ESPS INC, S-1/A, 1999-04-29

ESPS INC
S-1/A, 1999-04-29
PREPACKAGED SOFTWARE

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<PAGE>

As filed with the Securities and Exchange Commission on April 29, 1999

Registration Statement No. 333-75397

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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ESPS, INC.
(Exact name of Registrant as specified in its charter)

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Delaware 7373 24-2845135
(State or other (Primary Standard (IRS Employee
jurisdiction of Industrial Classification Identification Number)
incorporation or Code No.)
organization)

1300 Virginia Drive, Suite 125
Fort Washington, PA 19034
215/619-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

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

TERRENCE P. BRENNAN
President and Chief Executive Officer
ESPS, Inc.
1300 Virginia Drive
Suite 125
Fort Washington, PA 19034
215/619-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copies to:
Stephen M. Goodman, Esq. Alexander D. Lynch, Esq.
James W. McKenzie, Jr., Esq. Luci Staller Altman, Esq.
Morgan, Lewis & Bockius LLP Brobeck, Phleger & Harrison LLP
1701 Market Street 1633 Broadway, 47th Floor
Philadelphia, PA 19103 New York, NY 10019
215/963-5000 212/581-1600

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.

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- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of these securities until the registration +
+statement filed with the Securities and Exchange Commission becomes +
+effective. This prospectus is not an offer to sell these securities and it is +
+not soliciting offers to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED APRIL 29, 1999

PROSPECTUS

ESPS, Inc.

[LOGO]

Common Stock

This is an initial public offering of common stock by ESPS, Inc. Of the
shares of common stock being sold in this offering, shares are being sold
by ESPS and shares are being sold by the selling stockholders. ESPS will not
receive any of the proceeds from the sale of shares by the selling
stockholders. The estimated initial public offering price will be between $
and $ per share.

---------

There is no public market for the common stock. We have applied for listing
of the shares of common stock on the Nasdaq National Market under the symbol
ESPS.

---------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to ESPS, before expenses............................... $ $
Proceeds to selling stockholders, before expenses............... $ $
</TABLE>

ESPS and certain selling stockholders have granted the underwriters an option
for a period of 30 days to purchase up to additional shares of common
stock.

---------

Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.

---------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.

Hambrecht & Quist
BancBoston Robertson Stephens
U.S. Bancorp Piper Jaffray
Charles Schwab & Co., Inc.

, 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................... 3

Risk Factors......................................................... 6

Forward-Looking Statements........................................... 17

Use of Proceeds...................................................... 18

Dividend Policy...................................................... 18

Capitalization....................................................... 19

Dilution............................................................. 20

Selected Financial Data.............................................. 21

Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 23

Our Business......................................................... 34

Management........................................................... 48

Certain Transactions................................................. 54

Principal and Selling Stockholders................................... 55

Description of Capital Stock......................................... 56

Shares Eligible for Future Sale...................................... 59

Underwriting......................................................... 60

Legal Matters........................................................ 62

Experts.............................................................. 62

Additional ESPS Information.......................................... 62

Financial Statements................................................. F-1
</TABLE>

CoreDossier(R) is a registered U.S. trademark of ESPS. ESPS(TM), CADDY
Compiler(TM), CDER Compiler(TM), DAMOS Compiler(TM), CoreDocket(TM) and the
ESPS logo are also trademarks of ESPS. This prospectus also contains trademarks
and tradenames of other companies.
<PAGE>

PROSPECTUS SUMMARY

This prospectus summary highlights selected information contained elsewhere
in this prospectus. This summary may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully, especially the "Risk Factors" section and the
financial statements, before making an investment decision.

ESPS

ESPS is a leading provider of enterprise compliance management solutions to
businesses in highly regulated industries. Our solution, which consists of the
CoreDossier family of software products and related services, enables users
throughout an enterprise to collaborate in the authoring, compilation,
distribution and publishing of compliance information and regulatory
submissions. We designed our CoreDossier software products to utilize advanced
technologies, such as corporate intranets and the Internet, and to meet
emerging electronic compliance requirements and standards. We believe our
solution enables our customers to realize a return on their investment by
reducing the cost and burden of compliance while also reducing the time
required to bring new products and services to market.

Businesses throughout the world are subject to rules, regulations and
standards imposed by federal, state and foreign regulatory agencies. As part of
their oversight of these businesses, regulatory agencies typically require that
businesses compile information to demonstrate their compliance with specific
regulations, such as those governing product safety, environmental protection,
fair business practices and manufacturing processes. This process often
requires participation by numerous individuals throughout an organization and
can often be very time consuming and costly. For example, the U.S. Office of
Management and Budget reported that in 1997, an estimated 115.6 million hours
were required for mandated record keeping and compliance reporting to the U.S.
Environmental Protection Agency.

Traditionally, businesses have used a manual process to create paper-based
compliance documentation and submissions. In an effort to address the growing
complexity of regulatory compliance and to reduce the costs associated with the
compliance process, businesses are increasingly adopting electronic compliance
processes. We believe the initial systems and approaches used for electronic
compliance have not adequately addressed the need for a flexible, enterprise-
wide solution that can effectively manage the complex compliance process.

ESPS provides:

. A scalable enterprise-wide solution;

. Industry-specific compliance expertise;

. A modular product offering and pre-defined publication templates;

. Intranet and Internet capabilities;

. Multiple file format input and output capabilities; and

. Rapid deployment.

The CoreDossier product family includes the CoreDossier platform, industry-
specific modules and the CoreDossier application program interfaces, or APIs.
Our products comprise a modular system that may be configured in a variety of
ways to meet customers' industry-specific compliance requirements. The
CoreDossier platform provides the foundation for managing compliance processes
throughout an enterprise. The industry-specific modules work with the
CoreDossier platform to perform compliance functions designed to meet the
regulatory requirements of particular industries. The CoreDossier APIs enable
third parties to develop custom applications and extend access to additional
external information sources.

3
<PAGE>

As of March 31, 1999 we have licensed versions of our CoreDossier products
to 45 customers in the pharmaceutical and biotechnology industry, the chemical
industry and the utilities industry. Our customers include Pfizer Inc., Glaxo-
Wellcome Inc., Rhone-Poulenc Rorer Pharmaceuticals Inc., Bayer Corporation, and
Baltimore Gas & Electric.

Our headquarters are located at 1300 Virginia Drive, Suite 125, Fort
Washington, PA 19034. Our telephone number is 215/619-6000. We were
incorporated in Delaware in April 1994 under the name Electronic Submission
Publishing Systems, Inc. We changed our name to ESPS, Inc. on March 30, 1999.
We maintain a World Wide Web site at www.ESPS.com. Information contained on our
Web site does not constitute a part of this prospectus.

The Offering

<TABLE>
<S> <C>
Common stock offered by ESPS....... shares

Common stock offered by selling
stockholders...................... shares

Common stock to be outstanding
after this offering............... shares

Use of proceeds.................... For working capital and other general
corporate purposes, including increased
domestic and international sales and
marketing expenditures, product development
expenditures, professional services
organization expenditures and capital
expenditures. See "Use of Proceeds."

Proposed Nasdaq National Market
symbol............................ ESPS
</TABLE>

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

Unless otherwise noted, the information in this prospectus takes into
account the conversion of all outstanding shares of Series A Preferred Stock
into shares of common stock upon the consummation of this offering. In
addition, unless otherwise indicated, the information included in this
prospectus does not take into account the possible sale of additional shares of
common stock to the underwriters pursuant to their over-allotment option. All
references to fiscal years refer to the twelve-month period ended March 31 of
that year.

Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of ESPS common stock and options to purchase ESPS common
stock and other related matters.

4
<PAGE>

Summary Financial Data
(in thousands, except per share data)

This table summarizes our statement of operations data and our balance sheet
data. The pro forma balance sheet data and pro forma as adjusted balance sheet
data below reflect the conversion of all outstanding shares of preferred stock
into common stock at the consummation of the offering. The pro forma as
adjusted balance sheet data also reflect the sale of shares of common stock
in the offering by ESPS and the receipt and application of the net proceeds of
the offering.

<TABLE>
<CAPTION>
Period from
April 29, 1994 Fiscal Years Ended March 31,
(inception) --------------------------------
to March 31, 1995 1996 1997 1998 1999
----------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues............ $ 102 $ 753 $ 1,068 $8,646 $17,949
Income (loss) from
operations............... (440) (772) (2,774) 2,309 2,282
Income tax provision
(benefit)................ -- -- -- (514) 936
Net income (loss)......... (435) (754) (2,813) 2,875 1,476
Earnings (loss) per share:
Basic................... $(0.44) $(1.11) $ (5.09) $ 5.53 $ 0.83
Diluted................. (0.44) (1.11) (5.09) 0.37 0.15
Shares used in computation
of earnings (loss) per
share:
Basic................... 1,000 682 553 520 1,776
Diluted................. 1,000 682 553 7,859 10,097
Pro forma earnings per
share:
Basic................... $ 0.19
Diluted................. 0.15
Shares used in computation
of pro forma earnings per
share:
Basic................... 7,776
Diluted................. 10,097
</TABLE>

<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 1,812 $ 1,812
Working capital................................. 4,366 4,366
Total assets.................................... 11,896 11,896
Preferred stock................................. 6 --
Stockholders' equity............................ 6,724 6,724
</TABLE>

5
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations.

Risks Related to Our Business

Fluctuations in our operating results, particularly compared to the
expectations of market analysts and investors, could cause volatility in our
common stock price

Our operating results have varied greatly in the past, and we expect that
they will continue to vary in the future as a result of a number of factors,
many of which are beyond our control. We believe that period-to-period
comparisons of our historical results are not necessarily meaningful. Our
operating results may not follow any past trends. You should not rely on our
historical results as an indication of future results.

It is difficult to predict the timing or amount of our software license
revenues because:

. Our sales cycles are lengthy and variable, typically ranging between
three months and six months from our initial contact with a potential
customer to the signing of a license agreement; and

. We have historically recognized a substantial portion of our software
license revenues in the last month of a quarter, and often in the last
weeks or days of a quarter.

If a large number of orders or several large orders do not occur in a quarter
or are deferred, our revenue in that quarter could be substantially reduced.
This may harm our operating results and could impair our business in future
periods. Because we do not know when, or if, our potential customers will place
orders and finalize contracts, we cannot accurately predict our revenue and
operating results for future quarters.

We base our decisions regarding operating expenses on anticipated revenue
trends. Since many of our expenses are fixed, a delay in recognizing revenues
from even a limited number of licensing transactions could cause our operating
results to vary significantly from quarter to quarter and could result in
reduced income from operations or operating losses. We anticipate that our
fixed expenses will progressively increase as we expand our operations. To the
extent these expenses are not followed by increased revenues, our operating
results will suffer. For example, our net income for the quarter ended March
31, 1999 decreased as a result of increased operating expenses.

Our future operating results will depend on many factors, including:

. Demand for our products and services;

. Product and price competition;

. Variability in the mix of our software license revenues and services and
maintenance revenues;

. Variability in the mix of services that we perform and those performed by
third-party service providers;

. Success in expanding our direct sales force and professional services
organization and implementing indirect distribution channels;

. Our ability to develop and market new and enhanced products on a timely
basis;

. Timing of our new product introductions and product enhancements or those
of our competitors;

6
<PAGE>

. Continued purchases by our existing customers, including additional
licenses and services and maintenance contracts;

. International sales;

. The loss of any key employees and timing of our new hires;

. Significant downturns in the software industry, particularly when general
economic conditions decline and spending on management information
systems decreases;

. The fiscal or quarterly budget cycles of our customers;

. The efforts of our direct sales force to meet or exceed quarterly or
fiscal year-end sales quotas; and

. The effects of Year 2000 issues on customers' purchasing decisions.

Seasonal trends may harm our quarterly operating results. We experience
significant seasonality in software license revenues and expect seasonal trends
to continue in the future. In recent years, our revenues in the fourth quarter
of our fiscal year have generally been higher than our revenues in each of the
prior three quarters of such fiscal year and higher than our revenues in the
first quarter of the following fiscal year. We believe that the efforts of our
direct sales force to meet or exceed fiscal year-end sales quotas as well as
customer buying patterns and budgeting cycles are the primary causes of these
fluctuations.

As a result of these factors, our annual or quarterly results of operations
may not meet the expectations of securities analysts and investors, which would
likely cause the price of our common stock to decline. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

We have a limited operating history and face significant risks often faced by
early stage companies, which could harm our business, financial condition and
results of operations

We commenced operations in April 1994 and commercially released the initial
version of CoreDossier in November 1995. As a result of our limited operating
history, we face significant risks and uncertainties related to the early stage
of our company. To address these risks and uncertainties, we must, among other
things:

. Successfully implement our sales and marketing strategy;

. Respond to competitive developments in the marketplace;

. Expand into targeted industries;

. Attract, retain and motivate qualified personnel; and

. Develop and upgrade our products and technologies more rapidly than our
competitors.

If we are unsuccessful in our efforts in any or all of these areas, our
business, financial condition and results of operations could be harmed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

A small number of our license agreements account for a large portion of our
total revenues

We derive a significant portion of our software license revenues from a
small number of license agreements. For example, three customers accounted for
100% of the total revenues for the fiscal year ended March 31, 1997, three
customers accounted for 46% of total revenues for the fiscal year ended March
31, 1998 and one customer accounted for 11% of total revenues for the year
ended March 31, 1999. We expect that a significant portion of our revenues will
continue to be derived from a limited number of customers which may vary from
year to year. Our operating results could be harmed if we are unable to
complete one or more substantial license sales in any future period.

7
<PAGE>

Because we rely and will continue to rely on our CoreDossier product family for
substantially all of our revenues, difficulties relating to CoreDossier will
harm our business, financial condition and results of operations

Factors that adversely affect the pricing of, or demand for, the CoreDossier
product family, such as competition or technological change, will harm our
business, financial condition and results of operations. As of March 31, 1999,
substantially all of our revenues were generated from the sale of CoreDossier
products and related maintenance, training and implementation services. We
expect revenues from the sale of CoreDossier products and services to continue
to account for substantially all of our revenues for the forseeable future. Our
future growth will depend upon broader market acceptance of the CoreDossier
family of products.

If we are unable, for technological or other reasons, to develop and
introduce new and improved CoreDossier products in a timely manner, our
business, financial condition and results of operations would be harmed. In
particular, we may experience delays in introducing new versions of our
CoreDossier products. Our future financial performance will substantially
depend on our ability to successfully deploy current versions of our
CoreDossier products and to develop, introduce and gain market acceptance of
new and enhanced versions of our CoreDossier products. Competition,
technological change or other factors could decrease demand for, or market
acceptance of, CoreDossier. Any decrease in demand or market acceptance or
increase in competition will harm our business, financial condition and results
of operations. See "Our Business--Products."

We may not be able to successfully market and sell our products and services in
our targeted industries

We have historically sold most of our products and services to businesses in
the pharmaceutical and biotechnology industry. We have recently begun selling
our products and services to businesses in the chemical industry and the
utilities industry. Our business strategy includes targeting industries in
which we do not currently sell products and services, such as the financial
services, insurance, and discrete manufacturing industries. We may not
experience the same level of sales in these industries as in the pharmaceutical
and biotechnology industry.

Our success in these industries will depend upon many factors, including:

. Our ability to obtain expertise in these industries;

. Our ability to develop industry-specific modules for these industries;
and

. Market acceptance of our products and services in these industries.

If we are unable to adequately address these factors we may not successfully
market and sell our products and services in these targeted industries.
Consequently, our business and results of operations would be harmed. In
addition, as we develop new industry-specific products, we may begin competing
with companies we have not competed against in the past. These companies may
have greater experience and expertise in these industries. If we are unable to
compete successfully against these new competitors our business and results of
operations would be harmed. See "Our Business--Strategy."

The success of our products depends upon the continued adoption of the Windows
NT platform, the expansion of the capabilities of the Windows NT platform and
the release of new or enhanced Windows NT products

We designed our products to operate exclusively on the Windows NT platform.
If the market for Windows NT fails to grow or grows more slowly than we
currently expect, or if this market is affected by delays in the release of new
or enhanced products, our business could be harmed. In addition, we must adapt
our product to work with new or enhanced Windows NT products. We market our
products exclusively to customers who have developed their enterprise computing

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systems around the Windows NT platform. Acceptance of the Windows NT platform
may not continue to increase in the future. The adoption of new operating
systems and computing platforms, and the market for software applications that
run on those platforms, has in the past been significantly affected by the
timing of new product releases and enhancements to these platforms.

In addition, the performance of our products partly depends on the technical
capabilities of the Windows NT platform. If the Windows NT platform does not
meet the technical demands of our products, the performance of our products may
be limited and, as a result, our business may be harmed. See "Our Business--
Products."

We may be unable to expand our sales and professional services organizations,
which may hinder our ability to grow and meet customer demands

If we fail to expand our direct sales force or establish other distribution
channels, or if we fail to expand our professional services organization, our
business could be harmed. We sell our products primarily through our direct
sales force and support our customers with our professional services
organization. Our future revenue growth will depend, in large part, on
recruiting and training additional personnel for our sales and professional
services organizations. We have experienced, and may continue to experience,
difficulty in recruiting qualified sales and professional services personnel.
We may be unable to successfully expand our direct sales force or other
distribution channels. Even if we do expand, any such expansion may not result
in increased revenues. The complexity of our products and the large-scale
deployments anticipated by our customers will require us to hire a number of
highly trained professional services personnel, and, if we are unable to do so,
we may be unable to meet customer demands for services. This may harm our
business and limit our ability to sell our products.

We are growing rapidly and effectively managing our growth may be difficult

We have significantly increased our employee base to meet increasing demand
for our products and services. Our revenues have increased from $753,000 for
the fiscal year ended March 31, 1996 to $17.9 million for the fiscal year ended
March 31, 1999. As we expand into targeted new industries, we expect to
continue increasing our employee base. Our management and operations have been
strained by this growth and will continue to be strained should rapid growth
continue. To compete effectively and to manage future growth, we must continue
to improve our financial and management controls, reporting systems and
procedures on a timely basis. We must also expand, train and manage our
employee base. If we are not successful managing our growth, our business may
be harmed. See "Our Business--Sales and Marketing."

Several key executive officers have recently joined our management team and
they may not successfully work together to meet our business objectives

Our current management team has been in place for only a relatively short
period of time. Our Chief Financial Officer joined us in October 1998, our Vice
President of Marketing joined us in June 1998 and our Vice President of
Professional Services joined us in October 1998. Accordingly, each of these
individuals has limited experience with our operating activities. Our success
will depend to a significant extent on the ability of our new executive
officers to integrate themselves into our daily operations, to gain the trust
and confidence of other employees and to work effectively as a team. See "Our
Business--Management."

We may be unable to attract and retain key personnel

Our future performance will depend largely on the efforts and abilities of
our senior executives, key technical, professional services, sales and
marketing and managerial personnel. Our success will depend on our ability to
attract and retain these key employees in the future. The employment of our key
employees, including our senior executives, is at will. The market for such
persons is extremely competitive. We may not find qualified replacements for
personnel who leave us. In the past, we have experienced difficulty in hiring
qualified technical, professional services, sales, marketing and

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<PAGE>

managerial personnel. In addition, we do not maintain key person life insurance
on any of our key personnel, and have no plans to do so. The loss of any of our
key personnel may harm our business.

We face risks from expansion of our international operations, which may harm
our business, financial condition and results of operations

We intend to substantially expand our international operations and enter new
international markets. This expansion will require significant management
attention and financial resources to successfully translate our software
products into various languages, to develop compliance expertise relating to
international regulatory agencies and to develop direct and indirect
international sales and support channels. We may be unable to establish,
maintain or increase international market demand for the CoreDossier product
family and, if we are unable to do so, international sales may be limited, and
our business, financial condition and results of operations may be harmed.

International operations are subject to inherent risks, including:

. The difficulties and costs of staffing and managing foreign operations;

. The impact of possible adverse political or economic conditions;

. The costs of adapting products to foreign markets;

. Longer receivables collection periods and greater difficulty in accounts
receivable collection as compared to those experienced in our domestic
operations;

. Unexpected changes in regulatory requirements;

. Reduced protection for intellectual property rights in some countries;

. Fluctuations in the value of the U.S. dollar relative to other
currencies;

. Potentially adverse tax consequences; and

. Seasonal reductions in business activities.

Any of these factors could harm our international expansion. If we do not
realize our expected results from international operations, our business,
financial condition and results of operations may be harmed.

We rely on our relationships with service vendors, the loss or failure of which
may harm our business

We have established relationships with a number of service vendors that are
important to the worldwide implementation, integration, development and
promotion of our products. Our business may be harmed if:

. We are unable to develop and retain effective, long-term relationships
with these service vendors;

. We are unable to adequately train a sufficient number of service vendors;

. Our service vendors do not have or do not devote the resources necessary
to facilitate implementation of our products; or

. Our service vendors endorse a product or technology other than ours.

We expect our relationships with these service vendors to provide marketing
and sales opportunities for our direct sales force and expand the distribution
of our products. If we are unable to successfully maintain our existing
relationship, or develop new relationships, our business may be harmed.

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<PAGE>

We rely on technology licensed from a third party, the loss of which may harm
our ability to sell our products

We incorporate software licensed from Versant Object Technology Corporation
into our products. The license agreement expires in December 1999, subject to
automatic yearly renewal, unless otherwise terminated by either party. Our
inability to maintain this license on commercially favorable terms could impair
our ability to sell our products. We will need to replace the technology if we
lose this license, which may take time and may be costly. In addition, we
depend on Versant's ability to deliver and support reliable products. Versant
must enhance their current products, develop new products on a timely and cost-
effective basis, and respond to emerging industry standards and other
technological changes. We may need to replace this software if Versant fails to
update its product, or its product becomes obsolete or incompatible with future
versions of our products. Our sales may be reduced if we are unable to replace
the functionality provided by Versant's software. See "Our Business--Products."

We may be unable to adequately protect our proprietary rights, which could
result in their unauthorized use

Our success depends on our ability to protect our proprietary rights. We
rely primarily on:

. Copyright, trade secret and trademark laws;

. Confidentiality agreements with employees and third parties; and

. Protective contractual provisions such as those contained in license
agreements with consultants, vendors and customers, although we have not
signed such agreements in every case.

Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products and obtain and use information we regard as
proprietary. Other parties may breach confidentiality agreements and other
protective contracts. We may not become aware of these breaches or have
adequate remedies available. We may need to litigate claims against third
parties who infringe our intellectual property rights, which could be costly.

We have not secured registration of all our marks in the United States and
have not pursued registration in any foreign country. The laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Effective copyright, trademark and trade secret
protection may not be available in other jurisdictions. If we cannot adequately
protect our proprietary rights, our business may be harmed.

Our products may infringe proprietary rights of others, which may subject us to
costly claims and impair our ability to sell our products

In the computer software market, there is frequent and substantial
intellectual property litigation. In addition, many parties are actively
developing collection, publication and distribution technologies, and are
seeking protection for these technologies, including seeking patent protection.
As a result, we believe that disputes over the ownership of these technologies
are likely to arise in the future. Furthermore, former employers of our present
and future employees may assert claims that these employees improperly
disclosed confidential or proprietary information to us. We cannot assure you
that our products do not infringe valid patents, copyrights or other
proprietary rights of third parties. Therefore, we may be subject to legal
proceedings and claims, including claims of alleged infringement of third-party
proprietary rights.

In addition, we rely on technology that we license from third parties,
including software that is integrated with internally developed software and
used in our products. Although we are generally indemnified against claims that
such third-party technology infringes the proprietary rights of others,

11
<PAGE>

such indemnification is not always available, and in some cases the scope of
such indemnification is limited. Even if we receive broad indemnification,
third-party indemnitors may not be adequately capitalized and may not be able
to indemnify us in the event of infringement, resulting in substantial
exposure. Infringement or invalidity claims arising from the incorporation of
third-party technology, and claims for indemnification from our customers
resulting from such claims, may be asserted against us.

Any claims relating to the infringement of third-party proprietary rights,
even if not meritorious, could result in costly litigation, divert management's
attention and resources, product redevelopment, or delays in product shipments.
In addition, we could be required to pay damages or enter into license
agreements. We may be unable to obtain any required licenses on commercially
favorable terms, if at all, or unable to avoid litigation or settle without
substantial expense and damage awards. Any of these results may harm our
business and ability to sell our products.

Our products are complex and may contain defects or errors

Software products as complex as ours frequently contain undetected errors or
defects, especially when first introduced or when new versions are released.
Our new products or releases may not be free from errors after commercial
shipment. In some cases, we have provided product enhancements to correct
errors in released products. Any errors discovered after commercial release
could result in loss of revenues or delay in market acceptance of our products,
diversion of development resources, damage to our reputation, lawsuits or
increased service costs, all of which could harm our business.

We may face product liability claims, which may harm our financial condition

We may face product liability claims in connection with current products and
future products. A successful product liability claim brought against us could
harm our financial condition. Even if unsuccessful, any product liability claim
could result in costly litigation and divert management's attention and
resources. Any provisions in our license agreements designed to limit our
exposure to potential product liability claims and any product liability
insurance may not be adequate to protect us from such claims.

Any future acquisitions may be difficult and disruptive, and we may not realize
the expected benefits

We may seek to acquire companies, assets or technologies, which may require
the following, any of which could harm our results of operations or harm the
market price of our common stock:

. Issuances of equity securities that may dilute your ownership interest in
ESPS;

. Cash payments to or assumption of debt or other liabilities of the
companies we acquire;

. Large write-offs and amortization expenses related to goodwill and other
intangible assets; and

. Adverse changes to our financial model.

In addition, acquisitions involve many risks and challenges that we might
not successfully overcome, including:

. Difficulties in assimilating technologies, products, personnel and
operations;

. Diversion of management's attention;

. Risks of entering markets in which we have no or limited prior
experience; and

. Loss of key employees of acquired organizations.

12
<PAGE>

We may be unable to successfully integrate any of the technologies,
products, personnel or operations of the businesses we acquire. If we fail to
do so, our financial condition and operating results may be harmed and the
price of our common stock could decline.

Potential "Year 2000" problems could harm our business

Many computer systems are not capable of distinguishing 21st century dates
from 20th century dates. As a result, beginning on January 1, 2000, computer
systems and software used by many companies and organizations in a wide variety
of industries will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Significant
uncertainty exists in the software industry and other industries concerning the
scope and magnitude of problems associated with the century change. Based on
our assessment to date, we believe the current versions of our software
products are "Year 2000 compliant," that is, they are capable of adequately
distinguishing 21st century dates from 20th century dates. However, our
products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant.

We may face claims based on Year 2000 problems in other companies' products,
or issues arising from the integration of multiple products within an overall
system. We also need to ensure Year 2000 compliance of our own internal
computer systems. We do not expect the total cost of Year 2000 compliance to be
material to our business. However, we and our customers and suppliers may not
identify and remediate all significant Year 2000 problems on a timely basis.
Remediation efforts may involve significant time and expense and unremediated
problems could harm our business.

In addition, we may experience reduced sales of our products as potential
customers reduce their budgets for software due to increased expenditures on
their own Year 2000 compliance efforts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."

