during the last five years been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors). To the knowledge of ADP, the persons listed in response to this Item 5(b) have not during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which they were or are subject to a judgment, decree or final order enjoining violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. (c) Neither ADP nor, to its knowledge, any of the persons identified on Schedule 1, has effected any transactions in the Issuer's Common Stock during the past 60 days, except as set forth herein. (d) To the knowledge of ADP, only the Stockholders have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares of Common Stock of the Issuer reported herein as beneficially owned by ADP. 8 (e) Paragraph (e) of Item 5 is inapplicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Reference is made to the Introduction and Item 5 of this Statement, which are incorporated by reference herein, for the description of the contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 of this Statement and between such persons and any person with respect to any securities of the Issuer, including but not limited to the transfer or voting of any of the securities, finder fees, joint ventures, loan or option agreements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Agreement and Plan of Merger, dated as of January 5, 2003, among the Issuer, ADP and Merger Corp. Exhibit 2 Stockholder Support Agreement, dated as of January 5, 2003, between ADP and the Stockholders named therein. Exhibit 3 Stockholder Support Agreement, dated as of January 5, 2003, between ADP and the Stockholders named therein. 9 SIGNATURE After reasonable inquiry and to my best knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: January 15, 2003 AUTOMATIC DATA PROCESSING, INC. By: /s/ James B. Benson --------------------------------------- Name: James B. Benson Title: Corporate Vice President 10 SCHEDULE 1 INFORMATION WITH RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS OF ADP ----------------------------- The following information sets forth the name, business address and present principal occupation of each of the directors and executive officers of ADP. Except as indicated below, the business address of each director and executive officer of ADP is One ADP Boulevard, Roseland, New Jersey 07068-1728. Each of the directors and executive officers of ADP is a citizen of the United States. BUSINESS ADDRESS AND PRESENT NAME PRINCIPAL OCCUPATION DIRECTORS OF ADP - ---------------- Gregory D. Brenneman Chairman and Chief Executive Officer of TurnWorks, Inc. 1330 Lake Robbins Drive, Suite 205 The Woodlands, Texas 77380 Gary C. Butler President and Chief Operating Officer of ADP Joseph A. Califano, Jr. Chairman of the Board and President, National Center on Addiction and Substance Abuse at Columbia University 633 Third Avenue, 19th Floor New York, New York 10017 Leon G. Cooperman Chairman and Chief Executive Officer of Omega Advisors, Inc., an investment partnership Wall Street Plaza 88 Pine Street, 31st Floor New York, New York 10004 George H. Heilmeier Chairman Emeritus of Telcordia Technologies (formerly Bellcore), a research and engineering consortium 445 South Street Morristown, New Jersey 07960 Ann Dibble Jordan Consultant 2940 Benton Place, N.W. Washington, DC 20008 11 BUSINESS ADDRESS AND PRESENT NAME PRINCIPAL OCCUPATION Harvey M. Krueger Vice Chairman of Lehman Brothers, an investment banking firm 745 Seventh Avenue, 27th Floor New York, New York 10019 Frederic V. Malek Chairman of Thayer Capital Partners, a merchant banking firm 1455 Pennsylvania Avenue, N.W. Suite 350 Washington, DC 20004 Henry Taub Honorary Chairman of the Board of ADP 300 Frank W. Burr Blvd., 7th Floor Teaneck, NJ 07666 Laurence A. Tisch Co-Chairman of Loews Corporation, which is engaged in the consumer products, hotel and insurance business 667 Madison Avenue, 7th Floor New York, New York 10021 Arthur F. Weinbach Chairman of the Board and Chief Executive Officer of ADP Josh S. Weston Honorary Chairman of the Board of ADP EXECUTIVE OFFICERS OF ADP - ------------------------- John D. Barfitt Vice President of ADP James B. Benson Vice President, General Counsel and Secretary of ADP Richard C. Berke Vice President, Human Resources of ADP Gary C. Butler President and Chief Operating Officer of ADP Raymond L. Colotti Vice President and Treasurer of ADP Richard J. Daly Group President of ADP Richard A. Douville Vice President, Finance of ADP G. Harry Durity Vice President of ADP Karen E. Dykstra Vice President of ADP Russell P. Fradin Group President of ADP Eugene A. Hall Senior Vice President of ADP John Hogan Group President of ADP Campbell Langdon Vice President of ADP 12 BUSINESS ADDRESS AND PRESENT NAME PRINCIPAL OCCUPATION S. Michael Martone Group President of ADP Peter Op de Beeck Vice President of ADP Arthur F. Weinbach Chairman and Chief Executive Officer of ADP 13 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION --- ----------- 1 Agreement and Plan of Merger, dated as of January 5, 2003, among the Issuer, ADP and Merger Corp. 2 Stockholder Support Agreement, dated as of January 5, 2003, between ADP and the Stockholders named therein. 3 Stockholder Support Agreement, dated as of January 5, 2003, between ADP and the Stockholders named therein. EX-2 3 ex1_sc13d-probusiness.txt EXHIBIT 1 EXHIBIT 1 --------- AGREEMENT AND PLAN OF MERGER BY AND AMONG AUTOMATIC DATA PROCESSING, INC., ADP MERGER CORP. AND PROBUSINESS SERVICES, INC. Dated as of January 5, 2003 TABLE OF CONTENTS PAGE ---- ARTICLE I THE MERGER...........................................................1 1.1 THE MERGER...................................................1 1.2 EFFECTIVE TIME; CLOSING......................................1 1.3 EFFECT OF THE MERGER.........................................2 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS......................2 1.5 DIRECTORS AND OFFICERS.......................................2 1.6 EFFECT ON CAPITAL STOCK......................................2 1.7 SURRENDER OF CERTIFICATES....................................4 1.8 DISSENTING SHARES............................................6 1.9 FURTHER ACTION...............................................7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................7 2.1 ORGANIZATION; STANDING AND POWER; CHARTER DOCUMENTS; SUBSIDIARIES.................................................7 2.2 CAPITAL STRUCTURE............................................8 2.3 AUTHORITY; NON-CONTRAVENTION; NECESSARY CONSENTS.............9 2.4 SEC FILINGS; FINANCIAL STATEMENTS...........................11 2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS........................12 2.6 TAXES.......................................................12 2.7 INTELLECTUAL PROPERTY.......................................13 2.8 COMPLIANCE; PERMITS.........................................14 2.9 LITIGATION..................................................15 2.10 BROKERS' AND FINDERS' FEES..................................15 2.11 TRANSACTIONS WITH AFFILIATES................................15 2.12 EMPLOYEE BENEFIT PLANS......................................15 2.13 ENVIRONMENTAL MATTERS.......................................19 2.14 CONTRACTS...................................................20 2.15 DISCLOSURE..................................................21 2.16 BOARD APPROVAL..............................................21 2.17 FAIRNESS OPINION............................................21 2.18 RIGHTS PLAN.................................................22 2.19 TAKEOVER STATUTES...........................................22 -i- 2.20 VOTE REQUIRED...............................................22 2.21 REAL ESTATE.................................................22 2.22 CUSTOMERS...................................................22 2.23 TRUST FUNDS.................................................23 2.24 INVESTMENT POLICY. ........................................25 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........25 3.1 ORGANIZATION; STANDING AND POWER; CHARTER DOCUMENTS; SUBSIDIARIES................................................25 3.2 AUTHORITY; NON-CONTRAVENTION; NECESSARY CONSENTS............25 3.3 BROKERS' AND FINDERS' FEES..................................26 3.4 DISCLOSURE..................................................26 3.5 BOARD APPROVAL..............................................27 3.6 AVAILABLE FUNDS.............................................27 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................27 4.1 CONDUCT OF BUSINESS OF THE COMPANY..........................27 ARTICLE V ADDITIONAL AGREEMENTS...............................................30 5.1 PROXY STATEMENT.............................................30 5.2 MEETINGS OF STOCKHOLDERS; BOARD RECOMMENDATION..............31 5.3 ACQUISITION PROPOSALS.......................................32 5.4 CONFIDENTIALITY; ACCESS TO INFORMATION......................34 5.5 PUBLIC DISCLOSURE...........................................34 5.6 REGULATORY FILINGS; REASONABLE BEST EFFORTS.................34 5.7 NOTIFICATION OF CERTAIN MATTERS.............................37 5.8 THIRD-PARTY CONSENTS........................................37 5.9 COMPANY EMPLOYEE PLANS AND EMPLOYEE BENEFITS................37 5.10 INDEMNIFICATION.............................................38 5.11 SECTION 16 MATTERS..........................................39 5.12 MERGER SUB COMPLIANCE.......................................39 5.13 TAX ACCOUNT AND NON-TAX ACCOUNT RECONCILIATION REPORT AND RELATED DATA............................................39 -ii- ARTICLE VI CONDITIONS TO THE MERGER...........................................40 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER......................................................40 6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB..................................................40 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.....41 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................42 7.1 TERMINATION.................................................42 7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION................44 7.3 FEES AND EXPENSES...........................................44 7.4 AMENDMENT...................................................45 7.5 EXTENSION; WAIVER...........................................45 ARTICLE VIII GENERAL PROVISIONS...............................................45 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES..............45 8.2 NOTICES.....................................................45 8.3 INTERPRETATION; KNOWLEDGE...................................47 8.4 COUNTERPARTS................................................48 8.5 ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES.................48 8.6 SEVERABILITY................................................48 8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE........................48 8.8 GOVERNING LAW; JURISDICTION.................................48 8.9 RULES OF CONSTRUCTION.......................................49 8.10 ASSIGNMENT..................................................49 8.11 WAIVER OF JURY TRIAL........................................49 -iii- AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered into as of January 5, 2003, by and among Automatic Data Processing, Inc., a Delaware corporation ("PARENT"), ADP Merger Corp., a Delaware corporation and indirect wholly-owned subsidiary of Parent ("MERGER SUB"), and ProBusiness Services, Inc., a Delaware corporation (the "COMPANY"). RECITALS -------- A. The respective Boards of Directors of Parent, Merger Sub and the Company have deemed it advisable and in the best interests of their respective corporations and stockholders to consummate the Merger (as defined in Section 1.1), on the terms and subject to the conditions set forth in this Agreement. B. The respective Boards of Directors of Parent, Merger Sub and the Company have approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger. C. The Board of Directors of the Company has resolved to recommend to its stockholders approval and adoption of this Agreement and approval of the Merger. D. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's, the Company's and Merger Sub's respective willingness to enter into this Agreement, certain stockholders of the Company are entering into Stockholder Support Agreements in substantially the form attached hereto as EXHIBIT A (the "STOCKHOLDER AGREEMENTS"). NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER 1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the General Corporation Law of the State of Delaware ("DELAWARE LAW"), Merger Sub shall be merged with and into the Company (the "MERGER"), the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation. The Company, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the "SURVIVING CORPORATION." 1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF MERGER") (the time of such filing with the Secretary of State of the State of Delaware (or such later time as may be agreed in writing by the Company and Parent and specified in the Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable on the Closing Date (as defined below). The closing of the Merger (the "CLOSING") shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, NY 10019, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI, or at such other time, date and location as the parties hereto agree in writing (the "CLOSING DATE"). 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of Delaware Law. 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS. At the Effective Time, the Certificate of Incorporation of the Company shall be the certificate of incorporation of the Surviving Corporation and shall be amended and restated in its entirety to be identical to the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with Delaware Law and as provided in such Certificate of Incorporation. At the Effective Time, the Bylaws of the Company shall be the Bylaws of the Surviving Corporation and shall be amended and restated in their entirety to be identical to the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time until thereafter amended in accordance with Delaware Law and as provided in such Bylaws. 1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving Corporation shall be the directors of Merger Sub immediately prior to the Effective Time, until their respective successors are duly elected or appointed and qualified. The initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time, until their respective successors are duly appointed. 1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any shares of capital stock of the Company, the following shall occur: (a) COMPANY PREFERRED STOCK. In accordance with Section 4(d) of the Certificate of Designations, Preferences and Rights of the 6.9% Senior Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on August 1, 2000 (the "CERTIFICATE OF Designation"), subject to the election of the holders of two-thirds (2/3) of the Company Preferred Stock (as defined in Section 2.2(a)) issued and outstanding immediately prior to the Effective Time (which election has been obtained concurrently with the execution of this Agreement), each share of Company Preferred Stock (including shares of Company Preferred Stock issued or issuable immediately prior to the Closing in accordance with Section 3 of the Certificate of Designation)(other than shares of Company Preferred Stock to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as defined in Section 1.8)), will be canceled and extinguished and automatically converted into the right to receive $26.50 in cash (the "PREFERRED PER SHARE LIQUIDATION AMOUNT") (such amount being an amount equal to the liquidation preference set forth in Section 4(a) of the Certificate of Designation). -2- (b) COMPANY COMMON STOCK. Each share of the Common Stock, par value $0.001 per share, of the Company (together with the associated Company Right (as defined in Section 2.2(a)) under the Company Rights Agreement (as defined in Section 2.2(a)) ("COMPANY COMMON STOCK")) issued and outstanding immediately prior to the Effective Time (other than any shares of Company Common Stock to be canceled pursuant to Section 1.6(c) and any Dissenting Shares) will be canceled and extinguished and automatically converted into the right to receive $17 per share (the "PER SHARE Amount" and, together with the Preferred Per Share Liquidation Amount referred to herein as the "MERGER CONSIDERATION"). (c) CANCELLATION OF TREASURY AND PARENT OWNED STOCK. Each share of Company Common Stock or Company Preferred Stock held by the Company or Parent or any direct or indirect wholly-owned Subsidiary of the Company or of Parent immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (d) CAPITAL STOCK OF MERGER SUB. Each share of common stock, par value $0.01, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation. (e) CONVERSION OF DISSENTING SHARES. The holders of Dissenting Shares, if any, shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of Delaware Law; PROVIDED, HOWEVER, that if, in accordance with Delaware Law, any holder of Dissenting Shares shall forfeit such right to payment of the fair cash value of such shares, such shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration provided in Section 1.6(a) or Section 1.6(b), as applicable. (f) REPURCHASE RIGHTS. The Board of Directors of the Company, without any further action by Parent, shall take all actions necessary pursuant to the terms of the Company's 2002 Employee Stock Purchase Plan and the 1997 Employee Stock Purchase Plan (collectively, the "COMPANY PURCHASE PLANS") to shorten all Offering Periods (as defined in the Company Purchase Plans) such that all Offering Periods then in progress terminate no later than immediately prior to the Effective Time. (g) EMPLOYEE STOCK OPTIONS. Each Company Option or Other Option (both as defined in Section 2.2(b)) which is outstanding immediately prior to the Effective Time, whether or not then exercisable or vested, shall by virtue of the Merger and without any action on the part of the Parent, Merger Sub, the Company or the holder thereof, be converted into and shall become a right to receive an amount in cash, without interest, with respect to each share subject thereto, equal to the excess, if any, of the Per Share Amount over the per share exercise or purchase price of such Company Option or such Other Option (such amount being hereinafter referred to as the "OPTION MERGER CONSIDERATION") and each Company Option and Other Option shall be canceled at the Effective Time. The payment of the Option Merger Consideration to the holder of a Company Option or Other Option shall be reduced by any income or employment tax withholding required under the Code or any provision of state, local or foreign Tax (as defined in Section 2.6) law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this -3- Agreement as having been paid to the holder of such Company Option or Other Option. The Stock Option Plans (as defined in Section 2.12(a)) shall terminate at the Effective Time. (h) ADJUSTMENTS TO THE MERGER CONSIDERATION. The Merger Consideration shall be adjusted to reflect fully the appropriate effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock or Company Preferred Stock), reorganization, recapitalization, reclassification or other like change with respect to Company Common Stock or Company Preferred Stock having a record date on or after the date hereof and prior to the Effective Time. 1.7 SURRENDER OF CERTIFICATES. (a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall select a bank or trust company reasonably satisfactory to the Company to act as the exchange agent (the "EXCHANGE AGENT") in the Merger. Prior to the Effective Time, Parent shall enter into an agreement with Exchange Agent, reasonably satisfactory to the Company. (b) PARENT TO PROVIDE CASH. At or promptly following the Effective Time (and in no event later than one (1) business day following the Effective Time), Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, cash payable to the stockholders of the Company pursuant to Section 1.6(a) or Section 1.6(b) in exchange for outstanding shares of Company Preferred Stock and Company Common Stock, respectively. Any funds deposited with the Exchange Agent shall hereinafter be referred to as the "EXCHANGE FUND." (c) EXCHANGE PROCEDURES. Promptly after the Effective Time (and in no event later than three (3) business days following the Effective Time), Parent shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of a certificate or certificates (the "CERTIFICATES") which immediately prior to the Effective Time represented outstanding shares of Company Common Stock or Company Preferred Stock whose shares were converted into the right to receive cash pursuant to Section 1.6(a) or Section 1.6(b): (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration to which the holder of such Certificate is entitled pursuant to Section 1.6(a) or Section 1.6(b) (without limiting the effect of Section 1.7(e)). Upon surrender of Certificates for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificates shall be entitled to receive promptly (and in no event later than three (3) business days after receipt thereof) in exchange therefor the Merger Consideration to which the holder of such certificate is entitled pursuant to Section 1.6(a) or Section 1.6(b) (less any withholding amount with respect to the shares of Company Common Stock or Company Preferred Stock held by such holder as provided by Section 1.7(e)), and the Certificates so surrendered shall forthwith be canceled. No interest shall accrue or be paid on the amounts payable pursuant to this Article I upon surrender of the Certificates. -4- (d) TRANSFERS OF OWNERSHIP. If the payment of the amounts payable pursuant to Section 1.6(a) or Section 1.6(b) is to be made to a person other than the person in whose name the surrendered Certificate formerly evidencing shares of Company Common Stock or Company Preferred Stock, as applicable, are registered, it will be a condition of payment that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Persons (as defined in Section 8.3(d)) requesting such payment will have paid to Parent or any agent designated by it any transfer or other Taxes (as defined in Section 2.6) required by reason of the payment of the amount specified in Section 1.6(a) or Section 1.6(b) to a Person other than the registered holder of the Certificates surrendered, or established to the satisfaction of Parent or any agent designated by it that such Tax has been paid or is not payable. (e) REQUIRED WITHHOLDING. Each of the Exchange Agent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Common Stock or Company Preferred Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign Tax law or under any other applicable Legal Requirement (as defined in Section 2.2(d)). To the extent such amounts are so deducted or withheld, the amount of such consideration shall be treated for all purposes under this Agreement as having been paid to the Person to whom such consideration would otherwise have been paid. (f) NO LIABILITY. Notwithstanding anything to the contrary in this Section 1.7, neither the Exchange Agent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Company Common Stock or Company Preferred Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. (g) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest the Exchange Fund as directed by Parent on a daily basis; PROVIDED THAT no such investment or loss thereon shall affect the amounts payable to Company stockholders pursuant to this Article I. Any interest and other income resulting from such investment shall become a part of the Exchange Fund, and any amounts in excess of the amounts payable to Company stockholders pursuant to this Article I shall promptly be paid to Parent. (h) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which remains undistributed to the holders of Certificates six (6) months after the Effective Time shall, at the request of the Surviving Corporation, be delivered to the Surviving Corporation or otherwise on the instruction of the Surviving Corporation, and any holders of the Certificates who have not surrendered such Certificates in compliance with this Section 1.7 shall after such delivery to the Surviving Corporation look only to the Surviving Corporation (subject to abandoned property, escheat and similar laws) for payment, as general creditors thereof, of their claim for the Merger Consideration, without interest, to which such holders may be entitled pursuant to Section 1.6(a) or Section 1.6(b). Any such portion of the Exchange Fund remaining unclaimed by holders of shares of Company Common Stock or Company Preferred Stock immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity (as defined in Section 2.3(c)) shall, to the extent permitted by law, become the property of Parent free and clear of any claims or interest of any Person previously entitled thereto. -5- (i) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK OR COMPANY PREFERRED STOCK. At the close of business on the day of the Effective Time, there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock or Company Preferred Stock. From and after the Effective Time, the holders of Company Common Stock or Company Preferred Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Company Common Stock or Company Preferred Stock except as otherwise provided herein or by applicable law. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Exchange Agent, they shall be canceled and exchanged for the Merger Consideration, as provided in this Article I, subject to applicable law in the case of Dissenting Shares. All cash paid upon surrender of Certificates in accordance with the terms of this Article I shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares previously represented by such Certificates. (k) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall pay in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration to which the holder thereof is entitled pursuant to this Article I; PROVIDED, HOWEVER, that Parent or the Surviving Corporation may, in their discretion and as a condition precedent to the payment thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as they may reasonably direct as indemnity against any claim that may be made against Parent, the Company, the Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. (l) APPLICABILITY TO DISSENTING SHARES. The provisions of this Section 1.7 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of the Exchange Agent under this Section 1.7 shall commence only on the date of such loss of status. 1.8 DISSENTING SHARES. (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Common Stock and Company Preferred Stock for which the holder thereof has demanded an appraisal of their value in accordance with, and has complied in all respects with, Section 262 of Delaware Law (collectively, the "DISSENTING SHARES") shall not be converted into or represent the right to receive cash in accordance with Section 1.6(a) or Section 1.6(b), and the holder or holders of such shares shall be entitled only to such rights as may be granted to such holder or holders in Section 262 of Delaware Law. (b) Notwithstanding the provisions of subsection (a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such appraisal rights, then, as of the occurrence of such event, such holder's shares shall no longer be deemed to be "Dissenting Shares" and such shares shall automatically be converted into and represent only the right to receive the applicable cash payment provided in Section 1.6(a) or Section 1.6(b), without interest, upon surrender of the certificate representing such shares in accordance with Section 1.7. (c) The Company shall give Parent (i) prompt notice of any demands for appraisal of any shares of Company Common Stock or Company Preferred Stock, the withdrawals of such -6- demands, and any other instrument served pursuant to Delaware Law and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under Delaware Law. The Company shall not, except with the prior written consent of Parent, offer to make or make any payment with respect to any demands for appraisal of the shares Company Common Stock or Company Preferred Stock or offer to settle or settle any such demands. 1.9 FURTHER ACTION. At and after the Effective Time, the officers and directors of Parent and the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of Company and Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of Company and Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Merger Sub, except as otherwise set forth in writing in appropriately corresponding sections of the disclosure letter supplied by the Company to Parent dated as of the date hereof (the "COMPANY DISCLOSURE LETTER"), as follows: 2.1 ORGANIZATION; STANDING AND POWER; CHARTER DOCUMENTS; SUBSIDIARIES. (a) ORGANIZATION; STANDING AND POWER. The Company and each of its Subsidiaries (as defined below) is a corporation or other organization duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted, except where the failure of any Subsidiary of the Company to be so organized, existing and in good standing would not have, individually or in the aggregate, a Material Adverse Effect (as defined in Section 8.3(c)) on the Company, and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary other than in such jurisdictions where the failure to so qualify or to be in good standing would not have, individually or in the aggregate, a Material Adverse Effect on the Company. For purposes of this Agreement, "SUBSIDIARY," when used with respect to any party, shall mean any corporation or other organization, whether incorporated or unincorporated, at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (b) CHARTER DOCUMENTS. The Company has delivered or made available to Parent: (i) a true and correct copy of the Certificate of Incorporation (including any Certificate of Designations) and Bylaws of the Company, each as amended to date (collectively, the "COMPANY CHARTER DOCUMENTS") and (ii) the certificate of incorporation and bylaws, or like organizational documents, each as amended to date (collectively, "SUBSIDIARY CHARTER DOCUMENTS") of each of its Subsidiaries, and each such instrument is in full force and effect. The Company is not in violation of -7- any of the provisions of the Company Charter Documents and each Subsidiary is not in violation of its respective Subsidiary Charter Documents, except in the case of a Subsidiary, as would not be material to the Company. (c) SUBSIDIARIES. Section 2.1(c) of the Company Disclosure Letter includes all the Subsidiaries of the Company. All the outstanding shares of capital stock of, or other equity or ownership interests in, each such Subsidiary have been validly issued and are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all pledges, claims, liens, charges, preemptive rights, mortgages, encumbrances, options and security interests of any kind or nature whatsoever (collectively, "LIENS"), including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity or ownership interests, except for restrictions imposed by applicable securities laws. 2.2 CAPITAL STRUCTURE. (a) CAPITAL STOCK. The authorized capital stock of the Company consists of: (i) 60,000,000 shares of Company Common Stock, par value $0.001 per share; (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, 60,000 of which have been designated as Series A Participating Preferred Stock ("SERIES A PREFERRED"), all of which will be reserved for issuance upon exercise of preferred stock purchase rights (the "COMPANY RIGHTS") issuable pursuant to the preferred stock rights agreement, dated as of August 8, 2001, between the Company and Wells Fargo Bank, MN N.A., as amended, (the "COMPANY RIGHTS AGREEMENT"), none of which are issued and outstanding; and 1,800,000 of which have been designated as 6.9% Senior Convertible Preferred Stock (the "COMPANY PREFERRED STOCK"). At the close of business on the date hereof: (i) 28,602,857 shares of Company Common Stock were issued and outstanding (plus any shares of Company Common Stock issued since December 31, 2002 upon the exercise of Company Options or Other Options (as defined in Section 2.2(b)), (ii) no shares of Company Common Stock were issued and held by the Company in its treasury, and (iii) 1,132,075 shares of Company Preferred Stock were issued and outstanding (plus accrued dividends payable in 203,545 shares of Company Preferred Stock in accordance with Section 3 of the Certificate of Designation). All of the outstanding shares of capital stock of the Company are, and all shares of capital stock of the Company which may be issued as contemplated or permitted by this Agreement will be, when issued, duly authorized and validly issued, fully paid and non-assessable and not subject to any preemptive rights. (b) STOCK OPTIONS. As of the close of business on the date hereof: (i) 6,158,804 shares of Company Common Stock are subject to issuance pursuant to outstanding options to purchase Company Common Stock under the Company Stock Option Plans (as defined in Section 2.12) (the "COMPANY OPTIONS") (less any such shares issued since December 31, 2002 upon the exercise of Company Options); (ii) 1,986,066 shares of Company Common Stock are available for future issuance under the Company Stock Option Plans, (iii) 825,000 shares of Company Common Stock are reserved for future issuance under the 2002 Company Employee Stock Purchase Plan and no further shares of Company Common Stock will be issued under the 1997 Company Employee Stock Purchase Plan, and (iv) no shares of Company Common Stock are subject to issuance pursuant to outstanding options, rights or warrants to purchase Company Common Stock issued pursuant to the Contracts (as defined in Section 2.14) or instruments listed on Section 2.2(b) of the -8- Company Disclosure Letter (the "OTHER OPTIONS"). The Company has provided Parent information describing option activity through December 31, 2002. All shares of Company Common Stock subject to issuance under the Company Stock Option Plans, the Company Purchase Plans and the Other Options, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable and not subject to any preemptive rights. There are no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of any Company Option as a result of the Merger (whether alone or upon the occurrence of any additional or subsequent events). There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to the Company. (c) VOTING DEBT. No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders may vote ("VOTING DEBT") of the Company is issued or outstanding as of the date hereof. (d) OTHER SECURITIES. Except as otherwise set forth in this Section 2.2, there are no securities, options, warrants, calls, rights, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or redeem, repurchase, acquire or pay for or cause to be issued, delivered or sold, or redeemed, repurchased, acquired or paid for additional shares of capital stock, Voting Debt, equity interests or other voting securities of the Company or any of its Subsidiaries, or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, Contract, arrangement or undertaking. All outstanding shares of Company Common Stock and Company Preferred Stock, all outstanding Company Options and Other Options, and all outstanding shares of capital stock of each Subsidiary of the Company have been issued and granted in compliance in all material respects with (i) all applicable securities laws and all other applicable Legal Requirements (as defined below), (ii) all requirements set forth in applicable material Contracts and (iii) Company Charter Documents or Subsidiary Charter Documents. There are no voting trusts or other Contracts to which the Company or any of its Subsidiaries is a party with respect to the voting of capital stock of the Company or any of its Subsidiaries. For purposes of this Agreement: (x) "LEGAL REQUIREMENTS" shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, order, edict, decree, rule, regulation, ruling, judgment or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity; and (y) "CONTRACT" shall mean any written, oral or other agreement, contract, subcontract, settlement agreement, lease, binding understanding, instrument, indenture, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect. 2.3 AUTHORITY; NON-CONTRAVENTION; NECESSARY CONSENTS. (a) AUTHORITY. The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby has been duly authorized by all necessary corporate action on the part of the Company and no other corporate -9- proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger and the other transactions contemplated hereby (other than the approval and adoption of this Agreement and the approval of the Merger by the Company's stockholders and the filing of the Certificate of Merger pursuant to Delaware Law). This Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (b) NON-CONTRAVENTION. The execution and delivery of this Agreement by the Company does not, and performance of this Agreement by the Company will not: (i) conflict with or violate the Company Charter Documents or any Subsidiary Charter Documents of any Subsidiary of the Company, (ii) subject to obtaining the approval and adoption of this Agreement and the approval of the Merger by the Company's stockholders as contemplated in Section 5.2 and compliance with the requirements set forth in Section 2.3(c), conflict with or violate any material Legal Requirement applicable to the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the material properties or assets of the Company or any of its Subsidiaries pursuant to, any Company Material Contract (as defined in Section 2.14). Section 2.3(b) of the Company Disclosure Letter lists all consents, waivers and approvals under any Company Material Contract required to be obtained in connection with the consummation of the transactions contemplated hereby, which, if individually or in the aggregate are not obtained, would result in a Material Adverse Effect on the Company or the Surviving Corporation. (c) NECESSARY CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, arbitral entity, administrative agency or commission or other governmental authority or instrumentality, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority (a "GOVERNMENTAL ENTITY") is required to be obtained or made by the Company in connection with the execution, performance and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for: (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company and/or Parent are qualified to do business, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT") or any foreign laws regulating competition, antitrust, investment or exchange controls, (iii) the consents listed on Section 2.3(c) of the Company Disclosure Letter; (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities or "blue sky" laws and the securities laws of any foreign country, (v) such consents, approvals, orders, authorizations, registration, declaration or filing as may be required by the rules and regulations of The Nasdaq Stock Market, Inc. and The New York Stock Exchange, Inc., and (vi) such other -10- consents, authorizations, filings, approvals and registrations which if not obtained or made would not be material to the Company or Parent or materially adversely affect the ability of the parties hereto to consummate the Merger within the time frame in which the Merger would otherwise be consummated in the absence of the need for such consent, approval, order, authorization, registration, declaration or filings. The consents, approvals, orders, authorizations, registrations, declarations, waivers and filings set forth in (i), (ii) and (v) are referred to collectively herein as the "NECESSARY CONSENTS." 2.4 SEC FILINGS; FINANCIAL STATEMENTS. (a) SEC FILINGS. The Company has filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) required to be filed by it with the Securities and Exchange Commission (the "SEC") since January 1, 2000. The Company has made available to Parent all such registration statements, prospectuses, reports, schedules, forms, statements and other documents in the form filed with the SEC. All such required registration statements, prospectuses, reports, schedules, forms, statements and other documents (including those that the Company may file subsequent to the date hereof), as amended, are referred to herein as the "COMPANY SEC REPORTS." As of their respective dates, the Company SEC Reports (i) were prepared in accordance and complied in all material respects with the requirements of the Securities Act of 1933, as amended (together with the rules and regulations thereunder, the "SECURITIES ACT"), or the Securities and Exchange Act of 1934, as amended (together with the rules and regulations thereunder, the "EXCHANGE ACT"), as the case may be, applicable to such Company SEC Reports and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent corrected prior to the date hereof by a subsequently filed Company SEC Report. None of the Company's Subsidiaries is required to file any forms, reports or other documents with the SEC. (b) FINANCIAL STATEMENTS. Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (the "COMPANY FINANCIALS"), including each Company SEC Report filed after the date hereof until the Closing: (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q, 8-K or any successor form under the Exchange Act), and (iii) fairly presented in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as at the respective dates thereof and the consolidated results of Company's operations and cash flows for the periods indicated. The balance sheet of the Company contained in the Company SEC Reports as of September 30, 2002 is hereinafter referred to as the "COMPANY BALANCE SHEET." Except as disclosed in the Company Financials, since the date of the Company Balance Sheet, neither the Company nor any of its Subsidiaries has any liabilities required under GAAP to be set forth on a consolidated balance sheet (absolute, accrued, contingent or otherwise) which, individually or in the aggregate, would have a Material Adverse Effect on the Company, except for liabilities incurred since the date of the -11- Company Balance Sheet in the ordinary course of business consistent with past practice and liabilities incurred pursuant to this Agreement. 2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Company Balance Sheet (a) there has not been any Material Adverse Effect on the Company, (b) and through the date hereof, the Company and its Subsidiaries have conducted in all material respects their respective businesses only in the ordinary course consistent with past practice, except for the negotiation and execution of this Agreement and (c) through the date hereof, there has not been: (i) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company's or any of its Subsidiaries' capital stock, or any purchase, redemption or other acquisition by the Company or any of its Subsidiaries of any of the Company's capital stock or any other securities of the Company or its Subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities, except repurchases of unvested shares at cost in connection with the termination of the Company's or any of its Subsidiary's relationship with any Service Provider (as defined in the Company Option Plans) pursuant to stock option or purchase agreements in effect on the date hereof or entered into in compliance with this Agreement, or (ii) any split, combination or reclassification of any of the Company's or any of its Subsidiaries' capital stock. 2.6 TAXES. (a) For the purposes of this Agreement, the term "TAX" or, collectively, "TAXES," shall mean any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts, and any obligations with respect to such amounts arising as a result of being a member of an affiliated, consolidated, combined or unitary group for any period or under any agreements or arrangements with any other Person and including any liability for taxes of a predecessor entity. Notwithstanding the foregoing, for the purposes of this Section 2.6 and Section 4.1(b)(xii), "Tax" and "Taxes" shall not include any Tax taken into account in determining Assumed Customer Tax Obligation (as defined in Section 2.23(a)). The Company and each of its Subsidiaries have filed all material federal, state, local and foreign returns, estimates, information statements and reports relating to Taxes ("TAX RETURNS") required to be filed by any of them and all such Tax Returns are true and correct in all material respects. The Company and each of its Subsidiaries have timely paid, or have adequately reserved (in accordance with GAAP) for the payment of, all Taxes required to be paid (whether or not shown on any Tax Returns), and the most recent financial statements contained in the Company SEC Reports reflect an adequate reserve (in accordance with GAAP) for all Taxes payable by the Company and its Subsidiaries through the date of such financial statements. No material deficiencies for any Taxes have been asserted or assessed, or, to the Knowledge (as defined in Section 8.3(b)) of the Company, proposed, against the Company or any of its Subsidiaries that are not subject to adequate reserves (in accordance with GAAP). No audit or other examination of any -12- Tax Return of the Company or any of its Subsidiaries is presently in progress, nor has the Company or any of its Subsidiaries been notified of any request for such an audit or other examination. (b) There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or reassessment of, Taxes due from the Company or any of its Subsidiaries for any taxable period and no request for any such waiver or extension is currently pending. There are no Liens for Taxes upon the assets or properties of the Company or any Subsidiary except for statutory Liens for current Taxes not yet due. Neither the Company nor any of its Subsidiaries is a party to any agreement relating to the sharing, allocation or indemnification of Taxes, or any similar agreement, contract or arrangement, (collectively, "TAX SHARING AGREEMENTS") or has any liability for Taxes of any Person (other than members of the affiliated group, within the meaning of Section 1504(a) of the Code, filing consolidated federal income tax returns of which the Company is the common parent) under Treasury Regulation ss. 1.1502-6, Treasury Regulation ss. 1.1502-78 or similar provision of state, local or foreign law, as a transferee or successor, by Contract, or otherwise. Neither the Company nor any of its Subsidiaries has executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of state, local or foreign law. Neither the Company nor any of its Subsidiaries is subject to any private letter ruling of the Internal Revenue Service (the "IRS") or comparable ruling of any other Tax authority, and there is no currently pending private letter ruling request to the IRS or comparable ruling request to any other Tax authority, relating to either the Company or any of its Subsidiaries. The Company and its Subsidiaries have each withheld (or will withhold) from their respective employees, independent contractors, creditors, stockholders and third parties and timely paid to the appropriate Tax authority proper and accurate amounts in all material respects for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting provisions of applicable laws. No claim in writing has been made by any Governmental Entity in a jurisdiction where neither the Company nor any of its Subsidiaries files Tax Returns that it is or may be subject to taxation by that jurisdiction. The Company and its Subsidiaries have given or otherwise made available to Parent true, correct and complete copies of all Tax Returns, examination reports and statements of deficiencies for taxable periods, or transactions consummated, for which the applicable statutory periods of limitations have not expired. The Company and its Subsidiaries have, in all material respects, charged their customers all sales, goods and services, and other similar Taxes required to be charged under the laws and regulations of all applicable taxing jurisdictions. All such Taxes have been collected and remitted to the appropriate Tax authority in a timely manner in all material respects. 