<PAGE>
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ESPS, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
ESPS, INC.
1300 VIRGINIA DRIVE, SUITE 125
FORT WASHINGTON, PENNSYLVANIA 19034
----------------
PROXY STATEMENT
2000 ANNUAL MEETING OF STOCKHOLDERS
----------------
This proxy statement is being furnished to stockholders of ESPS, Inc. (the
"Company") in connection with the 2000 annual meeting of stockholders of the
Company and any adjournments thereof (the "Meeting"). This proxy statement and
the enclosed proxy card are being mailed to stockholders on or about August 14,
2000. The Company's 2000 annual report to stockholders, which includes
financial statements for the fiscal year ended March 31, 2000, will be mailed
to stockholders along with this proxy statement. Such annual report is not part
of this proxy statement.
Execution and return of the enclosed proxy card are being solicited by and
on behalf of the Board of Directors of the Company for the purposes set forth
in the accompanying notice of annual meeting of stockholders. The costs of
solicitation of proxies will be borne by the Company. In addition to the use of
the mails, proxies may be solicited personally or by telephone or telegram by
officers, directors or employees of the Company who will not receive additional
compensation for such services. A list of the stockholders of the Company
entitled to vote at the Meeting will be available for inspection at the
Company's offices during normal business hours by any stockholder for the ten
days prior to the Meeting.
VOTING AT THE MEETING
Only record holders of shares of common stock of the Company (the "Common
Stock") at the close of business on July 17, 2000 (the "Record Date") are
entitled to vote at the Meeting. On the Record Date there were 16,799,935
shares of Common Stock outstanding. The Company presently has no other class of
stock outstanding and entitled to vote at the Meeting.
A quorum is necessary before business may be transacted at the Meeting. The
presence in person or by proxy of stockholders entitled to cast a majority of
all votes entitled to be cast at the Meeting constitutes a quorum. Abstentions
and broker "non-votes" are counted as present and entitled to vote for purposes
of determining a quorum. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a particular proposal because
the nominee does not have discretionary voting power with respect to that item
and has not received instructions from the beneficial owner.
Each stockholder entitled to vote shall have the right to one vote for each
share of Common Stock outstanding in such stockholder's name. The election of
directors requires a plurality of the votes cast. A plurality means that the
nominees with the largest number of votes are elected as directors up to the
maximum number of directors to be chosen at the Meeting. Votes may be cast in
favor of or withheld from any or all nominees. Votes that are withheld with
respect to this matter will be excluded entirely from the vote and will have no
effect, other than for purposes of determining the presence of a quorum. All
other matters to be acted upon at the meeting will be determined by an
affirmative vote of the holders of the majority of common stock present in
person or represented by proxy and entitled to vote. An abstention is counted
as a vote against and a broker "non-vote" generally is not counted for purposes
of approving these matters.
Shares cannot be voted at the Meeting unless the holder of record is present
in person or by proxy. The enclosed proxy card is a means by which a
stockholder may authorize the voting of his or her shares at the Meeting. The
shares of Common Stock represented by each properly executed proxy card will be
voted at the Meeting in accordance with each stockholder's directions.
Stockholders are urged to specify their choices by
<PAGE>
marking the appropriate boxes on the enclosed proxy card; if no choice has been
specified, the shares will be voted as recommended by the Board. If any other
matters are properly presented to the Meeting for action, the proxy holders
will vote the proxies (which confer discretionary authority to vote on such
matters) in accordance with their judgment.
Execution of the accompanying proxy card will not affect a stockholder's
right to attend the Meeting and vote in person. Any stockholder giving a proxy
has the right to revoke it by giving written or oral notice of revocation to
the Company, by delivering a subsequently executed proxy card at any time
before the proxy is voted or by voting by ballot at the Meeting.
Your proxy vote is important. Accordingly, you are asked to complete, sign
and return the accompanying proxy card whether or not you plan to attend the
Meeting. If you plan to attend the Meeting to vote in person and your shares
are registered with the Company's transfer agent in the name of a broker or
bank, you must secure a proxy card from the broker or bank assigning voting
rights to you for your shares.
