PROBUSINESS SERVICES INC, DEF 14A, 1998-10-09

PROBUSINESS SERVICES INC
DEF 14A, 1998-10-09
COMPUTER PROCESSING & DATA PREPARATION

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

PROBUSINESS SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>

ProBusiness Services, Inc.
[LOGO] 4125 Hopyard Road
Pleasanton, CA 94588

To our Stockholders:

I am pleased to invite you to the first Annual Meeting of Stockholders of
ProBusiness Services, Inc. The meeting will be held Thursday, November 12, 1998,
at 9:00 a.m., local time, at the Pleasanton Hilton located at 7050 Johnson
Drive, Pleasanton, California.

At this meeting, Stockholders will be asked to elect a director, approve an
amendment to the Company's employee stock option plan and ratify the selection
of Ernst & Young LLP as the Company's independent auditors for fiscal year 1999.
The accompanying Notice and Proxy Statement describes these proposals. I
encourage you to read this information carefully.

I am very pleased you have chosen to invest in ProBusiness Services, Inc.
Your vote is important, regardless of how many shares you own. Please take a few
minutes now to complete, sign and date your proxy card and return it in the
envelope provided.

Sincerely,

[LOGO]

Thomas H. Sinton
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
[PROBUSINESS LOGO]

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 1998

------------------------

To the Stockholders:

Notice is hereby given that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of ProBusiness Services, Inc., a Delaware corporation (the
"Company"), will be held on Thursday, November 12, 1998 at 9:00 a.m., local
time, at the Pleasanton Hilton, 7050 Johnson Drive, Pleasanton, California, for
the following purposes:

1. To elect the Class I director to serve for a term of three years.

2. To approve an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares reserved for issuance thereunder by 950,000
shares.

3. To ratify the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending June 30, 1999.

4. To transact such other business as may properly come before the meeting
or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting of Stockholders. Only
stockholders of record at the close of business on September 25, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.

All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if he or she
has returned a proxy card.

By Order of the Board of Directors

[LOGO]

Steven E. Klei
SENIOR VICE PRESIDENT, FINANCE, CHIEF
FINANCIAL OFFICER AND SECRETARY

Pleasanton, California
October 9, 1998

IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED ENVELOPE.
<PAGE>
PROBUSINESS SERVICES, INC.

----------------

PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS

---------------------

PROCEDURAL MATTERS

GENERAL

The enclosed Proxy is solicited on behalf of the Board of Directors of
ProBusiness Services, Inc., a Delaware corporation (the "Company"), for use at
the 1998 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Thursday, November 12, 1998 at 9:00 a.m., local time, and at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the
Pleasanton Hilton, 7050 Johnson Drive, Pleasanton, California. The Company's
principal executive offices are located at 4125 Hopyard Road, Pleasanton,
California 94588, and its telephone number at that location is (925) 737-3500.

This Proxy Statement and the enclosed proxy card were mailed on or about
October 9, 1998, together with the Company's 1998 Annual Report to Stockholders,
to all stockholders entitled to vote at the Annual Meeting. All share and per
share information in this Proxy Statement reflects the Company's 3-for-2 stock
split effected on August 7, 1998.

RECORD DATE

Stockholders of record at the close of business on September 25, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 17,262,383 shares of the Company's common stock, $0.001 par
value (the "Common Stock"), were issued and outstanding and entitled to be voted
at the Annual Meeting. For information regarding security ownership by
management and by the beneficial owners of more than 5% of the Company's Common
Stock, see "Security Ownership of Certain Beneficial Owners and Management." The
closing price of the Company's Common Stock on the Nasdaq National Market on the
Record Date was $32.50 per share.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a date
later than that of the previously submitted proxy, or by attending the Annual
Meeting and voting in person.

VOTING AND SOLICITATION

Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the Annual Meeting. Stockholders do not have the right
to cumulate their votes in the election of directors.

The cost of soliciting proxies will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
Common Stock for their reasonable expenses in forwarding solicitation materials
to such beneficial owners. Proxies may also be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telegram, letter or facsimile.
<PAGE>
QUORUM; ABSTENTIONS; BROKER NON-VOTES

The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
shall constitute a quorum for the transaction of business. The Company intends
to include abstentions and broker non-votes as present for purposes of
establishing a quorum for the transaction of business and to include abstentions
and to exclude broker non-votes from the calculation of shares entitled to vote
with respect to any proposal for which authorization to vote was withheld.

PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS

Any proposal of a stockholder of the Company which is intended to be
presented by such stockholder at the Company's 1999 Annual Meeting of
Stockholders, either pursuant to inclusion in the proxy statement and form of
proxy relating to such meeting or otherwise, must be received by the Secretary
of the Company no later than June 11, 1999.

The Company's Bylaws provide that a stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the corporation which are beneficially owned by the stockholder, (iv)
any material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal. In addition,
such stockholder's notice shall set forth as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the corporation which are beneficially owned by such person, (iv) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (v) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for elections of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected).

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PROPOSAL NO. 1
ELECTION OF CLASS I DIRECTOR

DIRECTORS AND NOMINEE FOR CLASS I DIRECTOR

The Company's Board of Directors currently consists of five members who are
divided into three classes serving staggered terms. Class I consists of one
director, and Class II and Class III consist of two directors each. The Class I
director will be elected at the Annual Meeting for a term of three years.