2.7 INTELLECTUAL PROPERTY. (a) NO INFRINGEMENT. The products, services and operations of the Company do not infringe or misappropriate the Intellectual Property (as defined below) of any third party where such infringement or misappropriation, individually or in the aggregate, would have a Material Adverse Effect on the Company. "INTELLECTUAL PROPERTY" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, computer software programs and all documentation relating to any -13- of the foregoing, (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world, (iv) all industrial designs and any registrations and applications therefor throughout the world, (v) all mask works and any registrations and applications therefor throughout the world, (vi) all trade names, logos, URLs, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world, (vii) all databases and data collections and all rights therein throughout the world, (viii) all moral and economic rights of authors and inventors, however denominated, throughout the world, and (ix) any similar or equivalent rights to any of the foregoing anywhere in the world. "COMPANY INTELLECTUAL PROPERTY" shall mean all Intellectual Property owned by the Company and/or used in its products, services and operations. (b) NO IMPAIRMENT. The Merger (including the assignment by operation of law of any Contract to the Surviving Corporation) will not result in: (i) Parent or any Subsidiary of Parent (other than the Company and its Subsidiaries, but only to the extent existing prior to the Merger) being bound by any material non-compete or other material restriction on the operation of any business of Parent or its Subsidiaries, (ii) Parent or any Subsidiary of Parent (other than the Company and its Subsidiaries, but only to the extent existing prior to the Merger) granting any rights or licenses to any material Intellectual Property of Parent or any Subsidiary of Parent to any third party (including a covenant not to sue with respect to any material Intellectual Property of Parent or any Subsidiary of Parent), or (iii) the termination or breach of any Contract to which the Company is a party, which termination or breach would have, individually or in the aggregate, a Material Adverse Effect on either the Surviving Corporation or Parent, or (iv) the termination or forfeiture of any Company Intellectual Property. (c) SCHEDULE. Section 2.7(c) of the Company Disclosure Letter sets forth, as of the date hereof, a list of all material Company Intellectual Property described in subsection (i), (iv), (v) and (vi) of Section 2.7(a) and all copyright registrations and applications therefor. (d) OWNERSHIP AND MAINTENANCE. The Company owns, or possesses licenses or other valid rights to use, all Company Intellectual Property which is required or necessary to the conduct of the business of the Company, except where the lack thereof, individually or in the aggregate, would not have a Material Adverse Effect on the Company. To the Knowledge of the Company, no Person is infringing upon or violating any material Company Intellectual Property. The Company has taken reasonable steps to maintain the confidentiality of its trade secrets. (e) PRIVACY. The Company does not use or collect any of the information it collects from its web site visitors or other parties in an unlawful manner, or in a manner that violates the Company's privacy policy or the privacy rights of its customers. The Merger will not violate the Company's privacy policy or the privacy rights of its customers. 2.8 COMPLIANCE; PERMITS. (a) COMPLIANCE. Neither the Company nor any of its Subsidiaries is or has been in conflict with, or in default or in violation of any Legal Requirement applicable to the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries or any of their respective businesses or properties is bound, except, in each case, or in the aggregate, for conflicts, violations and defaults that would not have a Material Adverse Effect on the Company. No material -14- investigation or review by any Governmental Entity is pending or, to the Knowledge of the Company, has been threatened in a writing delivered to the Company or any of its Subsidiaries, against the Company or any of its Subsidiaries. There is no judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries which, individually or in the aggregate, has or could have a Material Adverse Effect on the Company. (b) PERMITS. The Company and its Subsidiaries hold, to the extent legally required, all permits, licenses, authorizations, franchises, variances, exemptions, orders and approvals from Governmental Entities ("PERMITS") that are required for the operation of the business of the Company and its Subsidiaries, as currently conducted, the failure to hold which, individually or in the aggregate, would have a Material Adverse Effect on the Company (collectively, "COMPANY PERMITS"). As of the date hereof, no suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company, threatened. The Company and its Subsidiaries are in compliance in all material respects with the terms of the Company Permits. 2.9 LITIGATION. Except as set forth in the Company SEC Reports filed prior to the date hereof, there are no claims, suits, actions or proceedings pending or, to the Knowledge of the Company, threatened, nor, to the Knowledge of the Company, any investigation pending or threatened, against the Company or any of its Subsidiaries, any present or former officer, director or employee of the Company or any of its Subsidiaries or any other Person for whom the Company or any of its Subsidiaries may be liable or pursuant to which it may be obligated to indemnify any such officer, director, employee of Person, before any Governmental Entity that seeks to restrain, delay, alter or enjoin the consummation of the transactions contemplated hereby, seeks an award of damages in connection with this Agreement or any transactions contemplated hereby or which could, either singularly or in the aggregate with all such claims, actions or proceedings, be material to the Company. Neither the Company nor any of its Subsidiaries is subject to any judgment, decree, injunction, rule or order of any Governmental Entity that has had or would have, individually or in the aggregate, a Material Adverse Effect on the Company. 2.10 BROKERS' AND FINDERS' FEES. Except for fees payable to Goldman Sachs & Co. pursuant to an engagement letter dated October 3, 2002, a copy of which has been provided to Parent, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.11 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company SEC Reports, since the date of the Company's last proxy statement filed with the SEC, no event has occurred as of the date hereof that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC. Section 2.11 of the Company Disclosure Letter identifies each Person who is an "affiliate" (as that term is used in Rule 145 promulgated under the Securities Act) of the Company as of the date hereof. 2.12 EMPLOYEE BENEFIT PLANS. (a) The employee compensation, severance, termination pay, deferred compensation, stock or stock-related awards, incentive, fringe, pension, profit-sharing, savings, retirement, -15- employment, consulting, bonus, change-in-control, retention, welfare, cafeteria, flexible or other benefit plans, programs, policies, commitments, agreements or other arrangements (whether or not set forth in a written document and including, without limitation, all "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) under which any employee, former employee, director or consultant of the Company, any Subsidiary of the Company or any trade or business (whether or not incorporated) that is a member of a controlled group or that is under common control with the Company within the meaning of Section 414 of the Code (each an "ERISA AFFILIATE") has any present or future right to benefits, or with respect to which the Company has or may in the future have direct or indirect liability, whether contingent or otherwise, are referred to herein as the "PLANS." Section 2.12(a) of the Company Disclosure Letter contains a complete and accurate list of each material Plan, including (i) all severance and employment agreements of the Company with directors or executive officers, (ii) all severance programs and policies of each of the Company or its Subsidiaries, (iii) all Plans pursuant to which benefits would, in any respect, vest or an amount would become payable by virtue of the transactions contemplated hereby, and (iv) each stock option plan, stock purchase plan, equity based compensation plan, equity award to any Person (whether payable in cash, shares or otherwise) (to the extent not issued pursuant to any of the foregoing plans) or other plan or Contract of any nature with any Person (whether or not an employee) pursuant to which any stock, option, warrant or other right to purchase or acquire capital stock of the Company or right to payment based on the value of the Company capital stock has been granted or otherwise issued (collectively, "COMPANY STOCK OPTION PLANS"). The Company has provided or made available to Parent with respect to each Plan, a true, correct and complete copy thereof and to the extent applicable: (i) the most recent documents (including all amendments and trusts or other funding instruments constituting each Plan; (ii) the three most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Plan; (iii) all IRS determination, opinion, notification and advisory letters relating to any Plan; (iv) if the Plan is funded, the most recent periodic accounting of the Plan assets; (v) the most recent summary plan description, summary of material modifications and any other written communication (or description of any oral communications) by the Company or any ERISA Affiliate concerning the extent of benefits provided under a Plan; (vi) for the last three years all material correspondence with the IRS and the Department of Labor (the "DOL"); and (vii) any other document reasonably requested by Parent. (b) Each Plan has been maintained and administered in material compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations (foreign or domestic), including ERISA and the Code, that are applicable to such Plans. No suit, action, Lien or other litigation (excluding claims for benefits incurred in the ordinary course of Plan activities) has been brought, or to the Knowledge of the Company is threatened, against or with respect to any such Plan, except as would not result in material liability to the Company. There are no audits, inquiries or proceedings pending by the IRS or the DOL with respect to any Plans. Any Plan intended to be qualified under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code (i) has either applied for or obtained a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status from the IRS or still has a remaining period of time under applicable Treasury Regulations or IRS pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination, and (ii) incorporates or has been amended to incorporate all provisions required to -16- comply with the Tax Reform Act of 1986 and subsequent legislation, unless the Plan still has a remaining period of time under applicable Treasury Regulations or IRS pronouncements in which to conform to such legislation, and to the Knowledge of the Company, there are no facts or circumstances that could reasonably be expected to cause the loss of such qualification or the imposition of any material liability, penalty or tax under ERISA, the Code or any other applicable laws, rules or regulations. With respect to each Plan: (i) all reports, returns, notices and other documentation that are required to have been filed with or furnished to the IRS and the DOL, the SEC or any other Governmental Entity, or to the participants or beneficiaries of such Plan have been filed or furnished on a timely basis, and (ii) no individual who has performed services for the Company or its Subsidiaries has been improperly excluded from participation, except in each case for violations which would not reasonably be expected to cause material harm to the Company. All contributions (including all employer contributions and employee salary reduction contributions) or premium payments required to be made by the Company or its Subsidiaries in respect of any Plan have been timely paid or accrued, except as would not result in material liability to the Company. Neither the Company nor any ERISA Affiliate have any liability, whether contingent or otherwise, with respect to any plan subject to Title IV of ERISA or Section 412 of the Code which remains unsatisfied. (c) Neither the Company, its Subsidiaries nor, to the Knowledge of the Company, any other "party in interest" or "disqualified person" with respect to any Plan has engaged in a non-exempt "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code involving such Plan. To the Knowledge of the Company, no fiduciary has any material liability for breach of fiduciary duty or any other failure to act or comply with the requirements of ERISA, the Code or any other applicable laws in connection with the administration or investment of the assets of any Plan. (d) Neither the Company nor any ERISA Affiliate has at any time ever maintained, established, sponsored, participated in, contributed to, been requested to contribute to, or had any liability, whether contingent or otherwise, with respect to any "multiemployer plan," as such term is defined in Section 3(37)(A) of ERISA. Neither the Company nor any ERISA Affiliate have at any time ever maintained, established, sponsored, participated in, contributed to, or had any liability, whether contingent or otherwise, with respect to, (i) any multiple employer plan, or to any plan described in Section 413 of the Code, (ii) any "multiple-employer welfare arrangement" as defined in Section 3(40) of ERISA, (iii) a Plan subject to Section 4063 or 4064 of ERISA, or (iv) a Plan maintained outside of the jurisdiction of the United States. None of the Plans promises or provides retiree medical or other retiree benefits to any person except as required by applicable law, including without limitation, coverage required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (e) Neither the Company nor any of its Subsidiaries is bound by or subject to (and none of its respective assets or properties is bound by or subject to) any arrangement with any labor union. No employee of the Company or any of its Subsidiaries is represented by any labor union or covered by any collective bargaining agreement and, to the Knowledge of the Company, no campaign to establish such representation is in progress. There is no pending or, to the Knowledge of the Company, threatened labor dispute, strike or work stoppage involving the Company or any of its Subsidiaries and any group of its employees. The Company is in compliance in all material -17- respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment and labor practices, terms and conditions of employment and wages and hours, in each case, with respect to its current or former employees, except in each case for compliance violations which would not reasonably be expected to cause material harm to the Company. The Company has not received written notice of any investigation, charge or complaint pending before the Equal Employment Opportunity Commission or any other Governmental Entity regarding an unlawful unemployment practice. The Company (i) is not barred from any governmental contract by the Office of Federal Contract Compliance Programs or comparable state agency (the "OFCCP"), (ii) has not received a notice to show cause from the OFCCP, and (iii) does not have an action pending with the OFCCP. (f) Neither any payment or benefit which will or may be made by the Company or its Subsidiaries, nor the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby (either alone or in combination of another event) shall (i) result in the payment of any amount which could be characterized as a "parachute payment," within the meaning of Code Section 280G(b)(2), (ii) result in any material payment becoming due, or materially increase the amount of any compensation due, to any current or former employee of the Company or its Subsidiaries, (iii) materially increase any benefits otherwise payable under any Plan, (iv) result in the acceleration of the time of payment or vesting of any such compensation or benefits, or (v) result in the triggering or imposition of any restrictions or limitations on the rights of the Company or its Subsidiaries to amend or terminate any Plan. (g) To the Knowledge of the Company, neither the Company and its Subsidiaries nor any organization to which the Company or its Subsidiaries is a successor or parent corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any transaction described in Sections 4069 or 4212(c) of ERISA. (h) Neither the Company nor any of its Subsidiaries have incurred any material liability or material obligation under the Worker Adjustment and Retraining Notification Act or any similar state or local law which remains unsatisfied. (i) Neither the Company nor any of its Subsidiaries have direct or indirect liability with respect to any misclassification of any Person as an independent contractor rather than as an employee, or with respect to any employee leased from another employer, except as would not result in material harm to the Company. (j) Neither the Company nor any of its Subsidiaries is a party to any Contract or other arrangement which could result in the payment of material amounts that could be non-deductible by reason of Section 162(m) of the Code. (k) Each Plan which is a "group health plan" within the meaning of Section 5000(b)(1) of the Code and Section 607(l) of ERISA has been administered in material compliance with, and the Company and its Subsidiaries have otherwise complied with, (i) the requirements of the Heath Insurance Portability and Accountability Act of 1996 and the regulations promulgated thereunder; (ii) the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder; and (iii) the Medicare Secondary Payor Provisions of Section 1862 of the Social Security Act and the regulations promulgated thereunder, except, in each case, for -18- compliance violations which would not reasonably be expected to cause material harm to the Company. (l) No stock or other security issued by the Company or its Subsidiaries forms or has formed a material part of the assets of any Plan. (m) Neither the Company nor any ERISA Affiliate has a contract or commitment, whether legally binding or not, to create any additional employee benefit or compensation plans, policies or arrangements or, except as may be required by applicable law, to modify any Plan. (n) No assets of the Company or its Subsidiaries are allocated to or held in a "rabbi trust" or other funding vehicle in respect of any Plan other than one qualified under Section 401(a) of the Code. (o) No "employee welfare plan" within the meaning of Section 3(1) of ERISA ("WELFARE PLAN") disclosed in Section 2.12(a) of the Company Disclosure Letter is a "multiple employer welfare arrangement" as defined in Section 3(40) of ERISA or self-insured. 2.13 ENVIRONMENTAL MATTERS. (a) HAZARDOUS MATERIAL. Except as would not, individually or in the aggregate, result in a Material Adverse Effect on the Company, no underground storage tanks and no amount of any substance that has been designated by any Governmental Entity or by applicable Legal Requirement to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, but excluding office and janitorial supplies, (a "HAZARDOUS MATERIAL") are present, as a result of the actions of the Company or any of its Subsidiaries or any affiliate of the Company, or, to the Knowledge of the Company, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company or any of its Subsidiaries has at any time owned, operated, occupied or leased. (b) HAZARDOUS MATERIALS ACTIVITIES. Except as would not, individually or in the aggregate, result in a Material Adverse Effect on the Company: (i) neither the Company nor any of its Subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of or in a manner which would result in liability pursuant to, any Legal Requirement in effect on or before the Closing Date and (ii) neither the Company nor any of its Subsidiaries has disposed of, transported, sold, used, released, exposed its employees or others to or manufactured any product containing a Hazardous Material (collectively, "HAZARDOUS MATERIALS ACTIVITIES") in violation of or in a manner which would result in liability pursuant to any Legal Requirement. -19- 2.14 CONTRACTS. (a) MATERIAL CONTRACTS. For purposes of this Agreement, "COMPANY MATERIAL CONTRACT" shall mean: (i) any "material contracts" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with respect to the Company and its Subsidiaries; (ii) any Contract containing any covenant: (A) limiting the right of the Company or its Subsidiaries to engage in any material line of business, make use of any material Intellectual Property or compete with any Person in any material line of business, or (B) otherwise having an adverse effect on the right of the Company or any of its Subsidiaries to sell, distribute or manufacture any material products or services; (iii) any Contract, or group of Contracts with a Person (or group of affiliated Persons), the termination or breach of which would, individually or in the aggregate, have a material adverse effect on any material division or business unit or other material operating group of product or service offerings of the Company or otherwise have a Material Adverse Effect on the Company or any of its Subsidiaries or otherwise have a Material Adverse Effect on the Company; (iv) indentures, credit agreements, security agreements, mortgages, guarantees, promissory notes and Contract relating to or evidencing indebtedness for borrowed money of the Company or any of its Subsidiaries (excluding any equipment leases involving aggregate annual payments of less than $100,000 per lease); (v) any non-competition agreement or any other agreement or obligation which limits or purports to limit in any respect the manner in which, or the localities in which, the business of the Company or any of its Subsidiaries may be conducted; (vi) any legal entity in the nature of a partnership or joint venture, or a material strategic alliance (or any Contract substantially similar to any of the foregoing); (vii) any Contract which could prohibit or materially delay the consummation of the transactions contemplated by this Agreement; (viii) any Contract that involves, or to the Knowledge of the Company is likely to involve, aggregate annual payments to or from the Company or any of its Subsidiaries of $500,000 (excluding any Contract with customers of the Company or its Subsidiaries or any Contract governing an investment made in accordance with the Investment Policy (as defined in Section 4.1(b)(ix))); or (ix) any material Contract with any present director or executive officer of the Company or any of its Subsidiaries or any stockholder who owns or controls 10% or more of the Company's voting stock. -20- (b) SCHEDULE. Section 2.14(b) of the Company Disclosure Letter sets forth a list of all Company Material Contracts to which the Company or any of its Subsidiaries is a party or by which any of them is bound by as of the date hereof. (c) NO BREACH. All Company Material Contracts are valid and in full force and effect except to the extent they have previously expired in accordance with their terms or if the failure to be in full force and effect, individually or in the aggregate, would not be material to the Company. Neither the Company nor any of its Subsidiaries has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time or both would constitute a default under the provisions of, any Company Material Contract, except in each case for those violations and defaults which, individually or in the aggregate, would not be material to the Company. Neither the Company nor any of its Subsidiaries has received any written notice from any other party to any Company Material Contract that it intends to terminate or not renew such Company Material Contract. To the Company's Knowledge, no such other party is in violation, breach or default of any Company Material Contract. 2.15 DISCLOSURE. The Proxy Statement (as defined in Section 5.1) shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to the stockholders of the Company, at the time of the Stockholders' Meeting (as defined in Section 5.2) and as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. The Proxy Statement will comply in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder. Notwithstanding the foregoing, no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein about Parent supplied by Parent or any of Parent's representatives for inclusion or incorporation by reference in the Proxy Statement. 2.16 BOARD APPROVAL. The Board of Directors of the Company has (i) at a meeting duly called and held on or prior to the date hereof determined that this Agreement and the transactions contemplated hereby are advisable and fair to, and are in the best interest of the Company and its stockholders and declared the Merger to be advisable, (ii) approved and adopted this Agreement and the transactions contemplated hereby, including the Merger and the Stockholder Agreements and the transactions contemplated thereby, which approval constitutes approval under Section 203 of the Delaware Law such that the Merger, this Agreement and the other transactions contemplated hereby, are not and shall not be subject to any restriction pursuant to Section 203 of the Delaware Law, (iii) resolved to make the Recommendation (as defined in Section 5.2(b)), subject to the right of the Board of Directors of the Company to withhold, withdraw, amend, change or modify the Recommendation in accordance with Section 5.3(d), and (iv) directed that this Agreement and the Merger be submitted to the stockholders of the Company for approval. 