SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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14a-6(e)(2))
[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PAYCHEX, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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<PAGE>
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<PAGE>
PAYCHEX
PAYCHEX, INC.
911 Panorama Trail South
Rochester, New York 14625-0397
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on October 1, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Paychex, Inc., will be held at the
Rochester Riverside Convention Center, 123 East Main Street, Rochester, New York
on Thursday, October 1, 1998. A continental breakfast will be available from
9:00 a.m. to 10:00 a.m. The Annual Meeting will begin at 10:00 a.m. for the
following purposes:
1. To elect seven directors;
2. To consider and act upon a proposal to adopt the Paychex, Inc.
1998 Stock Incentive Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
August 5, 1998, as the record date for the determination of stockholders
entitled to notice of, and to vote at, the meeting.
It is important that all shares be represented at the meeting. The Board
of Directors extends a cordial invitation to all stockholders to attend the
meeting. However, if you are unable to attend the meeting, you are requested to
sign, date and return the enclosed Proxy in the return envelope. You may revoke
your Proxy and vote in person if you decide to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
John M. Morphy
Secretary
Rochester, New York
August 7, 1998
<PAGE>
PROXY STATEMENT
PAYCHEX, INC.
911 Panorama Trail South
Rochester, New York 14625-0397
The Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors ("Board") of Paychex, Inc. ("Company"), a
Delaware corporation, to be used at the Annual Meeting of Stockholders to be
held on Thursday, October 1, 1998, at 10:00 a.m. for the purposes set forth in
the foregoing Notice of Annual Meeting. The cost of this solicitation will be
borne by the Company. The Board has fixed the close of business on August 5,
1998, as the record date for determining the holders of common stock entitled to
notice of, and to vote at, the meeting. The Company had outstanding on that
date 163,322,362 shares of common stock, each of which is entitled to one vote.
A majority of the outstanding shares (81,661,182 shares) present in person or by
proxy will constitute a quorum.
If the enclosed Proxy is properly executed and returned, the shares
represented will be voted by the proxies in accordance with the stockholder's
directions. If the Proxy is signed and returned without choices having been
specified, the shares will be voted FOR the seven nominees described in the
following pages and FOR Proposal 2 as set forth in the Notice and described in
the following pages. The Proxy may be revoked by the person giving it at any
time prior to its use by a written revocation, submission of a later dated
Proxy, or in person at the meeting.
With regard to the election of directors, votes may be cast for nominees or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstention may not be specified on the proposal relating
to the election of directors, but abstention may be specified on Proposal 2.
Since Proposal 2 requires the approval of a majority of the outstanding shares,
abstentions will have the effect of a negative vote. Under applicable Delaware
law, a broker non-vote will have no effect on the outcome of the election of
directors, but will have the same effect as a vote against Proposal 2.
The 1998 Annual Report, Proxy Statement and Proxy are being mailed to
stockholders on or about August 7, 1998.
All applicable information provided in this Proxy Statement has been
restated to reflect the three-for-two stock splits effected in the form of 50%
stock dividends distributed in May 1998, May 1997 and May 1996.
PROPOSAL 1 - ELECTION OF DIRECTORS
Seven directors are to be elected to the Board of Directors. The Board of
Directors has nominated the persons listed on the following pages for election.
If elected, each nominee will hold office until the Annual Meeting to be
held in 1999 and until his successor is elected and shall qualify.
The Board of Directors recommends the election of the seven nominees and it
is intended that the proxies named (unless otherwise directed) will vote the
Proxy FOR the election of these nominees. Although the Board of Directors
believes that all of the nominees will be available to serve, the proxies may
exercise discretionary authority to vote for substitutes proposed by the Board
of Directors of the Company. However, the enclosed Proxy cannot be voted for
more than seven nominees.
<PAGE>
The following biographies set forth certain information with respect to the
nominees for election as directors of the Company, none of whom is related to
any other nominee or executive officer.
Nominees For Election
B. Thomas Golisano, 56, a director since 1979, founded Paychex, Inc., in
1971 and is Chairman, President, and Chief Executive Officer of the Company. He
serves on the Board of Trustees of Rochester Institute of Technology and on the
boards of several privately held companies. He is former chairman of Greater
Rochester Fights Back (a coalition to combat illegal drugs and alcohol abuse),
has served on the boards of numerous non-profit organizations, and is founder of
the B. Thomas Golisano Foundation.
Steven D. Brooks, 47, a director since 1995, is a managing director of
Donaldson, Lufkin & Jenrette, where he heads the technology industry merger and
acquisition group. From 1994 to 1996, he served as head of Global Technology
Investment Banking at Union Bank of Switzerland. Prior to 1994, he participated
as a principal at Rainwater Inc. and The Powerhouse Group, served in senior
investment banking positions at Alex. Brown and Sons and Robertson Stephens and
Co., and practiced securities law at Davis Polk and Wardwell in New York City.
Mr. Brooks holds seats on the Boards of Directors of QuickResponse Services,
Inc., and Veritas Software Corporation, as well as several privately held
companies.
G. Thomas Clark, 60, a director since 1980, retired as Senior Vice
President of Finance, Secretary, and Treasurer of Paychex, Inc., in October
1996. He joined Paychex in 1979 after spending eighteen years in the commercial
banking business. He currently is a member of the Board of Directors of several
privately held companies. He is also a director of Unity Health Systems and the
Rochester School of the Holy Childhood.
