<PAGE> 1
SCHEDULE 14A INFORMATION
(Rule 14a-101)
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
[ X ] Definitive Proxy Statement Commission Only (as Permitted
[ ] Definitive Additional Materials by Rule 14a-6 (e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
DOCUMENT SCIENCES CORPORATION
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $.001 par value
(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 the 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> 2
LOGO
March 25, 1997
Dear Stockholder:
You are cordially invited to attend Document Sciences Corporation's 1997
Annual Meeting of Stockholders to be held on Friday, April 25, 1997 at 10:00
a.m., local time. The meeting will be held at The Embassy Suites, 4550 La Jolla
Village Drive, San Diego, California 92122.
At this year's meeting, the Company is proposing adoption of the 1997
Employee Stock Purchase Plan and approval of the reservation of 350,000 shares
of Common Stock for issuance thereunder. Document Sciences Corporation has a
longstanding policy of encouraging employee equity ownership. We believe that
the adoption of the new 1997 Employee Stock Purchase Plan enhances the Company's
ability to provide equity compensation to its employees and/or directors, will
help contribute to high levels of performance by recipients of the equity and
also provide an effective means of recognizing contributions to the Company's
success. The adoption of the new Purchase Plan will help to align the interests
of the Company's officers, directors and employees with the interests of its
other stockholders since the Company's officers, directors and employees benefit
from equity compensation programs only when the success of the Company's
business benefits all stockholders.
We hope you will be able to attend this year's Annual Meeting. We will
report to the stockholders on fiscal year 1996, as well as our future strategies
for products and markets. Whether or not you plan to attend the meeting, please
sign and return the enclosed proxy card to ensure your representation at the
meeting.
Very truly yours,
TONY N. DOMIT
President and Chief Executive Officer
<PAGE> 3
DOCUMENT SCIENCES CORPORATION
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Document
Sciences Corporation, a Delaware corporation (the "Company"), will be held on
April 25, 1997, at 10:00 a.m., local time, at The Embassy Suites, 4550 La Jolla
Village Drive, San Diego, California 92122, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve the adoption of the Company's 1997 Employee Stock Purchase
Plan and the reservation of 350,000 shares of the Company's Common Stock
for issuance thereunder.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 3, 1997 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
FOR THE BOARD OF DIRECTORS
TONY N. DOMIT
President and Chief Executive Officer
San Diego, California
March 25, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 4
DOCUMENT SCIENCES CORPORATION
------------------
PROXY STATEMENT
FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
------------------
The enclosed Proxy is solicited on behalf of Document Sciences Corporation
(the "Company") for use at the Company's Annual Meeting of Stockholders to be
held on Friday, April 25, 1997 at 10:00 a.m., local time, and at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders.
The Annual Meeting will be held at The Embassy Suites, 4550 La Jolla
Village Drive, San Diego, California 92122. The Company's principal executive
offices are located at 6333 Greenwich Drive, Suite 100, San Diego, California
92122. The telephone number at that location is (619) 625-2000.
These proxy solicitation materials were mailed on or about March 25, 1997,
together with the Company's 1996 Annual Report to Stockholders, to all
stockholders entitled to vote at the meeting.
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock
with respect to all matters presented at the Annual Meeting. Stockholders do not
have the right to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers, and regular employees, without additional
compensation, personally or by telephone, telegram, letter, or facsimile.
RECORD DATE
Only stockholders of record at the close of business on March 3, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 10,730,590 shares of the Company's common stock, $0.001 par
value (the "Common Stock"), were issued and outstanding. For information
regarding security ownership by management and by the beneficial owners of more
than 5% of the Company's Common Stock, see "Beneficial Security Ownership of
Management and Certain Beneficial Owners." The closing sales price of the
Company's Common Stock on the Nasdaq National Market on the Record Date was
$4 7/8 per share.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company intends to include abstentions and broker non-votes as present
or represented for purposes of establishing a quorum for the transaction of
business, to include abstentions as shares entitled to vote and to exclude
broker non-votes from the calculation of shares entitled to vote with respect to
any proposal for which authorization to vote was withheld.
<PAGE> 5
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than November 25, 1997 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting. Robert V.
Adams, currently the Chairman of the Board of Directors of the Company, is not
standing for reelection. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for the Company's six nominees named below,
all of whom are presently directors of the Company, except for Charles P. Holt.
In the event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next Annual Meeting of Stockholders or until a successor
has been elected and qualified.