The Board of Directors has selected the nominee listed below to be
re-elected at the Annual Meeting as the Class I director. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for this
nominee. In the event that the nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy; however, the Company has no reason to believe that the listed nominee
will be unable or will decline to serve as a director. The director elected at
this Annual Meeting will serve until the term of that director's class expires
in 2001 or until such director's successor has been elected and qualified.

The name of the nominee for Class I director and the names of each of the
other directors of the Company whose term of office continues after the Annual
Meeting, their ages as of September 25, 1998, and certain other related
information are set forth below. There are no family relationships between any
director, executive officer or the nominee.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------------------------------- --- ------------------------------------------
<S> <C> <C>
NOMINEE FOR CLASS I DIRECTOR FOR A TERM EXPIRING IN 2001 Chairman of the Board, President
Thomas H. Sinton............................................... 50 and Chief Executive Officer

CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 1999
William T. Clifford............................................ 52 Director
David C. Hodgson............................................... 41 Director

CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2000
Ronald W. Readmond............................................. 55 Director
Thomas P. Roddy................................................ 63 Director
</TABLE>

Thomas H. Sinton, founder of the Company, who has served as a Director of
the Company since the Company's incorporation in October 1984, will stand for
re-election at the Annual Meeting. From March 1993 to present, Mr. Sinton has
served as the President and Chief Executive Officer of the Company. Since
December 1996 and for a period between September 1989 and February 1993, Mr.
Sinton served as Chairman of the Board. Mr. Sinton holds a B.A. degree in
English Literature, MAGNA CUM LAUDE, from Harvard University, an M.S. degree in
Food Science from the University of California at Davis and an M.B.A. degree
from Stanford University. Mr. Sinton received a Fulbright Fellowship to study at
the University of Vienna in Vienna, Austria.

William T. Clifford has served as a Director of the Company since August
1997. Mr. Clifford has been the President of Gartner Group Research and the
Chief Operating Officer of Gartner Group, Inc. since April 1995 and Executive
Vice President, Operations of Gartner Group, Inc. since October 1993. From
December 1988 to October 1993 Mr. Clifford held various positions at Automatic
Data Processing, Inc., including President of National Accounts and Corporate
Vice President, Information Services. Mr. Clifford holds a B.A. degree in
Economics from the University of Connecticut.

David C. Hodgson has served as a Director of the Company since March 1997.
Mr. Hodgson is a Managing Member of General Atlantic Partners LLC ("GAP LLC")
and has been with GAP LLC since 1982. Mr. Hodgson is also a director of Baan
Company, N.V., a publicly-traded software company, Atlantic Data Services, Inc.,
a publicly-traded information technology consulting company, and several other

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privately-held software companies, in which GAP LLC or one of its affiliates is
an investor. Mr. Hodgson holds an A.B. degree in Mathematics from Dartmouth
College and an M.B.A. degree from Stanford University.

Ronald W. Readmond has served as a Director of the Company since February
1997. Since June 1998, Mr. Readmond has been President and Chief Operating
Officer of Wit Capital Group Incorporated and has been an advisor of Barbour
Griffith & Rogers, a lobbying firm, and Chairman of International Equity
Partners, L.P., a private equity and project development company since January,
1997. From August 1989 to December 1996, Mr. Readmond held various positions at
Charles Schwab & Co. Inc., most recently serving as Vice Chairman. Mr. Readmond
holds a B.A. degree in Economics from Western Maryland College.

Thomas P. Roddy has served as a Director of the Company since 1992. Since
1988, Mr. Roddy has served as President and Chief Executive Officer of Lafayette
Investments Inc., an investment banking and investment advisory company. Mr.
Roddy holds a B.S. degree in Biochemistry from Villanova University.

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of seven meetings during
fiscal 1998. Each incumbent director attended at least 75% of the aggregate of
the total number of meetings of the Board of Directors and the total number of
meetings of the committees upon which he or she served. Certain matters were
approved by the Board of Directors and its committees by unanimous written
consent. The Board of Directors of the Company has two standing committees: an
Audit Committee and a Compensation Committee.

The Audit Committee, which currently consists of Mr. Clifford, Mr. Readmond
and Mr. Roddy, is responsible for (i) recommending engagement of the Company's
independent accountants, (ii) approving the services performed by such
accountants, (iii) consulting with such accountants and reviewing with them the
results of their examinations, (iv) reviewing and approving any material
accounting policy changes affecting the Company's operating results, (v)
reviewing the Company's control procedures and personnel and (vi) reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Audit Committee held one meeting during fiscal 1998.

The Compensation Committee, which currently consists of Mr. Hodgson and Mr.
Readmond, is responsible for (i) reviewing and approving the compensation and
benefits for the Company's officers and other employees, (ii) administering the
Company's stock option plans and (iii) making recommendations to the Board of
Directors regarding such matters. The Compensation Committee held one meeting
during fiscal 1998.

DIRECTOR COMPENSATION

Members of the Company's Board of Directors do not receive compensation for
their services as directors. Certain directors have been granted options to
purchase Common Stock in the past, and options may be granted to Directors of
the Company in the future. Mr. Clifford, Mr. Hodgson, Mr. Roddy and Mr. Readmond
have received options to purchase 22,500, 22,500, 93,750, and 22,500 shares,
respectively, of the Company's Common Stock, at exercise prices ranging from
$0.16 to $6.00 per share.