Phillip Horsley, 59, a director since 1982, is the founder and Managing
Director of Horsley Bridge Partners, a financial services firm founded in 1983,
focused on the management of private equity investments for institutional
investors.
Grant M. Inman, 56, a director since 1983, is co-founder and general
partner of Inman & Bowman, a private venture capital partnership formed in 1985,
with $43.5 million of capital under management. He also serves as a director of
the publicly held company Lam Research Corporation, and several privately held
companies. Mr. Inman is a trustee of the University of California, Berkeley
Foundation and is also a trustee of the University of Oregon Foundation.
Harry P. Messina, Jr., 65, a director since 1985, has for more than thirty
years been a partner in the law firm of Woods, Oviatt, Gilman, Sturman & Clarke
LLP, the Company's general counsel. He also serves on the Advisory Board of M &
T Bank, the Board of Trustees of St. Joseph's Villa, and the Board of Directors
of Rochester Management, Inc., and the Board of Directors of other privately
held companies.
J. Robert Sebo, 62, was elected to the Board of Directors in 1979 after
holding many sales and operations positions within the Company. Prior to his
retirement in December 1994, he was Senior Vice President/Director of Eastern
Operations. In 1974, he started his Paychex franchise operation in Cleveland,
Ohio. For fourteen years prior to that he held sales, marketing, and business
management positions in the Cadillac Motor Car Division of General Motors
Corporation.
Director Not Considered As A Nominee
Donald W. Brinckman, 67, a director since 1990, has decided not to be
considered a nominee for the election of directors at the 1998 Annual Meeting of
Stockholders. Mr. Brinckman is the founder and former Chairman and CEO of
Safety-Kleen Corp., which was founded in 1968. He also serves on the board of
Snap-On Incorporated.
PROPOSAL 2 - APPROVAL OF THE PAYCHEX, INC. 1998 STOCK INCENTIVE PLAN
On July 9, 1998, the Board of Directors of the Company unanimously adopted
a new stock incentive plan for employees, officers, directors and consultants,
the Paychex, Inc. 1998 Stock Incentive Plan (the "1998 Plan"), to become
effective August 1, 1998, subject to stockholders' approval, and to continue
with unlimited duration. The affirmative vote of the holders of a majority of
the shares present in person or represented by proxy at the meeting is required
for approval. The following summary of the 1998 Plan does not purport to be
complete and is subject to, and qualified in its entirety by, reference to the
text of the 1998 Plan annexed hereto as Exhibit A.
The Board of Directors believes that, in order to attract and retain people
of ability and initiative and to provide an incentive for such persons to
continue to render outstanding service to the Company, it is in the best
interests of the Company and its stockholders to provide them, through the
granting of stock options, the opportunity to participate in any appreciation in
value of the Company's common stock which may result from their enhanced
performance.
The 1998 Plan authorizes the granting of options to purchase up to
3,473,000 shares of the Company's common stock, of which 473,000 shares were
authorized by the stockholders for the 1995 Plan but not optioned (nor will they
be optioned under that Plan) and 3,000,000 shares will be newly authorized for
options. In addition any shares underlying options under prior Plans which are
forfeited, expired or canceled without delivery of shares will be available for
option under the 1998 Plan. Similarly, where options are exercised with
delivery of pre-owned shares, only the number of shares issued net of the shares
tendered will be counted in reducing the maximum number under the 1998 Plan.
The number of shares is subject to adjustment as described below. The 1998 Plan
will be administered by the Board of Directors ("Board") or by a committee of
the Board ("Committee"). The shares subject to the options will be made
available from either authorized and unissued shares or previously issued
treasury shares. The Committee is authorized to establish rules and regulations
for Plan administration; to interpret, correct or amend the Plan and any option
granted thereunder; and to terminate the Plan.
The Committee may grant either Incentive Stock Options or Non-Qualified
Stock Options. Incentive Stock Options are available only to employees of the
Company and must comply with requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). Non-Qualified Stock Options may be
granted to employees (including employee-directors) and non-employee directors
of the Company and others and are intended not to qualify as Incentive Stock
Options. The principal difference between the two types of options relates to
their tax treatment (see below).
The following description will apply to both types of options unless
otherwise noted.
The exercise price per share will be no less than 100% of fair market value
of the Company's common stock on the applicable date, as determined by the
Committee. The applicable date will usually be the grant date. However, the
1998 Plan allows the Committee when granting Non-Qualified Stock Options to
select an applicable date up to 90 days preceding the grant date if it is the
date on which the recipient was hired or promoted or experienced a similar
singular event. The Committee shall determine the time of exercise and the term
of each option when granted. Each option will expire not more than ten (10)
years from the date of its grant unless the optionholder dies while the option
is exercisable, in which case the option may not expire until one year after
date of death. The 1998 Plan permits the payment of the exercise price in cash
or by such other means as the Committee may from time to time permit including
(i) as to Non-Qualified Stock Options only, by application of shares already
owned by the optionholder (at the fair market value thereof when submitted),
(ii) by payment through so-called "cashless exercise" wherein the optionholder
exercises the option and instructs a broker-dealer to sell so many shares as
shall be sufficient to pay the exercise price and any tax withholding obligation
resulting from the exercise, and (iii) any combination thereof.