Risks Related to the Enterprise Compliance Management Market

We may be unable to compete successfully in the rapidly evolving enterprise
compliance management market

The market for enterprise compliance management solutions is rapidly
changing. Today, we primarily compete against the internal information
technology departments of customers and potential customers. We also compete
against desktop publishing tools and service providers who compile submissions
without the use of software. In addition, we compete against software vendors
who provide very specific solutions, such as Document Solutions Group of Xerox
and Interleaf. As the market changes, new businesses and solutions will enter
the market, creating new competition. We may be unable to compete successfully
in this market and, as a result, our business may be harmed. We expect that
competition will increase as other established and emerging companies enter the
enterprise compliance management market and as new products and technologies
are introduced. Increased competition may result in price reductions, lower
gross margins and loss of our market share, any of which could harm our
business. See "Our Business--Competition."

If the relatively new enterprise compliance management market does not develop
and grow as we anticipate, our business will be harmed

The market for enterprise compliance management solutions is still emerging,
and continued growth in demand for and acceptance of compliance management
products in general and our products and services in particular remains
uncertain. Sales of our products and services depend upon the growth of the
enterprise compliance management market. If the enterprise compliance
management market does not grow or grows more slowly than we currently
anticipate, sales of our products and services may suffer. Even if this market
grows, businesses may purchase our

13
<PAGE>

competitors' products or develop their own compliance management solutions. We
believe that many of our potential customers are not fully aware of the
availability or benefits of our enterprise compliance management solution. We
have spent, and will continue to spend, considerable resources to educate
potential customers about our products and our software solutions in general.
However, even with these educational efforts, our products and services may not
achieve market acceptance.

In addition, the anticipated growth of the enterprise compliance management
market may depend on the growth of the Internet. Increased use of the Internet
largely depends upon available Internet security, bandwidth and reliability. If
use of the Internet by businesses does not increase, the market for our
products and services may not grow as we expect and our business may be harmed.

If we are unable to respond to changes in the enterprise compliance management
market, our results of operations may be harmed

Our market is characterized by rapid technological change, frequent new
product introductions, changes in compliance regulation, changes in customer
demands and evolving industry standards. Existing products can become obsolete
and unmarketable as new technologies are introduced, compliance regulations
change and new industry standards emerge. As a result, we cannot estimate the
life cycles of our products. We may need to modify our products when third
parties modify the software that we integrate into our products. To be
successful, we must continue to enhance our current product line and develop
new products that successfully respond to these developments. Our business may
be harmed if we delay release of our products and product enhancements or if
these products and product enhancements fail to achieve market acceptance when
released. In addition, customers may defer or forego purchases of products if
we, our competitors or major hardware, systems or software vendors introduce or
announce new products or product enhancements. Such events could harm our
results of operations.

Risks Related to this Offering

Our stock price may be volatile and you may be unable to resell your shares at
or above the initial public offering price

Prior to this offering, no public market existed for our common stock. The
initial public offering price of our common stock will be determined through
negotiations among us, the selling stockholders and the representatives of the
underwriters. The market price for our shares of common stock is likely to be
volatile and, if you decide to purchase our shares, you may be unable to resell
your shares at or above the initial public offering price due to a number of
factors, including:

. Actual or anticipated variations in quarterly operating results;

. The loss of significant orders;

. Changes in earnings estimates by analysts;

. Announcements of technological innovations or new products by our
competitors;

. General conditions in the software and computer industries; and

. Other events or factors that negatively affect the stock market in
general.

In addition, the stock market has experienced extreme price and volume
fluctuations that affected the market price of many companies in the software
industry and that have been unrelated to these companies' operating
performances. These broad market fluctuations could reduce the market price of
our common stock.

14
<PAGE>

Our officers, directors and affiliates will be able to control matters
requiring stockholder approval and may have interests that differ from yours

Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of the
outstanding shares of our common stock, % if the underwriters' over-allotment
option is exercised in full. As a result, these stockholders will be able to
control all matters requiring stockholder approval and, thereby, our management
and affairs. These stockholders may have interests that differ from yours.
Matters that typically require stockholder approval include:

. Election of directors;

. Approval of a merger or consolidation; and

. Approval of a sale of all or substantially all of our assets.

In addition, this concentration of ownership may delay, deter or prevent
acts that would result in a change of control, which in turn could reduce the
market price of our common stock. See "Principal and Selling Stockholders."

We will have broad discretion as to use of proceeds from this offering

Our primary purpose for this offering is to create a public market for our
common stock. As of the date of this prospectus, we do not plan to use the
proceeds from this offering other than for working capital and general
corporate purposes. We may also use the proceeds in future strategic
acquisitions of, or investments in, businesses that offer products, services
and technologies that further our ability to provide products and services to
businesses or increase our ability to sell our products and services to new
markets. Until the need arises to use the proceeds from this offering, we plan
to invest the net proceeds in investment grade, interest-bearing securities.
See "Use of Proceeds."

Future sales of our common stock may depress our stock price

Sales of a substantial number of shares of common stock in the public market
following this offering could reduce the market price of our common stock. All
the shares sold in this offering will be freely tradable. The remaining shares
of common stock outstanding after this offering will be available for sale in
the public market as follows:

<TABLE>
<CAPTION>
Number of Shares Date of Availability for Sale
- ---------------- -----------------------------
<S> <C>
shares.............. , 1999 (date of this prospectus)
shares.............. , 1999 (90 days after the date of this prospectus)
shares.............. , 1999 (180 days after the date of this prospectus)
shares.............. At various times thereafter upon the expiration of holding periods
</TABLE>

See "Shares Eligible for Future Sale" and "Underwriting."

New investors in our common stock will experience immediate and substantial
dilution

The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing our common stock in
this offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of our common stock. This dilution figure deducts the
estimated underwriting discounts and commissions and estimated offering
expenses payable by ESPS from the initial public offering price. Investors will
incur additional dilution upon the exercise of outstanding stock options. See
"Dilution."

15
<PAGE>

Our undesignated preferred stock may deter potential acquisition bids for our
business, including bids which may be beneficial to our stockholders

Although we do not currently plan to issue any shares of preferred stock,
our board of directors may issue up to 5,000,000 shares of preferred stock in
one or more series. The board of directors can fix the price, rights,
preferences, privileges and restrictions of such preferred stock without any
further vote or action by our stockholders. The issuance of shares of preferred
stock may delay or prevent a change in control transaction without further
action by our stockholders. As a result, the market price of our common stock
and the voting and other rights of the holders of our common stock may be
harmed. The issuance of preferred stock may result in the loss of voting
control to others. See "Description of Capital Stock."

Provisions in our charter documents may deter potential acquisition bids for
our business, including bids which may be beneficial to our stockholders

Provisions in our charter documents specify procedures for nominating
directors and submitting proposals for consideration at stockholder meetings.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control transaction. They could also discourage
others from making tender offers for our shares. As a result, these provisions
may prevent the market price of our common stock from reflecting the effects of
actual or rumored takeover attempts. These provisions may also prevent changes
in our management. See "Description of Capital Stock."

Delaware law may deter potential acquisition bids for our business, including
bids which may be beneficial to our stockholders

Delaware law may deter potential bids for our business. We are subject to
the anti-takeover provisions of the Delaware General Corporation Law, which
regulate corporate acquisitions. Delaware law prevents us from engaging in a
"business combination" with any "interested stockholder" for three years
following the date that the stockholder became an interested stockholder. For
purposes of Delaware law, a "business combination" includes a merger or
consolidation involving us and the interested stockholder and the sale of more
than 10% of our assets. In general, Delaware law defines an "interested
stockholder" as any entity or person beneficially owning more than 15% or more
of the outstanding voting stock of a corporation and any entity or person
affiliated with or controlling or controlled by such entity or person. Under
Delaware law, a Delaware corporation may opt out of the anti-takeover
provisions. We do not intend to opt out of these anti-takeover provisions. See
"Description of Capital Stock."

16
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that address, among
other things, market acceptance of our products and services, expansion into
new targeted industries, product development, sales and marketing strategies,
development and maintenance of strategic alliances, technological advancement,
global expansion, use of proceeds, the costs and timing of our Year 2000
compliance program, projected capital expenditures, liquidity, and availability
of additional funding sources. These statements may be found in the sections of
this prospectus entitled "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Our Business" and in this prospectus generally. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of various factors, including all the risks
discussed in "Risk Factors" and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.

17
<PAGE>

USE OF PROCEEDS

We expect to receive approximately $ million in net proceeds from the
sale of the shares of common stock in this offering, assuming that the
initial public offering price is $ per share, the underwriters' discount is
$ and our offering expenses are $ . We expect to receive approximately
$ million if the underwriters' over-allotment option is exercised in full.
We will not receive any proceeds from the sale of common stock by the selling
stockholders.

We intend to use the net proceeds of this offering for working capital and
other general corporate purposes, including increased domestic and
international sales and marketing expenditures, product development
expenditures, expenditures related to the expansion of our professional
services organization and capital expenditures made in the ordinary course of
business. We may also use a portion of the net proceeds to acquire additional
businesses, products and technologies or to establish joint ventures that we
believe will complement our current or future business. However, we have no
specific plans, agreements or commitments, oral or written, to do so. We are
not currently engaged in any negotiations for any acquisition or joint venture.
The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, the amount of cash we generate from operations and the progress
of our product development efforts. As a result, we will retain broad
discretion in the allocation of the net proceeds of this offering. Pending the
uses described above, we will invest the net proceeds in short-term, interest-
bearing, investment-grade securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying any cash dividends in the
future.

18
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999. We
present capitalization:

. On an actual basis;

. On a pro forma basis to give effect to the automatic conversion of all
outstanding shares of preferred stock into common stock upon the
consummation of the offering; and

. On a pro forma as adjusted basis to give effect to the automatic
conversion of all outstanding shares of preferred stock into common stock
upon the consummation of the offering and to reflect the sale of the
shares in the offering and our receipt of the estimated net proceeds from
the sale of shares of common stock offered in the offering at an
assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value, 6,000,000
shares authorized; 6,000,000 shares issued
and outstanding actual; no shares issued
and outstanding pro forma and pro forma as
adjusted................................... $ 6 $ -- $
Common stock, $.001 par value, 11,000,000
shares authorized, 2,175,325 shares issued
and outstanding actual; 8,175,325 shares
issued and outstanding pro forma; and
issued and outstanding pro forma as
adjusted................................... 2 8
Additional paid-in capital.................. 6,571 6,571
Retained earnings........................... 349 349
Deferred stock compensation................. (204) (204)
------ ------ ---
Total stockholders' equity................ 6,724 6,724
------ ------ ---
Total capitalization...................... $6,724 $6,724 $
====== ====== ===
</TABLE>

This table is based on the number of outstanding shares as of March 31,
1999 and does not include the following:

. 152,734 shares available for issuance under our 1995 Stock Incentive
Plan;

. 2,671,942 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.56 per
share, of which options to purchase 412,198 shares of common stock were
exercisable at a weighted average exercise price of $0.10 per share; and

Please read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related notes included in this prospectus.

19
<PAGE>

DILUTION

As of March 31, 1999, our net tangible book value on a pro forma basis
giving effect to the conversion of our preferred stock into common stock upon
consummation of this offering was approximately $6.7 million or $0.82 per share
of common stock. "Net tangible book value" per share represents the amount of
our total tangible assets reduced by the amount of our total liabilities,
divided by the number of shares of common stock outstanding. As of March 31,
1999, our net tangible book value, on a pro forma basis as adjusted for the
sale of shares of common stock by ESPS, based on an assumed initial public
offering price of $ per share and after deducting the underwriting discounts
and commissions and other estimated offering expenses, would have been
approximately $ per share. This represents an immediate increase of $ per
share to existing stockholders and an immediate dilution of $ per share to
new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share at March 31, 1999.... $0.82
Pro forma increase per share attributable to new investors.......
Pro forma net tangible book value per share after the offering...
-----
Dilution per share to new investors................................ $
=====
</TABLE>

The following summarizes on a pro forma basis as of March 31, 1999, the
differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on an assumed
initial public offering price of $ per share.

This table is based on the number of outstanding shares as of March 31, 1999
and does not include the following:

. 152,734 shares available for issuance under our 1995 Stock Incentive
Plan;

<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Average
----------------- ------------------ Price
Number Percent Amount Percent Per Share
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 8,175,325 % $6,189,000 % $0.76
New investors....................
--------- --- ---------- ---
Total.......................... % %
========= === ========== ===
</TABLE>

20
<PAGE>

SELECTED FINANCIAL DATA
(in thousands, except per share data)

The tables that follow present portions of our Financial Statements and are
not complete. You should read the following selected financial data in
conjunction with our Financial Statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. We derived the statement of operations
data for the fiscal years ended March 31, 1997, 1998 and 1999, and the balance
sheet data as of March 31, 1998 and 1999 from our Financial Statements that
have been audited by Ernst and Young LLP, independent auditors, which are
included elsewhere in this prospectus. We derived the statement of operations
data for the period from inception, April 24, 1994, to March 31, 1995 and the
fiscal year ended March 31, 1996 and the balance sheet data as of March 31,
1995, 1996 and 1997 from audited Financial Statements, that are not included in
this prospectus. Pro forma balance sheet data reflects the automatic conversion
of all outstanding shares of preferred stock into common stock upon
consummation of this offering. You should not rely on our historical results as
an indicator of our future results. See Note 11 of Notes to Financial
Statements for an explanation of the method used to calculate pro forma basic
and diluted earnings per share.

<TABLE>
<CAPTION>
Period from
April 24, 1994 Fiscal Years Ended March 31,
(inception) --------------------------------
to March 31, 1995 1996 1997 1998 1999
----------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software licenses......... $ 100 $ 721 $ 648 $6,814 $13,454
Services and maintenance.. 2 32 420 1,832 4,495
----- ------ ------- ------ -------
Total revenues.......... 102 753 1,068 8,646 17,949
Cost of revenues:
Software licenses......... -- -- 68 258 298
Services and maintenance.. -- 72 506 1,589 3,193
----- ------ ------- ------ -------
Total cost of revenues.. -- 72 574 1,847 3,491
----- ------ ------- ------ -------
Gross profit.............. 102 681 494 6,799 14,458
Operating expenses:
Research and development.. 208 725 1,407 1,978 3,829
Sales and marketing....... 32 95 714 1,283 5,185
General and
administrative........... 302 633 1,147 1,229 3,162
----- ------ ------- ------ -------
Total operating
expenses............... 542 1,453 3,268 4,490 12,176
----- ------ ------- ------ -------
Income (loss) from
operations............... (440) (772) (2,774) 2,309 2,282
Interest, net............. 5 18 (39) 52 130
----- ------ ------- ------ -------
Income (loss) before
income taxes............. (435) (754) (2,813) 2,361 2,412
Income tax provision
(benefit)................ -- -- -- (514) 936
----- ------ ------- ------ -------
Net income (loss)......... $(435) $ (754) $(2,813) $2,875 $ 1,476
===== ====== ======= ====== =======
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
Period from
April 24, 1994 Fiscal Years Ended March 31,
(inception) ---------------------------------
to March 31, 1995 1996 1997 1998 1999
----------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share:
Basic................... $ (0.44) $(1.11) $(5.09) $ 5.53 $ 0.83
Diluted................. (0.44) (1.11) (5.09) 0.37 0.15
Shares used in computation
of earnings (loss) per
share:
Basic................... 1,000 682 553 520 1,776
Diluted................. 1,000 682 553 7,859 10,097
Pro forma earnings per
share:
Basic................... $ 0.19
Diluted................. 0.15
Shares used in computation
of pro forma earnings per
share:
Basic................... 7,776
Diluted................. 10,097
</TABLE>

<TABLE>
<CAPTION>
March 31, March 31, 1999
-------------------------- -----------------
1995 1996 1997 1998 Actual Pro Forma
---- ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........ $435 $ 871 $2,311 $ 4,558 $ 1,812 $ 1,812
Working capital.................. 409 429 1,608 4,119 4,366 4,366
Total assets..................... 602 1,262 3,211 10,017 11,896 11,896
Preferred stock.................. 1 2 6 6 6 --
Stockholders' equity............. 547 786 1,962 4,896 6,724 6,724
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believe," "expect,"
"future," and similar expressions to identify forward-looking statements. You
should not unduly rely on these forward-looking statements, which apply only as
of the date of this prospectus. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results or our predictions. For a description of
these risks, see "Risk Factors."

Overview

Our History of Operations

ESPS was founded in April 1994. In our first fiscal year of operation, ended
March 31, 1995, we focused primarily on research and development activities.
From early in the fiscal year ended March 31, 1996 through the fiscal year
ended March 31, 1997, we began to recruit personnel, purchase operating assets,
market our products, build a direct sales force and expand our services
business. We commercially released CoreDossier in November 1995. Our revenues
totaled $753,000 in the fiscal year ended March 31, 1996 and $1.1 million in
the fiscal year ended March 31, 1997. We generated net losses of $754,000 in
the fiscal year ended March 31, 1996 and $2.8 million in the fiscal year ended
March 31, 1997.

In the fiscal year ended March 31, 1997, we substantially expanded our
operations to capitalize on our opportunity within the rapidly emerging
compliance management market. We decided to accelerate our investments in
marketing, sales, professional services, product development and our general
and administrative infrastructure. As a result, from March 31, 1996 to March
31, 1999, we have:

. Added more than 125 employees;

. Opened two domestic field sales offices;

. Entered the European market by opening a direct sales office in the
United Kingdom; and

. Released three major upgrades to CoreDossier and two industry-specific
modules.

We believe these investments have been critical to our growth to date. Our
revenues were $8.6 million for the fiscal year ended March 31, 1998,
representing an increase of 710% from the fiscal year ended March 31, 1997.
These revenues grew to $17.9 million for the fiscal year ended March 31, 1999
representing an increase of 108% over the prior fiscal year. Although these
investments have significantly increased our operating expenses, we have
remained profitable with income from operations of $2.3 million for the fiscal
year ended March 31, 1999, which is the same amount that was reported for the
prior fiscal year ended March 31, 1998. We have been profitable for the last
six consecutive quarters and, as of March 31, 1999, had retained earnings of
$349,000. We anticipate that our operating expenses will increase substantially
for the foreseeable future as we continue to expand our product development,
sales and marketing, professional services and administrative staffs.

23
<PAGE>

Source of Revenues and Revenue Recognition Policy

We generate revenues through software licenses and services and maintenance.
Software licenses revenues are generated from licensing the rights to use our
products. Services and maintenance revenues are generated from sales of
customer support services contracts and consulting and training services
performed for customers that license our products.

Revenues from the sale of software licenses are recognized upon shipment of
software when persuasive evidence of an agreement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is typically based on the price charged when
an element is sold separately, or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established by authorized management, will not change
before market introduction. Elements included in multiple element arrangements
could consist of software products, upgrades, enhancements, customer support
services, or consulting services. If an acceptance period is required, revenues
are recognized upon the earlier of customer acceptance or the expiration of the
acceptance period.

Revenues from maintenance are recognized ratably over the term of the
customer support contract, typically one year. Consulting revenues are
primarily related to implementation services performed on a time-and-materials
basis under separate service arrangements related to the installation of our
software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license
and service elements, license fee revenues are recognized on shipment of the
software, provided services do not include significant customization or
modification of the base product, and the software is not subject to acceptance
criteria.

Our revenue recognition policy is in accordance with American Institute of
Certified Public Accountants' Statement of Position 97-2, "Software Revenue
Recognition."

Our Results of Operations

We believe that period-to-period comparisons of our operating results are
not meaningful. You should not rely on them to predict our future performance.
You should consider our prospects in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets. However, we may not be able to successfully address such risks and
difficulties. In addition, although we have experienced significant revenue
growth recently, this revenue growth may not continue, and we may not maintain
profitability in the future. Our future operating results will depend on many
factors, including:

. Demand for our products and services;

. Product and price competition;

. Variability in the mix of our software licenses revenues and services and
maintenance revenues;

. Variability in the mix of services that we perform and those performed by
third-party service providers;

. Success in expanding our direct sales force and professional services
organization and implementing indirect distribution channels;

. Our ability to develop and market new and enhanced products on a timely
basis;

. Timing of our new product introductions and product enhancements or those
of our competitors;

. Continued purchases by our existing customers, including additional
software licenses and services and maintenance contracts;

24
<PAGE>

. International sales;

. The loss of any key employees and timing of our new hires;

. Significant downturns in the software industry, particularly when general
economic conditions decline and spending on management information
systems decreases;

. The fiscal or quarterly budget cycles of our customers;

. The efforts of our direct sales force to meet or exceed quarterly or
fiscal year-end sales quotas; and

. The effects of Year 2000 issues on customers' purchasing decisions.

The following table presents certain statement of operations data for the
periods indicated as a percentage of total revenues:

<TABLE>
<CAPTION>
Percentage of Revenues
-------------------------
Fiscal Years
Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software licenses................................ 60.7% 78.8% 75.0%
Services and maintenance......................... 39.3 21.2 25.0
------- ------ -------
Total revenues................................. 100.0 100.0 100.00
Cost of revenues:
Software licenses................................ 6.4 3.0 1.7
Services and maintenance......................... 47.4 18.4 17.8
------- ------ -------
Total cost of revenues......................... 53.8 21.4 19.5
------- ------ -------
Gross profit....................................... 46.2 78.6 80.5
Operating expenses:
Research and development......................... 131.7 22.9 21.3
Sales and marketing.............................. 66.9 14.8 28.9
General and administrative....................... 107.4 14.2 17.6
------- ------ -------
Total operating expenses....................... 306.0 51.9 67.8
------- ------ -------
Income (loss) from operations...................... (259.8) 26.7 12.7
Interest, net...................................... (3.7) 0.6 0.7
------- ------ -------
Income (loss) before income taxes.................. (263.5) 27.3 13.4
Income tax provision (benefit)..................... -- (6.0) 5.2
------- ------ -------
Net income (loss).................................. (263.5)% 33.3% 8.2%
======= ====== =======
</TABLE>

Comparison of Fiscal Year Ended March 31, 1999 and Fiscal Year Ended March 31,
1998

Revenues

Total revenues consist of software licenses revenues and services and
maintenance revenues. Services and maintenance revenues include professional
consulting, training and customer support services. Total revenues increased
108% from $8.6 million for the fiscal year ended March 31, 1998 to $17.9
million for the fiscal year ended March 31, 1999. For fiscal 1999, one customer
accounted for 11% of revenues and for fiscal 1998, three customers accounted
for 46% of revenues.

25
<PAGE>

Software licenses revenues increased 97% from $6.8 million for the fiscal
year ended March 31, 1998 to $13.5 million for the fiscal year ended March 31,
1999. We attribute this increase to both increased market acceptance of
CoreDossier and $1.8 million of license fees from Adobe Systems, Incorporated.
In November 1997, we first delivered release 3.0 of CoreDossier. In June 1998,
we first delivered release 3.1 of CoreDossier and the CDER Compiler Module
specific to the pharmaceutical industry. In October 1998, we first delivered
the CADDY Compiler Module specific to the chemical industry.

Services and maintenance revenues increased 145% from $1.8 million for the
fiscal year ended March 31, 1998 to $4.5 million for the fiscal year ended
March 31, 1999. This increase resulted primarily from an increase in customer
support revenues as our customer base continued to grow and, to a lesser
extent, increases in consulting and training services. We expect the proportion
of services and maintenance revenues to total revenues to fluctuate in the
future, depending in part on our customers' direct use of third-party
consulting and implementation service providers and the ongoing renewals of
customer support contracts.

Revenues outside of the United States were $1.2 million for the fiscal year
ended March 31, 1998, and increased to $3.3 million for the fiscal year ended
March 31, 1999. This increase resulted primarily from the sale of our products
and services to existing customers with operations outside the United States.

We do not believe that we can sustain the historical percentage growth rates
of software licenses and services and maintenance revenues.

Cost of Revenues

Cost of software licenses revenues. Cost of software licenses revenues
consists primarily of royalties for third-party technology incorporated into
our CoreDossier products. Cost of software licenses revenues increased from
$258,000 for the fiscal year ended March 31, 1998 to $298,000 for the fiscal
year ended March 31, 1999. This increase resulted primarily from an increase in
the sale of our CoreDossier products. Cost of software licenses revenues as a
percentage of software licenses revenues was 4% for fiscal 1998 and 2% for
fiscal 1999. This decrease was caused primarily by the license fees from Adobe
Systems, Incorporated, which did not require the third-party technology.

Cost of services and maintenance revenues. Cost of services and maintenance
revenues consists primarily of personnel costs related to professional services
and customer support.

Cost of services and maintenance revenues increased 101% from $1.6 million
for the fiscal year ended March 31, 1998 to $3.2 million for the fiscal year
ended March 31, 1999. This increase resulted primarily from the hiring and
training of professional services and customer support personnel to support our
increased customer base. Cost of services and maintenance revenues as a
percentage of services and maintenance revenues was 87% for fiscal 1998 and 71%
for fiscal 1999. The cost of services and maintenance revenues as a percentage
of services and maintenance revenues may vary among periods because of the mix
of services we provide which have different cost structures. The decrease in
cost of services and maintenance revenues as a percentage of services and
maintenance revenues resulted primarily from increased customer support
revenues, which have higher margins than the other services.

Operating Expenses

Research and development. Research and development expenses consist
primarily of salaries, benefits and depreciation for equipment for:

. Software developers;

26
<PAGE>

. Quality assurance personnel; and

. Program managers and technical writers.

Research and development expenses increased 94% from $2.0 million for the
fiscal year ended March 31, 1998 to $3.8 million for the fiscal year ended
March 31, 1999. This increase resulted from an increase in the number of
software developers and quality assurance personnel to support our product
development and testing activities. Research and development expenses
represented 23% of our total revenues for fiscal 1998 and 21% for the fiscal
year ended March 31, 1999. The decrease in research and development expenses as
a percentage of total revenues primarily reflects the more rapid growth of our
revenues compared to the investment in our research and development activities
during this period. We believe that we need to significantly increase our
research and development investment to expand our market position and continue
to expand our product line and penetrate other targeted industries.
Accordingly, we anticipate that research and development expenses will increase
in future periods.

Sales and marketing. Sales and marketing expenses consist primarily of:

. Salaries, commissions and bonuses earned by sales and marketing
personnel;

. Travel and promotional expenses; and

. Communication costs related to direct sales efforts.

Sales and marketing expenses increased 304% from $1.3 million for the fiscal
year ended March 31, 1998 to $5.2 million for the fiscal year ended March 31,
1999. This increase resulted primarily from our increased investment in sales
and marketing infrastructure, both domestically and internationally. The
investments included significant personnel-related expenses, recruiting fees,
travel expenses, and related facility and equipment costs. In addition, we
increased marketing activities, including trade shows, public relations, direct
mail campaigns and other promotional activities. Sales and marketing expenses
represented 15% of our total revenues for fiscal 1998 and 29% for fiscal 1999.
We believe that we will need to significantly increase our sales and marketing
expenses to expand our market position, and further increase our penetration
and acceptance of our products in other targeted industries. Accordingly, we
anticipate that sales and marketing expenses will increase in future periods.

General and administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative, and information services personnel. These expenses also include
fees for legal, accounting, and consulting services.

General and administrative expenses increased 157% from $1.2 million for the
fiscal year ended March 31, 1998 to $3.2 million for the fiscal year ended
March 31, 1999. This increase resulted primarily from the addition of
executive, finance and administrative personnel to support the growth of our
business and the amortization of deferred stock compensation expense as
described below. General and administrative expenses represented 14% of our
total revenues for fiscal 1998 and 18% for fiscal 1999. We believe our general
and administrative expenses will continue to increase as we expand our
administrative staff, domestically and internationally, and incur expenses
associated with becoming a public company. We expect these expenses to include
annual and other public reporting costs, directors' and officers' liability
insurance, investor relations programs and legal, accounting and consulting
fees.