2.17 FAIRNESS OPINION. The Company's Board of Directors has received an opinion from Goldman, Sachs & Co., dated as of January 5, 2003, to the effect that, as of such date, the Per Share -21- Amount is fair from a financial point of view to the holders of outstanding shares of Company Common Stock. 2.18 RIGHTS PLAN. The Company has taken all actions necessary to render the Company Rights Agreement inapplicable to the execution or delivery of this Agreement or the Stockholder Agreements, the consummation of the Merger pursuant to this Agreement or the consummation of any other transactions contemplated hereby and a copy of the amendment to such Company Rights Agreement effecting such change has been provided to Parent. 2.19 TAKEOVER STATUTES. The Board of Directors of the Company has taken all actions such that this Agreement and the transactions contemplated hereby and the Stockholder Agreements and the transactions contemplated thereby, are not and will not be subject to any restrictions under Section 203 of Delaware Law. No other state takeover statute or similar statute or regulation applies to or purports to apply to the Merger, the Stockholder Agreements or the transactions contemplated hereby or thereby. 2.20 VOTE REQUIRED. The only vote of the holders of any class or series of capital stock of the Company necessary to approve and adopt this Agreement and approve the Merger is the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock and Company Preferred Stock (voting together as a single class and on an as-converted to Common Stock basis). 2.21 REAL ESTATE. (a) OWNERSHIP OF PREMISES. The Company does not own any real property. (b) LEASED PROPERTIES. Section 2.21(b) of the Company Disclosure Letter is a true, correct and complete schedule of all leases, subleases, licenses and other agreements (collectively, the "REAL PROPERTY LEASES") under which the Company uses or occupies or has the right to use or occupy, now or in the future, any real property (the land, buildings and other improvements covered by the Real Property Leases being herein called the "LEASED REAL PROPERTY"). The Company has heretofore delivered to Parent true, correct and complete copies of all Real Property Leases (including all modifications, amendments and supplements). There is no material uncured default by the Company as tenant under any of the Real Property Leases or, to the best of the Company's Knowledge, by the landlord thereunder. The Company holds the leasehold estate under and interest in each Real Property Lease free and clear of all Liens, other than for Liens for taxes not yet due and payable. None of the Leased Real Property is subleased or sublicensed to any other person or entity. (c) ENTIRE PREMISES. All of the material land, buildings, structures and other improvements used by the Company in the conduct of its business are included in the Leased Real Property. 2.22 CUSTOMERS. Section 2.22 of the Company Disclosure Letter sets forth a list of (i) the top twenty-five (25) customers of the Company and its Subsidiaries (established using the projected annualized value per customer based on revenue for the three (3) month period ended September 30, 2002), (ii) for each such customer, the amount of the dollar volume established using the projected annualized value per customer based on revenue for the three (3) month period ended September 30, -22- 2002 and (iii) confirmation of whether a written agreement (other than periodic purchase orders) exists between the Company or any of its Subsidiaries and each such customer and the effective date of each such written agreement. To the Knowledge of the Company, as of the date hereof, no Person listed on Section 2.22 of the Company Disclosure Letter within the last twelve months has canceled or otherwise terminated the relationship of such Person with the Company or any of its Subsidiaries or has given written notice that it intends to cancel or otherwise terminate the relationship of such Person with the Company or any of its Subsidiaries. 2.23 TRUST FUNDS (a) TRUST TAX FUNDS. All Trust Tax Funds amounts have been held in segregated tax accounts maintained by the Company or its Subsidiaries on behalf of their customers (the "TAX ACCOUNTS"). Such amounts are not commingled with funds of the Company and its Subsidiaries and no amounts have been paid out of such Tax Accounts other than (i) payments to the applicable Tax authorities of such Taxes on behalf of such customers, (ii) payments returning any such amounts (or any portion of such amounts) to such customers, (iii) the interest income earned on investments which is subsequently transferred to the Company's corporate cash account or (iv) fees mistakenly wired by customers to the Tax Accounts which are transferred to the Company's corporate cash account. To the Knowledge of the Company, the Company and its Subsidiaries have paid in a timely manner to the applicable Tax authorities all amounts that are required to be paid to such authorities on behalf of their customers in respect of all taxable periods then ended, except in the event that any failure to pay such amount to such authorities was (i) caused solely by the refusal or inability of the customer to pay such amount to the Company and its Subsidiaries, (ii) caused solely by the failure of the customer to provide accurate data to the Company and its Subsidiaries or (iii) in the ordinary course of business. To the Knowledge of the Company, the Company and its Subsidiaries have timely filed with the applicable Tax authorities all Tax Returns that are required to be filed in connection with the Trust Tax Funds held in the Tax Accounts, except in the event that any failure to timely file such Tax Returns with such authorities was (i) caused solely by the failure of the customer to provide in a timely manner the information necessary to make such filings or (ii) in the ordinary course of business. The aggregate Assumed Customer Tax Obligations are equal to the sum of (i) the aggregate amount of Trust Tax Funds held in the Tax Accounts plus (ii) the relevant portion of Tax Account Receivables (as defined in Section 5.13), if any, with the exception of the realized loss in value of a financial instrument described in Section 2.23 of the Company Disclosure Letter of which corporate funds will ultimately be transferred into the Tax Account to remedy the differential. "TRUST TAX FUNDS" shall mean, with respect to any date, all federal and state payroll, social security, Medicare, unemployment and other trust Taxes held in Tax Accounts that were (i) withheld by the Company or its Subsidiaries from the payroll of employees of, or otherwise collected from, the Company's or its Subsidiaries' customers in connection with the payroll processing and tax filing services of the Company and its Subsidiaries prior to such date and (ii) not yet remitted to the applicable Tax authorities as of such date. "ASSUMED CUSTOMER TAX OBLIGATIONS" shall mean with respect to any date, obligations of the Company and/or its Subsidiaries as of such date (i) to remit to the Tax authorities on behalf of the Company's or its Subsidiaries' customers after such date all federal and state payroll, social security, Medicare, unemployment and other trust Taxes that are required to be paid and (ii) to refund to the Company's or its Subsidiaries' customers after such date any Trust Tax Funds over-impounded from such customers by the Company and/or its Subsidiaries, in each case, in connection with the payroll processing and tax -23- filing services performed by the Company and/or its Subsidiaries prior to such date; provided that, for purposes hereof, the Company and/or its Subsidiaries shall only be regarded as having such an obligation if, and to the extent that, a customer has paid, or Trust Tax Funds have been over-impounded by, the Company and/or its Subsidiaries in respect thereof prior to such date. To the Company's Knowledge, set forth on Section 2.23 of the Company Disclosure Letter, is a true and correct list as of December 20, 2002 of penalties and interest relating to assessments with respect to payroll Tax Returns filed on behalf of the clients of the Company or its Subsidiaries which, at the time the Company received notice of such assessments, were deemed individually to represent potential exposure to the Company and it Subsidiaries, or their clients, in excess of $250,000. (b) TRUST NON-TAX FUNDS. All Trust Non-Tax Funds amounts have been held in segregated non-tax accounts maintained by the Company or its Subsidiaries on behalf of their customers (the "NON-TAX ACCOUNTS"). Such amounts are not commingled with funds of the Company or its Subsidiaries and no amounts have been paid out of such accounts other than (i) payments to the applicable regulatory authorities of such withheld amounts on behalf of such customers or to authorized recipients or (ii) payments returning any such amounts (or any portion of such amounts) to such customers. To the Knowledge of the Company, the Company and its Subsidiaries have paid in a timely manner to the applicable regulatory authorities (or authorized recipients) all amounts that are required to be paid to such authorities (or authorized recipients) on behalf of customers in respect of all payroll periods then ended, except in the event that any failure to pay such amount to such authorities (or authorized recipients) was (i) caused solely by the refusal or inability of the customer to pay such amount to the Company and its Subsidiaries, (ii) caused solely by the failure of the customer to provide accurate data to the Company and its Subsidiaries or (iii) in the ordinary course of business. To the Knowledge of the Company, the Company and its Subsidiaries have timely filed with the applicable regulatory authorities or authorized recipients all filings, if any, that are required to be filed in connection with the Trust Non-Tax Funds held in the Non-Tax Accounts, except in the event that any failure to timely file such filings with such authorities was (i) caused solely by the failure of the customer to provide in a timely manner the information necessary to make such filings or (ii) in the ordinary course of business. The aggregate Assumed Customer Non-Tax Obligations are equal to the sum of (i) the aggregate amount of Trust Non-Tax Funds held in the Non-Tax Accounts plus (ii) the relevant portion of Trust Account Receivables, if any. "TRUST NON-TAX FUNDS" shall mean, with respect to any date, (a) all customers' employees' net pay (in connection with direct deposit services or check services) and (b) all workers' compensation or other insurance premiums or contributions (whether on behalf of the employer or employee) to 401(k) or other similar investment plans that were withheld by the Company or its Subsidiaries from the payroll of employees of, or otherwise collected from, the Company's or its Subsidiaries' customers in connection with the payroll processing services of the Company and its Subsidiaries prior to such date, which in each case, were not yet remitted to the applicable regulatory authorities or other authorized recipients as of such date and are held in Non-Tax Accounts. "ASSUMED CUSTOMER NON-TAX OBLIGATIONS" shall mean with respect to any date, obligations of the Company and/or its Subsidiaries as of such date (i) to remit to the applicable regulatory authorities or other authorized recipients on behalf of the Company's or its Subsidiaries' customers after such date all workers' compensation or other insurance premiums or contributions (whether on behalf of employer or employee) to 401(k) or other similar investment plans or customers' employees' net pay (in connection with direct deposit services or check services) that are required to be paid and (ii) to refund to the Company's or its Subsidiaries' customers after such date -24- any Trust Non-Tax Funds over-impounded from such customers by the Company and/or its Subsidiaries, in each case, in connection with the payroll processing services performed by the Company and/or its Subsidiaries prior to such date; provided that, for purposes hereof, the Company and/or its Subsidiaries shall only be regarded as having such an obligation if, and to the extent that, a customer has paid, or Trust Non-Tax Funds have been over-impounded by, the Company and/or its Subsidiaries in respect thereof prior to such date. 2.24 INVESTMENT POLICY. The Company is, in all material respects, in compliance with the terms of the Investment Policy. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company, except as otherwise set forth in writing in appropriately corresponding sections of the disclosure letter supplied by Parent and Merger Sub to the Company dated as of the date hereof (the "PARENT DISCLOSURE LETTER"), as follows: 3.1 ORGANIZATION; STANDING AND POWER; CHARTER DOCUMENTS; SUBSIDIARIES. (a) ORGANIZATION; STANDING AND POWER. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing would not have a Material Adverse Effect on Parent. (b) CHARTER DOCUMENTS. Parent has delivered or made available to the Company (i) a true and correct copy of the Certificate of Incorporation (including any Certificate of Designations) and Bylaws of Parent, each as amended to date (collectively, the "PARENT CHARTER Documents"). and of the Certificate of Incorporation and Bylaws of Merger Sub (collectively, the "MERGER SUB CHARTER DOCUMENTS"). Such Parent Charter Documents and Merger Sub Charter Documents are in full force and effect. Parent is not in violation of any of the provisions of the Parent Charter Documents and Merger Sub is not in violation of any of the provisions of the Merger Sub Charter Documents. (c) MERGER SUB. All the outstanding shares of capital stock of, or other equity interests in Merger Sub have been validly issued and are fully paid and non-assessable and are owned directly or indirectly by Parent, free and clear of all Liens, including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests, except for restrictions imposed by applicable securities laws. 3.2 AUTHORITY; NON-CONTRAVENTION; NECESSARY CONSENTS. (a) AUTHORITY. Each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. -25- The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby has been duly authorized by all necessary corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated hereby, subject only, with respect to the Merger, to the filing of the Certificate of Merger pursuant to Delaware Law. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming due execution and delivery by the Company, constitutes the valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms. (b) NON-CONTRAVENTION. The execution and delivery of this Agreement by Parent and Merger Sub does not, and performance of this Agreement by Parent will not: (i) conflict with or violate the Parent Charter Documents or the Merger Sub Charter Documents, (ii) subject to compliance with the requirements set forth in Section 3.2(c), conflict with or violate any material Legal Requirement applicable to Parent or Merger Sub or by which Parent or Merger Sub or any of their respective properties is bound or affected, or (iii) result in any material breach of or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or impair Parent's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a material Lien on any of the material properties or assets of Parent or Merger Sub pursuant to, any material Contract to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any of their respective properties are bound or affected, in each case, except as would not individually or in the aggregate, have a material adverse effect on the ability of Parent or Merger Sub to consummate the transactions contemplated hereby. (c) NECESSARY CONSENTS. No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity is required to be obtained or made by Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the Necessary Consents and (ii) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not be material to Parent, Merger Sub or the Company or materially adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby within the time frame in which such transactions would otherwise be consummated in the absence of the need for such consent, approval, order, authorization, registration, declaration or filings. 3.3 BROKERS' AND FINDERS' FEES. Except for fees payable to Lehman Brothers pursuant to an engagement letter entered into by Parent, Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.4 DISCLOSURE. None of the information supplied or to be supplied by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement, will, at the time the Proxy Statement is first mailed to the stockholders of the Company, at the time of the Stockholders' Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading or -26- necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. 3.5 BOARD APPROVAL. The Board of Directors of Parent has, by resolutions duly adopted by at a meeting of the Parent's Directors duly called and held and not subsequently rescinded or modified in any way (the "PARENT BOARD APPROVAL") has duly approved this Agreement. 3.6 AVAILABLE FUNDS Parent has or has available to it, and will make available to Merger Sub, all funds necessary to satisfy all of Parent's and Merger Sub's obligations under this Agreement. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 CONDUCT OF BUSINESS OF THE COMPANY. (a) ORDINARY COURSE. During the period from the date hereof and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, (except (i) as permitted by the terms of this Agreement, (ii) as disclosed in Section 4.1 of the Company Disclosure Letter, or (iii) to the extent that Parent shall otherwise consent in writing (which consent shall not be unreasonably delayed), carry on the business of the Company and its Subsidiaries, including but not limited to its Investment Policy in all material respects, in the ordinary course, consistent with past practice, and shall use their commercially reasonable efforts to preserve intact their business, organization and relationships with third parties and to keep available the services of their officers and employees. (b) REQUIRED CONSENT. In addition, without limiting the generality of Section 4.1(a), except as permitted by the terms of this Agreement, and except as provided in Section 4.1 of the Company Disclosure Letter, without the prior written consent of Parent (which consent shall not be unreasonably delayed), during the period from the date hereof and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company shall not do any of the following, and shall not permit its Subsidiaries to do any of the following: (i) Enter into any new line of business material to it and its Subsidiaries taken as a whole; (ii) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock, equity securities or property) in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock, other than, the declaration and payment in additional shares of Company Preferred Stock of quarterly dividends payable to the holders of Company Preferred Stock in accordance with Section 3 of the Certificate of Designation; (iii) Purchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock or the capital stock of its Subsidiaries, except repurchases of unvested shares at cost in connection with the termination of the Company's or any of its Subsidiary's relationship with any Service Provider (as defined in the Company Option Plans) pursuant to stock -27- option or purchase agreements in effect on the date hereof or entered into in compliance with this Agreement; (iv) Issue, deliver, sell, authorize, pledge or otherwise encumber any shares of capital stock, Voting Debt or any securities convertible into shares of capital stock or Voting Debt, or subscriptions, rights, warrants or options to acquire any shares of capital stock or Voting Debt or any securities convertible into shares of capital stock or Voting Debt, or enter into other agreements or commitments of any character obligating it to issue any such securities or rights, other than: (A) issuances of Company Common Stock upon the exercise of Company Options existing on the date hereof in accordance with their present terms or granted pursuant to clause (D) hereof, (B) issuance of shares of Company Common Stock to participants in the Company Purchase Plans pursuant to the terms thereof under currently existing agreements, (C) issuances of Company Common Stock upon the exercise of other options, warrants or other rights of the Company outstanding on the date hereof in accordance with their present terms (including cashless exercises), and (D) grants of stock options to acquire Company Common Stock granted on or after February 14, 2003 under the Company Stock Option Plans in the ordinary course of business in connection with annual compensation reviews, promotions or new hires PROVIDED THAT not more than 75,000 shares of Company Common Stock (net of cancellations) shall be issued pursuant to this clause (D) in each three month period commencing on February 14, 2003; (v) Cause, permit or propose any amendments to the Company Charter Documents or any of the Subsidiary Charter Documents of its Subsidiaries; (vi) Acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets of, or by any other manner, any business or any Person or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to its business; (vii) Enter into any joint ventures, strategic partnerships or alliances that are material to any of its divisions or business units; (viii) Except as previously disclosed in the Company SEC Reports prior to the date hereof, sell, lease, license, mortgage or otherwise encumber or dispose of any properties or assets which are material, individually or in the aggregate, to its business, except in the ordinary course of business consistent with past practice; (ix) Make any loans, advances or capital contributions to, or investments in, any other Person, other than: (A) loans or investments by it or a Subsidiary of it to or in it or any wholly-owned Subsidiary of it, (B) employee loans or advances made in the ordinary course of business consistent with past practice and not to exceed $250,000 in the aggregate, (C) investments by it or a Subsidiary of it in any other Person (i) in the ordinary course of business consistent with past practice and not to exceed $500,000 in the aggregate (provided that none of such transactions referred to in this clause (C)(i) presents a material risk of delaying the Merger or making it more difficult to obtain any Necessary Consent) or (ii) pursuant to the terms of and in accordance with the Company's Investment Policy. For the purposes of this Agreement, "INVESTMENT POLICY" shall mean the investment policy of the Company adopted by the Board of Directors of the Company on July 31, 2002 set forth in Section 4.1(b)(ix) of the Company Disclosure Letter; -28- (x) Except as required by GAAP or the SEC as concurred in by its independent auditors, make any material change in its methods or principles of accounting since the date of the Company Balance Sheet; (xi) Make or change any material Tax election or adopt or change a Tax accounting method; (xii) Settle, pay, discharge or satisfy any material claim (including any Tax claim), action, suit, investigation, audit or proceeding involving money damages, except (A) in the ordinary course of business (B) to the extent subject to reserves existing as of the date hereof in accordance with GAAP, (C) amounts outside the ordinary course of business not to exceed $500,000 in the aggregate or (D) engaging in any such activities on behalf of customers of the Company or its Subsidiaries that result in payments only by such customers, and, except as permitted by subsections (A), (B) or (C), do not result in any payment obligation or other liability of the Company or any of its Subsidiaries; (xiii) Except as required by Legal Requirements, this Agreement or Contracts currently binding on the Company or its Subsidiaries, adopt or amend any Plan, Company Purchase Plans, Company Stock Option Plan or Other Options, or enter into any new, or amend any existing employment, severance, consulting, salary continuation or other similar Contract or collective bargaining agreement (other than offer letters and letter agreements entered into in the ordinary course of business with employees who are terminable "at will"), pay any special bonus or special remuneration (cash, equity or otherwise) to any director or employee, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees or consultants except (x) payment of bonuses or increases in salaries or wage rates or fringe benefits to non-officer employees in the ordinary course of business consistent with past practice or (y) payments made to Company employees pursuant to Company retention plans in amounts not to exceed the amounts set forth in Section 4.1 of the Company Disclosure Letter; (xiv) Enter into any Contract the effect of