In general, for an option to become exercisable, an employee who is granted
an option must remain continuously employed by the Company until the grant
becomes exercisable. Upon termination of employment, an Incentive Stock Option
which has not otherwise expired will terminate in three months (one year if the
optionholder is disabled or dies and three months if he retires). A Non-
Qualified Stock Option, unless otherwise expired, will terminate in one year
after termination of employment and three years after death, disability or
retirement. All shares remaining under an option become exercisable upon
termination of employment due to the death or disability, but not the retirement
of the optionholder. Nevertheless, if termination of employment was by reason
of conduct which the Committee determines to have been knowingly fraudulent,
deliberately dishonest, disloyal or willful misconduct, or if the Committee
makes such a determination after the optionholder's retirement, the option shall
be forfeited.
Stock options are not transferable, except by will or by the laws of
descent and distribution. Options which for any reason cease to be exercisable
shall be considered terminated. Shares subject to expired or terminated options
are again available for grant.
With limited exceptions, if any change is made in the shares subject to the
1998 Plan or to any option granted thereunder (through merger, reorganization,
recapitalization, stock dividend, issuance of subscription rights or similar
events), such adjustments or substitutions will be made in the number of shares
and exercise price as the Committee deems equitable to prevent dilution or
enlargement of option rights.
The Board of Directors may amend or terminate the 1998 Plan in all
respects, except that without stockholder approval, no such amendment or
modification may increase the maximum number of shares reserved for options
thereunder (except as described in the preceding paragraph) or reduce the
exercise price below fair market value at the applicable date.
Incentive Stock Options granted under the 1998 Plan are intended to qualify
for the special Federal income tax treatment available under Section 422 of the
Code. Under this law, no tax is associated with the grant or exercise of an
option, rather, the recipient is taxed at a capital gains rate on the sale of
shares received on the exercise of an option. In order to obtain this
treatment, the optionholder must not dispose of the shares within two (2) years
from the date of the grant of the option nor within one (1) year after receipt
of the shares upon exercise of the option. If the optionholder does not comply
with the required holding periods, the difference between the fair market value
of the shares at time of exercise and the exercise price is taxed as ordinary
income (rather than capital gain) and the Company is allowed a tax deduction for
that amount (a deduction it would not have had if the holding periods were
followed). The differential is also considered a tax preference item for
purposes of the alternative minimum tax.
Non-Qualified Stock Options granted under the 1998 Plan will result in no
income to the optionholder for Federal income tax purposes upon the grant. Upon
exercise of such an option, the optionholder will realize ordinary income in an
amount equal to the excess of the fair market value of the stock acquired over
the exercise price; and the amount so realized will be deductible by the
Company. Upon any sale thereafter, any amount realized in excess of such fair
market value will constitute a capital gain.
The aggregate grant date fair market value of the shares with respect to
which a holder of Incentive Stock Options may exercise an option for the first
time during any calendar year is $100,000.
It is contemplated that the shares and options will be registered with the
Securities and Exchange Commission following stockholder approval of the Plan.
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company met four times during the fiscal year
ended May 31, 1998 ("fiscal 1998"). No director attended fewer than 75% of all
meetings of the Board of Directors held during fiscal 1998 or of all meetings of
any Committee upon which such director served during fiscal 1998. Non-employee
directors are paid $6,000 annually plus $1,000 for each Board meeting attended
and $500 for each Committee meeting attended. On October 2, 1997, the non-
employee directors were awarded non-qualified stock options under the Paychex,
Inc. 1995 Stock Incentive Plan to purchase shares of common stock each at $26.17
per share, the closing market price on the day of the grant. The options extend
for ten (10) years and are exercisable to the extent of one-third (1/3) each
year, commencing after the end of two years of service. Messrs. Horsley, Inman
and Messina received 9,000 shares under option. Mr. Brinckman received 13,500
shares under option. Mr. Brooks received 18,000 shares under option. Messrs.
Clark and Sebo received 22,500 shares under option.
The Executive Committee is comprised of Messrs. Golisano, Clark and Horsley
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Company except as limited by law.
The Committee met once during fiscal 1998.
The Audit Committee is comprised of Messrs. Brinckman, Brooks, Clark and
Messina. The Committee is responsible for monitoring Management's standards and
practices for financial reporting and the effectiveness of the Company's system
of internal control. The Committee held two meetings during fiscal 1998.
The Compensation Committee is comprised of Messrs. Brinckman, Horsley,
Inman and Sebo. The Committee makes recommendations with respect to the amount
of officers' salaries and grants of stock options to the Company's employees.
The Committee met once during fiscal 1998.
The Investment Committee is comprised of Messrs. Brooks, Horsley and Inman.
The Committee is responsible for setting and reviewing investment policies and
reviewing the investment portfolio's performance, market risks and credit risks.
The Committee met once during fiscal 1998.
REPORT OF THE COMPENSATION COMMITTEE
Compensation of Chief Executive Officer
The Compensation Committee ("Committee") recommends to the Board of
Directors the compensation to be paid to the Chief Executive Officer ("CEO").
In performing that function, the Committee reviews the range and components of
compensation paid to CEO's of other public companies. In particular, the
Committee looks to those public companies whose size and performance with
respect to revenue, earnings per share and stock price are similar to those of
Paychex, Inc.