The name of and certain information regarding each nominee is set forth
below. There are no family relationships among directors or executive officers
of the Company.
<TABLE>
<CAPTION>
NAME AGE(1) PRINCIPAL OCCUPATION
- ------------------------------------- ------ -----------------------------------------------
<S> <C> <C>
Tony N. Domit........................ 59 President, and Chief Executive Officer of the
Company
Charles P. Holt...................... 60 Corporate Vice President of the Joseph C.
Wilson Center for Research & Technology for
Xerox Corporation
Thomas L. Ringer..................... 65 Chairman of the Board of Directors of E*Capital
Corporation and Wedbush Capital Corporation
Colin J. O'Brien..................... 58 Vice President of Xerox Corporation and Chief
Executive Officer of Xerox New Enterprise Board
James J. Costello.................... 51 Vice President and Chief Financial Officer of
Xerox New Enterprise Companies
Barton L. Faber...................... 49 Chairman of the Board of Directors of Metromail
</TABLE>
- ---------------
(1) As of March 1, 1997.
Tony N. Domit, a Company founder, has served as President and Chief
Executive Officer since the Company's inception in October 1991. Previously, he
was an Executive Consultant with Xerox Technology Ventures. From 1990 to 1991,
Mr. Domit was President and CEO of Advanced Workstations Products, Inc., a
wholly-owned Xerox subsidiary. Prior to AWPI, Mr. Domit was employed by Xerox
Corporation for 22 years in a variety of Vice Presidential and managerial
positions primarily in the areas of product development and marketing. His
Xerox-related experiences were in that company's electronic printing,
publishing, workstation and networking businesses. Prior to Xerox, Mr. Domit was
an engineer with Scientific Data Systems, Ampex Computer Products, and Litton
Industries. Mr. Domit is a director of DataWorks Corporation.
Charles P. Holt is Corporate Vice President of the Joseph C. Wilson Center
for Research & Technology for Xerox Corporation. Mr. Holt joined Xerox
Corporation in 1970 as a computer development project engineer and since that
time has held a number of management positions, including Vice President and
Chief Engineer of future product programs.
2
<PAGE> 6
Thomas L. Ringer has been a director of the Company since 1991. Mr. Ringer
is currently Chairman of the Boards of Directors of E*Capital Corporation,
Wedbush Capital Corporation, M.S. Aerospace, Inc., Enterprise Solutions Limited
and the Center for Innovation and Entrepreneurship. In addition, he serves on
the Boards of Directors of Wedbush Morgan Securities, Inc., California Amplifier
Inc. and Public Safety Equipment Inc.
Colin J. O'Brien has served as a director of the Company since December
1995. Since February 1992, Mr. O'Brien has been employed in various positions at
Xerox and currently serves as a Vice President and Chief Executive Officer of
the New Enterprise Board within Xerox. Prior to February 1992, Mr. O'Brien was
the founder and Chief Executive Officer of Triax Corporation, an investment
company specializing in defense electronics companies. Prior to joining Triax
Corporation, he was the Chief Executive Officer of Times Fiber Communications
Inc., a manufacturer of fiber optic and coaxial telecommunications systems. Mr.
O'Brien is also a director of Documentum, Inc.
James J. Costello has served as a director of the Company since May 1996.
Since 1975, Mr. Costello has been employed in various positions at Xerox and
currently serves as Chief Financial Officer and Vice President of Xerox New
Enterprise Companies.
Barton L. Faber has served as a director of the Company since July 1996.
From April 1985 to June 1996, Mr. Faber held various positions with R.R.
Donnelley and currently serves as a member of the board of directors of Dataware
Technologies, Inc., GeoSystems Global Corporation and Xeikon N.V. He is also
chairman of the board of directors and a director of Metromail. Prior to joining
R.R. Donnelley, Mr. Faber held various positions with Mobil Oil Corporation and
Ramada Europe.
REQUIRED VOTE
The six nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they have no legal effect under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 7 meetings during the
fiscal year ended December 31, 1996. No director, during the time he or she was
a member of the Board of Directors, attended fewer than 75% of the aggregate of
all meetings of the Board of Directors, or its committees on which he or she
served, which occurred during fiscal 1996. The Board has an Audit Committee and
a Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee, which currently consists of Mr. Faber, Mr. Ringer and
Mr. Costello, is responsible for (i) recommending engagement of the Company's
independent auditors, (ii) approving the services performed by such auditors,
(iii) consulting with such auditors and reviewing with them the results of their
examination, (iv) reviewing and approving any material accounting policy changes
affecting the Company's operating results, (v) reviewing the Company's control
procedures and personnel, and (vi) reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls. The Audit
Committee held one meeting during fiscal 1996.