which would be to grant to a third party any actual or potential right of license to any material Intellectual Property owned by Parent or any of its Subsidiaries; (xv) Incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any "keep well" or other Contract to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing, except for borrowings under its line of credit for working capital purposes and the endorsement of checks in the normal course of business consistent with past practice or make any loans, advances or capital contributions to, or investments in, any other Person, other than to the Company or any direct or indirect wholly owned Subsidiary of the Company and other than travel and entertainment advances to employees in the ordinary course of business consistent with past practice; (xvi) Adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or reorganization; -29- (xvii) Engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of the Company's or its Subsidiaries' affiliates, including, without limitation, any transactions, agreements, arrangements or understandings with any affiliate or other Person covered under Item 404 of SEC Regulation S-K that would be required to be disclosed under such Item 404; (xviii) Do or permit any licensee or sublicensee thereof to do any act or knowingly omit to do any act whereby any Company Intellectual Property may become invalidated, abandoned or dedicated to the public domain; (xix) Make any commitment or enter into, or amend, modify, or terminate, or waive any rights under any Company Material Contract; or (xx) Agree in writing or otherwise to take any of the actions described in (i) through (xix) above. (c) TAXES. During the period from the date of this Agreement to the Effective Time, the Company and its Subsidiaries shall: (i) prepare, in the ordinary course of business and consistent with past practice (except as otherwise required by law), and timely file all Tax Returns required to be filed by it (or them) on or before the Closing Date ("POST SIGNING RETURNS"); (ii) deliver to Parent drafts of the Company's fiscal year ended June 30, 2002 Tax Return prior to the date (including extensions) on which such Tax Return is required to be filed; and (iii) promptly notify Parent of any material federal, state, local or foreign income or franchise and any other suit, claim, action, investigation, proceeding or audit pending against or with respect to the Company or any of its Subsidiaries in respect of any Tax matter, including (without limitation) Tax liabilities and refund claims. ARTICLE V ADDITIONAL AGREEMENTS 5.1 PROXY STATEMENT. Promptly after execution and delivery of this Agreement, the Company shall prepare and shall file with the SEC as soon as is practicable a preliminary Proxy Statement, together with a form of proxy, with respect to the Stockholders' Meeting at which the stockholders of the Company will be asked to vote upon and approve this Agreement and the Merger and shall use reasonable efforts to have the Proxy Statement and form of proxy cleared by the SEC as promptly as practicable, and promptly thereafter shall mail the definitive Proxy Statement and form of proxy to stockholders of the Company. The term "PROXY STATEMENT" shall mean such proxy or information statement and all amendments or supplements thereto, if any, similarly filed and mailed. Parent will provide the Company with any information that may be required in order to effectuate the preparation and filing of the Proxy Statement pursuant to this Section 5.1. The Company will provide Parent and its counsel with a reasonable opportunity to review the Proxy Statement prior to its filing. The Company will respond to, and provide Parent and its counsel with a -30- reasonable opportunity to participate in the response of the Company to, any comments from the SEC and will notify Parent promptly upon the receipt of any comments from the SEC in connection with the filing of, or amendments or supplements to, the Proxy Statement. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement, the Company or Parent, as the case may be, will promptly inform the other of such occurrence and cooperate in filing with the SEC and/or mailing to stockholders of the Company such amendment or supplement. Each of Parent and the Company shall cooperate and the Company shall provide Parent (and its counsel) with a reasonable opportunity to review and comment on the Proxy Statement and on any amendment or supplement to the Proxy Statement prior to filing such with the SEC, and will provide Parent with a copy of all such filings made with the SEC. The information provided and to be provided by Parent, Merger Sub and the Company, respectively, for use in Proxy Statement shall, on the date the Proxy Statement is first mailed to the Company's stockholders, on the date of the Stockholders' Meeting and as of the Effective Time, not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make such information, in light of the circumstances under which it was provided, not misleading, and the Company, Parent and Merger Sub each agree to correct any information provided by it for use in the Proxy Statement which shall have become false or misleading in any material respect. The Proxy Statement shall comply as to form in all material respects with all applicable requirements of federal securities laws. 5.2 MEETINGS OF STOCKHOLDERS; BOARD RECOMMENDATION. (a) MEETING OF STOCKHOLDERS. Promptly after the execution of this Agreement, the Company will take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to call, hold and convene a meeting of its stockholders to consider the adoption and approval of this Agreement and approval of the Merger (the "STOCKHOLDERS' MEETING") as soon as practicable after the date hereof. Subject to Section 5.3(d), the Company will use reasonable efforts to solicit from its stockholders proxies in favor of the adoption and approval of this Agreement and the approval of the Merger, and will take all other action necessary or advisable to secure the vote or consent of its stockholders required by Delaware Law to obtain such approval. Notwithstanding anything to the contrary contained in this Agreement, the Company may adjourn or postpone its Stockholders' Meeting to the extent necessary to ensure that any necessary supplement or amendment to the Proxy Statement is provided to its stockholders in advance of a vote on the Merger and this Agreement or, if as of the time for which the Stockholders' Meeting is originally scheduled (as set forth in the Proxy Statement) there are insufficient shares of Company Common Stock or Company Preferred Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such Stockholders' Meeting. (b) BOARD RECOMMENDATION. Except to the extent expressly permitted by Section 5.3(d): (i) the Board of Directors of the Company shall recommend that its stockholders vote in favor of the adoption and approval of this Agreement and approval of the Merger (the "RECOMMENDATION"), at the Stockholders' Meetings, (ii) the Proxy Statement shall include a statement to the effect that the Board of Directors of the Company has recommended that the Company's stockholders vote in favor of adoption and approval of this Agreement and approval of the Merger at the Stockholders' Meeting, and (iii) neither the Board of Directors of the Company nor any committee thereof shall withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in a manner adverse to Parent, the Recommendation. -31- 5.3 ACQUISITION PROPOSALS. (a) NO SOLICITATION. The Company agrees that neither it nor any of its Subsidiaries nor any of their respective officers, directors, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its Subsidiaries), and any party to a Stockholder Agreement shall, and that the Company shall use reasonable efforts to cause its and its Subsidiaries' other employees and affiliates not to (and shall not authorize any of them to) directly or indirectly: (i) solicit, initiate, encourage, knowingly facilitate or induce any inquiry with respect to, or the making, submission or announcement of, any Acquisition Proposal (as defined in Section 5.3(f)) with respect to itself, (ii) participate or engage in any discussions or negotiations regarding, or furnish to any Person any nonpublic information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any Acquisition Proposal with respect to itself, (iii) approve, endorse or recommend any Acquisition Proposal with respect to itself (except to the extent specifically permitted pursuant to Section 5.3(d)), or (iv) enter into any letter of intent or similar document or any Contract or commitment contemplating or otherwise relating to any Acquisition Proposal or transaction contemplated thereby with respect to itself. The Company and its Subsidiaries and any of their respective officers, directors, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its Subsidiaries), and any party to a Stockholder Agreement will immediately cease, and the Company shall use reasonable efforts to cause its and its Subsidiaries' other employees and affiliates to cease, any and all existing activities, discussions or negotiations with any third parties (other than Parent, Merger Sub and their representatives) conducted heretofore with respect to any Acquisition Proposal with respect to itself. (b) NOTIFICATION OF UNSOLICITED ACQUISITION PROPOSALS. As promptly as practicable and in any event within one (1) business day after receipt of any Acquisition Proposal or any request for nonpublic information or inquiry which the Company reasonably believes would lead to an Acquisition Proposal the Company shall provide Parent with oral and written notice of the material terms and conditions of such Acquisition Proposal, request or inquiry, and the identity of the Person or group making any such Acquisition Proposal, request or inquiry. The Company shall, upon receipt of an Acquisition Proposal, request or inquiry, provide Parent as promptly as practicable oral and written notice setting forth the terms of any material amendments or proposed material amendments of any such Acquisition Proposal, request or inquiry. (c) SUPERIOR OFFERS. Notwithstanding anything to the contrary contained in Section 5.3(a), in the event that, prior to the adoption and approval of this Agreement and the Merger by the required vote of the stockholders of the Company, the Company receives an unsolicited, bona fide written Acquisition Proposal with respect to itself from a third party that its Board of Directors has in good faith concluded (after consultation with its outside legal counsel and its financial advisor), is, or is reasonably likely to result in, a Superior Offer (as defined in Section 5.3(f)) and the Company has complied in full with all its obligations under Section 5.3(a) in connection with such Acquisition Proposal, it may then take the following actions: (i) Furnish nonpublic information to the third party making such Acquisition Proposal, PROVIDED THAT (A) (1) concurrently with furnishing any such nonpublic information to such party, it gives Parent written notice of its intention to furnish nonpublic -32- information and (2) it receives from the third party an executed confidentiality agreement in substantially the form of the Confidentiality Agreement (as defined in Section 5.4) prior to taking any action under clause (1) above and (B) contemporaneously with furnishing any such nonpublic information to such third party, it furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously so furnished); (ii) Engage in negotiations with the third party with respect to the Acquisition Proposal, PROVIDED THAT concurrently with entering into negotiations with such third party, it gives Parent oral and written notice of the its intention to enter into negotiations with such third party; and (iii) Approve or recommend, or propose to approve or recommend, any Superior Offer and enter into any agreement with respect thereto; provided, in each such case, that the Company has terminated this Agreement pursuant to Section 7.1(g). Nothing in this Section 5.3(c) shall relieve the Company from its obligation to comply with Section 5.3(b). (d) CHANGES OF RECOMMENDATION. The Board of Directors of the Company may not withhold, withdraw, amend or modify the Recommendation (any of the foregoing actions, whether by a Board of Directors or a committee thereof, a "CHANGE OF RECOMMENDATION"), unless, prior to the adoption and approval of this Agreement and the Merger by the required vote of the stockholders of the Company, the Board of Directors has concluded in good faith, after consultation with its outside legal counsel, that such Change of Recommendation is required by its fiduciary obligations to its stockholders under Delaware Law. (e) COMPLIANCE WITH TENDER OFFER RULES. Nothing contained in this Agreement shall prohibit either party or its respective Board of Directors from taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act. (f) CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (i) "ACQUISITION PROPOSAL," with respect to a party, shall mean any offer or proposal or public announcement of a proposal or plan, relating to any transaction or series of related transactions involving: (A) any purchase from such party or acquisition by any Person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of more than a fifteen percent (15%) interest in the total outstanding voting securities of such party or any of its Subsidiaries, directly or indirectly, or any tender offer or exchange offer that if consummated would result in any Person or group beneficially owning fifteen percent (15%) or more of the total outstanding voting securities of such party or any of its Subsidiaries, directly or indirectly, or any merger, consolidation, business combination or similar transaction involving such party or any of its Subsidiaries, (B) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than fifteen percent (15%) of the assets of such party (including its Subsidiaries taken as a whole), directly or indirectly, or (C) any liquidation or dissolution of such party; and -33- (ii) "SUPERIOR OFFER," with respect to a party, shall mean an unsolicited, bona fide written offer made by a third party to acquire, directly or indirectly, pursuant to a tender offer, exchange offer, merger, consolidation or other business combination, all or substantially all of the assets of such party or a majority of the total outstanding voting securities of such party and as a result of which the stockholders of such party immediately preceding such transaction would hold less than fifty percent (50%) of the equity interests in the surviving or resulting entity of such transaction or any direct or indirect parent or subsidiary thereof, on terms that the Board of Directors of such party has in good faith concluded (after consultation with its outside legal counsel and its financial adviser) (i) to be more favorable from a financial point of view, to such party's stockholders (in their capacities as stockholders) than the terms provided pursuant to this Agreement, (ii) the conditions to the consummation of which are reasonably capable of being satisfied and (iii) financing for which, to the extent required, is then committed or in the good faith judgment of the Board of Directors of the Company (after consultation with its independent financial advisors) reasonably available. 5.4 CONFIDENTIALITY; ACCESS TO INFORMATION. (a) CONFIDENTIALITY. The parties acknowledge that the Company and Parent have previously executed a Non-Disclosure Agreement dated November 1, 2002 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in full force and effect in accordance with its terms and Parent will hold, and will cause its directors, officers, employees, agents and advisors (including attorneys, accountants, consultants, bankers and financial advisors) to hold, any Evaluation Material (as defined in the Confidentiality Agreement) confidential in accordance with the terms of the Confidentiality Agreement. (b) ACCESS TO INFORMATION. The Company will afford Parent and Parent's accountants, counsel and other representatives reasonable access during normal business hours to its properties, books, records and personnel during the period prior to the Effective Time to obtain all information concerning its business, including the status of product development efforts, properties, results of operations and personnel, as Parent or its representatives may reasonably request, and, during such period, upon request by Parent, the Company shall, and shall cause each of its Subsidiaries to, furnish promptly to Parent a copy of any report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws; PROVIDED, HOWEVER, that the Company may restrict the foregoing access to the extent that any law, treaty, rule or regulation of any Governmental Entity applicable to the Company requires the Company or its Subsidiaries to restrict or prohibit access to any such properties or information. 5.5 PUBLIC DISCLOSURE. Neither the Company, Parent nor any of their respective affiliates shall issue or cause the publication of any press release or other public announcement with respect to the this Agreement or the other transactions contemplated hereby without the prior written consent of the other party, except as may be required by law or by any listing agreement with, or the policies of, a national securities exchange in which circumstance reasonable efforts to consult with the other party will still be required to the extent practicable. 5.6 REGULATORY FILINGS; REASONABLE BEST EFFORTS. -34- (a) REGULATORY FILINGS. Each of Parent, Merger Sub and the Company shall coordinate and cooperate with one another and shall each use reasonable best efforts to comply with, and shall each refrain from taking any action that would impede compliance with, all Legal Requirements, and as promptly as practicable after the date hereof, each of Parent, Merger Sub and the Company shall make all filings, notices, petitions, statements, registrations, submissions of information, application or submission of other documents required by any Governmental Entity in connection with the Merger and the other transactions contemplated hereby, including, without limitation: (i) Notification and Report Forms with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice ("DOJ") as required by the HSR Act, (ii) any other filing necessary to obtain any Necessary Consent, (iii) filings under any other comparable pre-merger notification forms required by the merger notification or control laws of any applicable jurisdiction, as agreed by the parties hereto, and (iv) any filings required under the Securities Act, the Exchange Act, any applicable state or securities or "blue sky" laws and the securities laws of any foreign country, or any other Legal Requirement relating to the Merger. Each of Parent, Merger Sub and the Company shall comply as promptly as practicable with any request for additional information, documents or other materials received by such party hereto or any of its Subsidiaries or affiliates from any Governmental Entity. Each of Parent and the Company will cause all documents that it is responsible for filing with any Governmental Entity under this Section 5.6(a) to comply in all material respects with all applicable Legal Requirements. (b) EXCHANGE OF INFORMATION. Parent, Merger Sub and the Company each shall promptly supply the other with any information which may be required in order to effectuate any filings or application pursuant to Section 5.6(a). Except where prohibited by applicable Legal Requirements, and subject to the Confidentiality Agreement, each of the Company and Parent shall consult with outside counsel to the other prior to taking a position with respect to any such filing, shall permit outside counsel to the other to review and discuss in advance, and consider in good faith the views of the other in connection with any analyses, appearances, presentations, memoranda, briefs, white papers, arguments, opinions and proposals before making or submitting any of the foregoing to any Governmental Entity by or on behalf of any party hereto in connection with any investigations or proceedings in connection with this Agreement, the Merger or the other transactions contemplated hereby (including under any antitrust or fair trade Legal Requirement), coordinate with outside counsel to the other in preparing and exchanging such information and promptly provide outside counsel to the other with copies of all filings, presentations or submissions (and a summary of any oral presentations) made by such party to any Governmental Entity in connection with this Agreement, the Merger or the other transactions contemplated hereby, PROVIDED THAT with respect to any such filing, presentation or submission, each of Parent and the Company need not supply outside counsel to the other with copies (or in case of oral presentations, a summary) to the extent that any law, treaty, rule or regulation of any Governmental Entity applicable to such party requires such party or its Subsidiaries to restrict or prohibit access to any such properties or information. (c) NOTIFICATION. Each of Parent, Merger Sub and the Company will notify the other promptly upon the receipt of: (i) any comments from any officials of any Governmental Entity in connection with any filings made pursuant hereto and (ii) any request by any officials of any Governmental Entity for amendments or supplements to any filings made pursuant to, or information provided to comply in all material respects with, any Legal Requirements. Whenever any event -35- occurs that is required to be set forth in an amendment or supplement to any filing made pursuant to Section 5.6(a), Parent, Merger Sub or the Company, as the case may be, will promptly inform the other of such occurrence and cooperate in filing with the applicable Governmental Entity such amendment or supplement. (d) REASONABLE BEST EFFORTS. Subject to the express provisions of Section 5.2 and Section 5.3 hereof and upon the terms and subject to the conditions set forth herein, each of the parties agrees to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including using reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining of all necessary actions or non-actions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity, (iii) the obtaining of all necessary consents, approvals or waivers from third parties, including all Necessary Consents, (iv) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (v) the execution or delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, the Company and its Board of Directors shall, if any takeover statute or similar Legal Requirement is or becomes applicable to this Agreement or any of the transactions contemplated by this Agreement, use reasonable best efforts to ensure that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such Legal Requirement on this Agreement and the transactions contemplated hereby. (e) LIMITATION ON DIVESTITURE. Notwithstanding anything in this Agreement to the contrary, nothing contained in this Agreement shall be deemed to require Parent or the Company or any Subsidiary or affiliate thereof to take or agree to take any Action of Material Divestiture (as defined below) which would be reasonably likely to materially adversely impact the benefits expected to be derived by Parent and its Subsidiaries (on a combined basis with the Company and its Subsidiaries) as a result of the transactions contemplated hereby or would be reasonably likely to materially adversely affect Parent and its Subsidiaries (on a combined basis with the Company and its Subsidiaries) following the Merger. For purposes of this Agreement, an "ACTION OF MATERIAL DIVESTITURE" shall mean executing or carrying out agreements or submitting to Legal Requirements providing for a material license, material sale or other material disposition of any assets or categories of assets that are material to the combined business of Parent's employer services business and the Company or the holding separate of Company capital stock or imposing or seeking to impose any material limitation on the ability of Parent, the Company or any of their respective Subsidiaries to own such assets or to acquire, hold or exercise full rights of ownership of the Company's business or -36- on the ability of Parent to conduct the combined business of Parent's employer services business and the Company. 5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent and Parent shall give prompt notice to the Company, of any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate or any failure of the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, such that, (A) in the case of the Company, the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied or (B) in the case of Parent or Merger Sub, the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 5.7 shall not limit or otherwise affect the remedies available hereunder to any of the parties sending or receiving such notice.. 