2
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information as of August 1, 2000
regarding the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each "Named Executive Officer" identified in the Summary Compensation Table on
page 7 and (iv) all directors and executive officers of the Company, as a
group. Unless noted otherwise, each person has sole voting and investment power
over the shares listed as beneficially owned.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned Outstanding Shares(1)
------------------------ ------------------ ---------------------
<S> <C> <C>
5% Stockholders:
Adobe Incentive Partners L.P. ....... 4,916,244 29.3%
345 Park Avenue
San Jose, CA 95110
H&Q ESPS Investors, LP............... 2,900,000 17.3
One Bush Street
San Francisco, CA 94104
Terrence P. Brennan(2)............... 1,129,807 6.7
1283 Knox Drive
Yardley, PA 19067
Directors and Executive Officers
Michael J. Egan(3)(4)................ 16,329 *
Charles O. Heller(3)................. 182,381 1.1
Christopher B. Hollenbeck(3)(5)...... 56,500 *
Kenneth R. Kaisen.................... -- *
R. Richard Dool...................... -- *
Michael T. Hoey(3)................... 489,079 2.9
Kevin Leininger(6)................... -- *
Jeffrey C. Sager(3).................. 176,663 1.0
George B. Pearcy(3).................. 280,590 1.6
Leonard W. von Vital(7).............. -- *
Directors and executive officers as a 1,201,542 6.8%
group (10 persons)(3)...............
</TABLE>
--------
* Less than one percent
(1) Applicable percentage of ownership is based on 16,804,214 shares of common
stock outstanding on August 1, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
means voting or investment power with respect to securities. Shares of
common stock issuable upon the exercise of stock options exercisable
currently or within 60 days of August 1, 2000 are deemed outstanding and to
be beneficially owned by the person holding such option for purposes of
computing such person's percentage ownership, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes 162,530 shares owned by two grantor retained annuity trusts for
which Mrs. Brennan serves as the trustee. Mr. Brennan resigned as President
and Chief Executive Officer on April 24, 2000. He resigned as Chairman of
the Board on June 29, 2000.
(3) Includes, with respect to Mr. Egan, options to purchase 16,329 shares; Mr.
Heller, options to purchase 47,880 shares; Mr. Hollenbeck, options to
purchase 6,500 shares; Mr. Hoey, options to purchase 344,979 shares; Mr.
Sager, options to purchase 141,477 shares; and Mr. Pearcy, options to
purchase 257,374 shares.
(4) Mr. Egan resigned on July 21, 2000.
(5) Includes 2,900,000 shares held by H&Q ESPS Investors, L.P. Mr. Hollenbeck
is a principal of H&Q Venture Associates, LLC, the general partner of H&Q
ESPS Investors, L.P. Mr. Hollenbeck disclaims beneficial ownership of the
shares except to the extent of any pecuniary interest therein.
(6) Mr. Leininger joined the Company on June 8, 1998 and resigned on September
30, 1999.
(7) Mr. von Vital joined the Company on October 26, 1998 and resigned on April
4, 2000.
3
<PAGE>
ELECTION OF DIRECTORS
Nominees for Election as Directors
Each of the four nominees named below has been nominated for election as a
director of the Company to serve until the 2001 annual meeting of stockholders,
and until his successor has been duly elected and qualified. Each nominee is
currently a director of the Company. All nominees have consented to be named
and to serve if elected. If so authorized, the persons named in the
accompanying proxy card intend to vote for the election of each nominee.
Stockholders who do not wish their shares to be voted for a particular nominee
may so indicate in the space provided on the proxy card.
If one or more of the nominees should become unavailable to serve at the
time of the Meeting, the shares represented by proxy will be voted for the
remaining nominees and for any substitute nominee or nominees designated by the
Board. If no substitute is designated, the size of the Board may be reduced.
The Board knows of no reason why any of the nominees would be unavailable to
serve.