Deferred stock compensation expense increased from $0 for the fiscal year
ended March 31, 1998 to approximately $218,000 for the fiscal year ended March
31, 1999. Total deferred stock compensation at March 31, 1999 of $204,000 will
be amortized over the vesting periods of the options.

27
<PAGE>

Interest, net. Interest, net is derived from interest income earned on our
cash and cash equivalents. Interest income increased 150% from $52,000 for the
fiscal year ended March 31, 1998 to $130,000 for the fiscal year ended March
31, 1999. This increase resulted from an increase in average cash held during
fiscal 1999.

Income taxes. Income taxes increased from a benefit of $514,000 for the
fiscal year ended March 31, 1998 to a provision of $936,000 for the fiscal year
ended March 31, 1999. This increase resulted primarily from the reversal of a
valuation allowance for fiscal 1998 for income tax benefits related to our net
operating losses in prior periods. The income tax provision for fiscal 1999
yielded an effective rate of 39%.

Comparison of Fiscal Year Ended March 31, 1998 and March 31, 1997

Revenues

Total revenues increased 710% from $1.1 million for the fiscal year ended
March 31, 1997 to $8.6 million for the fiscal year ended March 31, 1998. During
fiscal 1997, three customers accounted for 100% of total revenues. During
fiscal 1998, three customers accounted for 46% of total revenues.

Software licenses revenues increased 952% from $648,000 for the fiscal year
ended March 31, 1997 to $6.8 million for the fiscal year ended March 31, 1998.
The increase in software licenses revenues from fiscal 1997 to fiscal 1998
primarily resulted from increased market acceptance of CoreDossier and
increased sales activities.

Services and maintenance revenues increased from $420,000 for the fiscal
year ended March 31, 1997, to $1.8 million for the fiscal year ended March 31,
1998 an increase of 336%. The increase in services and maintenance revenues
from fiscal 1997 to fiscal 1998 resulted primarily from the increase in
consulting, customer support and training services associated with increased
sales of our software applications and overall growth of our installed base of
customers.

Revenues outside of the United States were insignificant for fiscal 1997.
Revenues outside of the United States were $1.2 million for fiscal 1998.

Cost of Revenues

Cost of software licenses revenues. Cost of software licenses revenues
increased from $68,000 for the fiscal year ended March 31, 1997 to $258,000 for
the fiscal year ended March 31, 1998, an increase of 279%. Cost of software
licenses revenues as a percentage of software licenses revenues was 10% for
fiscal 1997 and 4% for fiscal 1998.

Cost of services and maintenance revenues. Cost of services and maintenance
revenues were $506,000 for the fiscal year ended March 31, 1997. Cost of
services and maintenance revenues increased 214% to $1.6 million for the fiscal
year ended March 31, 1998. The increase from fiscal 1997 to fiscal 1998
resulted from the hiring and training of professional services and customer
support personnel to support our growing customer base. Cost of services and
maintenance revenues as a percentage of services and maintenance revenues was
120% for fiscal 1997 and 87% for fiscal 1998. The decrease in cost of services
and maintenance revenues as a percentage of services and maintenance revenues
from fiscal 1997 to fiscal 1998 primarily reflected increased revenues both in
maintenance and consulting services.

28
<PAGE>

Operating Expenses

Research and development. Research and development expenses increased 41%
from $1.4 million for the fiscal year ended March 31, 1997 to $2.0 million for
the fiscal year ended March 31, 1998. The increases in research and development
expenses from fiscal 1997 to fiscal 1998 related primarily to the increase in
the number of software developers and quality assurance personnel needed to
support our product development and testing activities. Research and
development costs represented 132% of our total revenues for fiscal 1997 and
23% for fiscal 1998. The decrease in research and development expenses as a
percentage of total revenues from fiscal 1997 to fiscal 1998 primarily reflect
the growth of our revenues in this period, which increased from $1.1 million
for fiscal 1997 to $8.6 million for fiscal 1998.

Sales and marketing. Sales and marketing expenses increased 80% from
$714,000 for the fiscal year ended March 31, 1997 to $1.3 million for the
fiscal year ended March 31, 1998. The increases in sales and marketing expenses
from fiscal 1997 to fiscal 1998 resulted primarily from our investment in sales
and marketing infrastructure, which included significant personnel-related
expenses, recruiting fees, travel expenses, and related facility and equipment
costs, as well as increased marketing activities, including trade shows, public
relations, direct mail campaigns and other promotional expenses. Sales and
marketing expenses represented 67% of our total revenues for fiscal 1997, and
15% for fiscal 1998. The decrease in sales and marketing expenses as a
percentage of total revenues from fiscal 1997 to fiscal 1998, reflects the
growth of our revenues in this period from $1.1 million for fiscal 1997 to $8.6
million for fiscal 1998.

General and administrative. General and administrative expenses increased 7%
from $1.1 million for the fiscal year ended March 31, 1997 to $1.2 million for
the fiscal year ended March 31, 1998. The increase in general and
administrative expenses for fiscal 1997 to fiscal 1998 resulted primarily from
increased compensation and consulting expenses. General and administrative
costs represented 107% of our total revenues for fiscal 1997, and 14% for
fiscal 1998. The decrease in general and administrative expenses as a
percentage of total revenues was due to the growth of our revenues in this
period from $1.1 million for fiscal 1997 to $8.6 million for fiscal 1998.

Interest, net. Interest, net, increased from $39,000 of interest expense for
the fiscal year ended March 31, 1997 incurred in connection with bridge loans
to $52,000 of interest income for the fiscal year ended March 31, 1998. The
increase in fiscal 1998 resulted primarily from increases in interest income
resulting from higher average cash and cash equivalents.

Income taxes. We had no provision for income taxes for the fiscal year ended
March 31, 1997. As a result of the reversal of a valuation allowance for income
tax benefits related to the use of our net operating losses in prior years, we
realized a tax benefit of $514,000 in the fiscal year ended March 31, 1998. See
Note 6 of Notes to Financial Statements.

29
<PAGE>

Quarterly Results of Operations

The following table presents our unaudited quarterly results of operations
for the last eight fiscal quarters ended March 31, 1999. You should read the
following table in conjunction with our Financial Statements and related notes
thereto included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the audited Financial Statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from the results of operations for any
quarter.

<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software licenses...... $ 900 $ 909 $2,205 $2,800 $2,040 $3,684 $3,737 $3,993
Services and
maintenance........... 286 296 499 751 915 865 1,098 1,617
------- ------ ------ ------ ------ ------ ------ ------
Total revenues........ 1,186 1,205 2,704 3,551 2,955 4,549 4,835 5,610
Cost of revenues:
Software licenses...... 28 44 70 116 70 92 110 26
Services and
maintenance........... 211 303 507 568 587 553 881 1,172
------- ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues............. 239 347 577 684 657 645 991 1,198
------- ------ ------ ------ ------ ------ ------ ------
Gross profit........... 947 858 2,127 2,867 2,298 3,904 3,844 4,412
Operating expenses:
Research and
development........... 393 446 555 584 701 894 1,183 1,051
Sales and marketing.... 187 203 384 509 587 963 1,476 2,159
General and
administrative........ 220 275 299 435 549 686 979 948
------- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............. 800 924 1,238 1,528 1,837 2,543 3,638 4,158
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............ 147 (66) 889 1,339 461 1,361 206 254
Interest, net.......... 4 24 11 14 50 37 40 3
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes.......... 151 (42) 900 1,353 511 1,398 246 257
Income tax provision
(benefit)............. (1,349) (16) 340 511 198 543 95 100
------- ------ ------ ------ ------ ------ ------ ------
Net income (loss)...... $ 1,500 $ (26) $ 560 $ 842 $ 313 $ 855 $ 151 $ 157
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>

30
<PAGE>

The following table sets forth unaudited quarterly results of operations as
a percentage of revenues:
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software licenses...... 75.9% 75.4% 81.5% 78.9% 69.0% 81.0% 77.3% 71.2%
Services and
maintenance........... 24.1 24.6 18.5 21.1 31.0 19.0 22.7 28.8
------ ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses...... 2.4 3.7 2.6 3.3 2.4 2.0 2.3 0.5
Services and
maintenance........... 17.8 25.1 18.8 16.0 19.9 12.2 18.2 20.9
------ ----- ----- ----- ----- ----- ----- -----
Total cost of revenue.. 20.2 28.8 21.4 19.3 22.3 14.2 20.5 21.4
------ ----- ----- ----- ----- ----- ----- -----
Gross profit............ 79.8 71.2 78.6 80.7 77.7 85.8 79.5 78.6
Operating expenses:
Research and
development........... 33.1 37.0 20.5 16.4 23.7 19.7 24.5 18.7
Sales and marketing.... 15.8 16.8 14.2 14.3 19.9 21.2 30.5 38.5
General and
administrative........ 18.5 22.8 11.1 12.3 18.6 15.1 20.2 16.9
------ ----- ----- ----- ----- ----- ----- -----
Total operating
expenses.............. 67.4 76.6 45.8 43.0 62.2 56.0 75.2 74.1
------ ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. 12.4 (5.4) 32.8 37.7 15.5 29.8 4.3 4.5
Interest, net........... 0.3 2.0 0.4 0.4 1.7 0.8 0.8 0.1
------ ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 12.7 (3.4) 33.2 38.1 17.2 30.6 5.1 4.6
Income tax provision
(benefit).............. (113.7) (1.3) 12.6 14.4 6.7 11.9 2.0 1.8
------ ----- ----- ----- ----- ----- ----- -----
Net (loss) income....... 126.4% (2.1)% 20.6% 23.7% 10.5% 18.7% 3.1% 2.8%
====== ===== ===== ===== ===== ===== ===== =====
</TABLE>

The discussions relating to the fiscal year comparisons of the results of
operations generally apply to the comparison of results of operations for the
eight quarters ended March 31, 1999.

Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. Although historically
we have not experienced any significant delays or defects, new products or
upgrades may not be released according to schedule, or may contain defects when
released. Either of these situations could result in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against us,
any of which could harm our business. In addition, the timing of individual
sales has been difficult for us to predict, and large individual sales have, in
some cases, occurred in quarters subsequent to those in which we originally
anticipated they would occur. The loss or deferral of one or more significant
sales could harm our quarterly operating results.

We experienced, and expect to continue to experience, significant
seasonality with respect to software licenses revenues. We believe that these
fluctuations are primarily caused by the efforts of our direct sales force to
meet or exceed fiscal year-end sales quotas as well as customer buying patterns
and budgetary cycles. In recent years, there have been greater sales of our
products in our fourth fiscal quarter than in each of the first three quarters
of our fiscal year. For example, in the fiscal year ended March 31, 1998, 41%
of total revenues were recognized in the fourth quarter, compared to 31% in the
third quarter, 14% in the second quarter, and 14% in the first quarter. In the
fiscal year ended March 31, 1999, 31% of total revenues were recognized in the
fourth quarter, compared to 27% in the third quarter, 25% in the second
quarter, and 17% in the first quarter. In addition, we experienced lower total
revenues in the first quarter of fiscal 1999 as compared to the first quarter
of 1998 fiscal. We expect that seasonal trends will continue for the
foreseeable future.

Liquidity and Capital Resources

Since our inception, we have primarily financed our operations through
private placements of our preferred stock and cash from operations. Through
March 31, 1999, proceeds from private placements of preferred stock totaled
$6.0 million.

31
<PAGE>

As of March 31, 1999, we had cash and cash equivalents of $1.8 million, a
decrease of $2.7 million from cash and cash equivalents held at March 31, 1998.
Our working capital at March 31, 1999 was $4.4 million, compared to $4.1
million at March 31, 1998.

Our operating activities resulted in net cash outflow of $2.3 million for
the fiscal year ended March 31, 1997 and $796,000 for the fiscal year ended
March 31, 1999. We had $2.7 million of net cash inflows for the fiscal year
ended March 31, 1998. The sources of cash in that fiscal year were primarily
income from operations, increases in accounts payable and accrued liabilities
and increases in deferred revenues, partially offset by increases in accounts
receivable, and other current assets. The operating cash outflows for fiscal
1997 resulted from significant investments in sales, marketing and product
development, which led to an operating loss. The cash outflows from the
operating loss, increases in accounts receivable, and other current assets were
partially offset by increases in accounts payable and accrued liabilities and
deferred revenues. The operating cash outflows for the fiscal year ended March
31, 1999 resulted primarily from increases in accounts receivable and other
current assets and decreases in deferred revenues partially offset by increases
in accounts payable and accrued expenses offset by net income.

Investing activities used cash of $224,000 for the fiscal year ended March
31, 1997, $547,000 for the fiscal year ended March 31, 1998 and $2.0 million
for the fiscal year ended March 31, 1999, for the purchase of property and
equipment.

Financing activities provided cash of $4.0 million for the fiscal year ended
March 31, 1997. The source of cash from financing activities for the fiscal
year ended March 31, 1997 was through the issuance of preferred stock and
financing from bridge loans. Financing activities provided cash of $59,000 for
the fiscal year ended March 31, 1998 and $51,000 for the fiscal year ended
March 31, 1999, which represents proceeds from the exercise of stock options
offset by offering costs paid in fiscal 1999.

We anticipate that we will continue to experience significant growth in our
operating expenses. Operating expenses will consume a material amount of our
cash resources, including a portion of the net proceeds of this offering. We
believe that the net proceeds of this offering, together with our existing cash
and cash equivalents, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next twelve months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity financing, bank debt financing or from other
sources. We may not be able to obtain adequate or favorable financing at that
time. Any equity financing may dilute your ownership interest in ESPS.

Year 2000 Compliance

Year 2000 Issue

Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries including technology, transportation,
utilities, finance and telecommunications will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Significant uncertainty exists in the software industry and other
industries concerning the scope and magnitude of problems associated with the
century change. We recognize the need to ensure that our operations will not be
harmed by Year 2000 software failures. We are assessing the potential overall
impact of the impending century change on our business, financial condition and
operating results.

32
<PAGE>

Software Products

Based on our assessment to date, we believe the current versions of our
software products are "Year 2000 compliant"--that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. We have
substantially completed the testing of the current version of our software. We
are currently assessing the need to test the older versions of our software
which may still be used on a limited basis. This assessment is expected to be
complete by late 1999.

Internal Information Systems

We have preliminarily assessed our internal management information and other
systems to identify any products, services or systems that are not Year 2000
compliant and to plan for corrective action. To date, we have not encountered
any material Year 2000 problems with our computer systems or any other
equipment that might be subject to such problems. We presently believe that
with modifications to existing software and conversions to new software, the
Year 2000 problem will not pose a significant operational problem for our
computer systems. We expect to complete our testing of the internal information
systems by late 1999.

We plan to verify compliance by external vendors that supply us with
software and information systems and to communicate with significant suppliers
to determine the readiness of third parties' remediation of their own Year 2000
issues. As part of our assessment, we are evaluating the level of validation we
will require of third parties to ensure their Year 2000 readiness. Our
verification should be complete by late 1999. If third parties cannot provide
us with products, services or systems that meet the Year 2000 requirements on a
timely basis, our business, financial condition and results of operations could
be harmed.

Our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant. We may face claims based on Year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. Although we have not been a party to any litigation or
arbitration proceeding to date involving our products or services related to
Year 2000 compliance issues, we may be required to defend our products or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, and any liability we may
have for Year 2000-related damages, including consequential damages, could harm
our business, financial condition and results of operations. In addition, we
believe that the purchasing patterns of customers and potential customers may
be affected by Year 2000 issues as companies expend significant resources to
correct or upgrade their current software systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase software
products such as those we offer. To the extent Year 2000 issues cause a
significant delay in, or cancellation of, decisions to purchase our products or
services, our business, financial condition and results of operations would be
harmed.

To date we have not incurred any material costs directly associated with our
Year 2000 compliance efforts as they relate to both our software products and
our internal information systems. We do not expect the total cost of these Year
2000 compliance activities to be material to our business, financial condition
and results of operations. These costs and the timing with which we plan to
complete our Year 2000 modifications and testing processes are based on our
estimates. However, we may not identify and remediate all significant Year 2000
problems on a timely basis. Remediation efforts may involve significant time
and expense and unremediated problems could harm our business, financial
condition and results of operations.

We are currently developing our business continuation contingency plans and
expect to have our plans in place by late 1999.

33
<PAGE>

OUR BUSINESS

Industry Overview

Overview of Regulation and Compliance

Virtually every business in the world is subject to rules, regulations and
standards imposed by various regulatory agencies. As part of their oversight,
regulatory agencies typically require businesses to compile information to
document their compliance with specific regulations and to maintain compliance
records. In addition, regulatory agencies often require businesses to make
periodic or event-driven submissions. Periodic submissions demonstrate a
business's compliance with regulations relating to its ongoing operations.
Event-driven submissions are required in connection with a specific business
event, such as the introduction of a new product or service or a change in
customer rates.

In the United States, federal and state regulatory agencies are responsible
for ensuring that businesses comply with various regulations. The following
table provides examples of major federal regulatory agencies and each agency's
estimate of the number of hours required for mandated record keeping and
compliance reporting, or burden hours, as reported to the Office of Management
and Budget for 1997 under the Paperwork Reduction Act of 1995.

<TABLE>
<CAPTION>
Compliance
Agency Burden Hours
------ -------------
<S> <C>
Environmental Protection Agency, or EPA........................... 115.6 million
Federal Energy Regulatory Commission, or FERC..................... 5.2 million
Nuclear Regulatory Commission, or NRC............................. 10.3 million
Securities and Exchange Commission, or SEC........................ 148.9 million
</TABLE>

Significant state regulatory agencies in the United States include public
utility commissions and insurance commissions. Similar regulatory environments
exist throughout the world, requiring many businesses with international
operations to comply with regulations in most nations in which they operate.

Three examples of highly-regulated industries include the pharmaceutical and
biotechnology industry, the chemical industry and the utilities industry.

. Pharmaceutical and biotechnology industry. The pharmaceutical and
biotechnology industry includes over 4,000 companies worldwide, many of
which market their products in a number of different countries. Because
of the potential risks associated with newly-developed drugs and medical
devices, regulatory agencies typically require pharmaceutical and
biotechnology companies to extensively document their research,
development and manufacturing processes. In addition, pharmaceutical and
biotechnology companies generally must

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demonstrate the safety and efficacy of a drug or medical device to a
regulatory agency prior to its commercialization. This process often
requires the collection of data that takes years to compile and the
preparation of submissions that consist of hundreds of thousands of
pages.

. Chemical industry. The chemical industry includes over 4,000 companies
worldwide, many of which sell products around the world. Similar to
companies in the pharmaceutical and biotechnology industry, chemical
companies are, in many cases, required to receive regulatory approval
prior to the introduction of new products. In addition, the chemical
industry faces more significant regulation than most other industries
relating to environmental protection and the transportation of hazardous
materials.

. Utilities industry. The utilities industry includes over 3,000 companies
worldwide, including electric utilities, gas transmission and
distribution companies and telecommunications companies. Utilities face
significant regulation with regard to expanding their infrastructure and
setting and changing customer rates. Additionally, the global trend
toward deregulation in the utilities industry is increasing the volume of
regulatory filings, since an increasing number of companies are entering
the market and existing utility companies are entering territories in
which they were previously not permitted to compete.

The Compliance Process

Companies must undertake a complex process to comply with regulations
imposed by the regulatory agencies that oversee their operations. The
compliance process requires significant time and effort from personnel in
various departments within a company. The major aspects of the compliance
process include:

. Authoring the information. Various persons within and outside a business
organization, including scientists, researchers, technical personnel,
consultants, financial analysts and regulatory affairs personnel, who are
often in different geographic locations, conduct studies and capture and
analyze data over a period of time. Individuals then author information
detailing their studies, analyses and conclusions.

. Collecting and compiling the information from multiple authors and in
various formats. Regulatory affairs personnel collect from various
authors information, which often exists in a variety of formats,
including paper files, faxes, phone messages, e-mails, word processing
files, spreadsheets, graphics programs, and the company's own proprietary
software. This information is then compiled by teams of regulatory
affairs and clerical personnel who are dedicated to the compliance
process.

. Publishing a comprehensive document. The compliance teams publish the
information in a form or document that complies with the specifications
of a regulatory agency. This often involves scanning and copying a large
number of voluminous files. The document must then be formatted for
publication, which includes conforming the different numbering schemes,
footnotes and technical terms used in the various narratives.

. Circulating the document for review and revision. The initial document is
distributed to numerous scientists, researchers, technical personnel,
consultants, financial analysts, management and outside advisors for
their review and comments. The comments are then integrated by the
regulatory affairs group into a revised compliance document. The revised
document is then distributed again for review. This process is repeated,
often multiple times, until all parties are satisfied with the document.

. Publication of the final compliance document. Once the compliance process
is complete, final versions of the document are published and archived
for ongoing compliance purposes and, if required, submitted to a
regulatory agency.

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Many companies incur significant costs relating to compliance activities.
Direct costs include the cost of personnel, such as scientists, technical
personnel, accountants, lawyers and management, and other administrative costs
related to the compliance process. Indirect costs include lost revenues and
market share resulting from delays in introducing new products, fees and
expenses resulting from penalties imposed by regulatory agencies for non-
compliance and monetary damages and legal fees resulting from legal actions
brought by agencies or other third parties. In addition to delays relating to
the company's compliance process, regulatory agencies may experience difficulty
in working with various electronic filing formats and voluminous paper filings,
resulting in lengthy review time for compliance filings. As regulatory
environments become more complex and the number of companies subject to
regulation increases, we expect compliance costs to grow and the need for
access to information to increase.

The Emergence of Electronic Compliance

Historically, businesses have used a manual process to create paper-based
documentation and submissions that demonstrate compliance with regulatory
requirements. In recent years, the emergence of new technologies and the
increase in the complexity of regulatory compliance have caused businesses to
reevaluate how they assemble, compile, share, review and revise compliance
information.

At the same time, regulatory agencies around the world are analyzing the
benefits of electronic compliance and submissions and are moving toward
implementing electronic compliance standards. In the United States, the federal
government has encouraged regulatory agencies to adopt electronic compliance
standards and to use technology to improve productivity, efficiency and
effectiveness by reducing the burden of collecting, disseminating and reviewing
information. Recently, regulatory agencies have begun to implement electronic
compliance and reporting standards. Examples of the increasing adoption of
electronic compliance in the United States and abroad include:

. The FDA has announced its intention to support all electronic filings by
2002;

. The EPA has announced its intention to support all electronic filings by
2000;

. FERC has announced an electronic filing initiative to improve processing
and distribution of filings;

. BfArM, the Bundesinstitut fur Arzneimittel und Medizinprodukte, a German
regulatory agency, has announced its intention to support electronic
submissions; and

. The European Union has adopted an electronic filing standard for
pesticide registrations, known as CADDY.

The Impact of Intranet and Internet Technology

Intranets and the Internet are quickly emerging as the medium of choice for
collecting, publishing and distributing information. These networks provide a
relatively low cost and widely dispersed communication, collaboration and data
transmission platform. We believe that businesses are seeking to use corporate
intranets and the Internet to manage complex business processes, such as
compliance management. As businesses attempt to reengineer their complex
business processes to utilize these networks, they are faced with the challenge
of accessing and integrating large amounts of data that are often in various
formats and stored in different locations throughout the enterprise.

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The Need for Enterprise Compliance Management Solutions

As businesses move toward implementing electronic compliance processes, a
variety of approaches have emerged that attempt to address the requirements and
to realize the benefits of electronic compliance. These approaches include:

. Internally-developed systems. Systems developed by internal information
technology departments tend to be highly customized and are designed to
meet the specific regulatory requirements at the time of development. As
regulations change and technology advances, these systems are
increasingly costly and difficult to maintain due to their lack of
flexibility. Furthermore, many of these systems were not specifically
designed to take advantage of intranet and Internet technologies.

. Document management systems. Document management systems are designed to
scan, store, secure and archive documents. These systems are not designed
to support the compliance management function and generally lack the
capability to support complex document publication, automatic cross-
referencing and different pre-defined forms and formats.

. Point solutions. Point solutions are software tools designed to address a
very specific compliance requirement. These tools generally do not have
the breadth to address all of the compliance management needs of
businesses that are required to comply with the complex regulations of
multiple agencies.

. Desktop publishing tools. Desktop publishing tools are typically word
processing tools that are used to create individual pieces of a
compliance-related document. These tools often lack the features and
functions required to enable a business to create much larger and more
complex compliance documents.

. Outsourcing. Businesses sometimes hire third parties to prepare
regulatory submissions. This approach can be costly and time-consuming
and may limit the ability of businesses to reuse the information that has
been prepared.

We believe that businesses, in an effort to significantly improve their
compliance processes, are seeking an enterprise-wide compliance management
solution that has the following characteristics:

. Enterprise scalability. The ability to access information and collaborate
on publications by an increasing number of users in multiple departments
throughout an enterprise.

. Industry-specific compliance expertise. Expertise in the complex and
rapidly changing compliance requirements of particular industries.

. Multiple-industry applicability. Ability to meet the compliance
requirements of customers operating in various industries.

. Leading technology foundation. Support for the most advanced technology
platforms, such as intranets and the Internet, as well as an architecture
that allows for changes in technology.

. Support multiple information formats. Ability to collect information
stored in various formats, including spreadsheets, desktop publishing and
database applications, as well as the ability to output to the various
formats supported by regulatory agencies in each industry.

. Rapid implementation. Ability to be rapidly implemented throughout the
enterprise.

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We believe that an enterprise-wide application which exhibits these
characteristics will enable businesses to deploy effective compliance
management systems to reduce compliance costs and the time required to bring
new products and services to market.

Our Solution

Our solution, which consists of the CoreDossier family of software products
and related services, enables users throughout an enterprise to collaborate in
the authoring, compilation, distribution and publishing of compliance
information and regulatory submissions. We designed our CoreDossier software
products to utilize advanced technologies, such as corporate intranets and the
Internet, and to meet emerging electronic compliance requirements and
standards. We believe our solution reduces the risks associated with the
deployment of in-house and other customized compliance management solutions and
enables companies in highly regulated industries to realize a return on their
investment through direct cost savings. Furthermore, we believe our solution
enables companies to reduce the time required to bring new products and
services to market. We also offer our solution to regulatory agencies to
provide them with more effective and efficient access to compliance filings,
thereby decreasing the time required for regulatory review and response.

Our solution provides our customers with the following key advantages:

Scalable enterprise-wide solution. Our solution extends throughout an
enterprise, providing multiple departments in various locations throughout the
world with the ability to collaborate in the authoring, assembling,
distributing and publishing of compliance information. We also designed our
solution to support the growth of our customers as they add new users and
process an increasing amount of compliance information.

Domain expertise. We designed our solution around our expertise in meeting
the specific compliance needs of each industry in which our customers compete.
Our professionals possess industry expertise and in-depth knowledge of specific
compliance requirements. This domain expertise enables us to provide an
enterprise compliance management solution that effectively addresses the
requirements, changes and subtleties of regulations that are unique to each
specific industry.

Modular product architecture. Our solution addresses the compliance
requirements of customers in various industries through the use of industry-
specific modules to enhance the functionality of the CoreDossier platform.
Furthermore, our solution enables large diversified businesses that operate in
numerous industries to address various regulatory requirements with a single
compliance solution.

Intranet and Internet capabilities. We designed our systems architecture to
be adaptable to advancing intranet and Internet technologies. We believe that
corporate intranets and the Internet will become increasingly important in the
compliance management process as companies continue to rapidly adopt these
communication platforms.