Mr. Golisano's substantial stock position in the Company assures the
Committee of his close identification with the interests of its stockholders.
His compensation has been limited to his salary and participation in the Officer
Incentive Program discussed on the following page. Each recommended adjustment
is reflective in part of the Committee's evaluation of the Company's performance
in the three areas discussed above as well as other areas. Adjustments also
reflect the Committee's opinion of the impact, both short- and long-term, which
Mr. Golisano's creativity, strategic focus and leadership had on these and other
factors.
Mr. Golisano's fiscal 1998 compensation (including base salary and bonus
under the Officer Incentive Program) was 9% over that in fiscal 1997. Mr.
Golisano's base salary and bonus were based in part on the Company's performance
during fiscal 1998. The Company's fiscal 1998 payroll client base increased
12%, service revenues increased 24%, net income increased 36%, diluted earnings
per share increased 35%, and dividends paid per common share increased 47% over
the prior year's figures.
Compensation of Other Executive Officers
Recommended compensation for senior executives other than the CEO is
determined by the Compensation Committee after the CEO provides the Committee
with his evaluation of the performance of each senior officer and his
recommendation with respect to salary, bonus and stock options. Committee
members discuss his recommendations in light of their own experiences and
familiarity with levels and components of compensation for persons with similar
responsibilities in other public companies. The goal of the Committee is to
compensate fairly for the job done, to reward extraordinary performance or
promise and to encourage long-term identification with stockholder interest
through the award of stock options under the Company's Stock Incentive Plan.
Company performance is also considered.
The Compensation Committee's recommendations are presented to the Board for
discussion and decision. An officer-director whose compensation is being
considered is excused from that portion of the meeting. In fiscal 1998, all
recommendations of the Committee were approved by the Board.
The Compensation Committee and the Board have instituted an Officer
Incentive Program whereby a portion of the compensation of senior executive
officers, including the CEO, is incentive-based and dependent upon the Company's
performance. The performance factors, currently net income growth, minimum,
target and maximum levels, and bonus percentage of base compensation, are
established for the new year within 45 days after the end of the prior fiscal
year.
Impact of Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally limits the tax
deductibility of annual compensation paid to certain executive officers to $1
million, unless specified requirements are met. The Compensation Committee has
carefully considered the impact of this provision in the Tax Law. At this time,
it is the Committee's intention to continue to compensate all officers based on
overall performance. The Committee expects that most, if not all compensation
paid to officers will qualify as a tax deductible expense. However, it is
possible that at some point in the future, circumstances may cause the Committee
to authorize compensation that is not deductible.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Brinckman, Horsley, Inman
and Sebo. All members of the Compensation Committee are non-employees of the
Company. None of the Company's executive officers serves on the board of any
other entity which employs a member of the Compensation Committee.
<PAGE>
OTHER EXECUTIVE OFFICERS OF THE COMPANY
Daniel A. Canzano, 44, was elected Vice President, Information Technology
in April 1993. Mr. Canzano has been with the Company since 1989 and has served
as a Zone Sales Manager and Director of Information Technology.
William Kuchta, 51, joined the Company in February 1995 and was elected
Vice President, Organizational Development in April 1996. From 1993 to 1995,
Mr. Kuchta was principal of his own consulting firm, and from 1989 to 1993, he
served as Vice President of Human Resources of Fisons Corporation.
John M. Morphy, 50, joined the Company in October 1995 and was elected Vice
President, Director of Finance in July 1996 and elected Chief Financial Officer
and Secretary in October 1996. Prior to joining the Company, Mr. Morphy served
as Chief Financial Officer and in other senior management capacities for over 10
years at Goulds Pumps, Incorporated.
Eugene R. Polisseni, 58, has served as Vice President, Marketing since
April 1989, and for the past several years, has managed the Company's HRS-PEO
division. Mr. Polisseni has been with the Company since 1977 and during that
period served in various capacities.
Diane Rambo, 47, was elected Vice President, Electronic Network Services in
October 1994. Ms. Rambo has been with the Company since August 1980 and has
served as Director of Electronic Network Services and as a Branch Manager.
Edmund S. Russo, 61, was elected Vice President, Director of Western
Operations in April 1989 and Vice President, Director of Operations in October
1994. Mr. Russo joined the Company in January 1987 and prior to being elected
Vice President, served as a Regional Manager.
Walter Turek, 45, has served as Vice President, Sales since April 1989.
Mr. Turek has been with the Company since 1979 and has served in various sales
management capacities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
officers and beneficial owners of more than 10% of the Company's common stock to
file with the Securities and Exchange Commission reports of transactions in the
stock. Because of the complexity of the rules, the Company agreed to assume the
responsibility for timely filing such reports for those reporting persons who so
requested and who agreed to advise the Company promptly of changes in the
ownership of the Company's equity securities.
The Company believes that during the fiscal year ended May 31, 1998,
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with,
except for a report involving one transaction by Mr. Canzano and a report
involving one transaction by Ms. Rambo, each of which were filed late by the
Company.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation received by the Company's
Chief Executive Officer and the Company's four other most highly compensated
Executive Officers during the last three fiscal years ended May 31, 1998, 1997
and 1996, respectively.