The Compensation Committee, which currently consists of Mr. Ringer and Mr.
O'Brien, is responsible for (i) reviewing and approving the compensation and
benefits for the Company's officers and other employees, (ii) administering the
Company's stock purchase and stock option plans, and (iii) determining which
eligible individuals (excluding nonemployee directors) receive grants thereunder
and the size of such grants. The Compensation Committee held one meeting during
fiscal 1996.
3
<PAGE> 7
COMPENSATION OF DIRECTORS
In July 1996, the Company approved a non-employee director compensation
arrangement pursuant to which the nonemployee directors are compensated as
follows: (i) $4,000 annual retainer; (ii) $1,200 for each meeting of the Board
attended; and (iii) reimbursement for certain expenses in connection with
attendance at Board and committee meetings. In addition, in February 1995,
Thomas L. Ringer was granted an option to purchase 15,750 shares of Common Stock
at an exercise price of $0.17 per share and in July 1996, Mr. Faber was granted
an option to purchase 10,000 shares of the Company's Common Stock at an exercise
price of $10.00 per share.
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 3, 1997 for the following: (i) each person or entity who
is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock ("Principal Stockholders"); (ii) each of
the Company's directors and nominees; (iii) each of the officers named in the
Summary Compensation Table ("Named Officers"); and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS(2)
Xerox Corporation(3)............................................ 6,754,500 63.0%
800 Long Ridge Road
Stamford, CT 06904
Tony N. Domit(4)................................................ 539,130 5.0%
c/o Document Sciences Corporation
633 Greenwich Drive, Suite 100
San Diego, CA 92122
DIRECTORS AND NOMINEES
Charles P. Holt(5).............................................. -- *
Robert V. Adams................................................. -- *
Thomas L. Ringer(6)............................................. 25,601 *
Colin J. O'Brien(7)............................................. 6,754,500 63.0%
James J. Costello(7)............................................ 6,754,500 63.0%
Barton L. Faber................................................. -- *
NAMED OFFICERS
Alfred G. Altomare(8)........................................... 7,500 *
Thomas J. Anthony(9)............................................ 44,688 *
Peter L. Bradshaw(10)........................................... 50,863 *
Daniel J. Fregeau(11)........................................... 92,500 *
All directors and executive officers as a group (11
persons)(12).................................................... 7,615,452 71.0%
=========
</TABLE>
- ---------------
* Less than 1%.
(1) The number and percentage of shares beneficially owned is determined under
rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares which the individual has the right to acquire
within sixty days of March 3, 1997 through the exercise of any stock option
or other right. Unless otherwise indicated in the footnotes, each person
has sole voting and
4
<PAGE> 8
investment power (or shares such powers with his or her spouse) with
respect to the shares shown as beneficially owned.
(2) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended.
(3) Mr. O'Brien is a director of the Company, a corporate Vice President of
Xerox Corporation and Chief Executive Officer of Xerox New Enterprise
Companies, a unit of Xerox Corporation. Mr. Costello is a director of the
Company and Chief Financial Officer of Xerox New Enterprise Companies, a
unit of Xerox Corporation. Messrs. O'Brien and Costello disclaim beneficial
ownership of the shares held by Xerox Corporation.
(4) Pursuant to a trust, Mr. Domit and his spouse share voting and dispositive
powers as co-trustees with respect to 539,130 shares of Common Stock. Mr.
Domit is also a director, and President and Chief Executive Officer, of the
Company.
(5) Mr. Holt is a nominee for director.
(6) Includes 3,611 shares of Common Stock subject to options exercisable within
sixty days of March 3, 1997. Pursuant to a trust, Mr. Ringer and his spouse
share voting and investment powers as co-trustees with respect to 25,273
shares of Common Stock.
(7) Represents shares held by Xerox Corporation. See footnote 3 above.
(8) Mr. Altomare resigned from his position of Vice President of Consulting of
the Company effective January 27, 1997.
(9) Includes 14,688 shares of Common Stock subject to options exercisable
within sixty days of March 3, 1997.
(10) Includes 25,033 shares of Common Stock subject to options exercisable
within sixty days of March 3, 1997.
(11) Includes 36,250 shares of Common Stock subject to options exercisable
within sixty days of March 3, 1997.