5.8 THIRD-PARTY CONSENTS. As soon as practicable following the date hereof, Parent and the Company will each use reasonable efforts to obtain (i) all Necessary Consents and (ii) all consents, waivers and approvals under any Company Material Contract as may be required to be obtained in connection with the Merger. 5.9 COMPANY EMPLOYEE PLANS AND EMPLOYEE BENEFITS. (a) For the twelve (12) month period following the Effective Time, Parent will provide to employees of the Company or any Subsidiary of the Company who are employed by Parent or any Subsidiary of Parent after the Effective Time (the "CONTINUING EMPLOYEES") compensation (excluding bonuses, commissions, stock options, restricted stock, other forms of equity compensation and benefits) that is comparable to the compensation (excluding bonuses, commissions, stock options, restricted stock, other forms of equity compensation and benefits) provided to the Continuing Employees prior to the execution of this Agreement. For the twelve (12) month period following the Effective Time, Parent will maintain a severance pay practice for the benefit of each Continuing Employee that is no less favorable than the severance pay practice provided by the Company as of the date of this Agreement. On and after the Effective Time, Parent and/or any Subsidiary of Parent shall provide to the Continuing Employees participation in benefit plans offered to similarly situated employees of Parent that are no less favorable than the Plans (the "PARENT Plans"). Parent shall take all necessary actions to provide that Continuing Employees will receive full credit for years of service with the Company and any of its Subsidiaries under the Parent Plans to the extent taken into account for such purposes under the Plans prior to the Effective Time (other than with respect to benefit accrual under tax qualified plans)). Parent and/or any Subsidiary of Parent shall give credit under those of its Parent Plans that are welfare benefit plans for all amounts credited toward deductibles and out-of-pocket maximums, and time accrued against applicable waiting periods, by Continuing Employees (including their eligible dependents), in respect of the calendar year in which the Effective Time occurs. Parent and/or any Subsidiary of Parent shall waive all requirements for evidence of insurability and pre-existing conditions otherwise applicable to the Continuing Employees under the Parent Plans in which such Continuing Employees become eligible to participate on or following the Effective Time. -37- (b) Parent agrees that at the Effective Time, Company Employees may participate in the employee stock purchase plan sponsored by Parent (the "PARENT ESPP"), subject to the terms and conditions of the Parent ESPP, and that service with the Company shall be treated as service with Parent for determining eligibility of the Continuing Employees under the Parent ESPP. 5.10 INDEMNIFICATION. (a) INDEMNITY. From and after the Effective Time, Parent will, and will cause the Surviving Corporation to, fulfill and honor in all respects the obligations of the Company pursuant to any indemnification and exculpation provisions in favor of the current or former directors or officers of the Company (the "INDEMNIFIED PARTIES") under the Certificate of Incorporation or Bylaws of the Company and any agreement between an Indemnified Party and the Company or a Subsidiary of the Company as in effect as of the date hereof that is listed in Section 5.10(a) of the Company Disclosure Letter. The Certificate of Incorporation and Bylaws of the Surviving Corporation will contain provisions with respect to exculpation and indemnification that are at least as favorable to the Indemnified Parties as those contained in the Certificate of Incorporation and Bylaws of the Company as in effect on the date hereof, which provisions will not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors, officers, employees or agents of the Company, unless such modification is required by law. (b) INSURANCE. For a period of six (6) years after the Effective Time, Parent will cause the Surviving Corporation to maintain in effect the current policies of directors' and officers' liability insurance maintained by the Company covering those persons (but only those persons) who are currently covered by such policies; PROVIDED, HOWEVER, that in no event will the Surviving Corporation be required to pay an annual premium on such insurance policy that is greater than 200% of the annual premium currently payable by the Company for such coverage and PROVIDED, FURTHER, that notwithstanding the foregoing, in the event such coverage is no longer available (or is only available for an amount in excess of 200% of the annual premium currently paid by the Company for such coverage) Parent shall nevertheless be obligated to provide such coverage as may be obtained for such 200% amount. Parent may, however, satisfy its obligations under the first sentence of this Section 5.10(b) by purchasing a "tail" policy under the Company's existing directors' and officers' insurance policy which (i) has an effective term of six (6) years from the Effective Time, (ii) covers those persons (but only those persons) who are currently covered by the Company's directors' and officers' insurance policy in effect as of the date hereof, and (iii) contains terms and conditions (including, coverage amounts) which are no less advantageous that those contained in the terms and conditions of the Company directors' and officers' insurance policies in effect as of the date hereof. The Company shall take all actions necessary or advisable under its existing directors' and officers' insurance policy to permit Parent to satisfy its obligations hereunder, including but not limited to triggering any "tail" policy. (c) THIRD-PARTY BENEFICIARIES. This Section 5.10 is intended to be for the benefit of, and shall be enforceable by the Indemnified Parties and their heirs and personal representatives and shall be binding on Parent and the Surviving Corporation and its successors and assigns. In the event Parent or the Surviving Corporation or its successor or assign (i) consolidates with or merges -38- into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each case, proper provision shall be made so that the successor and assign of Parent or the Surviving Corporation, as the case may be, honor the obligations set forth with respect to Parent or the Surviving Corporation, as the case may be, in this Section 5.10. 5.11 SECTION 16 MATTERS. Prior to the Effective Time, Parent and the Company shall take all such steps as may be required (to the extent permitted under applicable law) to cause any dispositions of Company Common Stock (including derivative securities with respect to Company Common Stock) or acquisitions of Parent Common Stock (including derivative securities with respect to Parent Common Stock) resulting from the transactions contemplated by Article I of this Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act. 5.12 MERGER SUB COMPLIANCE. Parent shall cause Merger Sub to comply with all of Merger Sub's obligations under or relating to this Agreement. Merger Sub shall not engage in any business which is not in connection with the Merger or other transactions contemplated hereby. 5.13 TAX ACCOUNT AND NON-TAX ACCOUNT RECONCILIATION REPORT AND RELATED DATA. The Company has delivered to Parent, in a form reasonably acceptable to Parent, (A) (i) a Tax Account Reconciliation Report as of December 31, 2002 and (ii) a statement of the Assumed Customer Tax Obligations, Tax Trust Funds, Tax Account Receivables (shown in aggregate, as well as by aging category, e.g., 30 to 90 days, 91 to 180, 181 to 360, and one year or older) and the Tax Fund Investment Portfolio (showing market value adjustments) balances, each as of December 31, 2002, for each customer of the Company or its Subsidiaries and (B) a Non-Tax Bank Account Reconciliation Report as of December 31, 2002. "TAX ACCOUNT RECONCILIATION REPORT" shall mean a reconciliation report comparing the aggregate amounts of the Tax Trust Funds and Tax Account Receivables to the Assumed Customer Tax Obligations for each customer. "NON-TAX BANK ACCOUNT RECONCILIATION REPORT" shall mean a report demonstrating the reconciliation of the cash disbursement ledger to the bank account for only the COBRA account, the flexible spending account (FSA), the health and welfare account (H&W) and the ProCheck business account. "TAX ACCOUNT RECEIVABLES" shall mean, with respect to any date, any amounts owed to the Company or its Subsidiaries by its customers as of such date relating to previously assumed and fulfilled Assumed Customer Tax Obligations, including, but not limited to, (i) rejected Collection Items in Transit, (ii) items payable to the Company or its Subsidiaries by its customers for reimbursement of overdeposits by Tax authorities (for which the customer has received earlier credit or upon which it has relinquished any claim) or (iii) any other amounts owed to the Company or its Subsidiaries by customers for the past funding of bona fide Assumed Customer Tax Obligations. A "COLLECTION ITEM IN TRANSIT" shall mean a pre-approved electronic impound from a customer's bank account that was processed via an automated clearing house network or reverse wire transfer initiated through the Company's or its Subsidiaries' banks but that is not yet settled. "TAX FUND INVESTMENT PORTFOLIO" shall mean that portion of the Tax Trust Funds invested in bonds, securities, mutual funds, and other non-cash financial instruments. -39- ARTICLE VI CONDITIONS TO THE MERGER 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of the following conditions: (a) STOCKHOLDER APPROVAL. This Agreement shall have been approved and adopted, and the Merger shall have been duly approved, by the requisite vote under applicable law, by the stockholders of the Company. (b) NO ORDER. No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Legal Requirement (whether temporary, preliminary or permanent) which (i) is in effect and (ii) has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger; PROVIDED, HOWEVER, that prior to invoking this condition, the party so invoking this condition shall have complied with its obligations under Section 5.6. (c) HSR ACT. All waiting periods (and any extension thereof) under the HSR Act relating to the transactions contemplated hereby will have expired or terminated early. (d) NECESSARY CONSENTS. All Necessary Consents required to execute, deliver and perform this Agreement and to consummate the Merger shall have been obtained or made. 6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Article II of the Agreement (A) that are qualified by the phrase "Material Adverse Effect" shall each be true and correct in all respects and (B) that are not so qualified shall be true and correct in all respects, in the case of (A) and (B) as of the date of this Agreement and as of the Effective Time with the same force and effect as if made as of such date, except (i) with respect to (B) any such representations and warranties in each case, or in the aggregate with other representations and warranties that are not qualified by the phrase "Material Adverse Effect", as does not constitute a Material Adverse Effect on the Company; (ii) for changes contemplated by this Agreement; and (iii) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct (subject, if applicable, to the Material Adverse Effect on the Company limitation set forth in the preceding clause (i)) as of such particular date) (it being understood that, for purposes of determining the accuracy of the representations and warranties described in (B), all materiality qualifications and other qualifications based on the word "material" contained in such representations and warranties shall be disregarded) Parent shall have received a certificate to such effect signed on behalf of the Company by an authorized senior executive officer of the Company. (b) AGREEMENTS AND COVENANTS. The Company has performed or complied in all material respects with the covenants, obligations and agreements required by this Agreement to be -40- performed or complied with by it at or prior to the Closing Date. Parent and Merger Sub shall have received a certificate with respect to the foregoing signed on behalf of the Company by an authorized senior executive officer of the Company. (c) LITIGATION MATTERS. There shall not have been any suit or proceeding by any Governmental Entity against Parent, the Company, Merger Sub or any of their respective Subsidiaries, that would result in Parent being required to take any action described in Section 5.6(e). 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the Company to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent contained in Article III hereof (A) that are qualified by the phrase "Material Adverse Effect" shall each be true and correct in all respects and (B) that are not so qualified shall be true and correct in all respects, in the case of (A) and (B) as of the date of this Agreement and as of the Effective Time with the same force and effect as if made as of such date, except (i) with respect to (B) any such representations and warranties in each case, or in the aggregate with other representations and warranties that are not qualified by the phrase "Material Adverse Effect", as does not constitute a Material Adverse Effect on Parent; (ii) for changes contemplated by this Agreement; and (iii) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct (subject, if applicable, to the Material Adverse Effect on Parent limitation set forth in the preceding clause (i)) as of such particular date) (it being understood that, for purposes of determining the accuracy of the representations and warranties described in (B), all materiality qualifications and other qualifications based on the word "material" contained in such representations and warranties shall be disregarded). The Company shall have received a certificate with respect to the foregoing signed on behalf of Parent, with respect to the representations and warranties of Parent, by an authorized senior executive officer of Parent and a certificate with respect to the foregoing signed on behalf of Merger Sub, with respect to the representations and warranties of Merger Sub, by an authorized officer of Merger Sub. (b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have performed or complied in all material respects with the covenants, obligations and agreements required by this Agreement to be performed or complied with by them at or prior to the Closing Date. The Company shall have received a certificate with respect to the foregoing signed on behalf of Parent, with respect to the covenants of Parent, by an authorized senior executive officer of Parent and a certificate with respect to the foregoing signed on behalf of Merger Sub, with respect to the covenants of Merger Sub, by an authorized officer of Merger Sub. -41- ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, by action taken or authorized by the Board of Directors of the terminating party or parties, and except as provided below, whether before or after the requisite approval of the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company; (b) by either Parent or the Company, if the Merger shall not have been consummated on or before May 31, 2003 (which date shall be extended to September 30, 2003, in the event that all waiting periods (and any extension thereof) under the HSR Act relating to the Merger shall not have expired or been terminated on or prior to May 31, 2003) (the "END DATE"); PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 7.1(b) shall not be available to any party whose action or failure to act has been the principal cause of or resulted in the failure of the Merger to occur on or before the End Date, and such action or failure to act constitutes a material breach of this Agreement; (c) (i) by either the Company or Parent if any court of competent jurisdiction or other Government Entity shall have issued an order, decree, or ruling enjoining or otherwise prohibiting the transaction contemplated by this Agreement and such order, decree or ruling shall have become final and non-appealable (unless such order, decree, or ruling has been withdrawn, reversed, or otherwise made inapplicable); or (ii) by the Company if any litigation or proceeding is pending before any court of competent jurisdiction or has been threatened to be instituted by any Person or governmental body, which in the good faith judgment of the Board of Directors of the Company is reasonably likely to result in an order, decree, or ruling enjoining, prohibiting, seeking substantial damages in respect of, or impairing the benefits of the transactions contemplated by this Agreement; (d) by Parent (at any time prior to the adoption and approval of this Agreement and the Merger by the required vote of the stockholders of the Company) if a Triggering Event (as defined below in this Section 7.1) with respect to the Company shall have occurred; (e) by the Company by written notice to Parent, upon a breach of any representation, warranty, covenant or agreement on the part of Parent or Merger Sub set forth in this Agreement, or if any representation or warranty of Parent or Merger Sub shall have become untrue or inaccurate, which untruths, inaccuracies or breach would give rise to the failure of a condition set forth in Section 6.3(a) or 6.3(b); PROVIDED THAT if such untruth or inaccuracy in Parent's or Merger Sub's representations and warranties or breach by Parent or Merger Sub is curable by Parent or Merger Sub prior to the End Date through the exercise of reasonable efforts, then the Company may not terminate this Agreement under this Section 7.1(e) prior to such End Date, PROVIDED THAT Parent continues to exercise reasonable efforts to cure such untruthfulness, inaccuracy or breach through the End Date (it being understood that the Company may not terminate this Agreement pursuant to this paragraph (e) if it shall have materially breached this Agreement or if such untruthfulness, inaccuracy or breach by Parent or Merger Sub is cured prior to the End Date); -42- (f) by Parent by written notice to the Company, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue or inaccurate, which untruths, inaccuracies or breach would give rise to the failure of a condition set forth in Section 6.2(a) or 6.2(b) PROVIDED THAT if such untruth or inaccuracy in the Company's representations and warranties or breach by the Company is curable by the Company prior to the End Date through the exercise of reasonable efforts, then Parent may not terminate this Agreement under this Section 7.1(f) prior to the End Date, PROVIDED THAT the Company continues to exercise reasonable efforts to cure such untruthfulness, inaccuracy or breach through the End Date (it being understood that Parent may not terminate this Agreement pursuant to this paragraph (f) if it shall have materially breached this Agreement or if such untruthfulness, inaccuracy or breach by the Company is cured prior to the End Date); (g) by the Company, if the Company receives a Superior Offer; PROVIDED THAT, (i) the Company shall have notified Parent in writing prior to terminating this Agreement pursuant to this Section 7.1(g) that the Company has received a Superior Offer and intends to terminate this Agreement pursuant to this Section 7.1(g), attaching the most current version of such Superior Offer to such notice, (ii) the Company shall have afforded Parent the reasonable opportunity to make a revised offer (including by negotiating the terms of such offer with Parent) and Parent shall not have made, within three (3) business days after receipt of the Company's written notice of its intention to terminate this Agreement pursuant to this Section 7.1(g), an offer that the Board of Directors of the Company determines in good faith to be more favorable to the Company's stockholders than such Superior Offer and (iii) the Company shall simultaneously with its termination hereunder make all payments required by Section 7.3(b); and (h) by either the Company or Parent if the required approval of the stockholders of the Company contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote at a meeting of the Company stockholders duly convened therefore or at any adjournment thereof; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 7.1(h) shall not be available to the Company where the failure to obtain the Company stockholder approval shall have been caused by the action or failure to act of the Company and such action or failure to act constitutes a material breach by the Company of this Agreement. For the purposes of this Agreement, a "TRIGGERING EVENT," with respect to the Company, shall be deemed to have occurred if: (i) its Board of Directors or any committee thereof shall for any reason have withdrawn or shall have amended or modified in a manner adverse to Parent the Recommendation, (ii) it shall have failed to include the Recommendation in the Proxy Statement, (iii) its Board of Directors or any committee thereof shall have approved or recommended any Acquisition Proposal, or (iv) a tender or exchange offer relating to its securities shall have been commenced by a Person unaffiliated with the Company and it shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10) business days after such tender or exchange offer is first published, sent or given, a statement disclosing that the Board of Directors of the Company recommends rejection of such tender or exchange offer. -43- 7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Except as otherwise set forth in Section 7.1(g), any termination of this Agreement under Section 7.1 above will be effective immediately upon the delivery of a valid written notice of the terminating party to the other party hereto. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except (i) as set forth in Section 5.4(a), this Section 7.2, Section 7.3 and Article VIII, each of which shall survive the termination of this Agreement and (ii) nothing herein shall relieve any party from liability for any willful breach of this Agreement. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement in accordance with their terms. 7.3 FEES AND EXPENSES. (a) GENERAL. Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not the Merger is consummated. (b) PAYMENTS. (i) PAYMENT BY THE COMPANY. In the event that this Agreement is terminated by Parent or the Company, as applicable, pursuant to Section 7.1(d) or (g) the Company shall promptly, but (except as set forth in Section 7.1(g)) in no event later than two (2) business days after the date of such termination, pay Parent a fee equal to $25 million in immediately available funds. (ii) PAYMENT BY PARENT. In the event that this Agreement is terminated by Parent or the Company (A) pursuant to Section 7.1(c) primarily as a result of issues relating to the antitrust or competition laws of any applicable jurisdiction or (B) pursuant to Section 7.1(b) in the event the applicable waiting period under the HSR Act not having expired or terminated then, in any such event, Parent shall promptly, but in no event later than two (2) business days after the date of such termination, pay the Company a fee equal to $25 million in immediately available funds. (iii) INTEREST AND COSTS; OTHER REMEDIES. Each of Parent and the Company acknowledges that the agreements contained in this Section 7.3(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent and the Company would not enter into this Agreement; accordingly, if the Company or Parent fails to pay in a timely manner the amounts due pursuant to Section 7.3(b)(i) or Section 7.3(b)(ii), respectively, and, in order to obtain such payment, Parent or the Company, as applicable, makes a claim that results in a judgment against the Company (in the case of non-payment under Section 7.3(b)(i)) or Parent (in the case of non-payment under Section 7.3(b)(ii)) for the amounts set forth in Section 7.3(b)(i) or Section 7.3(b)(ii), respectively, the Company (in the case of non-payment under Section 7.3(b)(i)) or Parent (in the case of non-payment under Section 7.3(b)(ii)) shall pay to the other party its reasonable costs and expenses (including reasonable attorneys' fees and expenses) in connection with such suit, together with interest on the amounts set forth in Section 7.3(b)(i) or Section 7.3(b)(ii), as applicable, at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. Payment of the fees described in this Section 7.3(b) shall not be in lieu of damages incurred in the event of breach of this Agreement. -44- 7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company, PROVIDED, after any such approval, no amendment shall be made which by law or in accordance with the rules of any relevant stock exchange requires further approval by such stockholders without such further stockholder approval. This Agreement may not be amended except by execution of an instrument in writing signed on behalf of each of Parent, Merger Sub and the Company. 