REQUIRED VOTE

The nominee for Class I director receiving the highest number of affirmative
votes of the shares entitled to be voted shall be elected to the Board of
Directors. Votes withheld are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but they otherwise have
no legal effect under Delaware law in connection with the election of directors.

RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF MR. SINTON.

4
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PROPOSAL NO. 2
AMENDMENT TO 1996 STOCK OPTION PLAN

GENERAL

The Board of Directors adopted the Company's 1996 Stock Option Plan (the
"Option Plan") in February 1996. The Option Plan provides for the granting to
employees (including officers and employee directors) of incentive stock options
and for the granting to employees, directors and consultants of non-statutory
stock options. The number of shares reserved for issuance under the Option Plan
is 1,700,881 plus (i) any shares which were forfeited after the Company's
initial public offering and which were issued or subject to issuance pursuant to
options granted under the 1989 Stock Option Plan (the "1989 Plan") (which plan
terminated in connection with Company's initial public offering of Common Stock)
and (ii) annual increases equal to the lesser of (a) 375,000 shares, (b) two
percent (2%) of the number of outstanding shares of Common Stock on each
anniversary of the adoption of the Option Plan or (c) a lesser amount determined
by the Board. As of September 25, 1998, a total of 2,126,741 shares of Common
Stock were reserved for issuance under the Option Plan and a total of 982,065
shares remained available for future grant.

PROPOSAL

In July 1998, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Option Plan to increase the number of shares
reserved for issuance by an additional 950,000 shares of Common Stock, for an
aggregate of 3,076,741 shares reserved for issuance thereunder and 1,932,065
shares available for future grant as of September 25, 1998. This amendment will
enable the Company to continue to grant options to eligible employees and
consultants under the terms and conditions of the Option Plan.

The Board of Directors believes that the approval of the amendment to the
Option Plan is in the best interests of the Company and its stockholders, as the
availability of an adequate number of shares for issuance under the Option Plan
and the ability to grant stock options are important factors in attracting,
motivating and retaining qualified personnel essential to the success of the
Company.

REQUIRED VOTE

The affirmative vote by the holders of a majority of the Common Stock
present in person or represented by proxy and entitled to vote on the subject
matter is required to approve the amendment to the Option Plan.

RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE AMENDMENT TO THE OPTION PLAN.

SUMMARY OF THE OPTION PLAN

The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which is available to any
stockholder upon written request to the Secretary of the Company.

PURPOSES. The purposes of the Option Plan are to attract and retain the
best available directors and personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants of
the Company and to promote the success of the Company's business.

ADMINISTRATION. The Option Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator"), which
committee is required to be constituted to comply with Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable
laws. Subject to the provisions of the Option Plan, the Administrator has the
authority to

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determine the individuals to whom stock options are to be granted, the number of
shares to be covered by each option, the exercise price, the fair market value
of the Common Stock, the type of option, the term of the option, the
restrictions, if any, on the exercise of the option, the terms for the payment
of the option price and other terms and conditions. The Administrator also has
the power to reprice options if the exercise price of outstanding options
exceeds the fair market value of the Company's Common Stock.

ELIGIBILITY; LIMITATIONS. The Option Plan provides that nonstatutory stock
options may be granted to employees, directors and consultants. Incentive stock
options may be granted only to employees. An optionee who has been granted an
option may, if he or she is otherwise eligible, be granted additional options.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of compensation paid to certain executive
officers of the Company. To maximize the Company's deduction attributable to
options granted to such persons, the Option Plan provides that no employee may
be granted, in any fiscal year, options to purchase more than 187,500 shares of
Common Stock. Over the remaining term of the Option Plan, an employee may be
granted options to purchase up to an additional 375,000 shares of Common Stock
which shall not count against the above limit.

TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Option Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:

(a) Exercise Price. The Administrator determines the exercise price of
options to purchase shares of Common Stock at the time the options are
granted. However, the exercise price of an incentive stock option must not
be less than 100% (110% if issued to any person possessing more than 10% of
the voting power of all classes of stock of the Company (a "10%
Stockholder")) of the fair market value of the Common Stock on the date the
option is granted. For so long as the Company's Common Stock is traded on
the Nasdaq National Market, the fair market value of a share of Common Stock
will be the closing sales price for such stock (or the closing bid if no
sales were reported) on the last trading day prior to the date of grant, as
reported in THE WALL STREET JOURNAL or such source as the Administrator
deems reliable.

(b) Exercise of the Option. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. The terms of such vesting are to be determined by the
Administrator. Options granted under the Option Plan to date generally
become exercisable over four years at a rate of one-fourth of the shares
subject to the options at the end of one year from the date of grant and
1/48th at the end of each month thereafter and have a ten-year term. The
maximum term of an incentive stock option granted to a 10% Stockholder is
five years. An option is exercised by giving written notice of exercise to
the Company, specifying the number of full shares of Common Stock to be
purchased and by tendering full payment of the purchase price to the
Company.

(c) Form of Consideration. The consideration to be paid for the shares
of Common Stock issued upon exercise of an option shall be determined by the
Administrator and is set forth in the stock option agreement. Such form of
consideration may vary for each option, and may consist entirely of cash,
check, promissory note, other shares of the Company's Common Stock, any
combination thereof, or any form of consideration as may be provided in the
stock option agreement.