Multiple input and output capabilities. We designed our solution to enable
users to input information in different formats, including paper files, faxes,
phone messages, e-mails, word processing files, spreadsheets, graphics
programs, and the company's own proprietary software. In addition, CoreDossier
supports older formats such as WordStar and Wang Office. CoreDossier also
enables users to output information in numerous formats, including those most
commonly used in the compliance submission process, such as HTML, PDF, TIFF and
paper.

Rapid deployment. We designed our solution to be quickly implemented
throughout a customer's enterprise. Since our solution is tailored to meet the
specific compliance requirements of our targeted industries, it requires
minimal customization.

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Our Strategy

Our goal is to be the leading provider of enterprise compliance management
solutions that enable businesses to author, compile, distribute and publish
complex compliance documents. To achieve this objective we intend to:

Enhance our Technology Leadership and Product Functionality. We believe that
our products provide the most advanced solution to meet enterprise compliance
requirements in our targeted markets. Our solution incorporates leading
technologies, such as intranet and Internet technologies. We intend to maintain
and enhance our position as a technology leader by continuing to invest in
product development to:

. Expand the base functionality of the CoreDossier platform;

. Support emerging publishing standards and formats;

. Enhance existing industry-specific modules; and

. Develop industry-specific modules to target new industries.

In addition, we encourage third parties to develop industry-specific modules
that will further enhance the functionality of CoreDossier through the use of
application programming interfaces.

Target Other Industries. We have focused our product development,
consulting, sales and marketing efforts on specific industries, particularly
the pharmaceutical and biotechnology industry and, more recently, the chemical
and utilities industries. We believe that companies in other industries could
benefit from our solution and we intend to utilize our experience in compliance
management to rapidly penetrate these industries. We intend to:

. Leverage the comprehensive compliance technology contained in the
CoreDossier platform to quickly develop new modules that provide
industry-specific compliance functionality; and

. Utilize and expand our cross-functional sales and marketing teams, which
combine industry specific compliance expertise with knowledge of product
development, to quickly penetrate targeted industries.

The additional industries we are currently targeting include the financial
services, insurance and discrete manufacturing industries.

Enhance our Domain Expertise. We believe our industry expertise and
knowledge of specific compliance requirements enables us to more effectively
tailor our solutions to the specific needs of businesses in the industries we
target. Furthermore, our domain expertise enables us to provide our customers
with access to critical and constantly changing compliance-related information.
We intend to continue to enhance our industry-specific domain expertise to
accelerate our entrance into other industries and to quickly establish a
leadership position in such industries.

Promote Use of Intranet and Internet Technologies for Compliance
Management. We actively promote the use of intranet and Internet technologies
for compliance management by hosting informational seminars and demonstrating
the capabilities of our technology through installations at regulatory
agencies. We have participated in several of the first Web-based regulatory
submissions. We believe that a better understanding by businesses and
regulatory agencies of the benefits of using intranets and the Internet for
compliance management will enhance our position as a leader in the use of these
emerging technologies.

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<PAGE>

Expand our Professional Services Organization. We have recently established
a professional services organization to enhance our customers' ability to
realize maximum return on their investment in CoreDossier. In addition to
helping customers realize this return, our professional services organization
is designed to assist them in addressing other requirements and functions
within their business such as record keeping and internal compliance.

Expand and Capitalize on our Strategic Alliances. We believe that our
strategic alliances with leading systems integration firms, information
technology consulting firms and technology companies enable us to promote
awareness of our products and services, expand territorial coverage and provide
value-added implementation services to end-users. We intend to maintain and
strengthen these relationships, as well as establish new relationships with
leaders in the information technology industry.

Enhance our International Presence. We intend to increase our international
presence and further enhance our solution to address the needs of companies
operating in various countries throughout the world. We believe that
significant opportunities exist for enterprise compliance management software
that is designed for businesses subject to compliance requirements in various
worldwide regulatory environments. We currently maintain an office in London,
England and intend to add sales personnel, develop domain expertise and
establish additional offices to further address international markets.

Products

The CoreDossier product family includes the CoreDossier platform, industry-
specific modules and the CoreDossier Application Program Interfaces, or APIs.
Our software products comprise a modular system that may be configured in a
variety of ways to meet customers' industry-specific requirements. The
CoreDossier platform provides the foundation for enabling our customers to
collaborate in the authoring, compiling, distributing and publishing of
compliance information. Our industry-specific modules are easy-to-install
software products that perform compliance functions designed to meet the
regulatory requirements of a particular industry. The CoreDossier APIs enable
third parties to develop custom applications and extend access to additional
external information sources.

The CoreDossier family of products is priced on a per-server basis.
Depending upon the functionality and industry-specific modules chosen by a
customer, the license fee for the CoreDossier solution generally ranges from
$200,000 to $400,000 per-server, with multiple site licenses costing in excess
of $1.0 million. Customers can purchase additional industry-specific modules,
which range from $40,000 to $75,000 per module and are sold on a per-server
basis. The license fees for CoreDossier do not include fees for implementation,
technical support and training.

The CoreDossier Platform

The CoreDossier platform is the base product used by our customers. The
CoreDossier platform addresses the following aspects of compliance management:

Support for multiple file format inputs. Many documents and other
information required for a regulatory submission exist in both paper and
electronic formats. CoreDossier supports over 100 file formats, enabling
businesses to utilize information in its existing formats without the
complications generally associated with file conversion. Electronic formats
include:

. Current word processing formats, such as Microsoft Word, WordPerfect and
Interleaf, and older word processing formats such as Wang Office and
WordStar;

. Spreadsheet formats, such as Excel, Lotus 1-2-3 and SAS;

. Graphic formats, such as TIFF, BMP and Illustrator;

. Desktop publishing tools, such as Quark, Photoshop and Pagemaker; and

. Communication formats, such as e-mail and facsimile.

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<PAGE>

In addition, CoreDossier supports a variety of file and document management
systems, including Documentum, PC DOCS and FileNet. In our next product
release, we intend to support Extensible Markup Language, or XML, which will
enable CoreDossier to better support other external information sources.

Publication design. CoreDossier allows customers to define, create and reuse
publication templates. These templates provide a standardized structure for
resulting publications, which contains documents, document templates, standards
for headers and footers, tables of contents and finishing options. As a result,
customers can quickly create new publications that meet predefined internal or
external compliance requirements using an old template. This also allows
companies to utilize information contained in previous publications to create
new publications.

Support for multiple file format outputs. CoreDossier supports output in
standardized formats and languages such as HTML, PDF, TIFF and paper. In our
next product release, we intend to support XML and additional output formats to
better address our customers' needs. The ability to support multiple outputs is
essential for many of our customers, as many regulatory agencies require that
companies publish both in electronic formats and in paper format. In addition,
the ability to publish in multiple output formats provides companies with the
ability to reuse compliance information for other purposes, including quality
assurance, record-keeping and internal compliance.

Server-to-server communications. CoreDossier servers installed in different
departments of a business can share compliance and publication information. As
a result, a CoreDossier user in one department, such as product development,
can share information and collaborate with a user in another department, such
as regulatory affairs.

The CoreDossier platform is comprised of the:

. CoreDossier Server, which manages publication information and maintains
data integrity in response to requests from the CoreDossier Assemblers.

. CoreDossier Generator, which is responsible for converting source
documents into PDF renditions and document data. The PDF renditions are
stored within the original source documents. The document data, such as
cross-references and table of contents information, are stored in the
CoreDossier Server. The CoreDossier Generator is also responsible for
servicing publishing requests from the CoreDossier Assemblers.

. CoreDossier Assembler, which is the main interface for the publication
manager. The CoreDossier Assembler enables multiple users to create and
modify a publication simultaneously, allowing for a collaborative
publication creation process.

. CoreDossier Web Server, which enables access to publications on corporate
intranets and the Internet.

. CoreDossier Document Management Interface, which enables CoreDossier to
communicate with a user's document management system. Through this
interface, CoreDossier can access documents in Documentum, FileNet, PC
DOCS and shared file systems. Interfaces are planned for Open Text and
Lotus Notes in the future.

CoreDossier is written in C++ and supports Windows 95, Windows 98 and
Windows NT operating systems. The CoreDossier Server and the CoreDossier
Generator run on Windows NT. The CoreDossier Web Server runs on Windows NT and
was created using HTML, XML, PDF and Java programming languages. We anticipate
that future versions of the CoreDossier Web Server will run on a variety of
UNIX platforms.

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Industry-Specific Modules

We have developed customized modules for the CoreDossier platform to meet
the specific needs of our targeted industries. Because of the modular
architecture of the CoreDossier solution, we have been able to develop and
introduce these industry-specific modules quickly and efficiently. These
industry-specific modules extend the core capabilities of the CoreDossier
platform by providing additional user interfaces, processes and output formats
that are designed specifically for a particular industry's compliance
requirements.

Existing modules and modules currently under development include:

. CDER Compiler Module. This module enables our customers in the
pharmaceutical and biotechnology industry to produce electronic
submissions for new drug applications that comply with the FDA's
specifications. These electronic submissions enable our customers to
reduce time required for the assembly and review process for a new drug
application. Currently, we offer a CDER Compiler Module and a collection
of pharmaceutical templates.

. CADDY Compiler Module. This module enables our customers to produce
electronic submissions for global agrochemical product registrations. The
CADDY Compiler Module was used to prepare the first submission that
complied with the current specifications for agrochemical electronic
filings with the Canadian Pest Management Regulatory Agency. Currently,
we offer a CADDY Compiler Module and one agrochemical template.

. DAMOS Compiler Module. This module enables our customers to produce
electronic submissions for pharmaceutical product registrations. The
DAMOS Compiler has been used to prepare submissions to BfArM, a
regulatory agency that oversees the pharmaceutical industry in Germany.
Currently, we offer a DAMOS Compiler Module and three pharmaceutical
templates.

. CoreDocket Module. The first release of the CoreDocket Module is targeted
for mid-1999. This module is designed to enable utilities companies to
collect and organize information from multiple sources quickly for
regulatory filings. One distinct feature of CoreDocket is that utilities
can use their existing e-mail and authoring systems in automating the
process of responding to compliance-related requests from the regulatory
agencies.

CoreDossier Application Programming Interfaces

The CoreDossier APIs are used to extend the functionality of the CoreDossier
platform. Using software development kits, customers can utilize the APIs to
link our solution to other business information systems, such as imaging
systems, authoring systems and other legacy systems. Customers can also use the
CoreDossier APIs to customize their CoreDossier software to meet their specific
needs and support additional input and output formats.

Professional Services

Our professional services organization provides customers with on-site
product implementation and consulting, technical support and training services.
Our services include:

Implementation and Consulting. Our service professionals implement the
CoreDossier software for our customers at a single site or multiple sites. As
part of our implementation services offering, we work with clients to customize
our solution to effectively meet their specific business needs. We provide
ongoing consulting services to assist our customers in optimizing the use of
our solution to realize a return on their investment as quickly as possible. We
price our implementation services on a time and materials basis.

Technical support. We have implemented a comprehensive technical support
program to assist customers in using our products and to identify, analyze and
solve problems that may arise. The

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support program includes worldwide e-mail support, which is available 24 hours
a day, seven days a week, and telephone support, which is globally available
during the normal business hours of the countries in which our products are
used. We provide technical support to our customers as part of our maintenance
program, which is typically priced based on a percentage of the then-current
software license list price.

Training. We offer a number of educational classes in conjunction with our
products, including end-user training and in-depth technical training covering
the implementation and management of our solution. Training services are priced
on a per class basis, as well as incremental time and materials charges for
customized on-site training.

Strategic Alliances

We have established a number of relationships with service vendors for the
implementation of our software to our customers. We have also entered into
marketing and sales alliances with leading technology companies and consulting
firms. Through our alliances, we seek to develop and nurture long-term third-
party alliances to promote awareness of our products and services, expand
geographic coverage, contribute to our product solutions and provide value-
added implementation services to the end-user. We frequently participate in
joint sales and marketing efforts with our strategic partners. Our strategic
alliances are classified in three categories:

CorePartner Solution Integrators. Solution integrators provide services
ranging from project management to installation, systems integration and
application development. These solution integrators include Computer Sciences
Corporation, First Consulting Group-ISCG, PricewaterhouseCoopers LLP and
Science Applications International Corp.

CorePartner Technology Alliances. Through technology alliances, independent
software vendors and service providers create new products and integrate
product lines to be compatible with CoreDossier. These technology alliance
partners include Documentum, FileNet and Versant Object Technology Corporation.

CorePartner Strategic Alliances. Through strategic alliances, we seek to
promote awareness of our enterprise compliance management solution and gain
strategic support for our overall marketing, sales and development programs. We
currently have a strategic alliance partnership with Adobe Systems
Incorporated.

We intend to maintain and strengthen these relationships while establishing
new relationships to increase awareness of our products and services and
increase the quality of our solutions.

Customers and Markets

Our targeted customers are mid- to -large-sized businesses and divisions of
large companies that operate in highly regulated industries. We believe that
these enterprises have the greatest compliance burden and are likely to
implement new technology as a means of gaining a competitive advantage. We
initially focused on the pharmaceutical and biotechnology industry.
Consequently, the majority of our existing customers are pharmaceutical and
biotechnology companies. We recently introduced the CADDY Compiler Module for
the chemical industry and we intend to release the CoreDocket Module for the
utilities industry in mid-1999.

As of March 31, 1999, we licensed versions of our CoreDossier products to 45
customers. For the fiscal year ended March 31, 1999, Adobe Systems,
Incorporated accounted for approximately 11.0% of our total revenues. For the
fiscal year ended March 31, 1998, three of our customers accounted for
approximately 46% of our total revenues. Our agreement with Glaxo-Wellcome Inc.
accounted for approximately 17.3% of total revenues for fiscal year 1998. Our
agreement with Hoechst Marion Roussel accounted for approximately 15.0% of
total revenues for fiscal year 1998 and our agreement with Rhone-Poulenc Rorer
Pharmaceuticals Inc. accounted for approximately 13.7% of total revenues for
fiscal year 1998.

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Below is a representative list of customers who have licensed our software
as of April 28, 1999:

Pharmaceutical and Biotechnology Industry

Abbott Laboratories Immunex Corp.
Alcon Laboratories, Inc. Ligand Pharmaceuticals Incorporated
Allergan, Inc. Molecular Biosystems, Inc.
Athena Neurosciences, Inc. NPS Pharmaceuticals, Inc.
Baxter Healthcare Corp. (a subsidiary of Organon Laboratories, Ltd. (a
Baxter International Inc.) subsidiary of Akzo Noble Pharma
Biogen, Inc. B.V.)
Coulter Pharmaceutical, Inc. Otsuka America Pharmaceutical, Inc.
DuPont Pharmaceuticals Company Pfizer, Inc.
Dura Pharmaceuticals Inc. PharmaNet, Inc.
G.D. Searle & Co. Quintiles, Inc.
Glaxo-Wellcome Inc. (a subsidiary of Rhone-Poulenc Rorer Pharmaceuticals
Glaxo Wellcome PLC) Inc. (a subsidiary of Rhone-Poulenc
Health Decisions, Inc. Rorer Inc.)
Schering AG
Sequus Pharmaceuticals, Inc.
TAP Holdings, Inc.
Warner Lambert Company

Chemical Industry

Utilities Industry

Bayer Corporation (Agriculture Division) Baltimore Gas & Electric

In addition, we intend to market our enterprise compliance management
solution to regulatory agencies and industry groups. We currently have
installed test versions of our solution at several federal regulatory agencies
for use and review by these agencies. We believe that this increased exposure
will encourage the adoption of electronic compliance standards and the use of
our solution.

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Sales and Marketing

We market our products and services primarily through our direct sales
organization. We deploy teams comprised of sales, marketing, regulatory
compliance, professional services and software development professionals that
are focused on specific industries. These cross-functional sales and marketing
teams, referred to as "Tiger Teams," are responsible for identifying and
quantifying new markets, identifying new applications for CoreDossier within
industries already served by our solution, generating new opportunities and
capitalizing on those opportunities. Sales efforts are typically targeted at
senior regulatory compliance officers. For larger projects, purchase approval
is often required from more senior company executives. While the sales cycle
varies substantially from customer to customer, the initial sales cycle
typically ranges from three to six months.

We have initiated a branding and marketing strategy designed to broaden
market awareness of the ESPS name and to solidify our position as a leading
provider of enterprise compliance management solutions in the pharmaceutical
and biotechnology, chemical and utilities industries. We have also initiated
marketing strategies targeted at the financial services, insurance and discrete
manufacturing industries. We are also leveraging our expertise to sell our
products to additional departments of our current customers.

As of March 31, 1999, we employed 35 people in sales and marketing in the
U.S., and eight people in sales and marketing in Europe.

Product Development

We have substantially invested in the development of our CoreDossier
platform and our industry-specific modules. Our product development department
is responsible for the design, development, testing and release of our software
products and is organized in four areas:

. Software development;

. Quality assurance;

. Product documentation; and

. Program management.

Along with a product manager from our marketing department, members from
each of these areas form product teams that work closely with other
organizations, customers and prospective customers to better understand their
compliance management needs.

The software development and quality assurance groups are further divided
into platform development and industry-specific module development groups. The
platform group extends and develops the CoreDossier platform by creating
additional functions and features that can be used by customers in various
industries. Each industry group works closely with the marketing managers from
each of the marketing teams to design and deliver industry-specific modules and
applications. As a result of this structure the industry-specific module
development groups are able to develop new modules independent of the
development cycles of the CoreDossier platform.

In addition to developing our own software, we incorporate third-party
technologies into our products. We believe this approach significantly shortens
our product development time without compromising our competitive position or
the quality of our products.

As of March 31, 1999, we employed 46 people in our product development
department. Our research and development expenses were $1.4 million in the
fiscal year ended March 31, 1997, $2.0 million in the fiscal year ended March
31, 1998 and $3.8 million in the fiscal year ended March 31, 1999.

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Competition

The market for enterprise compliance management solutions is new and rapidly
evolving. As the market develops, we expect competition to increase. We
primarily compete against the internal information technology departments of
our customers and potential customers. These information technology departments
may develop their own compliance management software. We also compete against
desktop publishing tools and service providers who compile submissions to
regulatory agencies manually, without the use of compliance software. In each
industry, we also face competition from software vendors who provide compliance
assistance to specific divisions of our current and potential customers and
point solutions, such as the Document Solutions Group of Xerox and Interleaf,
Inc. We believe that the principal competitive factors in the enterprise
compliance management market are product flexibility, domain expertise,
customer support, scalability and price.

Intellectual Property and Other Proprietary Rights

We rely primarily on a combination of copyright, trade secret and trademark
laws, confidentiality agreements with employees and third parties, and
protective contractual provisions contained in license agreements with
consultants, vendors and customers to protect our proprietary rights.

We have registered the trademark CoreDossier in the United States. In
addition, we use a number of common law trademarks and service marks,
including:

. ESPS;

. CDER Compiler;

. CADDY Compiler;

. DAMOS Compiler; and

. CoreDocket.

We believe the strength of our trademarks and service marks benefits our
business and we intend to continue to protect our registered and common law
trademarks and service marks in the United States and abroad. We have not
secured registration of all of our marks in the United States and have not
pursued registration in any foreign country.

We also protect our proprietary rights by requiring employees to agree not
to reveal any sensitive information to our competitors and to sign a
confidentiality agreement. Employees are required to execute a non-competition
agreement which may restrict them from working for a competitor for one year
after employment terminates. However, we may not obtain these agreements in
every case.

We incorporate technology from third parties into our software. We currently
have a material license agreement with Versant Object Technology Corporation
for the use of technology which is embedded in CoreDossier. Under the terms of
the license agreement, we have the right to use and copy Versant's software to
develop and combine Versant's technology with our software products to create
applications. Our license is non-exclusive, non-transferable and non-
assignable. We currently pay Versant royalty fees based on sales of our
products. The agreement, which is effective until December 31, 1999, will
automatically renew for additional one-year periods. Unless we negotiate
otherwise, at the end of the initial term, the royalty fees could substantially
increase.

46
<PAGE>

Employees

As of March 31, 1999, we had a total of 125 employees in the U.S., including
46 people engaged in product development, 35 people in sales and marketing, 28
people in professional services and 16 people in general and administrative
services. We also employed a total of 20 people in Europe including eight
people in sales and marketing, 10 people in professional services and two
people in general and administrative services. Our employees are not
represented by any collective bargaining agreement, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

Facilities

Our principal administrative, sales, marketing, technical support and
product development facilities are located at our headquarters in Fort
Washington, Pennsylvania. We currently lease approximately 30,300 square feet
of office space in the Fort Washington facility under a lease which terminates
October 31, 2003.

We also lease office space for sales and marketing in La Jolla and San Jose,
California, and in the United Kingdom.

Legal Proceedings

ESPS is not currently a party to any legal proceedings.

47
<PAGE>

MANAGEMENT

The following table contains information about our executive officers and
directors as of April 28, 1999.

Executive Officers and Directors

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Terrence P. Brennan........ 48 President, Chief Executive Officer and Director
Leonard W. von Vital....... 48 Chief Financial Officer
Bradley R. Burget.......... 37 Vice President, Professional Services
Michael T. Hoey............ 32 Vice President, Research and Development
Kevin E. Leininger......... 34 Vice President, Marketing
George B. Pearcy........... 52 Vice President, Finance and Administration
Jeffrey C. Sager........... 32 Vice President, Sales
Charles O. Heller (a)(b)... 63 Director
Christopher B. Hollenbeck
(a)(b).................... 31 Director
</TABLE>
- ---------------------
(a) Member of Audit Committee
(b) Member of Compensation Committee

Terrence P. Brennan has served as the President, Chief Executive Officer and
as a member of the board of directors of ESPS since October 1995. From February
1995 until October 1995, Mr. Brennan was an independent consultant to the
pharmaceutical industry. From January 1994 until February 1995, Mr. Brennan was
President and Chief Executive Officer of Bio-Imaging Technologies, Inc., a
service organization providing image processing and management services to
pharmaceutical and biotechnology companies. From September 1986 until January
1994, Mr. Brennan served as President of Research Data Corporation, a
pharmaceutical information management company developing electronic submissions
to the FDA. From October 1982 until September 1986, Mr. Brennan held the
position of Senior Product Manager with Carter-Wallace Pharmaceuticals. From
April 1976 until October 1982, Mr. Brennan was a Product Manager with Zeneca
Pharmaceuticals. Mr. Brennan holds a B.S. in business administration and an
M.B.A. from the University of Dayton.

Leonard W. von Vital has served as Chief Financial Officer of ESPS since
October 1998. From May 1998 until October 1998, Mr. von Vital was Vice
President of Finance, Vending Operations for Real Time Data, Inc., a
consolidator of vending businesses and a provider of technology to the vending
industry. From May 1997 until May 1998, Mr. von Vital was Senior Vice President
of Product Management for Astea International Inc., a developer and vendor of
enterprise customer relationship management software, and from November 1993 to
May 1997, he was Chief Financial Officer of that company. Mr. von Vital is a
certified public accountant and holds a B.S. in accounting from St. Francis
College.

Bradley R. Burget has served as Vice President of Professional Services of
ESPS since October 1998. From November 1996 until October 1998, Mr. Burget was
Regional Manager of Consulting for Baan Supply Chain Solutions, a software
company, developing enterprise resource planning software. From December 1995
until November 1996, Mr. Burget served as Client Project Manager at SSI, Inc.,
a contract consulting and resources company. From December 1993 until December
1995, Mr. Burget was Client Service Manager for Information Network Systems, a
developer of software used to process compliance of warranty claims in consumer
electronics manufacturing. Mr. Burget holds a B.S. in physics from Iowa State
University.

Michael T. Hoey has served as Vice President of Research and Development of
ESPS since March 1996. From June 1990 until March 1996, Mr. Hoey was a
Technology Manager with Andersen Consulting. Mr. Hoey holds a B.S. and an M.S.
in electrical engineering from Syracuse University.

Kevin E. Leininger has served as Vice President of Marketing of ESPS since
June 1998. From March 1997 until June 1998, Mr. Leininger was Vice President of
Business Development and

48
<PAGE>

Marketing for NeoMedia Technologies, Inc, formerly DevTech Associates, Inc., a
developer of document systems and intelligent document software and products.
From June 1994 to March 1997, Mr. Leininger was Managing Director and Head of
Marketing of DevTech, and was Director of Open Systems for DevTech from
September 1991 to June 1994. Mr. Leininger holds a B.S. in physics and
mathematics from Iowa State University and an M.B.A. in international business
and finance from the University of Chicago.

George B. Pearcy joined ESPS in November 1995 and currently holds the
position of Vice President of Finance and Administration. From October 1992
until November 1995, Mr. Pearcy was the Vice President of Finance for
Northeastern Analytical Corporation and TTI Environmental Services, an
environmental analytical laboratory and an underground storage tank company.
From September 1985 to October 1992, Mr. Pearcy was Director of Financial and
Commercial Operations for International Computaprint Corporation, a division of
Reed Elsevier which provides database management and pre-press services to the
publishing industry. Mr. Pearcy holds a B.S./B.A. in accounting and an M.B.A.
from the University of Missouri.

Jeffrey C. Sager has served as Vice President of Sales of ESPS since January
1996. From April 1994 to December 1995, Mr. Sager was Director of Market
Development for Etak Inc., a developer of computerized mapping software systems
and products. From January 1992 until April 1994, Mr. Sager was Manager of
Marketing and Corporate Development and Western Regional Sales Representative
for Geographic Data Technology, Inc., a developer of digital mapping databases.
Mr. Sager holds a B.S. in business from the University of Delaware.

Charles O. Heller has served as a member of the board of directors of ESPS
since May 1995. Since February 1990, Dr. Heller has served as Director of the
Dingman Centre for Entrepreneurship at the University of Maryland. Since
February 1994, he has served as Chairman and President of the Baltimore-
Washington Venture Group, a private investor network. Since June 1986, he has
served as President of the Annapolis Consulting Group, a management consulting
firm. Since January 1998, Dr. Heller has served as President of the Bahamas
Venture Capital Fund. Dr. Heller currently is a member of the board of
directors of several privately held companies, including Klein Technologies,
Inc., Avatech Solutions, Inc., InterSOURCE, Inc., the Baltimore-Washington
Venture Group, Annapolis Consulting Group, and the Bahamas Venture Capital
Fund. Dr. Heller holds a B.S. and an M.S. in civil engineering from Oklahoma
State University and a Ph.D. in engineering from the Catholic University of
America.

Christopher B. Hollenbeck has served as a member of the board of directors
of ESPS since July 1997. Mr. Hollenbeck is a principal of H&Q Venture
Associates L.L.C., a venture capital firm, where he has been an Investment
Manager for the Adobe Ventures Funds since July 1998. From June 1996 until June
1998, Mr. Hollenbeck served as a Vice President in the venture capital
department of Hambrecht & Quist L.L.C. From April 1991 until September 1995,
Mr. Hollenbeck held various positions in the investment banking department of
Hambrecht & Quist LLC. Mr. Hollenbeck is a member of the board of directors of
several privately held companies, including AvantGo, Inc., Glyphica and HAHT
Software, Inc. Mr. Hollenbeck holds a B.A. in American Studies from Stanford
University.

Board Committees

We have established an audit committee and a compensation committee. The
compensation committee:

. Reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and

. Makes recommendations to the board of directors regarding such matters.

49
<PAGE>

The audit committee:

. Reviews the results and scope of the audit and other services provided by
our independent auditors; and

. Reviews and evaluates our audit and control functions.