Information concerning the nominees for election as directors is set forth
below:
R. Richard Dool, age 46, joined the Company in February 2000 and currently
holds the position of President, Chief Executive Officer and Director. From
1994 to February 2000, Mr. Dool was the President and Chief Executive Officer
of LabVantage Solutions, a marketer of laboratory automation software. Mr. Dool
has over 20 years of sales and marketing experience in the technology area.
Charles O. Heller, age 64, has served as a director of the Company since May
1995. 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. From February 1990 until March
2000, Dr. Heller served as Director of the Dingman Center for Entrepreneurship
at the University of Maryland. From 1983 until 1986, Dr. Heller was the Chief
Executive Officer of InterCAD Corporation, an electronic publishing software
company, and from 1969 until 1979, Dr. Heller was the chief executive officer
of CADCOM, Inc., a computer-aided design software company. Dr. Heller currently
is a member of boards of directors of several privately held companies,
including Klein Technologies, Inc., Avatech Solutions, Inc., SYSCOM, Inc., the
Baltimore-Washington Venture Group, Annapolis Consulting Group, and the Bahamas
Venture Capital Fund.
Christopher B. Hollenbeck, age 32, has served on the Board of Directors of
the Company since July 1997. Mr. Hollenbeck is a principal of H&Q Venture
Associates LLC, 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 LLC. 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 Corporation and
HAHT Software, Inc.
Kenneth R. Kaisen, age 43, has been Vice President of Xerox Integrated
Solutions and Support since February 2000. In this position, Mr. Kaisen is in
charge of managing the development, integration and support of document
management solutions for Fortune 1000 companies. From January 1997 to February
2000, Mr. Kaisen served as Vice President and Chief Information Officer of
Xerox's Industry Solutions Operations organization. From January 1988 to
December 1996, Mr. Kaisen served in various management positions at New England
Business Services, including the position of Vice President and Chief
Information Officer from January 1995 to December 1996.
4
<PAGE>
Compensation and Organization of Board of Directors
The Board met eight times during the fiscal year ended March 31, 2000. Each
director attended at least 75% of the aggregate of the fiscal year 2000
meetings of the Board of Directors and of the Board committee or committees on
which he served during the year.
The Board has a Compensation Committee and an Audit Committee. The Board
currently does not have a Nominating Committee.
The Audit Committee, which consisted of Charles O. Heller, Christopher B.
Hollenbeck and Michael J. Egan, met one time during the fiscal year ended March
31, 2000. The Audit Committee reviews the results and scope of the audit and
other services provided by the Company's independent auditors and reviews and
evaluates the Company's audit and control functions.
The Compensation Committee, which was comprised of Charles O. Heller,
Michael J. Egan and Christopher B. Hollenbeck, met eight times during the
fiscal year ended March 31, 2000. The Compensation Committee reviews and
approves the compensation and benefits for the Company's executive officers and
grants stock options under the Company's stock option plans. In its advisory
capacity, the committee makes recommendations to the Board of Directors
regarding compensation and benefits for the Company's executive officers and
stock option grants.
Director Compensation
In general, Directors who are not employees of the Company receive a fee of
$1,000 for attendance at each regular meeting of the Board of Directors and are
also reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings. Non-employee Directors are also eligible to receive annual
stock option grants under the Company's 1995 Incentive Stock Option Plan. Mr.
Hollenbeck does not receive a fee of $1,000 for attendance at regular meetings
of the Board of Directors. Directors who are employees are not compensated for
their service on the Board of Directors or any committee thereof.
Compensation Committee Report
The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administering the incentive compensation and
benefit plans. During the fiscal year ended March 31, 2000, the compensation
committee consisted of Charles O. Heller, Michael J. Egan and Christopher B.
Hollenbeck. The President and Chief Executive Officer of the Company, (now R.
Richard Dool,) participates in all discussions and decisions regarding salaries
and incentive compensation for all employees and consultants of the Company,
except that he is excluded from discussions regarding his own salary, incentive
compensation and option grants. No interlocking relationship exists between any
member of the Company's compensation committee and any member of any other
company's board of directors or compensation committee.