(12) Includes 79,582 shares of Common Stock subject to options exercisable
within sixty days of March 3, 1997 held by executive officers and directors
of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act of 1934 ("Section 16(a)") requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
Securities and Exchange Commission (the "SEC") and The Nasdaq National Market
reports of ownership and changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten-percent
stockholders are required by the SEC to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the 1996 fiscal year, all filing requirements
applicable to its officers, directors and greater than ten-percent stockholders
were complied with except that eleven reports covering an aggregate of eleven
transactions were filed late by six persons.
CERTAIN TRANSACTIONS
AGREEMENTS WITH XEROX
Transfer and License Agreement
In connection with the transfer of the Company's technology from Xerox, the
Company entered into a Transfer and License Agreement with Xerox in July 1992,
to expire upon the expiration of all of the rights in the items covered thereby.
This Agreement was subsequently amended in September 1994. Pursuant to the
5
<PAGE> 9
terms of the Agreement, as amended: (i) Xerox transferred all worldwide
copyrights in and to the predecessor product of CompuSet (the "Transferred
Software") and granted the Company a non-exclusive license to use the Xerox
trade secrets in existence as of July 1992 pertaining to the Transferred
Software; (ii) the Company granted Xerox a non-exclusive royalty-free license to
use and copy the Transferred Software for internal purposes only, and to use
portions of the code of the Transferred Software in products of Xerox; (iii)
Xerox granted the Company a non-exclusive, royalty-free license to use, modify
and reproduce the source code of XPS and EVMS, two software products comprising
a small portion of the Company's current CompuSet products, and to distribute
derivatives of XPS and EVMS in object code format; (iv) the Company granted to
Xerox ownership of all technical information not primarily related to computer
software that is generated by the Company while Xerox continues to own a
majority of the outstanding capital stock of the Company, the Company retaining
a non-exclusive license to use such technical information outside of certain
eastern Asian and Pacific Rim countries; (v) the Company granted "most favored
nation" status with respect to the purchase price of software products sold by
the Company to Xerox, Rank Xerox Ltd., Fuji Xerox Co. Ltd., companies jointly
owned by Xerox and the Rank Organization Ltd. and 40% affiliates of the
foregoing; and (vi) the Company granted Fuji Xerox Co., Ltd. a right of first
negotiation with respect to exclusive distribution of the Company's products in
certain eastern Asian and Pacific Rim countries.
Strategic Marketing Alliance Agreement
In September 1993, the Company and Xerox entered into a Strategic Marketing
Alliance Agreement, pursuant to which the Company and Xerox agreed to pay each
other commissions on certain sales of products resulting from successful
referrals from each other. The Agreement may be terminated by either Xerox or
the Company upon thirty days' written notice in certain circumstances, or upon
ninety days' written notice at any time. The Company's revenues from the
strategic marketing alliance, principally commissions from sales of Xerox
printers, were $752,000 and $1.4 million in 1995 and 1996, respectively, and
payments to Xerox under the Agreement were $167,200 and $180,600 in 1995 and
1996, respectively.
Relationship with Fuji Xerox Australia
The Company has an arrangement with Fuji Xerox Co., Ltd ("Fuji Xerox")
pursuant to which Fuji Xerox distributes the Company's products in Australia and
New Zealand. For each copy of the Company's products sublicensed by Fuji Xerox,
Fuji Xerox pays the Company initial and annual fees equal to the Company's list
price minus a percentage discount based on annual volume of sublicenses of the
Company's products. Fuji Xerox provides technical support to its end users, with
periodic software upgrades provided to Fuji Xerox by the Company. The
arrangement with Fuji Xerox is terminable at will by either party.
Xerox Canada Agreement
The Company's Value Added Remarketer Agreement with Xerox Canada Limited
("Canada VAR") appoints Xerox Canada as a non-exclusive VAR in Canada for the
Company's products. Under the agreement, Xerox Canada will add value to the
products by giving technical support, assisting end users with application
development, and providing first level hot-line support. For each copy of the
Company's products sublicensed by Xerox Canada, Xerox Canada pays the Company
initial and annual fees equal to the Company's suggested retail initial and
annual license fees (net of the customer training uplift built into the price),
minus a percentage discount. The Canada VAR is due to expire in January 1997;
however, it is subject to automatic renewal for successive one-year terms unless
either party gives notice at least 90 days prior to the expiration of the then
current term that it will not renew the agreement.