Summary Compensation Table
- --------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------- ------------
Number of
Common
Shares
Underlying
Options All Other
Name and Principal Year Salary Bonus Granted Compensation
Position (1)
B. Thomas Golisano 1998 $531,250 $165,000 0 $5,110
Chairman, President & 1997 $490,625 $150,000 0 $5,328
Chief Executive Officer 1996 $465,625 $71,250 0 $4,797
Walter Turek 1998 $228,250 $112,100 22,500 $4,519
Vice President, Sales 1997 $212,500 $109,300 11,250 $4,474
1996 $199,375 $59,500 23,625 $4,180
Edmund S. Russo 1998 $245,125 $75,000 0 $5,150
Vice President, 1997 $232,500 $71,100 0 $4,926
Director of Operations 1996 $221,250 $33,750 23,625 $5,081
Eugene R. Polisseni 1998 $228,250 $70,500 13,500 $5,197
Vice President, Marketing 1997 $212,500 $65,100 0 $4,902
1996 $201,250 $30,750 23,625 $5,044
John M. Morphy (2) 1998 $214,375 $66,000 30,000 $5,146
Vice President, Chief 1997 $199,375 $61,500 33,750 $3,782
Financial Officer &
Secretary
______________________________
(1) Represents Company contributions to the Paychex, Inc. 401(k) Incentive
Retirement Plan and premiums paid by the Company for group term life insurance.
For the year ended May 31, 1998, the amount reported consists of the sum of:
(A) contributions to the 401(k) plan in the following amounts: Mr. Golisano -
$4,600; Mr. Turek - $4,300; Mr. Russo - $4,915; Mr. Polisseni - $4,978; and Mr.
Morphy - $4,940; and (B) group term life insurance premium payments in the
following amounts: Mr. Golisano - $510; Mr. Turek - $219; Mr. Russo - $235;
Mr. Polisseni - $219; and Mr. Morphy - $206.
(2) Began with the Company in October 1995 and elected as Vice President,
Director of Finance in July 1996 and elected Chief Financial Officer and
Secretary in October 1996.
<PAGE>
1998 Option Grants Table
The following table sets forth stock options granted to the Company's Chief
Executive Officer and the Company's four other most highly compensated Executive
Officers during fiscal 1998. Under Securities and Exchange Commission ("SEC")
regulations, companies are required to project an estimate of appreciation of
the underlying shares of stock during the option term. The Company has chosen
the 5% - 10% formula approved by the SEC. However, the ultimate value will
depend on the market value of the Company stock at a future date, which may or
may not correspond to the projections below.
Individual Grants
---------------------------------------- Potential Realizable
Value at
Number of % of Assumed Annual Rates
Common Total of
Shares Options Stock Price
Underlying Granted Exercise Appreciation
Options to Price for Option Term (2)
Granted Employees Per Expiration ---------------------
Name (1) in 1998 Share Date 5% 10%
- --------------- ---------- --------- -------- ---------- ---------- ----------
B. Thomas
Golisano 0 0% $0 $0 $0
Walter Turek 22,500 1.8% $26.17 10/2/2007 $370,262 $938,317
Edmund S. Russo 0 0% $0 $0 $0
Eugene R.
Polisseni 13,500 1.1% $26.17 10/2/2007 $222,157 $562,990
John M. Morphy 30,000 2.5% $26.17 10/2/2007 $493,683 $1,251,089
______________________________
(1) Options were granted from the Paychex, Inc. 1995 Stock Incentive Plan
established for directors, officers and employees. Options are granted at
prices not less than 100% of the fair market value of the common stock at the
date of grant, unless the grant is under Section 422A of the Internal Revenue
Code, in which case if the employee owns more than 10% of the outstanding
common stock, the option price must be not less than 110% of the fair market
value. The options granted are exercisable after two years in cumulative
annual installments of 33 1/3% and expire ten (10) years from the date of grant.
(2) Represents potential realizable values net of the option exercise price
but before any income taxes that the executives may have to pay. The dollar
amounts under these columns are the result of calculations at the 5% and 10%
rates (determined from the price at the date of grant, net of the stock's May
31, 1998 market value, $36.00 per share) set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
<PAGE>
Aggregated Option Exercises In The Last Fiscal Year And Fiscal Year-End Option
Values
The following table sets forth stock options exercised by the Company's
Chief Executive Officer and the Company's four other most highly compensated
Executive Officers during fiscal 1998, and the number and value of all
unexercised options at May 31, 1998. The value of "in-the-money" options refers
to options having an exercise price which is less than the market price of the
Company's stock on May 31, 1998, which was $36.00 per share.
Number
of Number of Common Shares Value of
Common Underlying Unexercised Unexercised
Shares Net Options at In-The-Money Options at
Acquired Value May 31, 1998 May 31, 1998 (2)
on Realized ------------------------- -------------------------
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
- --------- -------- -------- ----------- ------------- ----------- -------------
B.
Thomas
Golisano 0 $0 0 0 $0 $0
Walter
Turek 6,000 $225,150 490,663 59,625 $16,283,142 $969,499
Edmund S.
Russo 0 $0 204,893 32,625 $6,406,185 $843,583
Eugene R.
Polisseni 0 $0 66,601 39,375 $1,946,755 $780,999
John M.
Morphy 0 $0 0 63,750 $0 $594,999
______________________________
(1) Represents market value of the Company's common stock at exercise date
less the exercise price.
(2) Represents market value ($36.00 per share) of the Company's common stock
at May 31, 1998, less the exercise price.