5
<PAGE>
EXECUTIVE COMPENSATION
The table below summarizes information concerning the compensation awarded
to, earned by, or paid for services rendered to the Company in all capacities
during the last three fiscal years by the Chief Executive Officer and the four
most highly compensated executive officers of the Company as of March 31, 2000
whose total salary and bonus for the fiscal year ended March 31, 2000 exceeded
$100,000 (the "Named Executive Officers"). The Company 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, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Award
------------------------------ ------------
Securities
Fiscal Other Annual Underlying All Other
Name and Position Year Salary Bonus(1) Compensation Options Compensation
----------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Brennan(2).. 2000 $175,000 $84,415 -- -- --
President and Chief 1999 175,000 65,625 -- -- --
Executive Officer 1998 150,000 38,000 -- -- --
Michael T. Hoey......... 2000 155,517 19,447 -- -- --
Vice President,
Research 1999 150,000 15,000 -- -- --
and Development 1998 119,166 30,000 -- 217,500 --
Kevin Leininger(3)...... 2000 73,828 21,820 -- -- --
Vice President,
Marketing 1999 113,950 18,250 -- 145,000 --
1998 -- -- -- -- --
Jeffrey C. Sager(4)..... 2000 139,756 58,472 -- 66,666 --
Vice President, Sales 1999 130,000 36,750 -- 58,000 --
1998 102,244 30,000 29,000 --
George B. Pearcy(5)..... 2000 127,718 40,071 -- -- --
Vice President, Finance 1999 120,000 31,500 -- -- --
and Administration 1998 117,499 30,000 -- 72,500 --
Leonard W. Von 2000 147,598 28,529 -- 29,000 --
Vital(6)...............
Vice President, Chief 1999 61,026 -- -- 286,004 --
Financial Officer 1998 -- -- -- -- --
</TABLE>
--------
(1) The amounts in the earned bonus column represent bonuses which were earned
in the fiscal year, but not paid until the subsequent fiscal year.
(2) Mr. Brennan resigned as President and Chief Executive Officer on April 24,
2000. He resigned as Chairman of the Board on June 29, 2000.
(3) Mr. Leininger joined the Company on June 8, 1998 and resigned from the
Company on September 30, 1999.
(4) Mr. Sager was recently appointed Vice President, Business Development.
(5) Mr. Pearcy was recently appointed Chief Financial Officer.
(6) Mr. von Vital joined the Company on October 26, 1998 and resigned from the
Company on April 4, 2000.
6
<PAGE>
STOCK OPTIONS
The following table contains information regarding options granted in the
fiscal year ended March 31, 2000 to the Named Executive Officers. The potential
realizable value over the terms of the options is based on assumed rates of
stock appreciation in compliance with Securities and Exchange Commission rules
and does not represent the Company's estimate of future stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of the Common Stock. For the fiscal year ended March 31, 2000,
options to acquire up to an aggregate of 888,566 shares were granted 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 the Company's
common stock on the date of grant as determined in good faith by the Board of
Directors. Options under the 1995 Stock Incentive Plan generally vest over four
years with 25% of the shares vesting on the first anniversary of the grant
date, and the remaining option shares vesting 6.25% in every calendar quarter
after the first anniversary of the grant date. The Company may modify its
standard vesting schedule. The options granted to Mr. Sager during the fiscal
year ended March 31, 2000 vested immediately.
Options Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
At Assumed Annual
Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Option Term
Options Employees in Exercise or Expiration -----------------
Name Granted Fiscal Year Base Price Date 5% 10%
---- ---------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Brennan(1).. -- -- -- -- -- --
Michael T. Hoey......... -- -- -- -- -- --
Kevin Leininger......... -- -- -- -- -- --
Jeffrey C. Sager(2)..... 66,666 7.5 (2) (2) $247,374 $627,280
George B. Pearcy........ -- -- -- -- -- --
Leonard W. Von
Vital(3)............... 29,000 3.3 $7.50 6/15/2004 $ 60,091 $132,786
</TABLE>
--------
(1) Mr. Brennan resigned as President and Chief Executive Officer on April 24,
2000. Mr. Brennan resigned as Chairman of the Board effective June 29,
2000.