EUROPEAN/SUB-SAHARAN AFRICA VAR AGREEMENTS
The Company has numerous Value Added Reseller and Value Added Remarketer
agreements in Europe and South Africa, Namibia and Swaziland, many of which are
with Rank Xerox, Ltd. and other Xerox affiliates. The rights granted to the
Company's resellers under these agreements are typically non-exclusive, although
the agreements covering the territories of England, Scotland, Northern Ireland
and Wales and South Africa, Namibia and Swaziland grant the reseller exclusive
rights in its territory. In the usual circumstance,
6
<PAGE> 10
the reseller purchases the Company's products pursuant to purchase orders and
redistributes the products in its territory, with the reseller having no right
to copy the Company's products. The reseller performs front-line technical
support for its end users, and software upgrades are periodically provided to
the reseller by the Company. Each reseller agreement runs for either a two- or
three-year term, with automatic one-year renewals unless either party gives
notice of non-renewal within a specified period prior to renewal.
TAX SHARING AGREEMENT
Xerox and the Company have entered into a Tax Sharing Agreement (the "Tax
Sharing Agreement") that provides for the allocation between Xerox and the
Company of all responsibilities, liabilities and benefits relating to taxes paid
or payable by either Xerox or the Company for all taxable periods, whether
beginning before, on, or after this offering. Prior to the consummation of this
offering, the Company has been included in the consolidated tax returns of
Xerox. The Company's share of Xerox's consolidated income tax liability for the
pre-offering period has been determined on a separate company basis computed
under Internal Revenue Code and applicable state guidelines and was $136,000,
$653,700 and $591,400 for the years ended December 31, 1993, 1994 and 1995,
respectively. The Company has paid such liability from the proceeds of its
initial public offering. For the period from January 1, 1996 through the
consummation of such offering, the Company's separate tax liability was also
settled with Xerox. For the post-offering period, the Company will file combined
state income tax returns as required by law in certain states and will file
separate state tax returns in the remaining states. Pursuant to the Tax Sharing
Agreement, adjustments (for example, pursuant to an Internal Revenue Service
audit) made during the post-offering period, but relating to the pre-offering
period, will be settled between the Company and Xerox.
The Company has entered into employment agreements with certain of its
executive officers and has entered into indemnification agreements with each of
its officers and directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in June 1996 and is
currently composed of Mr. Ringer and Mr. O'Brien. No interlocking relationship
exists between any member of the Company's Board of Directors or Compensation
Committee and any member of the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. No member of the Compensation Committee is or was formerly an officer or
an employee of the Company or its subsidiaries.
7
<PAGE> 11
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and each of
the four other most highly compensated executive officers whose salary plus
bonus exceeded $100,000 during the last fiscal year, information concerning
compensation paid for services to the Company in all capacities during the last
two fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- SECURITIES
BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS(#) COMPENSATION(2)
- ------------------------------------------ ---- --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Tony N. Domit............................. 1996 $ 192,000 $ -- 17,448 $ 4,800
President and Chief Executive Officer 1995 $ 150,000 $ -- -- $ 6,348
Alfred G. Altomare, Jr.(3)................ 1996 $ 79,889 $60,608 27,865 $ 3,691
Vice President of Consulting 1995 $ -- $ -- -- $ --
Thomas J. Anthony......................... 1996 $ 90,000 $72,366 11,590 $ 6,690
Vice President Sales 1995 $ 90,000 $46,626 -- $ 6,780
Peter L. Bradshaw......................... 1996 $ 100,000 $ -- 12,045 $ 3,306
Vice President Development 1995 $ 96,667 $ 5,000 -- $ 3,487
Daniel J. Fregeau......................... 1996 $ 90,000 $74,568 4,090 $ 4,467
Vice President Marketing 1995 $ 90,000 $60,558 30,000 $ 3,436
</TABLE>
- ---------------
(1) Includes bonuses earned or accrued with respect to services rendered in the
fiscal year indicated, whether or not such bonus was actually paid during
such fiscal year.
(2) For fiscal 1996, includes $3,000 of Company contributions under its 401(k)
Plan and the balance represents life insurance premiums paid by the Company.
For fiscal 1995, includes $3,000 of Company contributions under its 401(k)
Plan and the balance represents life insurance premiums paid by the Company.
(3) Mr. Altomare resigned from his position of Vice President of Consulting of
the Company effective January 27, 1997.