(d) Termination of Employment. In the event an optionee's continuous
status as an employee, consultant or director terminates for any reason
(other than upon the optionee's death or disability), the optionee may
exercise his or her option within such period of time as is specified in
such optionee's stock option agreement but only to the extent that the
optionee was entitled to exercise the option at the date of such termination
(but in no event later than the expiration of the term of such option as set
forth in the stock option agreement). Options granted under the Option Plan
to date

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have generally provided that optionees may exercise their options within
sixty days from the date of termination of employment (other than for death
or disability).

(e) Disability. In the event an optionee's continuous status as an
employee, consultant or director terminates as a result of permanent and
total disability (as defined in Section 22(e)(3) of the Code), the optionee
may exercise his or her option, but only within twelve months from the date
of such termination, unless otherwise provided in the stock option
agreement, and only to the extent that the optionee was entitled to exercise
it at the date of such termination (but in no event later than the
expiration of the term of such option as set forth in the stock option
agreement).

(f) Death. In the event of an optionee's death, the optionee's estate
or a person who acquired the right to exercise the deceased optionee's
option by bequest or inheritance may exercise the option, but only within
twelve months following the date of death, unless otherwise provided in the
stock option agreement, and only to the extent that the optionee was
entitled to exercise it at the date of death (but in no event later than the
expiration of the term of such option as set forth in the stock option
agreement).

(g) Term of Options. The term of each option is the term stated in the
stock option agreement; provided, however, that the term may not exceed ten
years from the date of grant. In the case of an incentive stock option
granted to a 10% Stockholder, the term may not exceed five years from the
date of grant. No option may be exercised by any person after the expiration
of its term.

(h) Nontransferability of Options. An option is nontransferable by the
optionee unless determined otherwise by the Administrator, other than by
will or the laws of descent and distribution, and is exercisable during the
optionee's lifetime only by the optionee. In the event of the optionee's
death, options may be exercised by a person who acquires the right to
exercise the option by bequest or inheritance.

(i) Value Limitation. If the aggregate fair market value (as determined
on date of grant) of all shares of Common Stock subject to an optionee's
incentive stock option which are exercisable for the first time during any
calendar year exceeds $100,000, the excess options shall be treated as
nonstatutory options.

(j) Other Provisions. The stock option agreement may contain such other
terms, provisions and conditions not inconsistent with the Option Plan as
may be determined by the Administrator.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS. In the
event of changes in the outstanding Common Stock of the Company by reason of any
stock splits, reverse stock splits, stock dividends, combinations,
reclassifications or any other increase or decrease in the number of issued
shares of Common Stock issued without receipt of consideration by the Company,
an appropriate adjustment shall be made by the Administrator in the following:
(i) the number of shares of Common Stock subject to the Option Plan, (ii) the
number and class of shares of stock subject to any option outstanding under the
Option Plan, (iii) and the exercise price of any such outstanding option. The
determination of the Board as to which adjustments made shall be conclusive. In
the event of a proposed dissolution or liquidation of the Company, the
Administrator will notify the holders of options as soon as practicable prior to
the effective date of such action, and all outstanding options will terminate
immediately prior to the consummation of such proposed action. Notwithstanding
the above, in the event of a merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company, the
Option Plan requires that each outstanding option be assumed or an equivalent
option be substituted by the successor corporation; provided, however, if such
successor or purchaser refuses to assume or substitute the then outstanding
options, the Option Plan provides for the full acceleration of the
exercisability of all outstanding options for a period of fifteen days from the
date of notice of acceleration to the holder and all options will terminate upon
the expiration of such period.

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AMENDMENT AND TERMINATION OF THE OPTION PLAN. The Board may at any time
amend, alter, suspend or terminate the Option Plan. The Company shall obtain
stockholder approval of any amendment to the Option Plan in such a manner and to
such a degree as is necessary and desirable to comply with Rule 16b-3 under the
Exchange Act and Sections 162(m) and 422 of the Code (or any other applicable
law or regulation, including the requirements of any exchange or quotation
system on which the Common Stock is traded). Any amendment or termination of the
Option Plan shall not affect options already granted and such options shall
remain in full force and effect as if the Option Plan had not been amended or
terminated, unless mutually agreed otherwise between the optionee and the
Company, which agreement must be in writing and signed by the optionee and the
Company. In any event, the Option Plan shall terminate in February 2006. Any
options outstanding under the Option Plan at the time of its termination shall
remain outstanding until they expire by their terms.

FEDERAL INCOME TAX CONSEQUENCES

INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. Long-term capital gains are grouped and netted by holding
periods. Net capital gains on assets held for more than twelve months are
currently taxed at a maximum federal rate of 20%. Capital losses are allowed in
full against capital gains and up to $3,000 against other income. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% Stockholder of the Company.
The Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee.

NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period. Net capital
gains on assets held for more than twelve months are currently taxed at a
maximum federal rate of 20%. Capital losses are allowed in full against capital
gains and up to $3,000 against other income.

The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% Stockholder of the Company.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE OPTION PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS
THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE

8
<PAGE>
PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY
IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.