7.5 EXTENSION; WAIVER. At any time prior to the Effective Time either party hereto, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed: (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. ARTICLE VIII GENERAL PROVISIONS 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company, Parent and Merger Sub contained in this Agreement, or any instrument delivered pursuant to this Agreement, shall terminate at the Effective Time, and only the covenants or agreements that by their terms survive the Effective Time and this Article VIII shall survive the Effective Time. 8.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed duly given (i) on the date of delivery if delivered personally, (ii) on the date of confirmation of receipt (or, the first business day following such receipt if the date is not a business day) of transmission by telecopy or telefacsimile, or (iii) on the date of confirmation of receipt (or, the first business day following such receipt if the date is not a business day) if delivered by a nationally recognized courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) if to Parent or Merger Sub, to: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: President, Employer Services Group Facsimile: (973) 974-3305 -45- with a copy to: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: General Counsel Facsimile: (973) 974-3324 with copies to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Richard S. Borisoff, Esq. Telephone No.: (212) 373-3000 Facsimile No.: (212) 757-3990 (b) if to the Company, to: ProBusiness Services, Inc. 4125 Hopyard Road Pleasanton, CA 94588 Attention: President and Chief Executive Officer Attention: General Counsel Telephone No.: (925) 737-3500 Facsimile No.: (925) 730-1152 with copies to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304 Attention: Elizabeth R. Flint Telephone No.: (650) 493-9300 Facsimile No.: (650) 493-6811 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market Spear Tower, Suite 3300 San Francisco, CA 94105 Attention: Steve L. Camahort Telephone No.: (650) 493-9300 Facsimile No.: (415) 947-2099 -46- 8.3 INTERPRETATION; KNOWLEDGE. (a) When a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement unless otherwise indicated. When a reference is made in this Agreement to Sections, such reference shall be to a section of this Agreement unless otherwise indicated. For purposes of this Agreement, the words "INCLUDE," "INCLUDES" and "INCLUDING," when used herein, shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When reference is made herein to "THE BUSINESS OF" an entity, such reference shall be deemed to include the business of all such entity and its Subsidiaries, taken as a whole. (b) For purposes of this Agreement, the term "KNOWLEDGE" means, with respect to a party hereto, with respect to any matter in question, that any of the Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Information Officer or Executive Vice President for Operations, has actual knowledge of such matter. (c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT," when used in connection with an entity, means any change, event, violation, inaccuracy, circumstance or effect (any such item, an "EFFECT") that is materially adverse to the business, properties, assets, financial condition or results of operations of such entity taken as a whole with its Subsidiaries (or, if such entity is the Company, the Company taken as a whole with its Subsidiaries or Parent taken as a whole with its Subsidiaries); PROVIDED, HOWEVER, that, in no event shall any of the following be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been or will be, a Material Adverse Effect on any entity: (A) any Effect resulting from compliance with the terms and conditions of this Agreement, (B) any Effect resulting from the announcement or pendency of the Merger (including, without limitation, any (x) actions by clients or competitors, (y) loss of personnel or clients, or (z) the delay or cancellation of orders for services and products), (C) any change in such entity's stock price or trading volume, (D) any failure by such entity to meet revenue or earnings projections, (E) any Effect that results from changes affecting any of the industries in which such entity operates generally or the United States economy generally, (F) any Effect that results from changes affecting general worldwide economic or capital market conditions, (G) in the case of the Company only, any Effect that results from investments in any other Person made in accordance with the Company's Investment Policy, (H) any Effect that results from changes in laws after the date hereof, or (I) any Effect resulting from an outbreak or escalation of hostilities involving the United States, the declaration by the United States of a national emergency or war, or the occurrence of any acts of terrorism. (d) For purposes of this Agreement, the term "PERSON" shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity. -47- 8.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 8.5 ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This Agreement and the documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein, including the Company Disclosure Letter and the Parent Disclosure Letter (i) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, it being understood that the Confidentiality Agreement shall continue in full force and effect until the Closing and shall survive any termination of this Agreement and (ii) are not intended to confer upon any other Person any rights or remedies hereunder, except as specifically provided, following the Effective Time, in Section 5.10. 8.6 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other Persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the greatest extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. (a) OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. (b) SPECIFIC PERFORMANCE. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.8 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. Each party hereby (a) irrevocably and unconditionally submits to the exclusive jurisdiction of the Delaware Court of Chancery, with respect to all actions and proceedings arising out of or relating to this Agreement and the transaction contemplated hereby, (b) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence an action or proceeding relating to this Agreement or the transactions contemplated hereby except in such courts, (c) irrevocably and unconditionally -48- waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum, (d) consents to service of process upon him, her or it by mailing or delivering such service to the address set forth in Section 8.2 hereof, and (e) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 8.10 ASSIGNMENT. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties; PROVIDED, HOWEVER, that Parent or Merger Sub can assign any of their respective rights and obligations to any direct or indirect wholly-owned Subsidiary of Parent, but no such assignment shall relieve Parent or Merger Sub, as the case may be, of its obligations hereunder. Any purported assignment in violation of this Section 8.10 shall be void. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, MERGER SUB OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. ***** -49- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized respective officers as of the date first written above. PROBUSINESS SERVICES, INC. By: /s/ Thomas H. Sinton --------------------------------------- Name: Thomas H. Sinton Title: President and Chief Executive Officer ADP MERGER CORP. By: /s/ Arthur F. Weinbach --------------------------------------- Name: Arthur F. Weinbach Title: President AUTOMATIC DATA PROCESSING, INC. By: /s/ Arthur F. Weinbach --------------------------------------- Name: Arthur F. Weinbach Title: Chairman and CEO ****AGREEMENT AND PLAN OF MERGER**** EX-4 4 ex2_sc13d-probusiness.txt EXHIBIT 2 EXHIBIT 2 --------- STOCKHOLDER SUPPORT AGREEMENT THIS STOCKHOLDER SUPPORT AGREEMENT, dated as of January 5, 2003 (this "AGREEMENT"), by and between Automatic Data Processing, Inc., a Delaware corporation ("PARENT") and the stockholders of the Company listed on the signature page hereto (collectively, the "STOCKHOLDERS"). Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to them in the Merger Agreement referred to below. WHEREAS, concurrently with the execution of this Agreement, ProBusiness Services, Inc., a Delaware corporation (the "COMPANY"), Parent and ADP Merger Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("MERGER SUB") have entered into an Agreement and Plan of Merger, as it may be amended from time to time (the "MERGER AGREEMENT"), pursuant to which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and into the Company, and the Company will continue as the surviving corporation (the "MERGER"); and WHEREAS, as a condition to the willingness of Parent to enter into the Merger Agreement, Parent has required that the Stockholders agree, and in order to induce Parent to enter into the Merger Agreement, the Stockholders are willing, to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereby agree, severally and not jointly, as follows: Section 1. DEFINITIONS. For purposes of this Agreement: (a) "COMPANY COMMON STOCK" shall mean the shares of common stock, par value $0.001 per share, of the Company. (b) "COMPANY CAPITAL STOCK" shall mean the shares of capital stock of the Company, including, without limitation, the Company Common Stock and the Company Preferred Stock. (c) "COMPANY PREFERRED STOCK" shall mean the shares of 6.9% Senior Convertible Preferred Stock, par value 0.001 per share, of the Company. (d) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (e) "EXPIRATION DATE" shall mean the earlier to occur of (i) the date upon which the Merger Agreement is validly terminated in accordance with its terms, (ii) the Effective Time or (iii) the date upon which the Merger Agreement is amended to reduce either the Per Share Amount or the Preferred Per Share Liquidation Amount, if the Stockholder (or its designee to the board of directors) in his or its designee's capacity as a director of the Company did not vote in favor of or consent to such amendment. 2 (f) Each Stockholder shall be deemed to "OWN" or to have acquired "OWNERSHIP" of a security if such Stockholder: (i) is the record owner of such security; or (ii) is the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of such security. Without duplicative counting of the same securities by the same holder, securities Owned by a holder shall include securities Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act other than parties to this Agreement. (g) "SUBJECT SECURITIES" shall mean: (i) the Existing Securities (as defined in Section 5(a) below); (ii) any shares of Company Capital Stock distributed prior to the termination of this Agreement in respect of Subject Securities by reason of a stock dividend, stock-split, recapitalization, reclassification, combination, merger, exchange of shares or otherwise; and (iii) all additional securities of Company (including all additional shares of Company Capital Stock and all additional options, warrants and other rights to acquire shares of Company Capital Stock) of which the Stockholder acquires Ownership during the period from the date of this Agreement through the Expiration Date. (h) A Person shall be deemed to have effected a "TRANSFER" of a security if such Person directly or indirectly: (i) sells, tenders, pledges, encumbers, grants an option with respect to, transfers or disposes of Ownership of such security or any interest in such security; or (ii) enters into an agreement or commitment contemplating the possible sale of, tender of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of Ownership of such security or any interest therein. Section 2. VOTING OF SHARES. (a) During the period from the date of this Agreement through the Expiration Date, each Stockholder covenants and agrees that, at any meeting of the stockholders of the Company, however called, and regardless of whether such meeting is a special or annual meeting of stockholders of the Company, or at any adjournment thereof, or in connection with any action by written consent by the stockholders of the Company, such Stockholder will vote, or cause to be voted, all Subject Securities (i) in favor of the approval of the Merger and the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement; and (ii) against any Acquisition Proposal with respect to the Company. Section 3. GRANT OF PROXY; REVOCATION OF PROXIES; RELIANCE. (a) Each Stockholder hereby irrevocably grants to and appoints James B. Benson and Gary Butler or either of them in their respective capacities as officers of Parent, with full power of substitution (such individuals and their substitutes each being referred to herein as the "PROXY"), as attorneys and proxies to vote all Subject Securities in favor of the matters referred to in clauses (i) and (ii) of Section 2 above. Each Stockholder agrees that the Proxy may, in such Stockholder's name and stead, (i) attend any annual or special meeting of stockholders of the Company (including any and all adjournments and postponements thereof) and vote all Subject Securities in favor of the matters referred to in clauses (i) and (ii) of Section 2 above at 3 any such annual or special meeting (including any and all adjournments and postponements thereof), and (ii) execute with respect to all Subject Securities any written consent with respect to matters referred to in clauses (i) and (ii) of Section 2 above. Each Stockholder agrees that, prior to the Expiration Date, this grant of proxy pursuant to this SECTION 3(A) is irrevocable and coupled with an interest and agrees that the Persons designated as the Proxy pursuant hereto may at any time name any other person who is an officer of Parent as a substitute Proxy hereunder to act pursuant hereto, either as to a specific matter or as to all matters. (b) Each Stockholder hereby represents that any proxies heretofore given in respect of the Subject Securities that are inconsistent with the proxy granted pursuant to Section 3(a) above are not irrevocable, and that any such proxies are hereby revoked. (c) Each Stockholder understands and acknowledges that Parent and Merger Sub have entered into the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. Section 4. TRANSFER OF SUBJECT SECURITIES. Each Stockholder hereby agrees and covenants that, during the period from the date of this Agreement through the Expiration Date: (a) RESTRICTION ON TRANSFERS. Except as may otherwise be agreed to by Parent in writing, such Stockholder shall not Transfer or consent to any Transfer of Ownership of any or all of the Subject Securities, or any interest therein if such Transfer would result in such Stockholder no longer having the power to vote, or cause to be voted, the Subject Securities in accordance with the terms of this Agreement; provided, HOWEVER, a Stockholder may Transfer Subject Securities to any Person so long as such Person shall have (i) executed a counterpart of this Agreement and (ii) agreed to hold such Subject Securities subject to the terms and provisions of this Agreement to the same extent as such Stockholder. Notwithstanding anything contained herein to the contrary: (i) a Stockholder may Transfer any of the Subject Securities that have been pledged pursuant to the forward contracts established prior to the date of this Agreement set forth in Schedule I; (ii) if a Stockholder is also a director of the Company, such Stockholder may Transfer the Subject Securities in accordance with the terms of such Stockholder's trading plan established for the periodic sale of Company Common Stock implemented pursuant to the Securities and Exchange Commission Rule 10b5-1(c) in effect as of the date hereof; and (iii) if a Stockholder is also a director of the Company, such Stockholder may Transfer any of the Subject Securities that have been pledged by such Stockholder pursuant to the terms of the margin loan accounts established prior to the date of this Agreement set forth in Schedule I. (b) RESTRICTIONS ON PROXIES AND VOTING ARRANGEMENTS. Except as otherwise provided herein, such Stockholder shall not (i) grant any proxy, power-of-attorney or other authorization in or with respect to the Subject Securities that is inconsistent with the proxy granted pursuant to Section 3(a) above or (ii) deposit any of the Subject Securities into a voting 4 trust or enter into a voting agreement or arrangement with respect to any of the Subject Securities that would impair such Stockholder's ability to comply with its obligations pursuant to this Agreement. (c) STOP TRANSFER. Such Stockholder shall not request that the Company register any Transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of the Stockholder's Existing Securities, unless such Transfer is made in compliance with this Agreement. (d) WAIVER OF APPRAISAL RIGHTS. Each Stockholder hereby irrevocably and unconditionally waives, and agrees to prevent the exercise of, any rights of appraisal or rights to dissent in connection with the Merger (or other business combination pursuant to the Merger Agreement) that such Stockholder may have with respect to the Subject Securities. Section 5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder hereby represents and warrants to Parent as follows: (a) OWNERSHIP OF SECURITIES. On the date hereof, such Stockholder beneficially Owns, or has the sole power to direct the voting of, the Company Capital Stock set forth next to such Stockholder's name on SCHEDULE I hereto (the "EXISTING Securities"). On the date hereof, the Existing Securities constitute all of the shares of voting capital stock of the Company beneficially Owned by such Stockholder or as to which such Stockholder has the sole power to direct the voting of the shares. (b) POWER; BINDING AGREEMENT. Such Stockholder has the power (or, if applicable, corporate power) and authority to enter into and perform all of such Stockholder's obligations hereunder, including, without limitation, the power and authority to vote the Subject Securities in accordance with SECTION 2 hereof and to grant the proxy in accordance with SECTION 3 hereof. This Agreement has been duly and validly executed and delivered by such Stockholder and constitutes a valid and binding agreement of such Stockholder, enforceable against the Stockholder in accordance with its terms, except that (A) such enforcement may be subject to applicable bankruptcy, insolvency, moratorium, or other similar laws, now or hereafter in effect, affecting creditors' rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) NO CONFLICTS. (i) The execution and delivery of this Agreement and the Proxy by such Stockholder do not, and the performance of this Agreement and the Proxy by such Stockholder will not: (A) conflict with or violate any law, rule, regulation, order, decree or judgment applicable to such Stockholder or by which such Stockholder or any of such Stockholder's properties is or may be bound or affected, or (B) result in or constitute (with or without notice or lapse of time) any breach of or default under, or give to any other Person (with or without notice or lapse of time) any right of termination, amendment, acceleration or cancellation of, or result (with or without notice or lapse of time) in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to, any Contract to which 5 such Stockholder is a party or by which such Stockholder or any of such Stockholder's affiliates or properties is or may be bound or affected. (ii) The execution and delivery of this Agreement by such Stockholder does not, and the performance of this Agreement by such Stockholder shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity except for applicable requirements, if any, of the Exchange Act, and except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by such Stockholder of his or its obligations under this Agreement. (d) NO ENCUMBRANCES. Except: (i) as established hereby; (ii) for Existing Securities subject to a pledge agreement in effect prior to the date of this Agreement and set forth in Schedule I; (iii) for Existing Securities subject to forward purchase Contracts in effect prior to the date of this Agreement and set forth in Schedule I; or (iv) if a Stockholder is also a director of the Company, for Existing Securities that have been pledged by such Stockholder pursuant to a margin loan account prior to the date of this Agreement as set forth on Schedule I, the Existing Securities are now and, at all times during the term hereof, will be held by the Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all securities interests, liens, power of attorney, pledges, options, proxies, voting trusts, agreements, understandings or arrangements whatsoever, in each case, that could reasonably be expected to materially hinder or impede such Stockholder's ability to perform its obligations hereunder. 6 Section 6. TERMINATION. This Agreement and the covenants, representations, warranties, and agreements contained herein shall terminate upon the Expiration Date. Upon any termination of this Agreement, this Agreement shall thereupon become void and of no further force and effect, and there shall be no liability in respect of this Agreement or of any transactions contemplated hereby or by the Merger Agreement on the part of any party hereto or any of its directors, officers, partners, stockholders, employees, agents, advisors, representatives or affiliates; PROVIDED, HOWEVER, that nothing contained herein shall relieve any party from any liability for such party's breach of this Agreement prior to termination. Section 7. ELECTION AND WAIVER. If a Stockholder Owns shares of Company Preferred Stock, such Stockholder agrees that subject to and effective upon the Closing, such Stockholder hereby irrevocably and unconditionally: (A) elects under Section 4(d) of the Certificate of Designation for the Company Preferred Stock (the "CERTIFICATE OF DESIGNATION") to treat the Merger as a deemed Liquidation (as defined in the Certificate of Designation) pursuant to Section 4 thereof; and (B) waives the right to receive notice of the Merger pursuant to Section 8(g) and Section 8(h) of the Certificate of Designation. Section 8. MISCELLANEOUS. (a) NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by facsimile (with a confirmatory copy sent by overnight courier), by overnight courier service or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this SECTION 8(A)): if to Parent: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: President, Employer Services Group Facsimile: (973) 974-3305 7 with a copy to: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: General Counsel Facsimile: (973) 974-3324 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Richard S. Borisoff, Esq. Telephone No.: (212) 373-3000 Facsimile No.: (212) 757-3990 if to Stockholder, as stated on Schedule I hereto. (b) SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Merger be consummated as originally contemplated to the fullest extent possible. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. (d) ASSIGNMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that, except as provided herein, no party may assign, delegate or otherwise transfer any of its rights or obligations hereunder, in whole or in part, by operation of law or otherwise by any of the parties, without the consent of the other parties hereto. (e) PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing herein, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (f) SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. 8 (g) GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of law) as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies. (h) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. (i) FURTHER ASSURANCES. From time to time prior to the Expiration Date, at the request of Parent, such Stockholder shall execute and deliver to Parent, or cause the record holder of Subject Securities to execute and deliver to Parent, such additional letters or instruments to comply with applicable law and stock exchange rules as Parent may reasonably request in connection with such Stockholder's obligations under this Agreement. (j) DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (k) AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of the party hereto against whom such amendment, modification or waiver is sought to be entered. (l) COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. (m) NO LIMITATION ON ACTIONS OF STOCKHOLDER AS DIRECTOR. Notwithstanding anything to the contrary contained in this Agreement, in the event that a Stockholder or any of its designees is a director or officer of the Company, nothing in this Agreement is intended or shall be construed to require such Stockholder (or any of its designees), in such Stockholder's (or any such designee's) capacity as a director or officer of the Company, to fail to act in accordance with such Stockholder's (or any such designee's) fiduciary duties in such capacity. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed individually or by its respective duly authorized officer as of the date first written above. PARENT: AUTOMATIC DATA PROCESSING, INC. By: /s/ Arthur F. Weinbach --------------------------------------- Name: Arthur F. Weinbach --------------------------------------- Title: Chairman and CEO --------------------------------------- SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDERS: GENERAL ATLANTIC PARTNERS 39, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A Managing Member GAP COINVESTMENT PARTNERS, L.P. By: /s/ Matthew Nimetz --------------------------------------- Name: Matthew Nimetz Title: A General Partner GENERAL ATLANTIC PARTNERS 70, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A Managing Member SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Matthew Nimetz --------------------------------------- Name: Matthew Nimetz Title: A General Partner GENERAL ATLANTIC PARTNERS 74, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ David C. Hodgson ------------------------------- Name: David C. Hodgson Title: A Managing Member GAPSTAR, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Matthew Nimetz ------------------------------- Name: Matthew Nimetz Title: A Managing Member GAPCO GMBH & CO. KG By: GAPCO MANAGEMENT GMBH, its General Partner By: /s/ Matthew Nimetz ------------------------------- Name: Matthew Nimetz Title: Managing Director SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT INTERPRO HOLDINGS, LLC By: /s/ Thomas H. Sinton --------------------------------------- Name: Thomas H. Sinton Title: President SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT SCHEDULE I