<PAGE>
Performance Graph
The following graph shows a five-year comparison of the total cumulative
returns of investing $100 on May 31, 1993, in Paychex, Inc., common stock, the
S&P Midcap 400 Index, and the S&P Services (Data Processing) Super Composite
("S&P S(DP)") Index. The S&P Midcap 400 Index represents a broad market group
in which the Company participates. The S&P S(DP) Index was chosen as having a
representative peer group of companies for the 1998 Proxy Statement, and
includes Paychex, Inc. All comparisons of stock price performance shown assumes
reinvestment of dividends.
Measurement
Point
May 31, 1993 1994 1995 1996 1997 1998
Paychex, Inc. $100 $120 $167 $377 $475 $704
S&P S(DP) $100 $117 $150 $210 $208 $238
S&P Midcap 400 $100 $104 $118 $152 $179 $233
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The following table contains information as of June 30, 1998, with respect
to the beneficial ownership of common stock of the Company by each director and
nominee for director of the Company, by each of the executive officers of the
Company named in the Summary Compensation Table and by all directors and
executive officers of the Company as a group. Under the rules of the Securities
and Exchange Commission, "beneficial ownership" is deemed to include shares for
which the individual, directly or indirectly, has or shares voting or investment
power, whether or not they are held for the individual's benefit. To the
knowledge of the management of the Company, no person other than B. Thomas
Golisano, beneficially owned as of June 30, 1998, more than 5% of the
outstanding shares of the Company's common stock.
Of Shares Of Shares
Beneficially Beneficially
Amount of Owned, Shares Owned, Shares
Beneficial That May Be Disclaimed as to
Ownership of Percent of Acquired Within Beneficial
Name Common Stock Class (1) 60 Days Ownership (2)
- ------------------- ------------ ---------- --------------- ----------------
More than 5%
owners:
B. Thomas
Golisano 18,706,353 11.4% 230,253 (3)
911 Panorama Trail South
Rochester, New York 14625
Directors:
B. Thomas
Golisano 18,706,353 11.4% 230,253 (3)
Donald W.
Brinckman 84,375 (4)
Steven D. Brooks 12,750 (4) 11,250
G. Thomas Clark 505,454 (4) 345,331 (3)
Phillip Horsley 229,671 (4) 53,158 8,155
Grant M. Inman 253,130 (4) 53,158 6,804
Harry P.
Messina, Jr. 271,645 (4) 53,158 184,173
J. Robert Sebo 2,907,874 1.8% 7,534
Named Executive
Officers:
Walter Turek 606,714 (4) 490,663
Edmund S. Russo 236,068 (4) 204,893
Eugene R.
Polisseni 3,504,894 2.1% 66,601 416,569
John M. Morphy 1,198 (4)
All Directors and
Officers of the
Company as a
Group (15 persons) 27,350,274 16.6% 1,149,974 968,716
______________________________
(1) Based upon the number of shares of common stock outstanding as of June
30, 1998, including shares which may be acquired within 60 days by exercise of
options. The shares which may be acquired within 60 days by exercise of
options are considered outstanding only when determining the amount and percent
owned by the applicable individual or group.
(2) Included in this column are shares with respect to each individual which
are directly owned by certain relatives with whom they are presumed to share
voting and/or investment power, and as to which the individual disclaims
beneficial ownership.
(3) Mr. Golisano and Mr. Clark are trustees of a foundation that owns 230,253
shares for which beneficial ownership is disclaimed.
(4) Indicates percentage is less than 1%.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountant since 1983 has been Ernst &
Young LLP. Management expects to re-appoint this firm for fiscal 1999.
However, it will not seek stockholder approval or ratification. Representatives
of Ernst & Young LLP are expected to be present at the stockholders' meeting and
will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
OTHER MATTERS AND INFORMATION
As of the date of this Proxy Statement, Management does not intend to
present, and has not been informed that any other person intends to present, any
matter for action at the meeting other than those described in this Proxy
Statement. If any other matters properly come before the meeting, it is
intended that the persons named in the enclosed Proxy will vote the Proxy on
such matters in accordance with their best judgment.
The cost of solicitation of Proxies will be paid by the Company. In
addition to solicitation by use of mails, some of the officers and regular
employees of the Company, without extra remuneration, may solicit Proxies
personally or by telephone, telegraph or cable. The Company will reimburse any
banks, brokers and other custodians, nominees and fiduciaries for their expenses
in forwarding Proxies and Proxy solicitation material to the beneficial owners
of the shares held by them.
PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Stockholder proposals for inclusion in the Proxy Statement for the next
Annual Meeting of Stockholders must be received by the Company at its executive
offices on or before April 9, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
John M. Morphy
Secretary
Rochester, New York
August 7, 1998
<PAGE>
EXHIBIT A
PAYCHEX, INC.
1998 STOCK INCENTIVE PLAN
Section 1. Purposes
The purposes of the Paychex, Inc. 1998 Stock Incentive Plan (the "Plan")
are to provide, through options to purchase Paychex, Inc. $.01 par value common
stock ("Stock"), long-term incentives and rewards to employees, directors or
other persons responsible for the success and growth of Paychex, Inc. and its
subsidiary corporations (the "Company"), to attract and retain such persons on a
competitive basis and to associate the interests of such persons with those of
the Company.