(2) Mr. Sager was granted options to purchase 33,333 shares at an exercise
price of $4.94 per share that expire on December 31, 2004. Mr. Sager was
also granted options to purchase 33,333 shares of common stock at an
exercise price of $6.88 that expire on March 31, 2005.
(3) Mr. von Vital resigned from the Company on April 4, 2000.
7
<PAGE>
The following table presents information regarding the value realized upon
exercise of options during the fiscal year ended March 31, 2000 and the number
and value of unexercised options held by the executive officers named in the
summary compensation table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options at In-the-money Options At
Acquired March 31, 2000 March 31, 2000(2)
on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. Brennan(3).. -- -- 398,747 99,688 $2,711,121 $677,789
Michael T. Hoey......... 50,000 $293,550 277,915 121,440 1,891,489 826,521
Kevin Leininger......... 36,250 196,874 -- -- -- --
Jeffrey C. Sager........ -- -- 164,540 59,814 607,264 135,705
George B. Pearcy........ -- -- 227,015 48,485 1,545,064 329,989
Leonard W. Von
Vital(4)............... 2,000 9,702 75,250 157,754 277,843 479,101
</TABLE>
--------
(1) Value Realized represents the fair market value of the shares of common
stock underlying the options on the date of exercise less the aggregate
exercise price of the option.
(2) Value presented is based upon (i) the difference between the fair market
value of the Company's common stock on March 31, 2000 ($6.875 per share)
and (ii) the exercise price of unexercised-in-the-money options.
(3) Mr. Brennan resigned as President and Chief Executive Officer on April 24,
2000. He resigned as Chairman of the Board on June 29, 2000.
(4) Mr. von Vital terminated his employment with the Company on April 4, 2000.
CERTAIN TRANSACTIONS
On April 14, 2000, Kenneth R. Kaisen was appointed to the ESPS Board of
Directors. Mr. Kaisen currently is the Vice President, Information Management
and Chief Information Officer for the Industry Solutions Operations
organization within Xerox Corporation. Mr. Kaisen's appointment took place
shortly after Xerox entered a long-term, multi-million dollar technology
development and reseller agreement with ESPS that included the creation of a
Xerox seat on the ESPS board of directors and Xerox participation on the ESPS
Technical Advisory Board. As part of the industry partnership, Xerox and ESPS
also have agreed to collaborate on a common product, incorporating the
innovative functionality and features of Xerox Dossier Publisher (XDP) and
ESPS' CoreDossier(R) into a single, Web content publishing solution.
On June 5, 2000, the Company loaned to Jeffrey Sager, the Company's Vice
President of Business Development, $100,000 in connection with Mr. Sager's
purchase of a personal residence. The loan is evidenced by a promissory note
which bears interest at a rate of 5 percent and is secured by all of the
tangible assets that Mr. Sager owns. The amount due under the note is payable
in full on the earliest to occur of (i) June 5, 2002, (ii) voluntary
termination by either party, (iii) termination of Mr. Sager for cause or (iv)
early payment by Mr. Sager.
8
<PAGE>
PROPOSAL TO AMEND THE COMPANY'S 1995 STOCK INCENTIVE PLAN
The ESPS, Inc. 1995 Stock Incentive Plan (the "Plan") provides for grants of
incentive stock options, non-qualified stock options and stock awards to
employees, directors, consultants and advisors. The Plan was intended to
recognize the contributions made to the Company and to provide those persons
eligible to participate in the Plan with additional incentive to devote
themselves to the future success of the Company.
At the Meeting, the Company will present a proposal to its stockholders to
amend the Plan by increasing the number of shares reserved for issuance under
the Plan from 7,880,170 shares to 10,380,170. The Board of Directors believes
that the Company's ability to grant options has been instrumental in the
retention of the Company's management and other employees. In addition, as the
Company continues to grow and the number of employees increases, the Board will
need to grant additional options as incentive compensation.