Compensation Committee Interlocks and Insider Participation

The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of ESPS and administering various incentive compensation and benefit
plans. The compensation committee consists of Charles O. Heller and Christopher
B. Hollenbeck. Terrence P. Brennan, President, Chief Executive Officer and a
director of ESPS, participates in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants of ESPS,
except that he is excluded from discussions regarding his own salary, incentive
compensation and option grants to officers and directors. No interlocking
relationship exists between any member of ESPS's compensation committee and any
member of any other company's board of directors or compensation committee.

Director Compensation

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. We intend to pay
each member of our board who is not an employee a director fee for attending
meetings of the board of directors and committee meetings.

We granted Dr. Heller options to purchase shares of our common stock
pursuant to option grant agreements. In May 1995, we granted Dr. Heller an
option to purchase 40,000 shares of our common stock at an exercise price of
$0.10 per share. In April 1996, we granted Dr. Heller an option to purchase
20,000 shares of our common stock at an exercise price of $0.10 per share. In
December 1996, we granted Dr. Heller an option to purchase 90,000 shares of
common stock at an exercise price of $0.10 per share. Under the terms of the
option agreements, 25% of the options became exercisable on the first
anniversary of the grant date and 6.25% become exercisable on the last day of
each quarter thereafter. Mr. Hollenbeck is not currently compensated as a
member of our board of directors.

Executive Compensation

The table below summarizes information concerning the compensation awarded
to, earned by, or paid for services rendered to ESPS in all capacities during
the fiscal year ended March 31, 1999 by:

. Our Chief Executive Officer;

. Our four most highly compensated executive officers as of March 31, 1999
whose total salary and bonus for the fiscal year ended March 31, 1999
exceeded $100,000.

We did not pay any executive officer named in the Summary Compensation Table
any fringe benefits, perquisites or other compensation in excess of 10% of his
salary and bonus during the fiscal year ended March 31, 1999.

50
<PAGE>

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long-Term Compensation
Compensation Awards
---------------- ----------------------
Fiscal Earned Securities
Name and Principal Position Year Salary Bonus Underlying Options (#)
- --------------------------- ------ -------- ------- ----------------------
<S> <C> <C> <C> <C>
Terrence P. Brennan............. 1999 $175,000 $65,625 --
President and Chief Executive
Officer 1998 150,000 38,000 --

Michael T. Hoey................. 1999 150,000 15,000 --
Vice President, Research and
Development 1998 119,166 30,000 150,000

Kevin Leininger................. 1999 113,950 18,250 100,000
Vice President, Marketing
Jeffrey C. Sager................ 1999 130,000 36,750 40,000
Vice President, Sales 1998 102,244 30,000 20,000

George B. Pearcy................ 1999 120,000 31,500 --
Vice President, Finance and
Administration 1998 117,499 30,000 50,000
</TABLE>

Amounts set forth in the Earned Bonus column represent bonuses which were
earned, but not paid until the subsequent fiscal year. Mr. Leininger joined
ESPS on June 8, 1998. Mr. Leininger's annual salary is $140,000.

Option Grants During Fiscal Year Ended March 31, 1999

The following table contains information regarding options granted in the
fiscal year ended March 31, 1999 to the executive officers named in the Summary
Compensation Table above. The potential realizable value over the terms of the
options is based on assumed rates of stock appreciation in compliance with the
rules of the SEC and do not represent our estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of ESPS common stock. For the fiscal year ended March 31, 1999, we
granted options to acquire up to an aggregate of 961,383 shares to employees
and directors, all under the 1995 Stock Incentive Plan and all at an exercise
price equal to not less than the fair market value of our common stock on the
date of grant as determined in good faith by the board of directors. We also
granted options to acquire 294,000 shares to employees at a price that was
lower than the estimated fair value of the common stock. Optionees may pay the
exercise price by cash, check, promissory note, delivery of already-owned
shares of our common stock or pursuant to a cashless exercise procedure.
Options under the 1995 Stock Incentive Plan generally vest over four years with
25% of the shares subject to option vesting on the first anniversary of the
grant date, and the remaining option shares vesting 6.25% for every calendar
quarter thereafter. We may modify the standard vesting schedule.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration ---------------------
Name Granted Fiscal Year Per Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Brennan..... -- -- -- --
Michael T. Hoey......... -- -- -- --
Kevin Leininger......... 100,000 8.0% $0.10 6/8/03
Jeffrey C. Sager........ 40,000 3.2 15.00 3/25/04
George B. Pearcy........ -- -- -- --
</TABLE>

51
<PAGE>

Aggregated Option Exercises in Fiscal Year Ended March 31, 1999
and Fiscal Year End Option Values

The following table sets forth information containing the value realized
upon exercise of options during the fiscal year ended March 31, 1999 and the
number and value of unexercised options held by the executive officers named in
the Summary Compensation Table above. As of March 31, 1999, there was no public
market for the common stock. The "Value of Unexercised In-the-Money Options at
Fiscal Year End" is based upon a value of $ per share, the assumed initial
public offering price, minus the per share exercise price, multiplied by the
number of shares underlying the option.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at Fiscal Year End at Fiscal Year End
On Exercise Realized ------------------------------ -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Brennan..... 756,250 $83,188 -- 343,750
Michael T. Hoey......... 140,100 14,010 185,113 124,788
Kevin Leininger......... 12,500 1,250 -- 87,500
Jeffrey C. Sager........ 41,250 4,125 23,125 85,625
George B. Pearcy........ 40,000 4,000 92,500 97,500
</TABLE>

Employee Benefit Plans

1995 Stock Incentive Plan. Our board of directors and stockholders adopted
and approved the 1995 Stock Incentive Plan in April 1996. The 1995 Plan
provides for grants of incentive stock options, non-qualified stock options and
stock awards to employees, directors, consultants and advisors. Members of the
non-employee director administrative committee are not eligible to receive
options and awards. We may issue options to purchase a maximum of 4,634,600
shares of common stock under the 1995 Plan. The board of directors may not
increase the maximum number of shares without obtaining the approval of the
stockholders. No options or awards may be granted under the 1995 Plan after
April 2005.

The 1995 Plan may be administered by the board of directors or a committee
of non-employee directors. The plan administrator has the power to determine
the persons to whom, the times at which, and the price at which the options and
awards shall be granted, and to determine the type of option or award to be
granted and the number of shares subject to options and awards.

The plan administrator determines the option price for options. For a non-
qualified stock option, the price shall be at least equal to 85% of the fair
market value of the shares on the date the option is granted. For an incentive
stock option, the price shall be at least 100% of the fair market value on the
date the option is granted. If a recipient of an incentive stock option owns
shares possessing more than 10% of the total voting power of all classes of
stock, the option price shall be at least 110% of the fair market value on the
grant date.

Options expire not later than five years after the date of the grant.
Options expire thirty days from the date the recipient's employment or service
with the company terminates or twelve months after termination which is due to
disability or death, unless the grant agreement or plan administrator provides
otherwise. Options are not transferable during the lifetime of the recipient,
except that a non-qualified stock option may be transferred pursuant to the
terms of a domestic relations order, or otherwise as provided in the grant
agreement.

The 1995 Plan provides that in the event of a change of control, the plan
administrator may take any appropriate action with respect to options,
including terminating options with 15 days' notice, or causing options to
become immediately exercisable in full. In the event of a merger of the Company
into another company or a sale of all or substantially all of the assets of the
Company, options shall become immediately exercisable unless the successor
company agrees to assume the options or provide equivalent options.

52
<PAGE>

Awards of stock granted pursuant to the 1995 Plan shall be in the form of
written award agreements approved by the plan administrator. The plan
administrator may impose appropriate restrictions and forfeiture conditions on
stock awards.

In the event that the outstanding shares are modified by reason of a
reorganization, merger, consolidation, recapitalization, reclassification,
stock split, combination or exchange of shares, the plan administrator shall
make appropriate adjustments to the aggregate number of shares available under
the 1995 Plan and the number of shares and price per share of outstanding
options.

401(k) Profit Sharing Plan. We have adopted a tax-qualified employee savings
and retirement plan, the 401(k) Profit Sharing Plan, for eligible U.S.
employees. Eligible employees may elect to defer a portion of their eligible
compensation, subject to the statutorily prescribed annual limit. We may make
matching contributions on behalf of all participants who have elected to make
deferrals to the 401(k) Profit Sharing Plan in an amount determined annually by
ESPS. Any contributions to the plan by us or the participants are paid to a
trustee. The contributions made by ESPS, if any, are subject to a vesting
schedule; all other contributions are fully vested at all times. The 401(k)
Profit Sharing Plan, and the accompanying trust, is intended to qualify under
Sections 401(k) and 501 of the Internal Revenue Code, so that contributions by
us or by employees and income earned (if any) on plan contributions are not
taxable to employees until withdrawn and contributions by us, if any, will be
deductible by us when made. At the direction of each participant, the trustee
invests the contributions made to the 401(k) Profit Sharing Plan in any number
of investment options.

Limitations on Liability of Directors and Officers and Indemnification

Limitation of Liability

Our certificate of incorporation provides that our officers and directors
will not be personally liable to us or our stockholders for monetary damages
resulting from a breach of fiduciary duty, to the maximum extent permitted by
Delaware law. Under Delaware law, directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except for:

. Any breach of the duty of loyalty to the corporation or its stockholders;

. Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. Unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

. Any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to non-monetary remedies that
may be available, such as injunctive relief or rescission, nor does it relieve
our officers and directors from complying with federal or state securities
laws.

Indemnification

Our certificate of incorporation provides that we will indemnify our
directors and executive officers, and may indemnify our other corporate agents,
to the fullest extent permitted by law. This provision deters transactions not
approved by the board, including transactions which may offer a premium over
market price for shares of common stock. An officer or director shall not be
entitled to indemnification if:

. The officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to our best interests; or

. The officer or director is subject to criminal action or proceedings and
had reasonable cause to believe the conduct was unlawful.

53
<PAGE>

CERTAIN TRANSACTIONS

Agreement with Adobe Systems Incorporated

In November 1997, we signed a license and marketing agreement with Adobe
Systems Incorporated. Adobe System Incorporated is a majority partner of a
limited partnership which is a limited partner in Adobe Ventures L.P., a
significant stockholder of ESPS. H&Q Adobe Ventures Management L.P., a
stockholder of ESPS, is a general partner in Adobe Ventures L.P. Under this
agreement, we customized software for Adobe Systems Incorporated and granted
Adobe an exclusive, non-transferable, world-wide license to use the customized
software.

We received license fees of $1.8 million for the use of the customized
software. We are also entitled to receive royalty fees based on sales of the
Adobe software product which incorporates our technology. As of the fiscal year
ended March 31, 1999 we have received royalties of approximately $158,000.

Issuance of Preferred Stock to Significant Stockholders

In March 1997, we issued additional shares of preferred stock to H&Q ESPS
Investors L.P., and to Adobe Ventures, L.P., two of our significant
stockholders. Under the terms of the stock purchase agreement, Adobe Ventures
L.P. purchased 2,500,000 shares of preferred stock, and H&Q ESPS Investors L.P.
purchased 1,500,000 shares of preferred stock, at a price of $1.00 per share.
These shares of preferred stock will convert into shares of common stock upon
consummation of the offering. Partial payment for the shares sold to Adobe
Ventures L.P. was in the form of cancellation of promissory notes. We have also
entered into a rights agreement with these two stockholders, which grants them
rights to require registration of their shares of preferred stock or the common
stock into which it is convertible. See "Description of Capital Stock--
Registration Rights."

Promissory Notes Payable to Adobe Ventures L.P.

In July 1996, we issued a promissory note payable to Adobe Ventures L.P. in
the amount of $500,000 with interest at a rate of 6.04% per year. In September
1996, we issued a promissory note payable to Adobe Ventures L.P. in the amount
of $500,000 with interest at a rate of 6.02% per year. In November 1996, we
issued a promissory note payable to Adobe Ventures L.P. in the amount of
$500,000 with interest at a rate of 5.96%. The amount due was convertible into
shares of preferred stock, and the loans were fully paid by the issuance of
preferred stock to Adobe Ventures L.P. in March 1997.

Relationship Between a Director and Significant Stockholder

Christopher B. Hollenbeck, a member of our board of directors, is an
investment manager of Adobe Venture Funds, an affiliate of Adobe Ventures,
L.P., a significant stockholder of ESPS.

54
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table contains information regarding the beneficial ownership
of the common stock of ESPS as of April 28, 1999 by:

. Each person or entity who is known by us to own beneficially more than 5%
of our outstanding common stock;

. Each of the executive officers and the former executive officer named in
the Summary Compensation Table;

. Each director of ESPS;

. All directors and executive officers as a group; and

. All other selling stockholders.

Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power over
all shares of common stock held by them. Applicable percentage ownership in the
following table is based on 8,204,435 shares of common stock outstanding as of
April 28, 1999 and shares outstanding immediately following the completion
of this offering. The number of options represents stock options that are
exercisable within 60 days of April 28, 1999. When shares are issued upon
exercise of options, warrants or other rights to acquire our capital stock,
there will be further dilution to new public investors.

<TABLE>
<CAPTION>
Prior To Offering Number of After Offering
----------------------------------- Shares ----------------------------
Name Shares Options Total Percent Being Offered Shares Options Total Percent
---- ------ ------- ----- ------- ------------- ------ ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5% Stockholders
Adobe Incentive
Partners L.P........... 3,400,000 -- 3,400,000 41.4%
One Bush Street
San Francisco, CA 94104
H&Q ESPS Investors LP... 2,000,000 -- 2,000,000 24.4%
One Bush Street
San Francisco, CA 94104
Adobe Ventures L.P...... 565,656 -- 565,656 6.9%
One Bush Street
San Francisco, CA 94104

Executive Officers and
Directors
Terrence P. Brennan..... 756,250 -- 756,250 9.2%
Michael T. Hoey......... 140,100 118,113 258,213 3.1%
Kevin Leininger......... 12,500 -- 12,500 0.2%
Jeffrey C. Sager........ 41,250 23,125 64,375 0.8%
George B. Pearcy........ 40,000 92,500 132,500 1.6%
Charles O. Heller....... 101,875 -- 101,875 1.2%
Christopher B.
Hollenbeck(1).......... 6,000,000 -- 6,000,000 73.1%
All directors and
executive officers as a
group (9 persons)...... 7,104,475 233,738 7,338,213 89.4%

Other Selling
Stockholders
</TABLE>
- ---------------------

(1) Consists of (i) 4,000,000 shares of common stock issuable upon conversion
of shares of Series A Preferred Stock owned and held by Adobe Incentive
Partners L.P., Adobe Ventures L.P. and H&Q Adobe Ventures Management, L.P.
and (ii) 2,000,000 shares of common stock issuable upon conversion of
shares of Series A Preferred Stock owned and held by H&Q ESPS Investors LP.
Mr. Hollenbeck is a member of H&Q Adobe Ventures Management L.P., a general
partner of Adobe Ventures L.P., and as such may be deemed to share voting
and investment power with respect to the shares held by Adobe Ventures L.P.
Mr. Hollenbeck has a pecuniary interest in H&Q ESPS Investment Management
Co. LLC, a general partner of H&Q ESPS Investors LP. Mr. Hollenbeck
disclaims beneficial ownership of the shares held by Adobe Ventures L.P.
and the shares held by H&Q ESPS Investors, LP., except to the extent of his
pecuniary interest.

55
<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

At the closing of the offering our authorized capital stock will consist of
50,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share. Prior to the closing of
the offering, there will be 6,000,000 shares of Series A Preferred Stock issued
and outstanding. These shares of Series A Preferred Stock will automatically
convert into common stock upon consummation of this offering. After the
offering there will be no preferred stock issued and outstanding.

The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws and by the applicable provisions of Delaware law.

Our certificate of incorporation and bylaws contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of
delaying, deferring, or preventing a future takeover or change in control of
ESPS unless such takeover or change in control is approved by the board of
directors.

Common Stock

As of April 28, 1999 there were 2,204,435 shares of common stock outstanding
which were held of record by 56 stockholders.

Holders of common stock are entitled to one vote per share on all matters to
be voted upon. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to receive dividends as may be declared
from time to time by the board of directors out of funds legally available for
the payment of dividends, subject to the preferences that apply to any
outstanding preferred stock. See "Dividend Policy." Upon a liquidation,
dissolution or winding up of ESPS, the holders of common stock are entitled to
share proportionately in all assets remaining after payment of liabilities,
after we carry the distribution rights of then outstanding preferred stock. The
common stock has no preemptive or conversion rights and no additional
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable. The shares issued in this offering will be fully
paid and nonassessable.

Preferred Stock

Our certificate of incorporation authorizes the board of directors, without
stockholder action, to designate and issue preferred stock. The board may
designate the price, rights, preferences and privileges of the preferred
shares, which may be greater than the rights of the common stock. It is not
possible to state the actual effect of the issuance of any shares of preferred
stock upon the rights of holders of common stock until the board determines the
specific rights of the preferred stock. However, possible effects of issuing
preferred stock with voting and conversion rights include:

. Restricting dividends on common stock;

. Diluting the voting power of common stock;

. Impairing the liquidation rights of the common stock;

. Delaying or preventing a change of control of ESPS without stockholder
action; and

. Harming the market price of common stock.

We have no present plans to issue any shares of preferred stock.

56
<PAGE>

Registration Rights

Shares of our Series A Preferred Stock convert into shares of our common
stock. The common stock which these preferred shares convert into is
unregistered. We granted registration rights to holders of our Series A
Preferred Stock. In addition, we granted registration rights to Larry D.
Tindell, Ronald M. Swartz and Mark Gavin, who hold unregistered shares of our
common stock. These registration rights are provided under the terms of an
agreement between us and the holders of the registrable securities. The
agreement grants three types of registration rights:

. Requested Registration. The holders of the registrable securities may
require us to use our best efforts to prepare a registration statement
and other related documents which would permit the sale of the
registrable securities. We only to need to prepare the registration
statement and related documents if at least 25% of the registrable
securities are to be registered, or if the aggregate offering price will
be least $5,000,000. We shall bear the expenses incurred in a requested
registration.

. ESPS Registration. If we elect to register any of our shares of common
stock in a public offering, the holders of the registrable securities are
entitled to include their shares in the registration, subject to our
right to reduce the number of shares to be registered in view of market
conditions. We shall bear the expenses incurred in an ESPS registration.

. Registration on Form S-3. Holders of the registrable securities may
require that we register their shares for public resale on Form S-3,
provided that we are eligible to use Form S-3 and that the value of the
securities to be registered is at least $500,000. We are only required to
make one requested S-3 registration in any six month period. The
requesting holders shall bear the expenses incurred in a "Registration on
Form S-3."

Delaware Anti-Takeover Law and Provisions in Our Charter and Bylaws

Provisions of Delaware law, our certificate of incorporation and bylaws
could make the acquisition of ESPS by proxy contest or otherwise and the
removal of incumbent officers and directors more difficult. These provisions
are intended to discourage coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to control ESPS to first negotiate with
us. We believe that the benefits provided to ESPS by allowing us to negotiate
with an unfriendly or unsolicited acquiror outweigh the disadvantages of
discouraging such proposals since we will have the opportunity to negotiate
improved terms. These provisions deter transactions not approved by the board,
and could have the effect of discouraging tender offers which may provide a
premium over market price for shares of common stock. Consequently, the
provisions may also inhibit fluctuations in the market price of our shares
resulting from actual or rumored takeover attempts.

Delaware Law. We are subject to Section 203 of the Delaware General
Corporation Law, or the anti-takeover law, which regulates corporate
acquisitions. The anti-takeover law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with any "interested
stockholder" for three years following the date the person became an interested
stockholder, unless the transaction is approved in a prescribed manner.

. A "business combination" includes a merger, consolidation, asset or stock
sale, or other transaction resulting in a financial benefit to the
interested stockholder.

. An "interested stockholder" is a person or entity who, together with
affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of
the corporation's voting stock.

Our Charter Documents. Our Certificate of Incorporation eliminates the right
of stockholders to act by written consent without a duly called annual or
special meeting. Our Certificate of

57
<PAGE>

Incorporation and Bylaws do not provide for cumulative voting in the election
of directors. The authorization of undesignated preferred stock makes it
possible for the board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of ESPS. These and other provisions are intended to enhance
continuity and stability in the composition of the board of directors and to
reduce the vulnerability to unsolicited or hostile takeovers, and could delay
changes in the control or management of ESPS. The amendment of any of these
provisions requires approval by holders of 66 2/3% of the outstanding common
stock.

Transfer Agent

The transfer agent and registrar for the common stock is StockTrans, Inc.,
Ardmore, Pennsylvania.

58
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us.

Of the shares to be outstanding after the offering assuming that the
underwriters do not exercise their over-allotment option, shares of common
stock will be freely tradeable. After the offering 7,091,975 shares will be
held by "affiliates," as that term is defined in Rule 144(a) under the
Securities Act of 1933. For purposes of Rule 144, an "affiliate" of an issuer
is a person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, such issuer. The
shares held by affiliates are "restricted securities" under the Securities Act
of 1933 and may be sold in the public market upon the expiration of certain
holding periods under Rule 144, subject to the volume, manner of sale and other
limitations of Rule 144.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an "affiliate," as
that term is defined in the Securities Act, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

. one percent of the then outstanding shares of our common stock
(approximately shares immediately following the offering), or

. the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and
the availability of current public information about us. A shareholder
who is deemed not to have been an "affiliate" of ours at any time during
the 90 days preceding a sale, and who has beneficially owned restricted
shares for at least two years, would be entitled to sell such shares
under Rule 144(k) without regard to the volume, limitations, manner of
sale provisions or public information requirements.

All of our affiliates have agreed to further restrict their shares by
entering into lock-up arrangements discussed below.

We have granted options to purchase shares of our common stock under our
1995 Stock Incentive Plan. As of April 28, 1999, options to purchase 419,698
shares of our common stock were fully vested and exercisable. An additional
152,734 shares were reserved for issuance under the 1995 Stock Incentive Plan.
We intend to register the shares of common stock issuable or reserved for
issuance under the plan within 180 days after the date of this prospectus.

Lock-up Arrangements

Our officers and directors, employees and other stockholders have agreed not
to sell or otherwise dispose of any shares of common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Hambrecht & Quist LLC. Upon the expiration of these lock-up agreements,
additional shares will be available for sale in the public market.

59
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancBoston Robertson Stephens, Inc. U.S. Bancorp Piper Jaffray Inc. and Charles
Schwab & Co., Inc. have severally agreed to purchase from ESPS and the selling
stockholders the following respective number of shares of common stock:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Hambrecht & Quist LLC............................................
BancBoston Robertson Stephens, Inc. .............................
U.S. Bancorp Piper Jaffray Inc...................................
Charles Schwab & Co., Inc........................................
---
Total..........................................................
===
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions that we and the selling stockholders must
satisfy, including the absence of any material adverse change in our business
and the receipt of certain certificates, opinions and letters from us, the
selling stockholders, counsel and the independent auditors. The underwriters
are obligated to purchase shares of common stock offered in this prospectus if
any of the shares are purchased.

The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to dealers at the initial public offering price less a
concession not in excess of $ per share. The underwriters may allow and the
dealers may reallow, a concession not in excess of $ per share to brokers
and dealers. After the initial public offering of the shares, the underwriters
may change the offering price and other selling terms.

The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us and the selling stockholders
in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.

<TABLE>
<CAPTION>
Paid by Us Paid by Selling Stockholders
------------------------- ----------------------------------
No Exercise Full Exercise No Exercise Full Exercise
----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Per share...............
Total...................
</TABLE>

We will pay the offering expenses, estimated to be $ million.

We and certain selling stockholders have granted to the underwriters an
option, exercisable no later than 30 days after the date of this prospectus, to
purchase up to additional shares of common stock at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. To the extent that the underwriters exercise this option, each
of the underwriters will have a firm commitment to purchase a number of shares
that approximately reflects the same percentage of total shares the underwriter
purchased in the above table. We will be obligated, pursuant to the option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of common stock offered in this prospectus.

60
<PAGE>

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

We and the selling stockholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect
thereof.

The selling stockholders and certain other stockholders of ours, including
executive officers and directors, who will own in the aggregate shares of
our common stock after the offering, have agreed that they will not, without
the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of our common stock, options or warrants to acquire
shares of our common stock or securities exchangeable or convertible into
shares of our common stock owned by them during the 180-day period following
the date of this prospectus. We have agreed that we will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of our common stock, options or warrants to acquire shares of our
common stock or securities exchangeable for or convertible into shares of our
common stock during the 180-day period following the date of this prospectus,
except that we may issue shares upon the exercise of options granted prior to
the date of this prospectus, and may grant additional options under our stock
option plans, provided that, without the prior written consent of Hambrecht &
Quist LLC, the additional options shall not be exercisable during the 180-day
period.

Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
our common stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of our common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. These
transactions may be effected on the Nasdaq National Market, in the over-the
counter market, or otherwise. Stabilizing, if commenced, may be discontinued at
any time.

Prior to this offering, there has been no public market for our common
stock. The initial public offering price for our common stock will be
determined by negotiation among us, the selling stockholders and the
representatives. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, our
revenues and earnings, market valuations of other companies engaged in
activities similar to ours, estimates of our business potential and prospects,
the present state of our business operations, our management and other factors
deemed relevant. The estimated initial public offering price range set forth on
the cover of this preliminary prospectus is subject to change as a result of
market conditions or other factors.

We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "ESPS."

H&Q ESPS Investors, L.P. holds 2,000,000 shares of Series A Preferred Stock,
which will automatically convert into 2,000,000 shares of common stock upon
consummation of this offering. H&Q ESPS Investors, L.P. is a Delaware limited
partnership with two general partners. One of the general partners is a wholly-
owned subsidiary of Hambrecht & Quist California and the other is a limited
liability company the members of which are unaffiliated with the Hambrecht &
Quist LLC. In

61
<PAGE>

addition, certain of the limited partners of H&Q ESPS Investors, L.P. are
employees of Hambrecht & Quist LLC or directors of Hambrecht & Quist Group, the
parent corporation of Hambrecht & Quist California. Hambrecht & Quist LLC, one
of the underwriters in this offering, is wholly owned by Hambrecht & Quist
California.

Adobe Ventures L.P. holds 565,656 shares of Series A Preferred Stock which
will automatically convert into 565,656 shares of common stock upon
consummation of this offering. H&Q Adobe Ventures Management L.P. is a general
partner of Adobe Ventures L.P. and holds 34,344 shares of Series A Preferred
Stock which will convert into 34,344 shares of common stock upon consummation
of this offering. Adobe Ventures Management Inc., a limited partner of H&Q
Adobe Ventures Management L.P., is a wholly-owned subsidiary of Hambrecht &
Quist California. Hambrecht & Quist LLC, one of the underwriters in this
offering, is wholly owned by Hambrecht & Quist California.

LEGAL MATTERS

Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania will provide ESPS an
opinion relating to the validity of the common stock issued in this offering.
Brobeck, Phleger & Harrison LLP, New York, New York will provide the
Underwriters an opinion related to other matters in this offering.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at March 31, 1999 and 1998, and for each of the three years in the
period ended March 31, 1999, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.

ADDITIONAL ESPS INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
ESPS and the common stock, reference is made to the registration statement and
the exhibits and schedules thereto. You may read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov. Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.

62
<PAGE>

ESPS, Inc.