Section 2. Effective Date/Duration
The Plan will become effective August 1, 1998 and shall be submitted for
approval by the Company's stockholders within 12 months of the effective date.
The Plan is unlimited in duration and, in the event of Plan termination, shall
remain in effect as long as any options under it are outstanding; provided,
however, that to the extent required by the Internal Revenue Code of 1986, as
amended (the "Code"), no Incentive Stock Options may be granted under the Plan
on a date that is more than ten (10) years from the date the Plan is adopted or,
if earlier, the date the Plan is approved by shareholders.
Section 3. Administration of the Plan
a) Committee. The Plan will be administered by a Committee appointed by
the Board of Directors ("Board") of the Company which shall consist of no less
than three of its members, all of whom shall not be (or formerly have been)
employees of the Company (the "Committee"); provided, however, the Board may
assume, at its sole discretion, administration of the Plan.
b) Powers and Authority. The Committee is authorized, with respect to
those persons to whom it is authorized to grant options, to establish such rules
and regulations as it deems necessary for the proper administration of the Plan;
to make such determinations and interpretations and to take such action in
connection with the Plan and any options granted under the Plan as it deems
necessary or advisable; to correct any defect, supply any deficiency and
reconcile any inconsistency in the Plan or any Stock Option Agreement; and to
amend the Plan to reflect changes in applicable law. The Committee may
designate one or more persons to implement its rules, regulations and
determinations. All determinations of the Committee shall be by a majority of
its members and its determinations shall be final, conclusive and binding on all
concerned. The Committee from time to time, and whenever requested, will report
to the Board on its administration of the Plan and the actions it has taken.
The expenses of administering the Plan will be paid by the Company.
Section 4. Shares Subject to the Plan
a) Maximum Shares Available for Delivery. Subject to Section 4(c), the
maximum number of Shares that may be delivered to participants and their
beneficiaries under the Plan shall be equal to the sum of (i) 3,000,000, (ii)
any Shares available for future options under the Company's 1995 Stock Incentive
Plan as of the effective date of this Plan, and (iii) any Shares that are
represented by any options granted under any prior plan of the Company which are
forfeited, expired or are canceled without the delivery of Shares or which
result in the forfeiture of Shares back to the Company. Any Shares covered by
an option (or portion of an option) granted under the Plan which is forfeited or
canceled or expires shall be deemed not to have been delivered for purposes of
determining the maximum number of Shares available for delivery under the Plan.
Similarly, if any stock option is exercised by tendering Shares, either actually
or by attestation, to the Company in full or partial payment in connection with
the exercise of a stock option under this Plan or any prior plan of the Company,
only the number of Shares issued net of the Shares tendered shall be deemed
delivered for purposes of determining the maximum number of Shares available for
delivery under the Plan. Further, Shares issued under the Plan through the
assumption or substitution of outstanding options as a result of acquiring
another entity shall not reduce the maximum number of Shares available for
delivery under the Plan. Shares may be authorized, unissued shares or Treasury
shares.
b) Other Plan Limit. Subject to Section 4(c), the maximum number of
Shares that may be delivered through stock options intended to comply with
Section 422 of the Internal Revenue Code ("Incentive Stock Options") shall be
3,000,000.
c) Adjustment for Corporate Transactions. The Committee may determine
that a corporate transaction has affected the price per Share such that an
adjustment or adjustments to outstanding options are required to preserve (or
prevent the enlargement of) the benefits or potential benefits intended at time
of grant. For this purpose a corporate transaction will include, but is not
limited to, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares or other similar occurrence. In the event of
such a corporate transaction, the Committee may, in such manner as the Committee
deems equitable, adjust (i) the number and kind of shares which may be delivered
under the Plan and (ii) the exercise price of outstanding stock options.
Section 5. Grant of Options
a) Factors. In making its determination as to whether an option will be
granted under the Plan and the number of shares to be subject to each option,
the Committee may take into account the duties of the employee, director or
consultant, the present and potential contributions of that person to the
success of the Company, and other factors which members of the Committee, in
their discretion, consider to be reasonable and appropriate in connection with
accomplishing the purposes of the Plan.
b) Types of Options. The Committee shall determine whether the option
shall be an Incentive Stock Option or a Non-Qualified Stock Option (being an
option whose terms are not intended to meet the requirements of an Incentive
Stock Option); provided, however, that Incentive Stock Options shall be awarded
only to employees of the Company.
c) Option Price. For Plan purposes, all stock options shall have an
exercise price which is equivalent to the closing price of a share of Stock
("Share") on the applicable date as determined by the Committee, or if shares
are not traded on such date, the closing price on the next preceding day on
which such stock is traded. The applicable date shall be the date on which the
option is granted, except that with regard to Non-Qualified Stock Options only,
the Committee may provide that the applicable date may be the day on which an
award recipient was hired, promoted or such similar singular event occurred,
provided that the grant of such an award occurs within ninety (90) days
following such applicable date.
d) Payment. The Shares covered by a stock option may be purchased by
means of a cash payment or such other means as the Committee may from time to
time permit, including (i) for Non-Qualified Stock Options only, tendering
(either actually or by attestation) Shares valued using the market price at the
time of exercise, (ii) authorizing a third party to sell Shares (or a sufficient
portion thereof) acquired upon exercise of a stock option and to remit to the
Company a sufficient portion of the proceeds to pay for all the Shares acquired
through such exercise and any tax withholding obligations resulting from such
exercise, or (iii) any combination of the above.