PARTICIPATION IN THE OPTION PLAN

The grant of options under the Option Plan to employees, including the Named
Executive Officers (as defined under "Executive Officer Compensation"), is
subject to the discretion of the Administrator. As of the date of this proxy
statement, there has been no determination by the Administrator with respect to
future awards under the Option Plan, as amended. Accordingly, future awards are
not determinable. Non-employee directors are eligible to participate in the
Option Plan. The following table sets forth information with respect to the
grant of options pursuant to the Option Plan to the Named Executive Officers, to
all current executive officers as a group and to all other employees as a group
during the last fiscal year.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES EXERCISE
UNDERLYING OPTIONS PRICE ($ PER
NAME OF INDIVIDUAL AND POSITION GRANTED SHARE)
- ----------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Thomas H. Sinton ............................................................ 52,500 13.08
Chairman of the Board, President and Chief Executive Officer

Jeffrey M. Bizzack .......................................................... 30,000 5.83
Senior Vice President, Sales

Leslie A. Johnson ........................................................... 30,000 5.83
Senior Vice President, Client Services and Chief Service Officer

Steven E. Klei .............................................................. 30,000 5.83
Senior Vice President, Finance, Chief Financial Officer and Secretary

Robert E. Schneider ......................................................... 15,000 5.83
Senior Vice President, Product Development and Chief Technical Officer

All current executive officers as a group (5 persons)........................ 157,500 4.87(1)

All current directors who are not executive officers as a group (4 45,000 3.56(1)
persons)...................................................................

All employees, including all current officers who are not executive officers, 705,375 7.76(1)
as a group.................................................................
</TABLE>

- ------------------------

(1) Represents a weighted average per share exercise price.

9
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors has selected Ernst & Young LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending June 30, 1999. Ernst & Young LLP has been the Company's auditors
since June 1996. Representatives of Ernst & Young LLP are expected to attend the
Annual Meeting to make a statement and respond to appropriate questions.

REQUIRED VOTE

The Board of Directors has conditioned its appointment of the Company's
independent accountants upon the receipt of the affirmative vote by the holders
of a majority of the Common Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting. In the event that the stockholders do
not approve the selection of Ernst & Young LLP, the appointment of the
independent accountants will be reconsidered by the Board of Directors.

RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.

10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company, as of June 30, 1998, by (a) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (b) each director and nominee for director,
(c) each of the executive officers named in the Summary Compensation Table, and
(d) all directors and executive officers of the Company as a group. Unless
otherwise noted in the footnotes to the table, the Company believes that the
persons named in the table have sole voting and investing power with respect to
all shares of Common Stock indicated as being beneficially owned by them and
officers and directors can be contacted at the principal office of the Company.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) TOTAL
- ----------------------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Thomas H. Sinton(2)................................................................ 4,190,246 24.5%
General Atlantic Partners, LLC(3).................................................. 2,174,199 12.7%
Jeffrey M. Bizzack(4).............................................................. 180,061 1.1%
Leslie A. Johnson(5)............................................................... 134,361 *
Steven E. Klei(6).................................................................. 84,173 *
Robert E. Schneider(7)............................................................. 118,081 *
William T. Clifford(8)............................................................. 5,625 *
David C. Hodgson(3)................................................................ 2,179,824 12.7%
Ronald W. Readmond(9).............................................................. 17,881 *
Thomas P. Roddy(10)................................................................ 314,731 1.8%
All executive officers and directors as a group (9 persons)(11).................... 7,224,983 42.0%
</TABLE>

- ------------------------

* Represents beneficial ownership of less than one percent.

(1) Based on 17,114,855 shares of Common Stock outstanding as of June 30, 1998.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days of June 30, 1998 upon the exercise
of warrants or vested options. Calculations of percentage of beneficial
ownership assume the exercise by only the respective named stockholder of
all options and warrants for the purchase of Common Stock held by such
stockholder which are exercisable within 60 days of June 30, 1998. On
September 30, 1998 the Company consummated the issuance of an additional
3,191,250 shares of Common Stock pursuant to a follow-on public offering.

(2) Includes 14,219 shares issuable upon exercise of vested options and 46,875
shares subject to the Company's repurchase rights. Also includes shares
held by the Silas D. Trust Estate, the Silas Jack Sinton Family Trust, the
Thomas H. Sinton and Jane Nibley Sinton 1989 Irrevocable Trust and Jane N.
Sinton as a custodian for minor children.

(3) Includes 1,851,009 shares held by General Atlantic Partners 39, L.P. ("GAP
39") and 323,190 shares held by GAP Coinvestment Partners, L.P. ("GAP
Coinvestment"). The general partner of GAP 39 is GAP LLC. The managing
members of GAP LLC are Steven A. Denning, Stephen P. Reynolds, David C.
Hodgson, J. Michael Cline, William O. Grabe, William E. Ford, Peter L.
Bloom and Franchon M. Smithson. The same managing members of GAP LLC are
the general partners of GAP Coinvestment. Mr. Hodgson is a director of the
Company. Mr. Hodgson disclaims beneficial ownership of shares owned by GAP
39 and GAP Coinvestment, except to the extent of his pecuniary interests
therein. Also includes with respect to Mr. Hodgson 5,625 shares issuable
upon exercise of vested options held personally by Mr. Hodgson. The address
for GAP 39, GAP Coinvestment, GAP LLC and Mr. Hodgson is c/o General
Atlantic Service Corporation, Three Pickwick Plaza, Greenwich, CT 06830.

11
<PAGE>
(4) Includes 7,500 shares issuable upon exercise of vested options and 17,031
shares subject to the Company's repurchase rights.