FINANCIAL STATEMENTS
For the years ended March 31, 1997, 1998 and 1999

Contents

<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-1
Audited Financial Statements
Balance Sheets.............................................................. F-2
Statements of Operations.................................................... F-3
Statements of Stockholders' Equity.......................................... F-4
Statements of Cash Flows.................................................... F-5
Notes to Financial Statements............................................... F-6
</TABLE>

1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
ESPS, Inc.

We have audited the accompanying balance sheets of ESPS, Inc. as of March
31, 1999 and 1998, and the related statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended March
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ESPS, Inc. at March 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

April 28, 1999

F-1
<PAGE>

ESPS, INC.

BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
Proforma
March 31 Stockholders'
---------------- Equity at
1998 1999 March 31 1999
------- ------- -------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 4,558 $ 1,812
Accounts receivable, net of allowance of $50
and $127, respectively...................... 3,616 6,210
Accounts receivable--related party........... 323 158
Deferred income taxes........................ 650 322
Deferred offering costs...................... -- 696
Other current assets......................... 49 340
------- -------
Total current assets....................... 9,196 9,538
Property and equipment, net.................... 763 2,330
Other assets................................... 58 28
------- -------
Total assets............................... $10,017 $11,896
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 30 $ 956
Accrued expenses............................. 1,045 2,311
Deferred revenues--current................... 2,802 1,905
Deferred revenues--related party............. 1,200 --
------- -------
Total current liabilities.................. 5,077 5,172
Deferred revenues, less current portion........ 44 --
Stockholders' equity:
Series A Preferred Stock, $0.001 par value:
Authorized shares--6,000
Issued and outstanding shares--6,000
(liquidation preference of $6,000)........ 6 6 --
Common stock, $0.001 par value;
Authorized shares--50,000
Issued and outstanding shares--909 and
2,175 at March 31, 1998 and 1999,
respectively.............................. 1 2 8
Additional paid-in capital................... 6,123 6,571 6,571
Retained earnings (accumulated deficit)...... (1,127) 349 349
Deferred stock compensation.................. (107) (204) (204)
------- ------- -----
Total stockholders' equity................. 4,896 6,724 6,724
------- ------- =====
Total liabilities and stockholders' equity. $10,017 $11,896
======= =======
</TABLE>

See accompanying notes.

F-2
<PAGE>

ESPS, INC.

STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Year ended March 31
------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Revenues:
Software licenses.................................. $ 648 $6,814 $13,454
Services and maintenance........................... 420 1,832 4,495
------- ------ -------
Total revenues................................... 1,068 8,646 17,949
Cost of revenues:
Software licenses.................................. 68 258 298
Services and maintenance........................... 506 1,589 3,193
------- ------ -------
Total cost of revenues........................... 574 1,847 3,491
------- ------ -------
Gross profit......................................... 494 6,799 14,458
Operating expenses:
Research and development........................... 1,407 1,978 3,829
Sales and marketing................................ 714 1,283 5,185
General and administrative......................... 1,147 1,229 3,162
------- ------ -------
Total operating expenses......................... 3,268 4,490 12,176
------- ------ -------
Income (loss) from operations........................ (2,774) 2,309 2,282
Interest, net........................................ (39) 52 130
------- ------ -------
Income (loss) before income taxes.................... (2,813) 2,361 2,412
Income tax provision (benefit)....................... -- (514) 936
------- ------ -------
Net income (loss).................................... $(2,813) $2,875 $ 1,476
======= ====== =======
Earnings (loss) per share:
Basic.............................................. $ (5.09) $ 5.53 $ 0.83
Diluted............................................ (5.09) 0.37 0.15
Shares used in computation of earnings (loss) per
share:
Basic.............................................. 553 520 1,776
Diluted............................................ 553 7,859 10,097
Pro forma earnings per share:
Basic.............................................. $ 0.19
Diluted............................................ 0.15
Shares used in computation of pro forma earnings per
share:
Basic.............................................. 7,776
Diluted............................................ 10,097
</TABLE>

See accompanying notes.

F-3
<PAGE>

ESPS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

<TABLE>
<CAPTION>
Series A Retained
Preferred Stock Common Stock Additional Earnings Deferred Total
----------------- -------------- Paid-In (Accumulated Stock Stockholders'
Shares Amount Shares Amount Capital Deficit) Compensation Equity
-------- ------- ------ ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1996................... 2,000 $ 2 589 $-- $1,972 $(1,189) $ -- $ 785
Issuance of Series A
Preferred Stock....... 4,000 4 -- -- 3,996 -- -- 4,000
Stock issuance costs... -- -- -- -- (10) -- -- (10)
Repurchase of common
stock................. -- -- (223) -- -- -- -- --
Net loss............... -- -- -- -- -- (2,813) -- (2,813)
-------- ------ ----- ---- ------ ------- ----- ------
Balance at March 31,
1997................... 6,000 6 366 -- 5,958 (4,002) -- 1,962
Exercise of stock
options............... -- -- 543 1 58 -- -- 59
Deferred stock
compensation.......... -- -- -- -- 107 -- (107) --
Net income............. -- -- -- -- -- 2,875 -- 2,875
-------- ------ ----- ---- ------ ------- ----- ------
Balance at March 31,
1998................... 6,000 6 909 1 6,123 (1,127) (107) 4,896
Exercise of stock
options............... -- -- 1,266 1 133 -- -- 134
Deferred stock
compensation.......... -- -- -- -- 315 -- (315) --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- -- 218 218
Net income............. -- -- -- -- -- 1,476 -- 1,476
-------- ------ ----- ---- ------ ------- ----- ------
Balance at March 31,
1999................... 6,000 $ 6 2,175 $ 2 $6,571 $ 349 $(204) $6,724
======== ====== ===== ==== ====== ======= ===== ======
</TABLE>

See accompanying notes.

F-4
<PAGE>

ESPS, INC.

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year ended March 31
-----------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................... $(2,813) $2,875 $1,476
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization...................... 170 223 464
Deferred income taxes.............................. -- (650) 328
Provision for losses on accounts receivables....... -- 50 77
Amortization of deferred stock compensation........ -- -- 218
Changes in assets and liabilities:
Accounts receivable.............................. (370) (3,619) (2,506)
Other current assets............................. (85) (16) (291)
Accounts payable and accrued expenses............ 93 757 1,579
Deferred revenue................................. 679 3,115 (2,141)
------- ------ ------
Net cash (used in) provided by operating
activities.................................... (2,326) 2,735 (796)
Investing activities:
Purchase of property and equipment................... (224) (547) (2,001)
Financing activities:
Proceeds from issuance of bridge loan................ 1,500 -- --
Proceeds from the issuance of preferred stock........ 2,500 -- --
Stock issuance and deferred offering costs........... (10) -- (83)
Proceeds from exercise of stock options.............. -- 59 134
------- ------ ------
Net cash provided by financing activities...... 3,990 59 51
------- ------ ------
Net increase (decrease) in cash and cash equivalents. 1,440 2,247 (2,746)
Cash and cash equivalents, beginning of year......... 871 2,311 4,558
------- ------ ------
Cash and cash equivalents, end of year............... $ 2,311 $4,558 $1,812
======= ====== ======
Supplemental disclosures of cash flow information:
Conversion of bridge loan to preferred stock......... $ 1,500 $ -- $ --
Liability incurred for offering costs................ $ -- $ -- $ 613
Cash paid for income taxes........................... $ -- $ 6 $ 236
======= ====== ======
</TABLE>

See accompanying notes.

F-5
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS
March 31, 1999

1. Business

ESPS, Inc. (formerly Electronic Submission Publishing Systems, Inc.) (the
"Company"), a Delaware corporation, is a leading provider of enterprise
compliance management solutions to businesses in highly regulated industries.
The Company's solution, which consists of the CoreDossier family of software
products and related services, enables users throughout an enterprise to
collaborate in the authoring, compilation, distribution and publishing of
compliance information and regulatory submissions. The Company designed its
CoreDossier software products to utilize advanced technologies, such as
corporate intranets and the Internet, and to meet emerging electronic
compliance requirements and standards. The Company's solution enables its
customers to quickly realize a return on their investment by reducing the cost
and burden of compliance while also reducing the time required to bring new
products and services to market. The Company's initial concentration has been
directed to the pharmaceutical industry.

2. Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Recent Pronouncements

The Financial Accounting Standards Board recently issued Statements of
Financial Accounting Standards Nos. 130 and 131, which establish standards for
the reporting of comprehensive income and disclosure concerning segment
information, respectively. The adoption of the requirements of these standards
has not resulted in a material effect on the Company's financial position or
results of operations.

Revenue Recognition

Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was
issued in October 1997 by the American Institute of Certified Public
Accountants (AICPA) and was amended by Statement of Position 98-4 (SOP 98-4).
The Company adopted SOP 97-2 for fiscal year ending March 31, 1998. Based upon
their interpretation of SOP 97-2 and SOP 98-4, the Company believes its current
revenue recognition policies and practices are consistent with SOP 97-2 and SOP
98-4. However, full implementation guidelines for this standard have not yet
been issued.

Additionally, the AICPA recently issued SOP 98-9, which provides certain
amendments to SOP 97-2 and is effective for transactions entered into after
April 1, 1999. This pronouncement has not and is not expected to materially
impact the Company's revenue recognition practices.

The Company generates revenues through the sale of software licenses and
services and maintenance to end users. Software licenses revenues are generated
from licensing the rights to use the Company's products. Services and
maintenance revenues are generated from sales of customer support services
contracts and consulting and training services performed for customers that
license the Company's products.

F-6
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

2. Accounting Policies (continued)

Revenue Recognition (continued)

Revenues from the sale of software licenses are recognized upon shipment of
software when persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is typically based on the price charged when
an element is sold separately, or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple element arrangements could consist of software
products, upgrades, enhancements, customer support services, or consulting
services. If an acceptance period is required, revenues are recognized upon the
earlier of customer acceptance or the expiration of the acceptance period.

Revenues from maintenance are recognized ratably over the term of the
customer support contract, typically one year. Consulting revenues are
primarily related to implementation services performed on a time-and-materials
basis under separate service arrangements related to the installation of the
Company's software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license
and service elements, license fee revenues are recognized on shipment of the
software, provided services do not include significant customization or
modification of the base product, and the software is not subject to acceptance
criteria.

Revenues from one customer exceeded 10% of total revenues and accounted for
approximately 11% of revenues during the year ended March 31, 1999. Revenues
from three customers each exceeding 10% of total revenues accounted for
approximately 46% of total revenues during the year ended March 31, 1998.
Amounts due from these customers amounted to approximately $193,000 at March
31, 1998. Revenues from three customers each exceeding 10% of total revenues
accounted for 100% of total revenues during the year ended March 31, 1997.

Cash and Cash Equivalents

The Company considers as cash equivalents all highly liquid investments with
an original maturity of three months or less.

Fair Value of Financial Instruments

At March 31, 1999, the Company had the following financial instruments: cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximates their fair
value based on the liquidity of these financial instruments or based on their
short-term nature.

Concentration of Credit Risk and Major Customers

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is mainly in North America and Europe and consists of
companies in the pharmaceutical, chemical and utility industries. The Company
does not require collateral or other security to support credit sales, but
provides an allowance for bad debts based on historical experience and
specifically identified risks.

F-7
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

2. Accounting Policies (continued)

Deferred Offering Costs

As of March 31, 1999, specific incremental costs directly attributable to
the Company's planned initial public offering (IPO) process have been deferred.
These costs will be charged against additional paid-in capital in connection
with the consummation of this offering.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the related assets which
range from five to seven years.

Research and Development

Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the technological
feasibility of the underlying software is not established until substantially
all product development is complete, including the development of a working
model. No such costs have been capitalized because the impact of capitalizing
such costs would not be material.

Accounting for Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123), provides companies with a choice to follow
the provisions of SFAS No. 123 in determination of stock-based compensation
expenses or to continue with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). The
Company continues to follow APB No. 25 and has provided pro forma disclosures
as required by SFAS No. 123.

Earnings (Loss) Per Share and Pro Forma Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities by
including other common stock equivalents, including stock options and
convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive.

Pro forma earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and the weighted average
convertible preferred stock outstanding as if such shares were converted into
common stock at the time of issuance.

Derivatives

In June 1998, SFAS No. 133, Accounting for Derivatives and Hedging
Activities, was issued which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for

F-8
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

2. Accounting Policies (continued)

hedging activities. Because the Company has never used nor currently intends to
use derivatives, management does not anticipate that the adoption of this new
standard will have a significant effect on earnings or the financial position
of the Company. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999.

3. Property and Equipment

Property and equipment consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
March 31
-------------
1998 1999
----- ------
<S> <C> <C>
Computer equipment............................................... $ 760 $1,832
Computer software................................................ 173 237
Furniture, fixtures, and office equipment........................ 271 903
Leasehold improvements........................................... 40 273
----- ------
1,244 3,245
Accumulated depreciation......................................... (481) (915)
----- ------
Total property and equipment..................................... $ 763 $2,330
===== ======
</TABLE>

4. Accrued Expenses

Accrued expenses consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
March 31
-------------
1998 1999
------ ------
<S> <C> <C>
Income taxes...................................................... $ 136 $ 328
Sales taxes....................................................... 241 405
Payroll and related............................................... 397 809
Accrued offering costs............................................ -- 613
Other............................................................. 271 156
------ ------
Total accrued expenses............................................ $1,045 $2,311
====== ======
</TABLE>

5. Capital Stock

The holders of the Series A Preferred Stock are entitled to noncumulative
dividends at a rate of $.08 per share prior to any payment of dividends on
common stock.

Each share of preferred stock is convertible into one share of common stock,
subject to adjustment in certain circumstances, and has a liquidation
preference of $1.00 per share. Conversion is at the option of the stockholders
until such time, if ever, that the Company consummates a public offering at a
designated price and from which the Company receives proceeds of at least
$10,000,000 at which time such conversion becomes mandatory. The preferred
stock has voting rights equal to its common stock conversion ratio.

Stock Options

The Company has a stock option plan whereby the Company may grant either
incentive or nonqualified stock options to purchase shares of the Company's
common stock. Twenty-five percent of the options are exercisable on the first
anniversary of the date of grant or the participant's hire

F-9
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

5. Capital Stock (continued)

Stock Options (continued)

date, whichever is earlier. The additional amounts become exercisable at
varying rates from 6.25% to 9.40% on the last day of each quarter thereafter.
The Company has authorized 4,634,600 shares to be issued under the plan.

The incentive stock options may be granted at no less than the fair market
value of the shares at the date of grant, and the nonqualified stock options
are to be granted at no less than eighty-five percent of the fair market value
of the shares at the date of grant. The fair market value of the Company's
common stock is determined by the Board of Directors based on Company specific
objective evidence, including periodic outside independent valuations. Under
APB No. 25, if the exercise price of the Company's employee stock options
equals the fair value of the underlying stock on the date of grant, no
compensation expense is recognized. During the years ended March 31, 1998 and
1999, the Company determined that certain common stock options were issued at a
price that was lower than the estimated fair value of the common stock,
resulting in deferred compensation expense of $107,000 and $315,000,
respectively. The deferred compensation is being amortized over the vesting
period of the underlying options. Amortization expense of $218,000 was
recognized during the year ended March 31, 1999. Amortization of the deferred
stock-based compensation balance of $204,000 will approximate $116,000,
$62,000, and $26,000 for the fiscal years ending March 31, 2000, 2001, 2002,
respectively.

The following table summarizes information about stock options outstanding
at March 31, 1999:

<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------ --------------------------
Weighted Average
Per Share Number of Weighted Average Remaining Contractual Number of Weighted Average
Prices Shares Per Share Price Life (years) Shares Per Share Price
--------- --------- ---------------- --------------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.10-0.11 1,893,201 $ 0.10 3.11 412,198 $0.10
0.50 31,500 0.50 4.21 -- --
3.00 335,500 3.00 4.50 -- --
6.00 105,000 6.00 4.75 -- --
12.00 181,991 12.00 4.49 -- --
15.00 124,750 15.00 4.96 -- --
--------- -------
2,671,942 412,198
========= =======
</TABLE>

FASB No. 123 requires pro forma information regarding net income as if the
Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using the minimum value method option pricing model with the
following weighted average assumptions for all periods presented: risk-free
interest rate of 5.2%, dividend yield of 0%, weighted average expected life of
the option of 4 years, and minimum value volatility.

F-10
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

5. Capital Stock (continued)

Stock Option Activity

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands except per share data):

<TABLE>
<CAPTION>
Year ended March 31
----------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Net income (loss):
As reported........................................... $(2,813) $2,875 $1,476
SFAS No. 123 pro forma................................ (2,815) 2,870 1,309
Diluted earnings (loss) per share:
As reported--diluted.................................. (5.09) 0.37 0.15
SFAS No. 123 pro forma................................ (5.09) 0.37 0.13
</TABLE>

The weighted average fair value of options granted during the years ended
March 31, 1997, 1998, and 1999 for which the estimated fair value of the stock
equaled the exercise price is $0.08, $0.08 and $1.29, respectively. The
weighted average fair value of options granted during the years ended 1998 and
1999 for which the stock price exceeded the exercise price is $0.08 and $2.67,
respectively.

A summary of stock option activity follows:

<TABLE>
<CAPTION>
Weighted
Number of Average Exercise
Shares Price Per Share
---------- ----------------
<S> <C> <C>
Outstanding at April 1, 1996....................... 1,032,125 $0.10
Granted.......................................... 1,994,000 0.10
Canceled......................................... (50,000) 0.10
---------- -----
Outstanding at March 31, 1997...................... 2,976,125 0.10
Granted.......................................... 624,000 0.10
Exercised........................................ (542,875) 0.11
Canceled......................................... (78,875) 0.10
---------- -----
Outstanding at March 31, 1998...................... 2,978,375 0.10
Granted.......................................... 1,255,383 5.42
Exercised........................................ (1,267,049) 0.10
Canceled......................................... (294,767) 0.43
---------- -----
Outstanding at March 31, 1999...................... 2,671,942 $2.56
========== =====
</TABLE>

F-11
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

6. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's net deferred income taxes are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
March 31
-----------
1998 1999
---- -----
<S> <C> <C>
Current deferred tax assets:
Deferred revenue........................................... $ 18 $ --
Depreciation and amortization.............................. 5 --
Bad debt reserves.......................................... 20 51
Stock compensation and vacation pay........................ -- 153
Other accrued liabilities.................................. 40 18
Tax credits................................................ 60 17
Net operating loss carryforwards........................... 664 83
---- -----
Total deferred tax asset................................. 807 322
Less: valuation allowance.................................... (157) --
---- -----
Net deferred tax asset................................... $650 $ 322
==== =====
</TABLE>

A reconciliation of the income tax provision to amounts computed using
federal statutory rates is as follows (amounts in thousands):

<TABLE>
<CAPTION>
Years ended March 31
-----------------------
1997 1998 1999
------ ------- ------
<S> <C> <C> <C>
Federal statutory rate.................................. $ (957) $ 791 $ 820
Change in valuation allowance........................... 951 (1,406) (157)
State income taxes, net................................. -- 90 158
Other................................................... 6 11 115
------ ------- -----
Income tax provision (benefit)........................ $ -- $ (514) $ 936
====== ======= =====
Income tax provision (benefit):
Current:
Federal............................................. $ -- $ -- $ 508
State............................................... -- 136 100
------ ------- -----
-- 136 608
Deferred:
Federal............................................. -- (598) 270
State............................................... -- (52) 58
------ ------- -----
-- (650) 328
------ ------- -----
$ -- $ (514) $ 936
====== ======= =====
</TABLE>

F-12
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

6. Income Taxes (continued)

For federal income tax purposes, the Company utilized approximately
$1,295,000 of net operating loss carryforwards to reduce taxable income for the
fiscal year ended March 31, 1999. In addition, during the same period the
Company utilized $1,000,000 of net operating losses for state tax purposes. For
state income tax purposes the Company has approximately $1,270,000 of operating
losses which begin to expire in 2006.

7. Commitments

The Company leases its office space under an operating lease. Future minimum
lease payments subsequent to March 31, 1999 are as follows: $237,000 in 2000,
$404,000 in 2001, $379,000 in 2002, $379,000 in 2003, $237,000 in 2004 and
$29,000 thereafter.

Rent expense was approximately $77,000, $96,000, and $697,000 during the
years ended March 31, 1997, 1998, and 1999, respectively.

8. Related Party Transaction

During fiscal 1998, the Company signed a $1,800,000 license agreement with
the parent of its majority stockholder which required the Company to customize
software and grant an exclusive, nontransferable worldwide license to use the
customized software. In conjunction with the agreement, the Company received
approximately $900,000 in cash during fiscal 1998 and had a receivable of
$300,000 as of March 31, 1998 relating to license fees. As of March 31, 1998,
the Company deferred all revenue relating to this contract, as delivery of the
product had not occurred as of March 31, 1998.

The Company recognized the revenue related to this contract after delivery
occurred in June of 1998 over the period that the required services were
performed. The Company recognized $1,800,000 of revenue related to this
agreement during the fiscal year ended March 31, 1999.

The agreement also includes a royalty arrangement in which the Company
receives royalties based on sales of the software product. The Company received
royalties of approximately $158,000 during the fiscal year ended March 31,
1999.

9. Employee Benefit Plan

The Company maintains a retirement plan for eligible employees under the
provisions of Internal Revenue Code Section 401(k). Participants may defer a
portion of their annual compensation on a pretax basis, subject to maximum
limits on contributions prescribed by law. Contributions by the Company are at
the discretion of the Board of Directors. No discretionary contributions have
been made by the Company to date.

F-13
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

10. International Operations

The Company licenses and markets its products through direct channels
throughout the world. Information about the Company's operations in different
geographic regions is shown below. Revenues were attributed to geographic areas
based on the location of the customer (amounts in thousands.)

<TABLE>
<CAPTION>
Year ended March 31
---------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Revenues:
United States..................................... $1,068 $7,449 $14,631
Rest of world..................................... -- 1,197 3,318
------ ------ -------
Total revenues...................................... $1,068 $8,646 $17,949
====== ====== =======
</TABLE>

The majority of the rest of world revenue is in the United Kingdom.

<TABLE>
<CAPTION>
Year ended March 31
-------------------
1997 1998 1999
-------------------
<S> <C> <C> <C>
Long-lived assets:
United States....................................... $ 401 $ 747 $ 2,027
United Kingdom...................................... 9 16 303
----- ----- -------
Total long-lived assets............................... $ 410 $ 763 $ 2,330
===== ===== =======
</TABLE>

11. Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands except per share data):

<TABLE>
<CAPTION>
Years ended March 31
-----------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Net income (loss)...................................... $(2,813) $2,875 $ 1,476
======= ====== =======
Weighted average number of common shares outstanding... 553 520 1,776
Effect of dilutive securities:
Stock options........................................ -- 1,339 2,321
Series A Preferred Stock............................. -- 6,000 6,000
------- ------ -------
Adjusted weighted average shares outstanding and
assumed conversions................................... 553 7,859 10,097
======= ====== =======
Pro forma adjustment to weighted average number of
common shares outstanding for the conversion of Series
A Preferred Stock..................................... 6,000
-------
Pro forma weighted average shares:
Basic................................................ 7,776
=======
Diluted.............................................. 10,097
=======
Earnings (loss) per share:
Basic................................................ $ (5.09) $ 5.53 $ 0.83
Diluted.............................................. (5.09) 0.37 0.15
Pro forma earnings per share:
Basic................................................ 0.19
Diluted.............................................. 0.15
</TABLE>

F-14
<PAGE>

ESPS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

11. Earnings (Loss) Per Share

Due to their antidilutive effects, Series A Preferred Stock and outstanding
stock options to purchase shares of common stock were excluded from the
computation of diluted (loss) per share for the fiscal year ended March 31,
1997.

12. Initial Public Offering

On March 30, 1999, the Board of Directors of the Company authorized
management to pursue an underwritten sale of shares of the Company's common
stock in an initial public offering ("IPO") pursuant to the Securities Act of
1933. Upon closing of the IPO, all outstanding shares of the Series A Preferred
Stock will automatically convert into an aggregate of 6,000,000 shares of
common stock.

13. Pro forma Information (unaudited)

The pro forma financial statements include unaudited pro forma information
as of March 31, 1999 to reflect the conversion of all outstanding shares of
Series A Preferred Stock into shares of common stock, upon consummation of the
Company's IPO. This information does not give effect to the proceeds from the
IPO.

F-15
<PAGE>

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

[ESPS LOGO]

Common Stock

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

PROSPECTUS

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

Hambrecht & Quist

BancBoston Robertson Stephens

U.S. Bancorp Piper Jaffray

Charles Schwab & Co., Inc.

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

, 1999

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

You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.

Until , 1999, all dealers that buy, sell or trade in our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The expenses (other than underwriting discounts and commissions and the
underwriters' non-accountable expense allowance) payable in connection with the
sale of the common stock offered in this Registration Statement are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $12,788
NASD filing fee..................................................... 5,100
Nasdaq filing fee................................................... *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... *
Transfer agent and rights agent and registrar fees and expenses..... *
Miscellaneous....................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- ---------------------
* To be filed by amendment

All expenses are estimated except for the SEC fee and the NASD fee.

Item 14. Indemnification of Directors and Officers

The Company's certificate of incorporation permits indemnification to the
fullest extent permitted by Delaware law. The Company's bylaws require the
Company to indemnify any person who was or is an authorized representative of
the Company, and who was or is a party or is threatened to be made a party to
any corporate proceeding, by reason of the fact that such person was or is an
authorized representative of the Company, against expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such third party proceeding if such
person acted in good faith and in a manner such person reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect
to any criminal third party proceeding (including any action or investigation
which could or does lead to a criminal third party proceedings had no
reasonable cause to believe such conduct was unlawful. The Company shall also
indemnify any person who was or is an authorized representative of the Company
and who was or is a party or is threatened to be made a party to any corporate
proceeding by reason of the fact that that such person was or is an authorized
representative of the Company, against expenses actually and reasonably
incurred by such person in connection with the defense or settlement of such
corporate action if such person acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Company
unless and only to the extent that the Delaware Court of chancery or the court
in which such corporate proceeding was pending shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such authorized representative is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. Such indemnification is mandatory under
the Company's bylaws as to expenses actually and reasonably incurred to the
extent that an authorized representative of the Company had been successful on
the merits or otherwise in defense of any third party or corporate proceeding
or in defense of any claim, issue or matter therein. The determination of
whether an individual is entitled to indemnification may be made by a majority
of disinterested directors, independent legal counsel in a written legal
opinion or

II-1
<PAGE>

the stockholders. Delaware law also permits indemnification in connection with
a proceeding brought by or in the right of the Company to procure a judgment in
its favor. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is therefore unenforceable. The Company expects to obtain a
directors and officers liability insurance policy prior to the effective date
of this Registration Statement.

The Underwriting Agreement provides that the underwriter is obligated, under
certain circumstances, to indemnify directors, officers, and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933. Reference is made to Section 7 of the form of
Underwriting Agreement which will be filed by amendment as Exhibit 1.1 to this
Registration Statement.

Item 15. Recent Sales of Unregistered Securities

In the preceding three years, the Company has issued the following
securities that were not registered under the Securities Act of 1933:

In March 1997, the Company sold 4,000,000 shares of Series A Preferred Stock
par value $.001 per share at a purchase price of $1.00 per share. All of such
sales were made under the exemption from registration provided under Section
4(2) of the Securities Act of 1933.