e) Exercisability. An option shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee. However, all Shares remaining under an option shall become
exercisable upon termination of employment due to the death or disability, but
not the retirement of the option holder [see Section 5(f)].
f) Expiration Date. An option shall expire on the earliest to occur of
the following:
(i) the 10 year anniversary of the date on which the option is
granted, or such earlier date as may be determined by the Committee;
(ii) if the option holder's date of termination of employment occurs
by reason of death, disability or retirement, the three-year anniversary of such
date of termination; unless the option is an Incentive Stock Option in which
case if the date of termination occurs by reason of death or disability, the
one-year anniversary of such date of termination and if by reason of retirement,
the three month anniversary of such date of termination; and
(iii) if the option holder's date of termination of employment occurs
for reasons other than retirement, death or disability, the three month
anniversary of such date of termination for Incentive Stock Options and the one
year anniversary of such date for Non-Qualified Stock Options. Notwithstanding
the foregoing, if the option holder dies while the option is exercisable, the
expiration date may be later than the dates set forth above in this Section
5(f), provided that it is not later than the first anniversary of the date of
death. Nevertheless, an option holder whose employment is terminated by reason
of conduct which the Committee determines to have been knowingly fraudulent,
deliberately dishonest, disloyal or willful misconduct, or who engages in such
conduct (including violation of any agreement with the Company) after
retirement, shall forfeit all rights under the option. For purposes of this
Section 5(e), "disability" shall mean a condition whereby the option holder is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which is or can be expected to be permanent, all as verified by a
physician acceptable to, or selected by, the Company. For purposes of this
Section 5(f), the term "retirement" shall mean retirement at 55 years of age or
later with 10 or more years of continuous (uninterrupted) employment (full-time
or part-time) with the Company.
g) Transfer. Options are not transferable, except as designated by the
option holder by will or by the laws of descent and distribution, or as
otherwise provided by the Committee.
h) Evidence. The options shall be evidenced by Stock Option Agreements
or Certificates in such form as the Committee shall approve from time to time,
which Agreements and Certificates shall conform to the Plan, as the same may be
amended by the Committee.
Section 6. Government Regulations
The Plan, the options and the Stock under option will be subject to all
applicable Federal and State statutes, rules and regulations, including, without
limitation, all applicable Federal and State securities laws. If, in the
opinion of the Company's counsel, the transfer, issue or sale of any shares of
its Stock under the Plan is not lawful for any reason, the Company will not be
obliged to transfer, issue or sell any Stock and, subject to Section 8, the
Committee may amend the Plan or any Option Agreement to conform to the
requirements of applicable statutes, rules and regulations.
Section 7. Other Limitations
(a) The granting of any option under this Plan will be solely at the
discretion of the Committee and neither the adoption of the Plan nor any of the
terms and provisions herein will give, or be construed to give, any director,
officer or other employee or other person any right to participate in the Plan
or to receive any options under it.
(b) The adoption of the Plan and the granting of an option under it
will not constitute an understanding or agreement, express or implied, upon the
part of the Company to employ or otherwise continue the services of the
recipient of the option for any specified time.
Section 8. Termination and Amendment of the Plan
The Board of Directors of the Company may at any time amend or terminate
the Plan, except that (a) no amendment will adversely affect an option
previously granted without the consent of the affected option holder; and (b)
without the approval of the Company's stockholders, the Board shall not increase
the maximum number of Shares subject to the Plan (except as provided in Section
4(c)) nor provide for an exercise price of less than fair market value.
Section 9. Laws Governing
The validity and construction of the Plan and all determinations made and
actions taken pursuant hereto, as well as any Agreement or Certificate made
under it, to the extent that Federal laws do not control, will be governed by
the laws of the State of New York without giving effect to the principles of
conflicts of laws.
<PAGE>
PAYCHEX, INC.
PROXY
The undersigned hereby appoints B. THOMAS GOLISANO and JOHN M. MORPHY, or
any one of them, with full power of substitution, attorneys and proxies to
represent the undersigned at the Annual Meeting of Stockholders of the Company
to be held on October 1, 1998, and at any adjournment thereof, with all the
powers which the undersigned would possess if personally present to vote all
shares of stock which the undersigned may be entitled to vote at said meeting.
I. ELECTION OF DIRECTORS
[ ] FOR all Nominees [ ] WITHHOLD all Nominees
B. Thomas Golisano, Steven D. Brooks, G. Thomas Clark, Phillip Horsley, Grant M.
Inman, Harry P. Messina, Jr. and J. Robert Sebo.
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CIRCLE SUCH NOMINEE'S
NAME. YOUR PROXY WILL BE VOTED FOR THE REMAINDER.)
II. ADOPTION OF THE PAYCHEX, INC. 1998 STOCK INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS. PLEASE
DATE, SIGN AND RETURN IT IN THE ENCLOSED ENVELOPE. IF NOT OTHERWISE MARKED, THE
SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED "FOR" THE SEVEN NOMINEES, AND
"FOR" PROPOSAL II.
Dated: ______________________________, 1998
Signed: ______________________________
(Name of Stockholder to be signed exactly as it appears on this proxy)