- ---------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES NUMBER OF SHARES OF COMPANY NUMBER OF EXISTING STOCKHOLDER OF COMPANY PREFERRED STOCK OWNED OF SECURITIES TRANSFERRED COMMON STOCK OWNED RECORD (EXCLUDING ANY ACCRUED PURSUANT TO 10B5-1 TRADING OF RECORD BUT UNPAID DIVIDENDS PAYABLE PLAN; PLEDGED PURSUANT TO IN SHARES OF PREFERRED STOCK) MARGIN LOAN OR OTHERWISE; AND SUBJECT TO FORWARD CONTRACTS - ---------------------------------------------------------------------------------------------------------------------- General Atlantic Partners 39, 1,851,009 None None L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- General Atlantic Partners 70, None 915,515 (convertible into None L.P. approximately 951,566 shares of Common Stock) c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- General Atlantic Partners 74, 1,095,667 None None L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- GAP Coinvestment Partners, L.P. 323,190 None None c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- GAP Coinvestment Partners II, 152,307 145,805 (convertible into None L.P. approximately 151,547 shares of Common Stock) c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- GapStar, LLC 83,333 70,755 (convertible into None approximately 73,541 shares of c/o General Atlantic Service Common Stock) Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- GAPCO GmbH & Co. KG 2,027 None None c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attn: Mr. David Hodgson - ---------------------------------------------------------------------------------------------------------------------- InterPro Holdings, LLC 1,000,000 None 435,000 of the shares of Common Stock are (i) c/o General Atlantic Service subject to a forward Corporation purchase contract with 3 Pickwick Plaza General Atlantic Partners Greenwich, Connecticut 06830 70, L.P., GapStar, LLC and Telecopy: (203) 622-8818 GAP Coinvestment Partners Attn: Mr. David Hodgson II, L.P. and (ii) subject to a pledge agreement securing such forward purchase contracts - ----------------------------------------------------------------------------------------------------------------------
EX-4 5 ex3_sc13d-probusiness.txt EXHIBIT 3 EXHIBIT 3 --------- STOCKHOLDER SUPPORT AGREEMENT THIS STOCKHOLDER SUPPORT AGREEMENT, dated as of January 5, 2003 (this "AGREEMENT"), by and between Automatic Data Processing, Inc., a Delaware corporation ("PARENT") and the stockholders of the Company listed on the signature page hereto (collectively, the "STOCKHOLDERS"). Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to them in the Merger Agreement referred to below. WHEREAS, concurrently with the execution of this Agreement, ProBusiness Services, Inc., a Delaware corporation (the "COMPANY"), Parent and ADP Merger Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("MERGER SUB") have entered into an Agreement and Plan of Merger, as it may be amended from time to time (the "MERGER AGREEMENT"), pursuant to which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and into the Company, and the Company will continue as the surviving corporation (the "MERGER"); and WHEREAS, as a condition to the willingness of Parent to enter into the Merger Agreement, Parent has required that the Stockholders agree, and in order to induce Parent to enter into the Merger Agreement, the Stockholders are willing, to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereby agree, severally and not jointly, as follows: Section 1. DEFINITIONS. For purposes of this Agreement: (a) "COMPANY COMMON STOCK" shall mean the shares of common stock, par value $0.001 per share, of the Company. (b) "COMPANY CAPITAL STOCK" shall mean the shares of capital stock of the Company, including, without limitation, the Company Common Stock and the Company Preferred Stock. (c) "COMPANY PREFERRED STOCK" shall mean the shares of 6.9% Senior Convertible Preferred Stock, par value 0.001 per share, of the Company. (d) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (e) "EXPIRATION DATE" shall mean the earlier to occur of (i) the date upon which the Merger Agreement is validly terminated in accordance with its terms, (ii) the Effective Time or (iii) the date upon which the Merger Agreement is amended to reduce either the Per Share Amount or the Preferred Per Share Liquidation Amount, if the Stockholder (or its designee to the board of directors) in his or its designee's capacity as a director of the Company did not vote in favor of or consent to such amendment. 2 (f) Each Stockholder shall be deemed to "OWN" or to have acquired "OWNERSHIP" of a security if such Stockholder: (i) is the record owner of such security; or (ii) is the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of such security. Without duplicative counting of the same securities by the same holder, securities Owned by a holder shall include securities Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act other than parties to this Agreement. (g) "SUBJECT SECURITIES" shall mean: (i) the Existing Securities (as defined in Section 5(a) below); (ii) any shares of Company Capital Stock distributed prior to the termination of this Agreement in respect of Subject Securities by reason of a stock dividend, stock-split, recapitalization, reclassification, combination, merger, exchange of shares or otherwise; and (iii) all additional securities of Company (including all additional shares of Company Capital Stock and all additional options, warrants and other rights to acquire shares of Company Capital Stock) of which the Stockholder acquires Ownership during the period from the date of this Agreement through the Expiration Date. (h) A Person shall be deemed to have effected a "TRANSFER" of a security if such Person directly or indirectly: (i) sells, tenders, pledges, encumbers, grants an option with respect to, transfers or disposes of Ownership of such security or any interest in such security; or (ii) enters into an agreement or commitment contemplating the possible sale of, tender of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of Ownership of such security or any interest therein. Section 2. VOTING OF SHARES. (a) During the period from the date of this Agreement through the Expiration Date, each Stockholder covenants and agrees that, at any meeting of the stockholders of the Company, however called, and regardless of whether such meeting is a special or annual meeting of stockholders of the Company, or at any adjournment thereof, or in connection with any action by written consent by the stockholders of the Company, such Stockholder will vote, or cause to be voted, all Subject Securities (i) in favor of the approval of the Merger and the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement; and (ii) against any Acquisition Proposal with respect to the Company. Section 3. GRANT OF PROXY; REVOCATION OF PROXIES; RELIANCE. (a) Each Stockholder hereby irrevocably grants to and appoints James B. Benson and Gary Butler or either of them in their respective capacities as officers of Parent, with full power of substitution (such individuals and their substitutes each being referred to herein as the "PROXY"), as attorneys and proxies to vote all Subject Securities in favor of the matters referred to in clauses (i) and (ii) of Section 2 above. Each Stockholder agrees that the Proxy may, in such Stockholder's name and stead, (i) attend any annual or special meeting of stockholders of the Company (including any and all adjournments and postponements thereof) and vote all Subject Securities in favor of the matters referred to in clauses (i) and (ii) of Section 2 above at 3 any such annual or special meeting (including any and all adjournments and postponements thereof), and (ii) execute with respect to all Subject Securities any written consent with respect to matters referred to in clauses (i) and (ii) of Section 2 above. Each Stockholder agrees that, prior to the Expiration Date, this grant of proxy pursuant to this SECTION 3(A) is irrevocable and coupled with an interest and agrees that the Persons designated as the Proxy pursuant hereto may at any time name any other person who is an officer of Parent as a substitute Proxy hereunder to act pursuant hereto, either as to a specific matter or as to all matters. (b) Each Stockholder hereby represents that any proxies heretofore given in respect of the Subject Securities that are inconsistent with the proxy granted pursuant to Section 3(a) above are not irrevocable, and that any such proxies are hereby revoked. (c) Each Stockholder understands and acknowledges that Parent and Merger Sub have entered into the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. Section 4. TRANSFER OF SUBJECT SECURITIES. Each Stockholder hereby agrees and covenants that, during the period from the date of this Agreement through the Expiration Date: (a) RESTRICTION ON TRANSFERS. Except as may otherwise be agreed to by Parent in writing, such Stockholder shall not Transfer or consent to any Transfer of Ownership of any or all of the Subject Securities, or any interest therein if such Transfer would result in such Stockholder no longer having the power to vote, or cause to be voted, the Subject Securities in accordance with the terms of this Agreement; PROVIDED, HOWEVER, a Stockholder may Transfer Subject Securities to any Person so long as such Person shall have (i) executed a counterpart of this Agreement and (ii) agreed to hold such Subject Securities subject to the terms and provisions of this Agreement to the same extent as such Stockholder. Notwithstanding anything contained herein to the contrary: (i) a Stockholder may Transfer any of the Subject Securities that have been pledged pursuant to the forward contracts established prior to the date of this Agreement set forth in Schedule I; (ii) if a Stockholder is also a director of the Company, such Stockholder may Transfer the Subject Securities in accordance with the terms of such Stockholder's trading plan established for the periodic sale of Company Common Stock implemented pursuant to the Securities and Exchange Commission Rule 10b5-1(c) in effect as of the date hereof; and (iii) if a Stockholder is also a director of the Company, such Stockholder may Transfer any of the Subject Securities that have been pledged by such Stockholder pursuant to the terms of the margin loan accounts established prior to the date of this Agreement set forth in Schedule I. (b) RESTRICTIONS ON PROXIES AND VOTING ARRANGEMENTS. Except as otherwise provided herein, such Stockholder shall not (i) grant any proxy, power-of-attorney or other authorization in or with respect to the Subject Securities that is inconsistent with the proxy granted pursuant to Section 3(a) above or (ii) deposit any of the Subject Securities into a voting 4 trust or enter into a voting agreement or arrangement with respect to any of the Subject Securities that would impair such Stockholder's ability to comply with its obligations pursuant to this Agreement. (c) STOP TRANSFER. Such Stockholder shall not request that the Company register any Transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of the Stockholder's Existing Securities, unless such Transfer is made in compliance with this Agreement. (d) WAIVER OF APPRAISAL RIGHTS. Each Stockholder hereby irrevocably and unconditionally waives, and agrees to prevent the exercise of, any rights of appraisal or rights to dissent in connection with the Merger (or other business combination pursuant to the Merger Agreement) that such Stockholder may have with respect to the Subject Securities. Section 5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder hereby represents and warrants to Parent as follows: (a) OWNERSHIP OF SECURITIES. On the date hereof, such Stockholder beneficially Owns, or has the sole power to direct the voting of, the Company Capital Stock set forth next to such Stockholder's name on SCHEDULE I hereto (the "EXISTING SECURITIES"). On the date hereof, the Existing Securities constitute all of the shares of voting capital stock of the Company beneficially Owned by such Stockholder or as to which such Stockholder has the sole power to direct the voting of the shares. (b) POWER; BINDING AGREEMENT. Such Stockholder has the power (or, if applicable, corporate power) and authority to enter into and perform all of such Stockholder's obligations hereunder, including, without limitation, the power and authority to vote the Subject Securities in accordance with SECTION 2 hereof and to grant the proxy in accordance with SECTION 3 hereof. This Agreement has been duly and validly executed and delivered by such Stockholder and constitutes a valid and binding agreement of such Stockholder, enforceable against the Stockholder in accordance with its terms, except that (A) such enforcement may be subject to applicable bankruptcy, insolvency, moratorium, or other similar laws, now or hereafter in effect, affecting creditors' rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) NO CONFLICTS. (i) The execution and delivery of this Agreement and the Proxy by such Stockholder do not, and the performance of this Agreement and the Proxy by such Stockholder will not: (A) conflict with or violate any law, rule, regulation, order, decree or judgment applicable to such Stockholder or by which such Stockholder or any of such Stockholder's properties is or may be bound or affected, or (B) result in or constitute (with or without notice or lapse of time) any breach of or default under, or give to any other Person (with or without notice or lapse of time) any right of termination, amendment, acceleration or cancellation of, or result (with or without notice or lapse of time) in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to, any Contract to which 5 such Stockholder is a party or by which such Stockholder or any of such Stockholder's affiliates or properties is or may be bound or affected. (ii) The execution and delivery of this Agreement by such Stockholder does not, and the performance of this Agreement by such Stockholder shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity except for applicable requirements, if any, of the Exchange Act, and except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by such Stockholder of his or its obligations under this Agreement. (d) NO ENCUMBRANCES. Except: (i) as established hereby; (ii) for Existing Securities subject to a pledge agreement in effect prior to the date of this Agreement and set forth in Schedule I; (iii) for Existing Securities subject to forward purchase Contracts in effect prior to the date of this Agreement and set forth in Schedule I; or (iv) if a Stockholder is also a director of the Company, for Existing Securities that have been pledged by such Stockholder pursuant to a margin loan account prior to the date of this Agreement as set forth on Schedule I, the Existing Securities are now and, at all times during the term hereof, will be held by the Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all securities interests, liens, power of attorney, pledges, options, proxies, voting trusts, agreements, understandings or arrangements whatsoever, in each case, that could reasonably be expected to materially hinder or impede such Stockholder's ability to perform its obligations hereunder. 6 Section 6. TERMINATION. This Agreement and the covenants, representations, warranties, and agreements contained herein shall terminate upon the Expiration Date. Upon any termination of this Agreement, this Agreement shall thereupon become void and of no further force and effect, and there shall be no liability in respect of this Agreement or of any transactions contemplated hereby or by the Merger Agreement on the part of any party hereto or any of its directors, officers, partners, stockholders, employees, agents, advisors, representatives or affiliates; PROVIDED, HOWEVER, that nothing contained herein shall relieve any party from any liability for such party's breach of this Agreement prior to termination. Section 7. ELECTION AND WAIVER. If a Stockholder Owns shares of Company Preferred Stock, such Stockholder agrees that subject to and effective upon the Closing, such Stockholder hereby irrevocably and unconditionally: (A) elects under Section 4(d) of the Certificate of Designation for the Company Preferred Stock (the "CERTIFICATE OF DESIGNATION") to treat the Merger as a deemed Liquidation (as defined in the Certificate of Designation) pursuant to Section 4 thereof; and (B) waives the right to receive notice of the Merger pursuant to Section 8(g) and Section 8(h) of the Certificate of Designation. Section 8. MISCELLANEOUS. (a) NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by facsimile (with a confirmatory copy sent by overnight courier), by overnight courier service or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this SECTION 8(A)): if to Parent: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: President, Employer Services Group Facsimile: (973) 974-3305 with a copy to: Automatic Data Processing, Inc. One ADP Boulevard Roseland, NJ 07068-1728 Attention: General Counsel Facsimile: (973) 974-3324 7 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Richard S. Borisoff, Esq. Telephone No.: (212) 373-3000 Facsimile No.: (212) 757-3990 if to Stockholder, as stated on Schedule I hereto. (b) SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Merger be consummated as originally contemplated to the fullest extent possible. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. (d) ASSIGNMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that, except as provided herein, no party may assign, delegate or otherwise transfer any of its rights or obligations hereunder, in whole or in part, by operation of law or otherwise by any of the parties, without the consent of the other parties hereto. (e) PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing herein, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (f) SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. 8 (g) GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of law) as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies. (h) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. (i) FURTHER ASSURANCES. From time to time prior to the Expiration Date, at the request of Parent, such Stockholder shall execute and deliver to Parent, or cause the record holder of Subject Securities to execute and deliver to Parent, such additional letters or instruments to comply with applicable law and stock exchange rules as Parent may reasonably request in connection with such Stockholder's obligations under this Agreement. (j) DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (k) AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of the party hereto against whom such amendment, modification or waiver is sought to be entered. (l) COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. (m) NO LIMITATION ON ACTIONS OF STOCKHOLDER AS DIRECTOR. Notwithstanding anything to the contrary contained in this Agreement, in the event that a Stockholder or any of its designees is a director or officer of the Company, nothing in this Agreement is intended or shall be construed to require such Stockholder (or any of its designees), in such Stockholder's (or any such designee's) capacity as a director or officer of the Company, to fail to act in accordance with such Stockholder's (or any such designee's) fiduciary duties in such capacity. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed individually or by its respective duly authorized officer as of the date first written above. PARENT: AUTOMATIC DATA PROCESSING, INC. By: /s/ Arthur F. Weinbach --------------------------------------- Name: Arthur F. Weinbach --------------------------------------- Title: Chairman and CEO --------------------------------------- STOCKHOLDER: /s/ Thomas H. Sinton -------------------------------------------- Thomas H. Sinton SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDER: /s/ Jane N. Sinton -------------------------------------------- Jane N. Sinton SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDER: THOMAS H. SINTON & JANE N. SINTON 1989 IRREVOCABLE TRUST /s/ Thomas H. Sinton -------------------------------------------- Thomas H. Sinton SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDER: SILAS D. SINTON TRUST ESTATE /s/ Thomas H. Sinton -------------------------------------------- Name: Thomas H. Sinton, as trustee SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDER: LEE A. NIBLEY TRUST /s/ Jane N. Sinton -------------------------------------------- Name: Jane N. Sinton, as trustee SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT STOCKHOLDER: /s/ Jane N. Sinton -------------------------------------------- Jane N. Sinton, as custodian SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT /s/ Jane N. Sinton -------------------------------------------- Jane N. Sinton, as custodian SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT SCHEDULE I
- ---------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF EXISTING SECURITIES STOCKHOLDER COMPANY COMPANY TRANSFERRED PURSUANT TO COMMON STOCK OWNED PREFERRED STOCK OWNED 10B5-1 TRADING PLAN AND OF RECORD (EXCLUDING PLEDGED PURSUANT TO A MARGIN ANY ACCRUED BUT UNPAID LOAN OR OTHERWISE; OR SUBJECT DIVIDENDS PAYABLE IN TO FORWARD CONTRACTS SHARES OF PREFERRED STOCK) - ---------------------------------------------------------------------------------------------------------------------- Tom Sinton 1,635,138 (Direct None Pursuant to a 10b5-1 Trading Ownership)* Plan with UBS PaineWebber up c/o ProBusiness Services, Inc. to 50,000 shares of Common 4125 Hopyard Road 1,178,297 (Indirect Stock can be Transferred per Pleasanton, CA 94588 Ownership) ** quarter Telecopy: (925) 730-1152 1,379,197 and 168,948 shares of Common Stock have been pledged pursuant to margin loan accounts in amounts not more than $2,990,455.70 and $311,133.47, respectively, plus accrued interest since November 30, 2002 - ----------------------------------------------------------------------------------------------------------------------
* Includes 151,770 shares owned by Thomas H. Sinton in his name only and 1,483,368 shares owned by Thomas H. Sinton and Jane N. Sinton as community property. ** Includes 50,502 shares held by Jane N. Sinton as custodian for the Sintons' children, 942,897 shares held by Thomas H. Sinton Jane N. Sinton Irrevocable Trust, 168,948 shares held by the Silas D. Sinton Trust Estate and 15,950 shares held by an additional family trust. -----END PRIVACY-ENHANCED MESSAGE-----