(5) Includes 16,844 shares issuable upon exercise of vested options and 6,249
shares subject to the Company's repurchase rights. Also includes 15,894
shares held by Weir L. Johnson, of which 6,843 shares are issuable upon
exercise of vested options and 3,281 shares are subject to the Company's
repurchase rights.

(6) Includes 28,250 shares issuable upon exercise of vested options and 16,406
shares subject to the Company's repurchase rights.

(7) Includes 3,750 shares issuable upon exercise of vested options and 65,625
shares subject to the Company's repurchase rights.

(8) Represents 5,625 shares issuable upon exercise of vested options held by
Mr. Clifford.

(9) Includes 8,437 shares issuable upon exercise of vested options held by Mr.
Readmond.

(10) Includes (i) 39,345 shares held by the Lafayette Investments Inc. of which
Mr. Roddy is President and Chief Executive Officer, (ii) 27,600 shares
held by the Lafayette Investments Inc. 401(k) Plan and Trust, (iii) 51,207
shares held by Delaware Charter Guarantee FBO Thomas P. Roddy R-IRA, (iv)
24,000 shares held by Guarantee and Trust Co. TTEE FBO Thomas P. Roddy IRA
and (v) 13,302 by Mary W. Roddy.

(11) Includes 97,093 shares issuable upon exercise of vested options and
155,467 shares subject to the Company's repurchase rights.

12
<PAGE>
EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid to the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company determined as of the end of the last fiscal year
(referred to herein as the "Named Executive Officers") for services rendered to
the Company in all capacities during the last two fiscal years.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1)
- --------------------------------------------------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Thomas H. Sinton .................................................... 1998 181,250 120,000 52,500
Chairman of the Board, President and 1997 150,000 -- --
Chief Executive Officer

Jeffrey M. Bizzack .................................................. 1998 150,000 115,000 30,000
Senior Vice President, Sales 1997 131,250 82,000 --

Leslie A. Johnson ................................................... 1998 150,000 90,000 30,000
Senior Vice President, Client Services and 1997 131,250 30,000 19,500
Chief Service Officer

Robert E. Schneider ................................................. 1998 150,000 75,000 15,000
Senior Vice President, Product Development and 1997 82,980 25,000 --
Chief Technical Officer

Steven E. Klei ...................................................... 1998 150,000 50,000 30,000
Senior Vice President, Finance and 1997 127,100 30,000 --
Chief Financial Officer
</TABLE>

- ------------------------

(1) The options granted are immediately exercisable, but are subject to
repurchase in the event the optionee's employment with the Company ceases
for any reason. The options generally vest over four years as follows: 25%
of the shares one year from the grant date and as to 1/48th of the shares in
each successive month thereafter, with full vesting occurring on the fourth
anniversary date. The options have a term of ten years, subject to earlier
termination in certain situations related to termination of employment.

13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding stock options granted
during the fiscal year ended June 30, 1998 to each of the Named Executive
Officers.

OPTION GRANTS IN YEAR ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NO. OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM($)(3)
OPTIONS FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED 1998(1) SHARE($)(2) DATE 5% 10%
- ------------------------------------ ----------- ------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Sinton.................... 52,500 5.78 13.08 11/17/2007 1,902,075 3,321,675
Jeffrey M. Bizzack.................. 30,000 3.30 5.83 8/12/2007 1,282,800 2,051,100
Leslie A. Johnson................... 30,000 3.30 5.83 8/12/2007 1,282,800 2,051,100
Robert E. Schneider................. 15,000 1.65 5.83 8/12/2007 641,400 1,025,550
Steven E. Klei...................... 30,000 3.30 5.83 8/12/2007 1,282,800 2,051,100
</TABLE>

- ------------------------

(1) Based on a total of 907,875 options granted to all employees, consultants
and directors during fiscal 1998.

(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.

(3) The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the last reported sales price of $31.17 per share on June 30,
1998 appreciates at the indicated rate for the remaining portion of the term
of the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by the
Securities and Exchange Commission and does not represent the Company's
prediction of its stock price performance.

14
<PAGE>
OPTION EXERCISES AND HOLDINGS

The following table sets forth, as to the Named Executive Officers, certain
information concerning stock options exercised during fiscal 1998 and the number
of shares subject to exercisable and unexercisable stock options as of June 30,
1998. The table also sets forth certain information with respect to the value of
stock options held by such individuals as of June 30, 1998.

FISCAL YEAR AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Sinton................ -- -- -- 52,500 -- 949,377
Jeffrey M. Bizzack.............. -- -- -- 30,000 -- 760,001
Leslie A. Johnson............... -- -- 8,531 40,969 238,868 1,067,133
Robert E. Schneider............. -- -- -- 15,000 -- 380,001
Steven E. Klei.................. -- -- 18,250 46,250 563,986 1,262,181
</TABLE>

- ------------------------

(1) The amount set forth represents the difference between the closing Common
Stock share price of $31.17 on June 30, 1998, as reported by the Nasdaq
National Market, and the applicable exercise price, multiplied by the
applicable number of options.

CERTAIN TRANSACTIONS

Between May 1994 and September 1995, Thomas H. Sinton, a Director and
officer of the Company, and his immediate family loaned an aggregate of
$1,040,000 to the Company at interest rates of 10.0% per year. The Company has
paid all such loans in full.

On December 5, 1996, the Company loaned $544,000 under a full recourse note
agreement at an interest rate of 6.31% per year to Robert E. Schneider, an
officer of the Company, to permit Mr. Schneider to exercise options to purchase
Common Stock of the Company. All principal and interest is due December 5, 2000.
As of June 30, 1998, Mr. Schneider had not paid any amount on the note.