Since inception through March 31, 1999, the Company has granted options to
purchase a total of 4,481,866 shares of common stock at a weighted average
exercise price of $1.95 per share under its 1995 Incentive Stock Plan. In the
past three years the Company issued an aggregate of 1,809,924 shares of common
stock par value $.001 per share upon the exercise of options granted under the
1995 Stock Incentive Plan as follows:

<TABLE>
<CAPTION>
Shares Exercise Price Per Share
------ ------------------------
<S> <C>
1,053,674 $0.10
756,250 $0.11
</TABLE>

For a more detailed description of this plan, see "Management--Employee
Benefit Plans" in this registration statement. In granting the options and
selling the underlying securities upon exercise of the options, the Company is
relying upon exemptions from registration set forth in Rule 701 and Section
4(2) of the Securities Act of 1933.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Form of Second Amended and Restated Certificate of Incorporation of
the Company.
3.2* Form of Second Amended and Restated Bylaws of the Company.
5.1* Opinion of Morgan, Lewis & Bockius LLP.
10.1 1995 Stock Incentive Plan, as amended.
10.2+ Lease between Maplewood Center Limited Partnership and the Company
dated June 10, 1998.
10.3 ESPS Rights Agreement dated July 5, 1994.
10.4+ License and Marketing Agreement between Adobe Systems Incorporated
and the Company dated November 6, 1997.
10.5*# Value Added Reseller License Agreement between Versant Object
Technology and the Company dated December 31, 1996.
10.6+ Convertible Promissory Note between Adobe Ventures L.P. and the
Company dated July 29, 1996.
10.7+ Convertible Promissory Note between Adobe Ventures L.P. and the
Company dated September 18, 1996.
10.8+ Convertible Promissory Note between Adobe Ventures L.P. and the
Company dated November 6, 1996.
10.9+ Series A Preferred Stock Purchase Agreement between Adobe Ventures
L.P., H&Q Investors L.P. and the Company.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit
5.1).
24.1+ Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------------------

+ Previously filed.
* To be filed by amendment.
# We intend to request confidential treatment of certain portions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement will be filed separately with the Securities and Exchange
Commission.

(b) Financial Statement Schedules

All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in
the financial statements or is not required under the related instructions or
are inapplicable, and therefore have been omitted.

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set

II-3
<PAGE>

forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased by
the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fort Washington, Pennsylvania, on
April 28, 1999.

ESPS, Inc.

/s/Terrence P. Brennan
By: _________________________________
Terrence P. Brennan
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/Terrence P. Brennan President, Chief Executive April 28, 1999
______________________________________ Officer and Director
Terrence P. Brennan (Principal Executive
Officer)

/s/Leonard W. von Vital Chief Financial Officer April 28, 1999
______________________________________ (Principal Financial and
Leonard W. von Vital Accounting Officer)

* Director April 28, 1999
______________________________________
Charles O. Heller

* Director April 28, 1999
______________________________________
Christopher B. Hollenbeck

* /s/Leonard W. von Vital April 28, 1999
______________________________________
Leonard W. von Vital
As Attorney-in-Fact
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

II-6

<PAGE>

Exhibit 10.1

ELECTRONIC SUBMISSION PUBLISHING SYSTEMS, INC.

1995 STOCK INCENTIVE PLAN

1. Purpose. Electronic Submission Publishing Systems, Inc. (the "Company")
-------
hereby adopts the Electronic Submission Publishing Systems, Inc. 1995 Stock
Incentive Plan (the "Plan"). The Plan is intended to recognize the contributions
made to the Company by the members of its Board of Directors (whether or not
such members of the Board of Directors are employed by the Company or an
Affiliate, as defined below), employees, consultants and advisors of the Company
or any Affiliate, to provide such persons with additional incentive to devote
themselves to the future success of the Company or an Affiliate, and to improve
the ability of the Company or an Affiliate to attract, retain, and motivate
individuals upon whom the Company's sustained growth and financial success
depend, by providing such persons with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights to acquire
the Company's Common Stock, par value $0.001 per Share (the "Common Stock") and
through the transfer or issuance of Common Stock subject to conditions of
forfeiture.

2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:

(a) "Affiliate" means a corporation which is a parent corporation or
a subsidiary corporation with respect to the Company within the meaning of
Section 424(e) or (f) of the Code.

(b) "Award" shall mean a transfer of Common Stock subject to
conditions of forfeiture made pursuant to the terms of the Plan.
<PAGE>

(c) "Award Agreement" shall mean the agreement between the Company
and a Grantee with respect to an Award made pursuant to the Plan.

(d) "Awardee" shall mean a person to whom an Award has been granted
pursuant to the Plan.

(e) "Board of Directors" means the Board of Directors of the Company.

(f) "Change of Control" shall have the meaning as set forth in
Section 9 of the Plan.

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

(h) "Committee" shall have the meaning set forth in Section 3 of the
Plan.

(i) "Company" means Electronic Submission Publishing Systems, Inc., a
Delaware corporation .

(j) "Disability" shall have the meaning set forth in Section 22(e)(3)
of the Code.

(k) "Disinterested Director" shall mean a member of the Board of
Directors of the Company who is "disinterested" within the meaning of
Rule 16b-3.

(l) "Fair Market Value" shall have the meaning set forth in
Subsection 8(b) of the Plan.

2
<PAGE>

(m) "Grantee" shall mean a person to whom an Option or an Award has
been granted pursuant to the Plan.

(n) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b) of
the Code.

(o) "Non-qualified Stock Option" means an Option granted under the
Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.

(p) "Option" means either an ISO or a Non-qualified Stock Option
granted under the Plan.

(q) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has not expired or
terminated.

(r) "Option Document" means the document described in Section 8 of
the Plan, as applicable, which sets forth the terms and conditions of each grant
of Options.

(s) "Option Price" means the price at which Shares may be purchased
upon exercise of an Option, as calculated pursuant to Subsection 8(b) of the
Plan.

(t) "Restricted Stock" means Common Stock, subject to conditions of
forfeiture and transfer, granted to any person pursuant to an Award under the
Plan.

(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.

3
<PAGE>

(v) "Section 16 Officer" means any person who is an "officer" within
the meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule.

(w) "Shares" means the shares of Common Stock of the Company which
are the subject of Options or granted as Awards under the Plan.

3. Administration of the Plan. The Plan shall be administered by the Board
--------------------------
of Directors of the Company, provided, however, that the Board of Directors may
designate a committee composed of two or more of directors, each of whom is a
Disinterested Director (the "Disinterested Director Committee"), to operate and
administer the Plan in its stead with respect to all persons eligible to
participate in the Plan other than the members of the Disinterested Director
Committee.

(a) Meetings. The Committee shall hold meetings at such times and
--------
places as it may determine, shall keep minutes of its meetings, and shall adopt,
amend and revoke such rules or procedures as it may deem proper; provided,
however, that it may take action only upon the agreement of a majority of the
whole Committee. Any action which the Committee shall take through a written
instrument signed by a majority of its members shall be as effective as though
it had been taken at a meeting duly called and held. The Committee shall report
all actions taken by it to the Board of Directors.

(b) Grants and Awards. The Committee shall from time to time at its
-----------------
discretion direct the Company to grant Options or Awards pursuant to the terms
of the Plan. The Committee shall have plenary authority to (i) determine the
persons to whom, the times at which, and the price at which Options shall be
granted, (ii) determine the type of Option to be granted and

4
<PAGE>

the number of Shares subject thereto, (iii) determine the persons to whom, and
the times at which, Awards of Restricted Stock shall be granted, the number of
Shares awarded, and the purchase price per Share, if any, and (iv) approve the
form and terms and conditions of the Option Documents and Award Agreements; all
subject, however, to the express provisions of the Plan. In making such
determinations, the Committee may take into account the nature of the Grantee's
services and responsibilities, the Grantee's present and potential contribution
to the Company's success and such other factors as it may deem relevant. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option or Award granted under it shall be final, binding and
conclusive.

(c) Exculpation. No member of the Board of Directors shall be
-----------
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options or Awards under the Plan, provided that this Subsection 3(c)
shall not apply to (i) any breach of such member's duty of loyalty to the
Company, an Affiliate, or the Company's stockholders, (ii) acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of law,
(iii) acts or omissions that would result in liability under Section 174 of the
General Corporation Law of the State of Delaware, as amended, and (iv) any
transaction from which the member derived an improper personal benefit.

(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of the
Committee shall be entitled, without further act on his or her part, to
indemnity from the Company and limitation of liability to the fullest extent
provided by applicable law and by the Company's Certificate of Incorporation
and/or By-laws in connection with or arising out of any action, suit or
proceeding with respect to

5
<PAGE>

the administration of the Plan or the granting of Options and Awards thereunder
in which he or she may be involved by reason of his or her being or having been
a member of the Committee, whether or not he or she continues to be such member
of the Committee at the time of the action, suit or proceeding.

4. Options and Awards under the Plan. Options under the Plan may be in the
---------------------------------
form of a Non-qualified Stock Option, an ISO, or a combination thereof, at the
discretion of the Committee. Awards under the Plan shall be in the form of
Restricted Stock.

5. Eligibility. All employees of the Company or any Affiliate, members of
-----------
the Board of Directors (whether or not employees of the Company or an Affiliate)
and consultants and advisors of the Company or its Affiliates shall be eligible
to receive Options and Awards hereunder, provided, however that only employees
shall be eligible to receive ISOs under the Plan. Notwithstanding anything to
the contrary contained herein, members of the Disinterested Director Committee
are not eligible to receive Options or Awards. The Committee, in its sole
discretion, shall determine whether an individual qualifies as an employee.

6. Shares Subject to Plan. The aggregate maximum number of Shares for which
----------------------
Awards or Options may be granted pursuant to the Plan is One Million
(1,000,000), subject to adjustment as provided in Section 10 of the Plan. The
Shares shall be issued from authorized and unissued Common Stock or Common Stock
held in or hereafter acquired for the treasury of the Company. If an Option
terminates or expires without having been fully exercised for any reason, or if
Shares granted pursuant to an Award have been conveyed back to the Company
pursuant to the terms of an Award Agreement, the Shares for which the Option was
not exercised or the Shares

6
<PAGE>

that were conveyed back to the Company may again be the subject of one or more
Options or Awards granted pursuant to the Plan.

7. Term of the Plan. The Plan is effective as of April 6, 1995, the date on
----------------
which it was adopted by the Board of Directors, subject to the approval of the
Plan on or before April 6, 1996 by a majority of the votes cast at a duly called
meeting of the stockholders at which a quorum representing a majority of all
outstanding voting stock of the Company is, either in person or by proxy,
present and voting, by the unanimous consent in writing of the stockholders, or
by a method and in a degree that would be treated as adequate under applicable
state law in the case of an action requiring stockholder approval. No Option or
Award may be granted under the Plan after April 6, 2005. If the Plan is not so
approved on or before April 6, 1996, all Options and Awards granted under the
Plan shall be null and void.

8. Option Documents and Terms. Each Option granted under the Plan shall be
--------------------------
a Non-qualified Stock Option unless the Option shall be specifically designated
at the time of grant to be an ISO for federal income tax purposes. To the extent
any Option designated an ISO is determined for any reason not to qualify as an
incentive stock option within the meaning of Section 422 of the Code, such
Option shall be treated as a Non-qualified Stock Option for all purposes under
the provisions of the Plan. Options granted pursuant to the Plan shall be
evidenced by the Option Documents in such form as the Committee shall from time
to time approve, which Option Documents shall comply with and be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall from time to time require which are not inconsistent with the
terms of the Plan.

7
<PAGE>

(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan.

(b) Option Price. Each Option Document shall state the Option Price
------------
which shall be determined at the discretion of the Committee, provided, however
that, for a Non-qualified Stock Option, such Option Price shall be at least
equal to 85% of the Fair Market Value of the Shares on the date the Option is
granted and, for an ISO, shall be at least 100% of the Fair Market Value of the
Shares on the date the Option is granted as determined by the Committee in
accordance with this Subsection 8(b); and provided further that with respect to
any Option granted to an Optionee who then owns, directly or by attribution
under Section 424(d) of the Code, shares possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or an
Affiliate, the Option Price shall be at least 110% of the Fair Market Value of
the Shares on the date the Option is granted. For purposes of the Plan, the Fair
Market Value of the Common Stock shall be determined as follows: If the Common
Stock is traded in a public market, then the Fair Market Value per share shall
be, if the Common Stock is listed on a national securities exchange or included
in the NASDAQ National Market System, the last reported sale price thereof on
the relevant date, or, if the Common Stock is not so listed or included, the
mean between the last reported "bid" and "asked" prices thereof on the relevant
date, as reported on NASDAQ or, if not so reported, as reported by the National
Daily Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines. If the Common Stock is
not traded in a public market, the Fair Market Value per share shall be
established by means of

8
<PAGE>

the good-faith determination of the Committee, taking into account all relevant
facts and circumstances.

(c) Exercise. No Option shall be deemed to have been exercised prior
to the receipt by the Company of written notice of such exercise and of payment
in full of the Option Price for the Shares to be purchased. Each such notice
shall specify the number of Shares to be purchased and shall (unless the Shares
are covered by a then current registration statement or a Notification under
Regulation A under the Securities Act of 1933, as amended (the "Act")), contain
the Optionee's acknowledgement in form and substance satisfactory to the Company
that (a) such Shares are being purchased for investment and not for distribution
or resale (other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that
(i) the shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer and (ii) the Company is under no obligation to register
the Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (c) such Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates. Notwithstanding the foregoing, if the Company
determines that issuance of Shares should be delayed pending (A) registration
under federal or state securities laws, (B) the receipt of an opinion of counsel
satisfactory to the Company that an appropriate exemption from such registration
is available, (C) the listing or inclusion of the Shares on any securities
exchange or an automated quotation system or (D) the consent or approval of any
governmental regulatory body whose consent or approval is

9
<PAGE>

necessary in connection with the issuance of such Shares, the Company may defer
exercise of any Option granted hereunder until any of the events described in
this sentence has occurred.

(d) Medium of Payment. An Optionee shall pay for Shares (i) in cash,
-----------------
(ii) by certified or cashier's check payable to the order of the Company, or
(iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Furthermore, the Committee may provide in an
Option Document that payment may be made in whole or in part in shares of the
Company's Common Stock held by the Optionee. If payment is made in whole or in
part in shares of the Company's Common Stock, then the Optionee shall deliver to
the Company certificates registered in the name of such Optionee representing
the shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market Value on the date of delivery
that is at least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by the payment in
shares of Common Stock, endorsed in blank or accompanied by stock powers duly
endorsed in blank by the Optionee. In the event that certificates for shares of
the Company's Common Stock delivered to the Company represent a number of shares
of Common Stock in excess of the number of shares of Common Stock required to
make payment for the Option Price of the Shares (or relevant portion thereof)
with respect to which such Option is to be exercised by payment in shares of
Common Stock, the stock certificate issued to the Optionee shall represent (i)
the Shares in respect of which payment is made, and (ii) such excess number of
shares of Common Stock. Notwithstanding the foregoing, the Committee may impose
from time to time such limitations and prohibitions on the use of shares of the
Common Stock to exercise and Option as it deems appropriate.

10
<PAGE>

(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur of
the following:

(A) Expiration of the Option term specified in the Option
Document, which, in the case of an ISO, shall not occur after (1) ten years from
the date of grant, or (2) five years from the date of grant of an ISO if the
Optionee on the date of grant owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of an Affiliate;

(B) Except to the extent otherwise provided in an
Optionee's Option Document, expiration of thirty (30) days from the date the
Optionee's employment or service with the Company or its Affiliates terminates
for any reason other than Disability or death;

(C) Except to the extent otherwise provided in an
Optionee's Option Document, expiration of twelve months from the date such
employment or service with the Company or its Affiliates terminates due to the
Optionee's Disability or due to Optionee's death;

(D) Except to the extent otherwise provided in an
Optionee's Option Document, a finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft,

11
<PAGE>

commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee shall automatically forfeit
all Shares for which the Company has not yet delivered the share certificates
upon refund by the Company of the Option Price. Notwithstanding anything herein
to the contrary, the Company may withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a finding resulting in a
forfeiture; or

(E) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company; or

(F) The occurrence of such other event or events as may
be set forth in the Option Document as causing an accelerated expiration of the
Option.

(ii) Notwithstanding the foregoing, the Committee may extend
the period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection
8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be
made only with the consent of the Optionee.

(iii) Except to the extent otherwise provided in an Optionee's
Option Document, no Option shall be exercisable to any greater extent than such
Option was exercisable on the date of Optionee's termination of service or
employment with the Company or its Affiliates, except with respect to Options
that were held by an Optionee whose death or Disability occurs while still in
the employ or service of the Company or an Affiliate, in which case such Options
shall be exercisable to the same extent that they would be exercisable had such

12
<PAGE>

Optionee continued to be employed or in the service of the Company or an
Affiliate until the six (6) month anniversary of such Optionee's death or
termination of employment due to Disability.

(iv) Notwithstanding anything to the contrary contained in the
Plan or an Option Document, an ISO shall be treated as a Non-qualified Stock
Option to the extent such ISO is exercised at any time after the expiration of
the time period permitted under the Code for the exercise of an ISO.

(f) Transfers. No Option granted under the Plan may be transferred,
---------
except by will or by the laws of descent and distribution. During the lifetime
of the person to whom an Option is granted such Option may be exercised only by
such person. Notwithstanding the foregoing, a Non-qualified Stock Option may be
transferred pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and may be transferred in accordance with such provisions as may be
incorporated into the Option Document.

(g) Limitation on ISO Grants. To the extent that the aggregate Fair
------------------------
Market Value of stock with respect to which ISOs issued under the Plan and
incentive stock options issued under any other incentive stock option plan of
the Company or its Affiliates are exercisable for the first time by any
individual during any calendar year exceeds $100,000, such ISOs shall be treated
as Non-qualified Stock Options issued under the Plan. For purposes for this
Subsection 8(g), the Fair Market Value of stock shall be determined as of the
date of grant of the ISO or other incentive stock option.

13
<PAGE>

(h) Other Provisions. Subject to the provisions of the Plan, the
----------------
Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.

(i) Amendment. Subject to the provisions of the Plan, the Committee
shall have the right to amend Option Documents issued to an Optionee, subject to
the Optionee's consent if such amendment is not favorable to the Optionee,
except that the consent of the Optionee shall not be required for any amendment
made pursuant to Subsection 8(e)(i)(E) or Section 9 of the Plan, as applicable.

9. Change of Control. In the event of a Change of Control, the Committee
-----------------
may take whatever action it deems necessary or desirable with respect to the
Options and Awards outstanding, including, without limitation, accelerating the
expiration or termination date in the respective Option Documents to a date no
earlier than fifteen (15) days after notice of such acceleration is given to the
Optionees. In addition to the foregoing, in the event of a Change of Control,
the Committee may, in the exercise of its sole discretion, cause the Options
granted pursuant to the Plan and held by Optionees who are employees or members
of the Board of Directors at the time of such Change of Control to become
immediately exercisable in full and cause the restrictions applicable to
Restricted Stock awarded to Awardees who are employees or members of the Board
of Directors at the time of a Change of Control immediately to lapse and the
Restricted Stock held by the Company shall, in such event, be delivered to the
Grantees. In the event there is a Change of Control as a result of either a sale
of all or substantially all of the assets of the Company to another company, or
the merger of the Company into another company (such

14
<PAGE>

other company being referred to hereafter as the "Successor Company"), the
Committee shall cause the Options granted pursuant to the Plan and held by
Optionees who are employees or members of the Board of Directors at the time of
such Change of Control to become immediately exercisable in full and shall cause
the restrictions applicable to Restricted Stock awarded to Awardees who are
employees or members of the Board of Directors at the time of a Change of
Control immediately to lapse unless the Successor Company agrees to assume all
outstanding Options granted under the Plan or to provide equivalent options as a
substitute for such Options, and agrees to substitute appropriate restricted
stock in the Successor Company for such Restricted Stock as has been awarded
under the Plan. Any amendment to this Section 9 which diminishes the rights of
Optionees, other than the acceleration of the expiration or termination date to
a date no earlier than fifteen (15) days after notice of such acceleration,
shall not be effective with respect to Options outstanding at the time of
adoption of such amendment, whether or not such outstanding Options are then
exercisable.

A "Change of Control" shall be deemed to have occurred upon the earliest to
occur of the following events: (i) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated,
or (ii) the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) approve a definitive agreement to sell or
otherwise dispose of substantially all of the assets of the Company, or (iii)
the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) and the stockholders of the other
constituent corporation (or its board of directors, if stockholder action is not
required) have approved a definitive agreement to merge or consolidate the
Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in

15
<PAGE>

which holders of shares of the Company's Common Stock immediately prior to the
merger or consolidation will have at least a majority of the ownership of common
stock of the surviving corporation (and, if one class of common stock is not the
only class of voting securities entitled to vote on the election of directors of
the surviving corporation, a majority of the voting power of the surviving
corporation's voting securities) immediately after the merger or consolidation,
which common stock (and, if applicable, voting securities) is to be held in the
same proportion as such holders' ownership of Common Stock of the Company
immediately before the merger or consolidation.

10. Adjustments on Changes in Capitalization.
----------------------------------------
(a) In the event that the outstanding Shares are changed by reason of
a reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination or exchange of Shares and the like (not including
the issuance of Common Stock on the conversion of other securities of the
Company which are outstanding on the date of grant and which are convertible
into Common Stock) or dividends payable in Shares, an equitable adjustment shall
be made by the Committee in the aggregate number of shares available under the
Plan and in the number of Shares and price per Share subject to outstanding
Options. Unless the Committee makes other provisions for the equitable
settlement of outstanding Options, if the Company shall be reorganized,
consolidated, or merged with another corporation, or if all or substantially all
of the assets of the Company shall be sold or exchanged, an Optionee shall at
the time of issuance of the stock under such corporate event be entitled to
receive upon the exercise of his or her Option the same number and kind of
shares of stock or the same amount of property, cash or securities as he or she
would have been entitled to receive upon the occurrence of any such corporate
event as if he or

16
<PAGE>

she had been, immediately prior to such event, the holder of the number of
shares covered by his or her Option.

(b) Any adjustments under this Section 10 in the number of Shares
subject to Options shall apply proportionately to only the unexercised portion
of any Option granted hereunder. If fractions of a Share would result from any
such adjustment, the adjustment shall be revised to the next lower whole number
of Shares.

(c) The Committee shall have authority to determine the adjustments
to be made under this Section, and any such determination by the Committee shall
be final, binding and conclusive.

11. Terms and Conditions of Awards. Awards granted pursuant to the Plan
------------------------------
shall be evidenced by written Award Agreements in such form as the Committee
shall from time to time approve, which Award Agreements shall comply with and be
subject to the following terms and conditions and such other terms and
conditions which the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. The Committee may, in its sole
discretion, shorten or waive any term or condition with respect to all or any
portion of any Award. Notwithstanding the foregoing, all restrictions shall
lapse or terminate with respect to Restricted Stock upon the death or Disability
of the Awardee.

(a) Number of Shares. Each Award Agreement shall state the number of
----------------
shares of Common Stock to which it pertains.

(b) Purchase Price. Each Award Agreement shall specify the purchase
--------------
price, if any, which applies to the Award. If the Board specifies a purchase
price, the Awardee

17
<PAGE>

shall be required to make payment on or before the date specified in the Award
Agreement. An Awardee shall pay for such Shares (i) in cash, (ii) by certified
check payable to the order of the Company, or (iii) by such other mode of
payment as the Committee may approve.

(c) In the case of an Award which provides for a transfer of Shares
without any payment by the Grantee, the transfer shall take place on the date
specified in the Award Agreement. In the case of an Award which provides for a
payment, the transfer shall take place on the date the initial payment is
delivered to the Company, unless the Committee or the Award Agreement otherwise
specifies. Stock certificates evidencing Shares transferred pursuant to an Award
shall be issued in the sole name of the Grantee. Notwithstanding the foregoing,
as a precondition to a transfer, the Company may require an acknowledgement by
the Grantee as required with respect to Options under Section 8.

(d) Forfeiture Conditions. The Committee may specify in an Award
Agreement any conditions under which the Grantee of that Award shall be required
to convey to the Company the Shares covered by the Award. Upon the occurrence of
any such specified condition, the Grantee shall forthwith surrender and deliver
to the Company the certificates evidencing such Shares as well as completely
executed instruments of conveyance. The Committee, in its discretion, may
provide that certificates for Shares transferred pursuant to an Award be held in
escrow by the Company's Treasurer, together with an undated stock power executed
by the Awardee Company or an appropriate officer of the Company until such time
as each and every forfeiture condition has lapsed and that the Grantee be
required, as a condition of the transfer, to deliver to such escrow agent stock
powers covering the transferred Shares duly endorsed by the Grantee. Stock
certificates evidencing Shares subject to forfeiture shall bear a legend to the
effect that the Common Stock evidenced thereby is subject to repurchase or

18
<PAGE>

conveyance to the Company in accordance with an Award made under the Plan and
that the Shares may not be sold or otherwise transferred.

(e) Lapse of Conditions. Upon termination or lapse of each and every
-------------------
forfeiture condition, the Company shall cause certificates without the legend
referring to the Company's repurchase right (but with any other legends that may
be appropriate) evidencing the Shares covered by the Award to be issued to the
Grantee upon the Grantee's surrender of the legended certificates held by him to
the Company.

(f) Rights as Stockholder. Upon payment of the purchase price, if
---------------------
any, for Shares covered by an Award and compliance with the acknowledgment
requirement of subsection 11(c), the Grantee shall have all of the rights of a
stockholder with respect to the Shares covered thereby, including the right to
vote the Shares and receive all dividends and other distributions paid or made
with respect thereto, except to the extent otherwise provided by the Committee
or in the Award Agreement.

(g) Lapse of Restrictions. Upon the expiration or termination of the
---------------------
Restricted Period and the satisfaction of any other conditions prescribed by the
Committee time as provided for in the Plan, the restrictions applicable to the
Restricted Stock shall lapse and a stock certificate for the number of shares of
Common Stock with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, except any that may be imposed by law
or pursuant to any stockholders' agreement then in effect, to the Awardee or the
beneficiary or estate, as the case may be. The Company shall not be required to
deliver any fractional share of Common Stock but will pay, in lieu thereof, the
fair market value (determined as of the date the restrictions lapse) of such
fractional share to the Awardee or the Awardee's beneficiary or estate, as the
case

19
<PAGE>

may be. The Award may provide for the lapse of restrictions on transfer and
forfeiture conditions in installments.

(h) Section 83(b) Elections. An Awardee who files an election with
-----------------------
the Internal Revenue Service to include the Fair Market Value of any Restricted
Stock in gross income while they are still subject to restrictions shall
promptly furnish the Company with a copy of such election together with the
amount of any federal, state, local or other taxes required to be withheld to
enable the Company to claim an income tax deduction with respect to such
election.

(i) Upon a finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Awardee, that the Awardee
has breached his or her employment or service contract with the Company or an
Affiliate, or has been engaged in disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company or an
Affiliate, Awardee shall automatically forfeit all Restricted Stock for which
(i) the Company has not yet delivered the Share certificates to the Awardee;
(ii) the Restricted Period has not expired or (iii) any restrictions applicable
to the Restricted Stock have not lapsed. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of Restricted Stock certificates
pending the resolution of any inquiry that could lead to a finding resulting in
a forfeiture.