The key provisions of the Plan are as follows:
General. If the proposal is approved, the Plan will authorize up to
10,380,170 shares for issuance, subject to adjustment in certain circumstances
discussed below. If and to the extent stock options that have been granted
under the Plan terminate, expire or are canceled without being exercised, the
Shares subject to those stock options will again be available for grant under
the Plan.
Administration of the Plan. The Plan may be administered by the Board of
Directors or a committee of non-employee directors (the "Plan Administrator").
The Plan Administrator has the authority to (i) determine the persons to whom
stock options may be granted under the Plan, (ii) the type of option to be
granted, the number of underlying shares and the terms of the stock options,
(iii) the time when the grants of stock options will be made and (iv) any other
matters arising under the Plan.
Grants and Awards. Awards of stock granted under the Plan are in the form of
written award agreements approved by the Plan Administrator. The Plan
Administrator may impose restrictions and forfeiture conditions on stock
awards. No options or awards may be granted under the Plan after April 2005.
Eligibility for Participation. All employees of the Company or its
affiliates, members of the Board who are not on the Disinterested Director
Committee and consultants and advisors to the Company are eligible to
participate in the Plan.
Grants of Stock Options. The Plan Administrator may grant stock options
intended to qualify as incentive stock options ("ISOs"), within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code") or
non-qualified stock options that are not intended to so qualify ("NQSOs"). Only
employees may receive ISOs. The Plan Administrator determines the price for
options. For a non-qualified stock option, the price must 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 must 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 must be at least 110% of the fair market
value on the grant date. To the extent that the aggregate fair market value of
shares, determined as of the date of the grant, with respect to which any ISOs
granted under the Plan and any other plan to a grantee initially become
exercisable during any calendar year exceeds $100,000, the ISOs, to the extent
of that excess, must be treated as NQSOs. The fair market value is the last
reported sale price of a share of the Common Stock on the Nasdaq National
Market on the relevant date. On July 17, 2000, the last reported sale price per
share of the Common Stock was $4.00.
Term of Stock Options. Options expire no later than five years after the
date of the grant. Options expire thirty days from the date the grantee'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 includes different termination dates.
9
<PAGE>
Payment for Shares Underlying Stock Option. A grantee may exercise a stock
option by delivering to the Company a notice of exercise and payment of the
option price. The grantee may pay the option price in cash, by certified or
cashier's check or by another method that the Plan Administrator approves,
including payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. In addition, the Plan Administrator
may provide in a grant instrument that payment may be made by delivering shares
of Common Stock that the grantee already owns. At the time of exercise, the
grantee may be required to pay the amount of any federal, state or local
withholding tax due in connection with such stock option exercise.
Restrictions on Transferability of Stock Options. Options are not
transferable during the lifetime of the grantee, except that a non-qualified
stock option may be transferred under a domestic relations order, or if the
grant agreement permits a transfer of the option.
Amendment of the Plan. The Board of Directors may amend the Plan at any
time. The Board may not change the class of individuals eligible to receive
ISOs under the Plan or increase the maximum number of shares as to which
options may be granted without obtaining approval of the stockholders.
Adjustment Provisions. If the outstanding shares are modified by reason of a
reorganization, merger, consolidation, recapitalization, reclassification,
stock split, combination or exchange of shares, the Plan Administrator will
make adjustments to the aggregate number of shares available under the Plan and
the number of shares and price per share of outstanding options.
Change of Control Provisions. The Plan specifies that if there is a change
of control of the Company, the Plan Administrator may take action with respect
to options, including terminating options with 15 days' notice, or causing
options to become immediately exercisable in full. If the Company merges into
another company or sells all or substantially all of its assets, options will
become immediately exercisable unless the successor company agrees to assume
the options or provide equivalent options.