On January 31, 1997, the Company loaned $250,000 under a full recourse note
agreement at an interest rate of 6.1% per year to Jeffrey M. Bizzack, an officer
of the Company, to permit Mr. Bizzack to purchase a residence. Accrued interest
must be paid on a monthly basis beginning two years from the date of the note.
All principal and accrued but unpaid interest is due January 31, 2001 unless Mr.
Bizzack's employment with the Company terminates, in which case, the note may
become due earlier. As of June 30, 1998, Mr. Bizzack had not paid any amount on
the note.

Thomas H. Sinton and certain affiliates of GAP LLC are the sole stockholders
of InterPro Expense Systems, Inc., a Delaware corporation ("InterPro"), which in
April 1998 purchased rights to certain early-stage travel and entertainment
expense processing software. Mr. Sinton is the President, Chief Executive
Officer and Chairman of the Board of the Company. David C. Hodgson, a Director
of the Company, is a managing member of GAP LLC, affiliates of which hold more
than 5% of the Company's outstanding stock. Because Mr. Sinton and Mr. Hodgson
are officers and Directors of the Company, their investment in InterPro was
required to be, and was, approved by the disinterested directors of the Company.
Any future transaction or relationship between the Company and InterPro would be
entered into on an arms-length basis and would be approved by the Company's
disinterested directors.

15
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors and greater than 10% stockholders are
required by SEC rules to furnish the Company with copies of all forms they file.
Based solely on its review of the copies of such forms received by the Company
and written representations from certain reporting persons, the Company believes
that, during fiscal 1998, all Section 16(a) filing requirements applicable to
its executive officers, directors and 10% stockholders were satisfied, except
that the Forms 4 for Leslie Johnson, the Senior Vice President, Client Services
and Chief Service Officer, for September 1997 and for Mitchell Everton, the
Senior Vice President, Tax and Operations of the Company, for April 1998 were
filed late.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee was formed in November 1996 and is currently
composed of Messrs. Hodgson and Readmond. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of any
other company's board of directors or compensation committee.

16
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The Compensation Committee of the Board of Directors (the "Committee") was
established in November 1996 and is responsible for reviewing the compensation
and benefits for the Company's executive officers, as well as supervising and
making recommendations to the Board on compensation matters generally. The
Committee also administers the Company's stock plans.

COMPENSATION PHILOSOPHY AND POLICY

The policy of the Committee is to attract and retain executive officers and
employees through the payment of competitive base salaries and to encourage and
reward performance through bonuses and stock ownership. The objectives of the
Committee are to:

attract, retain and motivate highly qualified executive officers and
employees who contribute to the long-term success of the Company;

align the compensation of executive officers with business objectives
and performance; and

align incentives for executive officers with the interests of
stockholders in maximizing value.

The Company has taken the necessary steps to conform its compensation
practices to comply with the $1 million compensation deduction cap under Section
162(m) of the Internal Revenue Code, as amended.

ELEMENTS OF COMPENSATION

Compensation for executive officers includes both cash and equity elements.

Cash compensation consists of (i) base salary which is determined on the
basis of the level of responsibility, expertise and experience of the executive
officer, taking into account competitive conditions in the industry and (ii)
cash bonuses subject to meeting all or a portion of targeted objectives.

Ownership of the Company's Common Stock is a key element of executive
compensation. Executive officers and other employees of the Company are eligible
to participate in the 1996 Stock Option Plan (the "Option Plan") and the 1997
Employee Stock Purchase Plan (the "Purchase Plan"). The Option Plan permits the
Board of Directors or the Committee to grant stock options to employees on such
terms as the Board or the Committee may determine. The Committee is currently
administering stock option grants to all employees. In determining the size of a
stock option grant to a new executive officer or other employee, the Committee
takes into account equity participation by comparable employees within the
Company, external competitive circumstances and other relevant factors.
Additional options may be granted to current executive officers and employees to
reward exceptional performance or to provide additional unvested equity
incentives. Options typically vest over a four-year period and thus require the
employee's continuing service to the Company. The Purchase Plan permits
employees to acquire Common Stock of the Company through payroll deductions and
promotes broad-based equity participation throughout the Company. The Committee
believes that such stock plans align the interests of the employees with the
long-term interests of the stockholders.

The Company also maintains a 401(k) retirement savings plan (the "401(k)
Plan"). The 401(k) Plan provides that each participant may contribute up to 18%
of his or her pre-tax gross compensation (up to a statutory prescribed annual
limit of $10,000 in 1998).

FISCAL 1998 EXECUTIVE COMPENSATION

Executive compensation for fiscal 1998 included base salary and incentive
cash bonuses based upon achievement of corporate goals, individual performance
goals and financial performance goals. Executive officers, like other employees,
were eligible for option grants under the Option Plan and to participate in the
Purchase Plan.

17
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL 1998

Thomas H. Sinton founded the Company in 1984 and has served as President and
Chief Executive Officer since March 1993. In fiscal 1998, Mr. Sinton earned
$181,250 in salary and $120,000 in bonus awards. Mr. Sinton's salary and bonus
were based on the same factors considered for each executive officer, as
previously described. Mr. Sinton was also granted options to purchase 52,500
shares of the Company's Common Stock in November 1997.

COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

David C. Hodgson
Ronald W. Readmond

18
<PAGE>
STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total return to stockholders on
the Company's Common Stock with the cumulative total return of the Nasdaq Stock
Market Composite Index and the Russell 2000 Index. The graph assumes that $100
was invested on September 19, 1997 (the date of the Company's initial public
offering) in the Company's Common Stock, the Nasdaq Stock Market Composite Index
and the Russell 2000 Index, assuming reinvestment of dividends, if any. No cash
dividends have been declared or paid on the Company's Common Stock. Note that
historic stock price performance is not necessarily indicative of future stock
price performance.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PROBUSINESS SERVICES, INC.,
THE NASDAQ STOCK MARKET (U.S.)
INDEX AND THE RUSSELL 2000 INDEX

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PROBUSINESS SERVICES, INC. NASDAQ STOCK MARKET (U.S.) RUSSELL 2000
<S> <C> <C> <C>
9/19/97 $100.00 $100.00 $100.00
12/31/97 $148.00 $93.00 $98.00
3/31/98 $189.00 $109.00 $107.00
6/30/98 $302.00 $113.00 $102.00
</TABLE>

19
<PAGE>
OTHER MATTERS

The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.

It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
enclosed envelope.

THE BOARD OF DIRECTORS

Pleasanton, California
October 9, 1998

20
<PAGE>

PROBUSINESS SERVICES, INC.

1996 STOCK OPTION PLAN

(formerly the Executive Stock Option Plan)

1. Purposes of the Plan. The purposes of this Stock Plan are:

- to attract and retain the best available personnel for positions of
substantial responsibility,

- to provide additional incentive to Employees and Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

(d) "Code" means the Internal Revenue Code of 1986, as amended.

(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.

(f) "Common Stock" means the Common Stock of the Company.

(g) "Company" means ProBusiness Services, Inc., a Delaware
corporation.

(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity, and any
Director of the Company whether compensated for such services or not.

<PAGE>

(i) "Director" means a member of the Board.

(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.

(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

<PAGE>

(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.

(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(r) "Option" means a stock option granted pursuant to the Plan.

(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.

(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.

(v) "Optionee" means the holder of an outstanding Option granted under
the Plan.

(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(x) "Plan" means this 1996 Stock Option Plan.

(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

(z) "Section 16(b)" means Section 16(b) of the Exchange Act.

(aa) "Service Provider" means an Employee, Director or Consultant.

(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

(cc) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 750,000 Shares, plus any unused Shares under the
Company's Amended 1989 Stock Option Plan (the "1989 Plan") on the date such
plan is terminated, and any Shares issued or subject to issuance pursuant to
options under the 1989

<PAGE>

Plan that are forfeited to the Company under the terms of such options. In
addition, the maximum aggregate number of Shares that may be optioned and
sold under the Plan shall be increased on each anniversary date of the
adoption of the Plan by a number of Shares equal to the lesser of (i) 250,000
Shares, (ii) two percent (2%) of the outstanding Shares on such date or (iii)
a lesser number determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.

If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option, shall not be returned to the Plan and shall not become
available for future distribution under the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of Service Providers.

(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options may be
granted hereunder;

(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

<PAGE>

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;

(vii) to institute an Option Exchange Program;

(viii) to construe and interpret the terms of the Plan granted
pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

(x) to modify or amend each Option (subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;

(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;

(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.

<PAGE>

5. Eligibility. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations.

(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 125,000 Shares.

(ii) Over the remaining term of the Plan, a Service Provider may
be granted Options to purchase up to an additional 250,000 Shares which shall
not count against the limit set forth in subsection (i) above.

(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.

(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 14 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term

<PAGE>

as may be provided in the Option Agreement. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary, the term of the Incentive Stock Option shall be
five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.

(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

(i) cash;

(ii) check;

<PAGE>

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

<PAGE>

Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

<PAGE>

11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.

(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or

<PAGE>

electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to
the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
or sale of assets is not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise
of the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.

13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

14. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.

(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.

15. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

<PAGE>

(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.

16. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

12
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PROBUSINESS
SERVICES, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS

The undersigned stockholder of ProBusiness Services, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement each dated October 9, 1998 and hereby appoints
Thomas H. Sinton and Steven E. Klei or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned to represent the undersigned at the 1998 Annual Meeting
of Stockholders of ProBusiness Services, Inc. to be held on November 12, 1998 at
9:00 a.m., local time, at the Pleasanton Hilton, 7050 Johnson Drive, Pleasanton,
California, 94588 and at any postponement or adjournment thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below:

<TABLE>
<S><C> <C>
1. Election of Class I Director
/ / FOR / / WITHHOLD
NOMINEE: THOMAS H. SINTON
2. Proposal to approve an amendment to the 1996 Stock Option Plan to increase the shares
of Common Stock reserved for issuance thereunder by 950,000 to a new total of 3,076,741
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the
Company for the year ending June 30, 1999.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>

SEE REVERSE SIDE
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE NOMINATED CLASS
I DIRECTOR; (2) FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION
PLAN; (3) FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS; AND (4) AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.

PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS
REGISTERED IN THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A
DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.

PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.

DATE: ______________________ , 1998
___________________________________
SIGNATURE(S)
___________________________________
SIGNATURE(S)

NOTE: (This Proxy should be marked,
signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both should
sign.)