(j) Amendment. Subject to the provisions of the Plan, the Committee
shall have the right to amend Awards issued to an Awardee, subject to the
Awardee's consent if such amendment is not favorable to the Awardee, except that
the consent of the Awardee shall not be required for any amendment made pursuant
to Section 9 of the Plan.

20
<PAGE>

12. Amendment of the Plan. The Board of Directors of the Company may amend
---------------------
the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of shares
as to which Options may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a
duly called meeting of the stockholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the matter, by the unanimous consent in writing
of the stockholders, or by a method and in a degree that would be treated as
adequate under applicable state law in the case of an action requiring
stockholder approval. No amendment to the Plan shall adversely affect any
outstanding Option or Award, however, without the consent of the Grantee.

13. No Commitment to Retain. The grant of an Option or Award pursuant to
-----------------------
the Plan shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Affiliate to
retain the Grantee in the employ of the Company or an Affiliate and/or as a
member of the Company's Board of Directors or in any other capacity.

14. Withholding of Taxes. Whenever the Company proposes or is required to
--------------------
deliver or transfer Shares in connection with the exercise of an Option or
Award, the Company shall have the right to (a) require the recipient to remit or
otherwise make available to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for such Shares or (b) take
whatever other action it deems necessary to protect its interests with respect
to tax liabilities. The Company's obligation to make any delivery or transfer of
Shares shall be conditioned on the Grantee's compliance, to the Company's
satisfaction, with any withholding requirement.

21
<PAGE>

15. Interpretation. The Plan is intended to enable transactions under the
--------------
Plan with respect to directors and officers (within the meaning of Section 16(a)
under the Securities Exchange Act of 1934, as amended) to satisfy the conditions
of Rule 16b-3; to the extent that any provision of the Plan would cause a
conflict with such conditions or would cause the administration of the Plan as
provided in Section 3 to fail to satisfy the conditions of Rule 16b-3, such
provisions shall be deemed null and void to the extent permitted by applicable
law. This section shall not be applicable if no class of the Company's equity
securities is then registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended.

22
<PAGE>

AMENDMENT TO THE
ELECTRONIC SUBMISSION PUBLISHING SYSTEMS, INC.
1995 STOCK INCENTIVE PLAN

WHEREAS, Electronic Submission Publishing Systems, Inc. (the "Company")
desires to amend the Electronic Submission Publishing Systems, Inc. 1995 Stock
Incentive Plan (the "Plan") to increase the aggregate maximum number of shares
of common stock of the Company which may be subject to grants under the Plan
from 1,000,000 to 1,411,400 shares; and

WHEREAS, the Board of Directors of the Company is generally authorized
under Section 12 of the Plan to amend the Plan from time to time in such manner
as it may deem advisable, subject to the approval, within twelve months before
or after amending the Plan to increase the maximum number of shares as to which
Options may be granted, of the stockholders of the Company.

NOW, THEREFORE, the Plan is hereby amended, effective immediately as
follows:

1. Section 6 of the Plan is amended to read as follows:

"6. Shares Subject to Plan. The aggregate maximum number of Shares for
----------------------
which Awards or Options may be granted pursuant to the Plan is One Million Four
Hundred Eleven Thousand Four Hundred (1,411,400), subject to adjustment as
provided in Section 10 of the Plan. The Shares shall be issued from authorized
and unissued Common Stock or Common Stock held in or hereafter acquired for the
treasury of the Company. If an Option terminates or expires without having been
fully exercised for any reason, or if Shares granted pursuant to an Award have
been conveyed back to the Company pursuant to the terms of an Award Agreement,
the Shares for which the Option was not exercised or the Shares that were
conveyed back to the Company may again be the subject of one or more Options or
Awards granted pursuant to the Plan."

2. In all other respects, the provisions of the Plan shall remain in full
force and effect.

<PAGE>

ELECTRONIC SUBMISSION PUBLISHING SYSTEM, INC.

RIGHTS AGREEMENT

This Rights Agreement (the "Agreement") is entered into as of July 5 1994
by and among Electronic Submission Publishing Systems, Inc., a Delaware
corporation (the "Company"), the undersigned holders of the Series A Preferred
Stock (the "Series A Shares") of the Company (the "Series A Holders") and Larry
D. Tindell, Ronald M. Swartz and Mark Gavin (the "Founders"). The Company, the
Holders and the Founders are sometimes referred to herein collectively as the
"Parties" or individually as a "Party."

RECITAL

The Parties now desire to set forth the registration rights applicable to
the Common Stock owned by the Founders and the Series A Shares.

AGREEMENT

In consideration of the foregoing and of the mutual promises and covenants
contained herein, the Parties agree as follows:

1. Registration Rights.
--------------------

1.1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:

(a) "Commission". Shall mean the Securities and Exchange Commission
----------
or any other federal agency at the time administering the Securities Act.

(b) "Conversion Stock" means the Common Stock issued or issuable
----------------
upon conversion of the Series A Shares.

(c) "Holder" means any person or persons to whom Registrable
------
Securities were originally issued or qualifying transferees under Section 1.11
hereof who hold Registrable Securities.

(d) "Initiating Holders" shall mean any Holder or Holders of at
------------------
least forty percent (40%) of the Registrable Securities (excluding Registrable
Securities owned by the Founders).

(e) "Registrable Securities" means (i) the Conversion Stock; and
----------------------
(ii) stock issued in respect of the stock referred to in (i) as a result of a
stock split, stock dividend, recapitalization or the like, which have not been
sold to the public. Except for subsections 1.2, 1.4, 1.5, 1.10, 1.11 and 4.4,
Registrable Securities shall also mean shares of Common Stock owned by the
Founders.

1
<PAGE>

(f) The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

(g) "Registration Expenses" shall mean all expenses, except as
---------------------
otherwise stated below, incurred by the Company in complying with Sections 1.2,
1.3 and 1.4 hereof, including, without limitation, all registration,
qualification and filing fees, printing -expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) and the reasonable fees and disbursements
of one counsel for all Holders in the event of each registration provided for in
Sections 1.2, 1.3 and 1.4 hereof.

(h) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the- time.

(i) "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all reasonable fees
and disbursements of counsel for the selling Holders.

1.2. Requested Registration
-----------------------

(a) Request for Registration. If the Company receives from
------------------------
Initiating Holders written request that the Company effect a registration
covering either (i) not less than 25% of the Registrable Securities, or (ii)
Registrable Securities having an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000, the Company
will:

(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and

(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.2:

2
<PAGE>

(A) Before the earlier of May 1, 1997 or 180 days after
the closing of its initial public offering of its Common Stock;

(B) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

(C) After the Company has effected two such
registrations pursuant to this Section 1.2(a), and such registrations have been
declared or ordered effective; and

(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.2 shall be deferred for a period not to
exceed s@ (60) days from the date of receipt of written request from the
Initiating Holders, provided that the Company may not use this right more than
once in any twelve month period.

Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.

(b) Underwriting. In the event that a registration pursuant to
------------
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to participate in such
registration shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.

The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 1.2,
if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all participating Holders and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other shareholders) in such registration if the
underwriter so agrees

3
<PAGE>

and of the number of Registrable Securities that would otherwise have been
included in such registration and underwriting will not thereby be limited.

If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.

1.3. Company Registration.
--------------------

(a) Notice of Registration. If, at any time prior to the fifth
----------------------
anniversary of the closing date of the Company's initial public offering of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S- 1 under the Securities Act, the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than (i) a registration relating
solely to employee benefit plans, (ii) a registration relating solely to a
transaction under Rule 145 under the Securities Act, or (iii) a registration
effected pursuant to Sections 1.2 or 1.4 hereof, the Company will:

(i) promptly give to each Holder written notice thereof; and

(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder; provided that the Holder making such request would
have been unable to sell all of its or his Registrable Securities pursuant to
Rule 144 under the Securities Act in the four-week period immediately preceding
the date of such written notice.

(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company, but subject to the reasonable approval of Holders holding more than a
majority of the Registrable Securities to be included in such registration.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration. The Company shall so advise all
Holders an-d-the number of shares of securities that may be included in the
registration and underwriting (other than in behalf of the Company) shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders; provided,
however, in no event shall the amount of Registrable Securities of the Holders
included in the offering be reduced below twenty percent (20%) of the total
amount of

4
<PAGE>

securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the Holders may be excluded
entirely if the underwriters make the determination described above. No
securities of the Company held by parties other than the Holders or the Company
shall be included in any registration and underwriting to which this section
applies if the number of Registrable Securities that would otherwise have been
included in such registration and underwriting will thereby be limited. If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter.

1.4. Registration on Form S-3.
------------------------

(a) If any Holder or Holders holding in the aggregate not less than
ten percent (10%) of the then outstanding Registrable Securities request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one (1) registration pursuant to this
Section 1.4 in any six (6) month period. The substantive provisions of Section
1.2(b) shall be applicable to each registration initiated under this Section
1.4.

(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.4:

(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

(ii) within one hundred eighty (180) days of the effective
date of any registration referred to in Sections 1.2 and 1.3 above provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or

(iii) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in good faith
judgment of the Board of Directors it would be seriously detrimental to the
Company or its shareholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed say (60)
days from the receipt of the request to file such registration by such Holder,
provided that the Company may not use this right more than once in any twelve
month period.

5
<PAGE>

1.5. Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date hereof, without the approval of the holders of a majority of the
Registrable Securities the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted to Series A Holders hereunder.

1.6. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with all registrations pursuant to Sections 1.2 and 1.3 shall be
borne by the Company. All Registration Expenses incurred in connection with all
registrations pursuant to Sections 1.4 shall be borne by the stockholders
participating in that registration pro rata, on the basis of number of shares so
registered. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.

1.7. Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:

(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;

(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.

(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.

6
<PAGE>

(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
e3dsting.

(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.

1.8. Indemnification.
---------------

(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such person within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable to any such person in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged untrue
statement or omission), made in reliance upon and in conformity with written
information furnished to the Company by an

7
<PAGE>

instrument duly executed by such Holder, controlling person or underwriter and
stated -to be specifically for use therein or the preparation thereby.

(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15. of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and Will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein or the preparation thereby. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited to an amount equal to the aggregate proceeds received by such Holder
from the sale of Registrable Securities in such registration.

(c) Each party entitled to indemnification under this Section 1.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

1.9. Information by Holder. The Holders of securities included in any
---------------------
registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in

8
<PAGE>

writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.

1.10. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:

(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934 (the
"Exchange Act").

(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);

(c) So long as a Holder owns any Registrable Securities to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become Subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.

1.11. Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted to Holders under this Agreement may be assigned to a
transferee or assignee in connection with any transfer or assignment of
Registrable Securities by a Holder provided that: (i) such assignment or
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee agrees to be bound by the terms and
conditions of this Agreement, and (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities (appropriately
adjusted for stock splits, combinations, dividends, distributions and
recapitalizations) not sold to the public, or (B) such assignee or transferee is
a partner, shareholder, subsidiary, affiliate, family member, family trust or
the estate of the Holder.

1.12. Standoff Agreement. Each Party hereby agrees that in connection
------------------
with the Company's initial public offering of the Company's securities that,
upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, a Holder shall not sell, make any short
sale of loan, grant any option for the purchase of or otherwise dispose of any
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
underwriters; provided, that the officers, directors of the

9
<PAGE>

Company who own stock of the Company and any stockholder holding more than five
percent (5%) of the outstanding voting securities of the Company also agree to
such restrictions.

2. Right of First Refusal Upon Issuance of Securities by the Company.
------------------------------------------------------------------

2.1. Right of First Refusal. The Company hereby grants to each Series A
----------------------
Holder (the "Rights Holders") the right of first refusal to purchase, pro rata,
in order to maintain the Rights Holder's percentage ownership interest in the
Company, all or any part of New Securities (as defined in Section 2.3 below)
which the Company may, from time to time, propose to sell and issue. A pro rata
share, for purposes of this right of first refusal, is the ratio that the number
of shares of Common Stock issued or issuable to each Rights Holder bears to the
sum of the total number of shares of Common Stock then outstanding (assuming
conversion of all preferred stock of the Company into Common Stock).

2.2. "Equity Securities" shall mean any securities having voting rights in
the election of the Board of Directors not contingent upon default, or any
securities evidencing an ownership interest in the Company, or any securities
convertible into or exercisable for any shares of the foregoing, or any
securities issuable pursuant to any agreement or commitment to issue any of the
foregoing.

2.3. Except as set forth below, "New Securities" shall mean any Equity
Securities, whether now authorized or not, and rights, options or warrants to
purchase said Equity Securities. Notwithstanding the foregoing, "New
Securities" does not include (i) Common Stock issued to the Founders or
employees, officers, consultants or directors of the Company pursuant to sales
or options granted at any time after the date of incorporation of the Company up
to a total of 2,000,000 shares (as adjusted for stock splits, combinations,
dividends, distributions or recapitalizations); (ii) securities offered to the
public generally pursuant to a registration statement under the Securities Act;
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its shareholders own not less than fifty-
one (51%) percent of the voting power of the surviving or successor corporation;
(iv) the Conversion Stock; (v) warrant or warrants for the purchase of shares of
capital stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of Directors of the
Company and issued in connection with an equipment lease, equipment financing or
bank line financing; or (vi) stock issued in connection with any stock split,
stock dividend or recapitalization by the Company.

2.4. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Rights Holder written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Rights Holder shall have fifteen (15)
days from the date of receipt of any such notice to agree to purchase up to its
respective pro rata share of such New Securities for the price and upon the
applicable terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.

10
<PAGE>

2.5. In the event a Rights Holder fails to exercise the right of first
refusal within said fifteen (15) day period, the Company shall have ninety (90)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within s@ (60)
days from the date of said agreement) to sell the New Securities not-elected to
be purchased by Rights Holders at the price and upon the terms no more favorable
to the purchasers of such securities than specified in the Company's notice. In
the event the Company has not sold the New Securities within said ninety (90)
day period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities in the manner provided above.

2.6. The right of first refusal granted under this Agreement shall expire
on the effective date of the Company's initial public offering pursuant to an
effective registration statement under the Securities Act.

2.7. The right of first refusal hereunder may be assigned to a transferee
or assignee in connection with any transfer or assignment of the Series A Shares
or the Conversion Stock by a Rights Holder provided that: (i) such assignment or
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee agrees to be bound by the terms and
conditions of this Agreement, and (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities (appropriately
adjusted for stock splits, combinations, dividends, distributions and
recapitalizations) not sold to the public, or (B) such assignee or transferee is
a partner, shareholder, subsidiary, affiliate, family member, family trust or
the estate of the Rights Holder.

3. Right of First Refusal. Before any equity securities of the Company
----------------------
registered in the name of a Series A Holder or a Founder may be sold or
transferred (including transfer by operation of law) other than to a partner,
shareholder, subsidiary, affiliate, family member, family trust or the estate of
the Series A Holder or Founder (provided that such permitted transferees shall
agree, as a condition of the transfer, to be bound by the provisions of this
Section 3), such shares shall first be offered to the Company and to the Series
A Holders and Founders in the following manner:

3.1. Notice. That Series A Holder or Founder ("Selling Party") shall
------
first deliver a written notice ("Notice") to the Company and the other Series A
Holders and Founders stating (i) the Selling Party desires to sell or transfer
such equity securities, (H) the number of equity securities proposed to be sold
or transferred, and (iii) the price and other terms of the proposed sale or
transfer.

3.2. Company Right. Within ten (10) days after receipt of the Notice, the
-------------
Company may elect to purchase all (but not less than all) of the equity
securities to ,which the Notice refers, on the same terms and conditions
specified in the Notice, by delivering to the Selling Party a written notice of
such election.

3.3. Series A Holder and Founder Right. In the event the Company does not
---------------------------------
elect to purchase the equity securities to which the Notice refers within the
ten (10) day period, then the

11
<PAGE>

Company shall notify each Series A Holder and Founder (other than the Selling
Party) of this fact within fifteen (15) days after receipt of the Notice and
each such Series A Holder and Founder may elect within twenty-five (25) days
after receipt of the Notice to purchase its pro rata share (but not less than
its pro rata share) of such equity securities, on the same terms and conditions
specified in the Notice, by delivering to the Company written notice of such
election. Each Series A Holder's and Founder's pro rata share of these equity
securities shall be a fraction calculated by dividing (i) the number of shares
of Common Stock issued and issuable upon exercise, conversion or exchange of all
outstanding equity securities held by the Series A Holder or Founder as of the
date of delivery of the Notice by (ii) the total number of shares of Common
Stock issued and issuable upon exercise, conversion or exchange of all
outstanding equity securities held by the Series A Holders and the Founders
(other than the Selling Party) as of that date.

3.4. Over-allotment. If, within twenty-five (25) days after receipt of
--------------
the Notice, a Series A Holder or Founder does not notify the Company that it
desires to purchase its pro-rata share (or any part thereof) of the equity
securities, those Founding Partners and Founders who have elected to purchase
equity securities during the twenty-five (25) day period (the "Over-allotment
Purchasers") may elect to purchase those equity securities not so purchased. The
Company shall provide written notice to the Over-allotment Purchasers not later
than thirty (30) days after receipt of the Notice of the number of shares of
equity securities of the Selling Party available for purchase pursuant to this
over-allotment right. Each of these Over-allotment Purchasers shall have until
forty (40) days after receipt of the Notice to notify the Company in writing
that it elects to purchase at least its pro rata share (but not less than its
pro rata share) of the equity securities so offered. Each Over-allotment
Purchaser's pro rata share of the equity securities shall be a fraction
calculated by dividing (i) the number of shares of Common Stock issued and
issuable upon exercise, conversion or exchange of all outstanding equity
securities of the Company held by the Over-allotment Purchaser as of the date of
the Notice by (ii) the total number of shares of Common Stock issued and
issuable upon exercise, conversion or exchange of all outstanding equity
securities of the Company held I by all Over-allotment Purchasers as of the date
of the Notice.

3.5. Company Purchase. In the event the Company elects to acquire all of
----------------
the equity securities pursuant to Section 3, the Company and the Selling Party
shall complete the sale and purchase of such equity securities shares within
thirty (30) days after the Company receives the Notice.

3.6. Series A Holder and Founder Purchases. In the event the Series A
-------------------------------------
Holders and the Founders elect to acquire all of the equity securities offered
pursuant to Section 3, the Series A Holders and Founders and the Selling Party
shall complete the -sale and purchase of such equity securities within sixty
(60) days after the Company receives the Notice.

3.7. Selling Party Right. If all of the equity securities to which the
-------------------
Notice refers are not elected to be purchased by the Company or the Series A
Holders and the Founders, the Selling Party may sell all such shares at the
price and on the terms specified in the Notice, provided that (i) such sale or
transfer is consummated within one hundred twenty (120) days of the date of the
Notice, and (ii) that prior to the transfer, the transferee of such equity
securities

12
<PAGE>

agrees in writing (in a form satisfactory to the Company) that such transferee
shall receive and hold such securities subject to the provisions of this Section
3.

3.8. Termination. The rights and obligations of the Company, the Series A
-----------
Holders and the Founders under this Section 3 shall terminate upon the earlier
to occur of (i) the closing of the Company's first firmly underwritten public
offering registered under the Act, or (ii) upon shareholder approval of any
merger or consolidation of the Company with any other corporation in which more
than 50% of the voting control of the Company is transferred to a party or
parties not affiliated with the Company or any shareholder of the Company,
provided that, if such merger or consolidation is not consummated, the rights
and obligations of this Section 3 shall be deemed restored and reinstated to
full force and effect.

4. Miscellaneous
-------------

4.1. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware as applied to transactions taking place
between Delaware residents and wholly within the State of Delaware.

4.2. Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Series A Holder and the
closing of the transactions contemplated hereby.

4.3. Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

4.4. Entire Agreement: Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein. With the written consent of the record or beneficial holders
of at least two-thirds (2/3) of the Registrable Securities (excluding
Registrable Securities held by the Founders), the obligations of the Company and
the rights of the Holders of the Registrable Securities under this Agreement may
be waived (either generally or in a particular instance, either under this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplementary agreement
for the purpose of adding any provision to or changing in any manner or
eliminating any of the provisions of this Agreement; provided, however, that no
such modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Securities without the consent of all of the Holders of the
Registrable Securities and none of the rights of the Founders under this
Agreement may be waived or modified without their written consent. Upon the
effectuation of each such wavier, consent, agreement of amendment or
modification, the Company shall promptly given written notice thereof to the
record holders of the Registrable Securities who have not previously consented
thereto in writing. This Agreement or any provision hereof may be changed,
waived, discharged of terminated only by a statement in writing signed by the
party against which enforcement of

13
<PAGE>

the change, waiver, discharge or termination is sought, except to the extent
provided in this Section 4.4.

4.5. Notices, etc. All notice and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to any Holder, at such Holder's address as set forth in the
Company's records, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at 1612 Broadfield Circle,
Maple Glen, PA 19002, or at such other address as the Company shall have
furnished to the Holders in writing.

4.6. Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.

4.7. Counterparts. This Agreement may be executed in any manner of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

4.8. Severability. If any provision of this Agreement, or the application
------------
thereof, shall for any reason and to any extent be invalid or unenforceable the
remainder of this Agreement and application of such provision to persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto, the parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.

14
<PAGE>

The foregoing agreement is hereby executed as of the date first above
written.

ELECTRONIC SUBMISSION PUBLISHING
SYSTEMS, INC.

By: /s/ Ronald M. Swartz
-------------------------------

Its: President
---------------------------------------

ADOBE VENTURES .L.P.

By: Its General Partner

Hambrecht & Quist Group

By:_____________________________

Title:__________________________

/s/ Mark Gavin
________________________________
Mark Gavin

/s/ Ronald M. Swartz
________________________________
Ronald M. Swartz

/s/ Larry D. Tindell
________________________________
Larry D. Tindell

15
<PAGE>

4.9. Severability. If any provision of this Agreement, or the application
------------
thereof, shall for any reason and to any extent be invalid or unenforceable the
remainder of this Agreement and application of such provision to persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto, the parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.

The foregoing agreement is hereby executed as of the date first above
written.

ELECTRONIC SUBMISSION PUBLISHING
SYSTEMS, INC.

By:___________________________________

Its:___________________________________

ADOBE VENTURES .L.P.

By: Its General Partner
H&Q Adobe Ventures Management L.P.

By: Its general partner,
H&Q Adobe Ventures Management Corp.

By: /s/ Standish O'Grady
_____________________________

Title: President
__________________________

________________________________
Mark Gavin
________________________________
Ronald M. Swartz
________________________________
Larry D. Tindell

<PAGE>

ELECTRONIC SUBMISSION PUBLISHING SYSTEM, INC.

AMENDMENT NO. 1 TO
RIGHTS AGREEMENT

This Amendment No. 1 to Rights Agreement is entered into as of February 24,
1997 by and among Electronic Submission Publishing Systems, Inc., a Delaware
corporation (the "Company") and the undersigned holders of the Series A
Preferred Stock of the Company (the "Series A Holders"). Unless defined herein,
capitalized terms shall have the meanings given them in that certain Rights
Agreement dated July 5, 1994 between the Company and the Series A Holders (the
"Rights Agreements").

RECITAL

1. Section 4.4 of the Rights Agreement provides that the Company and the
Series A Holders can amend the Rights Agreement.

2. The Company and the Series A Holders now wish to amend the Rights Agreement
to increase the number of shares of the Company's Common Stock issuable by the
Company to employees and consultants that are excluded from the definition of
New Securities for purposes of Section 2 of the Rights Agreement.

AGREEMENT

1. Section 2.3 of the Rights Agreement is amended and restated to read in full
as follows:

2.3 Except as set forth below, "New Securities" shall mean any Equity
Securities, whether now authorized or not, and rights, options or warrants to
purchase said Equity Securities. Notwithstanding the foregoing, "New Securities"
does not include (i) Common Stock (or options, warrants or other rights to
purchase the same) issued to the Founders or employees, officers, consultants or
directors of the Company at any time after July 5, 1994 up to a total of
3,000,000 shares (as adjusted for stock splits, combinations, dividends,
distributions or recapitalizations); (ii) securities offered to the public
generally pursuant to a registration statement under the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its shareholders own not less than fifty-
one (51%) percent of the voting power of the surviving or successor corporation;
(iv) the Conversion Stock; (v) warrant or warrants for the purchase of shares of
capital stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of Directors of the
Company and issued in connection with an equipment lease, equipment financing or
bank line financing; or (vi) stock issued in connection with any stock split,
stock dividend or recapitalization by the Company.

<PAGE>

2. Except as amended hereby, the Rights Agreement shall remain in full force
and effect.

The foregoing agreement is hereby executed as of the date first above
written.

ELECTRONIC SUBMISSION PUBLISHING
SYSTEMS, INC.

By: [signature]
-----------------------------------

ADOBE VENTURES L.P.

By: Its General Partner,
H&Q Adobe Ventures Management L.P.

By: Its General Partner,
H&Q Adobe Ventures Management Corp.

By: [signature]
-----------------------------

Title:
--------------------------

H&Q ESPS INVENTORS, L.P.

By: [signature]
-----------------------------

Title:
--------------------------

<PAGE>

ELECTRONIC SUBMISSION PUBLISHING SYSTEMS, INC.

AGREEMENT

WHEREAS, Adobe Ventures L.P. is a holder of certain shares of Series A
Preferred Stock of Electronic Submission Publishing Systems, Inc. (the
"Preferred Stock"), and is a party to a Rights Agreement dated July 5, 1994, as
amended February 24, 1997 (the "Rights Agreement") and attached hereto, which
sets forth the registration rights of such shares of Preferred Stock; and

WHEREAS, Adobe Ventures L.P. seeks to distribute certain of its shares
of Preferred Stock to its partners as permitted in the Rights Agreement.

In consideration of the proposed transfer of certain shares of
Preferred Stock from Adobe Ventures L.P. to its partners Adobe Incentive
Partners L.P. and H&Q Adobe Ventures Management, L.P., the undersigned parties
hereby agree, pursuant to Section 1.11 of the Rights Agreement, to be bound by
the terms and conditions of the Rights Agreement, as amended.

This agreement has been executed the 31st of March, 1999.

ADOBE INCENTIVE PARTNERS L.P.

By: /s/ Colleen Pouliot, Adobe Systems Incorporated, General Partner
_________________________________________________________________
Name: Colleen Pouliot
Title Sr. V.P. & General Counsel

H&Q ADOBE VENTURES MANAGEMENT, L.P.

By: /s/ Jackie Berterretche
_____________________________
Name: Jackie Berterretche
Title Attorney-in-Fact

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated April 28, 1999, in
Amendment No. 1 to the Registration Statement on Form S-1 and related Prospectus
of ESPS, Inc. dated April 28, 1999.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
April 28, 1999

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED IN THE
COMPANY'S FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,812
<SECURITIES> 0
<RECEIVABLES> 6,337
<ALLOWANCES> 127
<INVENTORY> 0
<CURRENT-ASSETS> 9,538
<PP&E> 3,245
<DEPRECIATION> 915
<TOTAL-ASSETS> 11,896
<CURRENT-LIABILITIES> 5,172
<BONDS> 0
0
6
<COMMON> 2
<OTHER-SE> 204
<TOTAL-LIABILITY-AND-EQUITY> 11,896
<SALES> 17,949
<TOTAL-REVENUES> 17,949
<CGS> 3,491
<TOTAL-COSTS> 3,491
<OTHER-EXPENSES> 130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,412
<INCOME-TAX> 936
<INCOME-CONTINUING> 1,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,476
<EPS-PRIMARY> .83
<EPS-DILUTED> .15

</TABLE>