Outstanding Grants. Option grants, net of cancellations, to purchase shares
have been made under the Plan from the inception of the Plan through July 17,
2000, have been 7,846,802. Because options are granted from time to time by the
Plan Administrator to those persons whom the Plan Administrator determines in
its discretion should receive options, the benefits and amounts that may be
received in the future by persons eligible to participate in the Plan are not
presently determinable.
Federal Tax Consequences. There are no federal income tax consequences to a
grantee or to the Company upon the grant of an NQSO under the Plan. Upon the
exercise of an NQSO, a grantee will recognize ordinary compensation income in
an amount equal to the excess of the fair market value of the Shares underlying
the NQSO at the time of exercise over the option price of the NQSO, and the
Company generally will be entitled to a corresponding federal income tax
deduction in that amount. Upon the sale of shares acquired by the exercise of
an NQSO, a grantee will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the grantee's
adjusted tax basis in the shares (the option price plus the amount of ordinary
income recognized by the grantee at the time of exercise of the NQSO).
A grantee of an ISO will not recognize taxable income for purposes of the
regular income tax, upon either the grant or exercise of the ISO. However, for
purposes of the alternative minimum tax imposed under the Code, the amount by
which the fair market value of the shares acquired upon exercise exceeds the
option price will be treated as an item of adjustment and included in the
computation of the recipient's alternative minimum taxable income in the year
of exercise. A grantee who disposes of the shares acquired upon exercise of an
ISO after two years from the date the ISO was granted and after one year from
the date such shares were transferred to him or her will recognize long-term
capital gain or loss in the amount of the difference between the amount
realized on the sale and the option price (or the grantee's other tax basis in
the shares), and the Company will not be entitled to any tax deduction by
reason of the grant or exercise of the ISO. As a general rule, if a grantee
disposes of the shares acquired upon exercise of an ISO before satisfying both
holding period requirements (a "disqualifying disposition"), his or her gain
recognized on such a disposition will be taxed as ordinary income
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to the extent of the difference between the fair market value of such shares on
the date of exercise and the option price, and the Company will be entitled to
a deduction in that amount. The gain, if any, in excess of the amount
recognized as ordinary income on such a disqualifying disposition will be long-
term or short-term capital gain, depending upon the length of time the grantee
held his or her shares prior to the disposition.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND
THE PLAN.
.
[Graph]
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Label A B C
Label ESPS, INC. SIC CODE INDEX NASDAQ MARKET INDEX
1 6/16/99 100 100 100
2 6/30/99 111.22 100 100
3 9/30/99 128.04 102 101.63
4 12/31/99 76.64 164.14 150.1
5 3/31/2000 102.8 165.95 170.78
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has served as the Company's independent public accountants
and auditors since the Company's inception and will continue in such capacity
for the current year. No representative of Ernst & Young LLP is expected to be
present at the Annual Meeting.
STOCKHOLDER PROPOSALS--2001 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at annual meetings in accordance with regulations adopted by the
Securities and Exchange Commission. Any proposal that an eligible stockholder
desires to have presented at the 2001 annual meeting of stockholders concerning
a proper subject for inclusion in the proxy statement and for consideration at
the annual meeting, will be included in the Company's proxy statement and
related proxy card if it is received by the Company no later than April 7,
2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of the Company and beneficial owners of more than ten percent of the
Company's outstanding common stock to file reports of ownership and changes in
ownership of the Company's securities with the Securities and Exchange
Commission. The Company believes that during the fiscal year ended March 31,
2000, all filing requirements applicable to its officers, directors and ten-
percent shareholders were satisfied except for a Form 3 for R. Richard Dool,
which was filed 22 days late, and a Form 4 for Charles Heller, which has not
been filed.
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OTHER MATTERS
Neither the Board nor management knows of any matters other than those items
set forth above that will be presented for consideration during the Meeting.
However, if other matters should properly come before the Meeting, it is
intended that the persons named in the proxies will vote, act and consent in
accordance with their best judgment with respect to any such matters.
By order of the Board of Directors,
George B. Pearcy, Secretary
August 14, 2000
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