8
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to each of the officers named in the Summary
Compensation Table, information concerning stock options granted during the
fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) IN FISCAL YEAR(2) PRICE DATE(3) 5% 10%
- --------------------------- ----------- ------------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tony N. Domit.............. 17,448 13.12% $10.00 7/12/06 109,729.53 278,076.18
Alfred G. Altomare(5)...... 24,000 18.04% $ 0.17 2/15/06 2,565.89 6,502.47
3,865 2.91% $10.00 7/12/06 24,306.78 61,598.15
Thomas J. Anthony.......... 7,500 5.64% $ 0.67 3/1/96 3,160.20 8,008.56
4,090 3.07% $10.00 7/12/96 25,715.50 65,168.13
Peter L. Bradshaw.......... 7,500 5.64% $ 0.67 2/15/06 3,160.20 8,008.56
4,545 3.42% $10.00 7/12/06 28,583.26 72,435.59
Daniel Fregeau............. 4,090 3.07% $10.00 7/12/06 25,721.79 65,184.07
</TABLE>
- ---------------
(1) Options in this table are nonstatutory stock options and were granted under
the 1995 Stock Incentive Plan or a written compensatory arrangement and have
exercise prices equal to the fair market value on the date of grant. All
such options have ten-year terms, and vest over no more than four years.
(2) The Company granted options to purchase 223,538 shares of Common Stock to
employees in fiscal 1996.
(3) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of the Company.
(4) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual rate
specified (5% and 10%). Annual compounding results in total appreciation of
63% (at 5% per year) and 159% (at 10% per year). If the price of the
Company's Common Stock were to increase at such rates from the price at 1996
fiscal year end ($9.875 per share) over the next 10 years, the resulting
stock price at 5% and 10% appreciation would be $16.09 and $25.61,
respectively. The assumed annual rates of appreciation are specified in SEC
rules and do not represent the Company's estimate or projection of future
stock price growth. The Company does not necessarily agree that this method
can properly determine the value of an option.
(5) Mr. Altomare resigned from his position of Vice President of Consulting of
the Company effective January 27, 1997.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers named in the
Summary Compensation Table, certain information concerning stock options
exercised during fiscal 1996, and the number of shares subject to both
exercisable and unexercisable stock options as of December 31, 1996. Also
reported are values for "in-
9
<PAGE> 13
the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and the fair market value of the
Company's Common Stock as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF EXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tony N. Domit................. -- -- -- 17,448 -- --
Alfred G. Altomare(2)......... -- -- -- 27,864 -- $ 233,000
Thomas J. Anthony............. 8,751 $1,459 7,500 34,089 $ 72,812 $ 287,500
Peter L. Bradshaw............. -- -- 17,470 33,545 $ 169,605 $ 267,042
Daniel Fregeau................ -- -- 33,750 15,339 $ 329,656 $ 109,219
</TABLE>
- ---------------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on December 31, 1996 (the last trading day of fiscal
1996) on the Nasdaq National Market of $9.875 minus the exercise price.
(2) Mr. Altomare resigned from his position of Vice President of Consulting of
the Company effective January 27, 1997.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Committee")
generally determines base salary levels for executive officers of the Company at
or about the start of the fiscal year and determines actual bonuses after the
end of the fiscal year based upon Company and individual performance. The
Company's executive pay programs are designed to provide a strong and direct
link between Company performance and executive pay. The Committee's executive
compensation policies are designed to provide competitive levels of compensation
and assist the Company in attracting and retaining the most qualified executives
in the industry. Target levels of the executive officers' overall compensation
are intended to be consistent with compensation of other executives in the
Company's industry.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance against those objectives. In order to
achieve these goals, the Company has historically positioned its executive base
salary levels at approximately the 50th percentile of survey data, which
includes both the Company's direct competitors and the companies with whom the
Company competes for executive talent. Pay is sufficiently variable that
above-average performance for the Company or the individual results in above-
average total compensation for the Company's executive officers, and
below-average performance results in below-average total compensation. The focus
is on corporate performance and individual contributions toward that
performance.
COMPENSATION PROGRAM
The Company uses a total compensation program, which consists of both cash
and equity based compensation, and has three components. The three components
combined are intended to attract, retain, motivate and reward executives who
contribute to the long-term success of the Company. The three components are:
1. Base Salary: Base salary is primarily used as an attraction and
retention device. Base salary increases are made based on long-term
contributions to the Company, as determined by the Committee, with the input
10
<PAGE> 14
of senior management at the end of each year. Salary surveys of leading national
compensation consultants are analyzed and individual salaries are set based on
the experience and contribution levels of the individuals. In general, base
salary increases are made based on median increases in the software industry for
same-sized companies with similar performance profiles.
2. Variable Compensation. Variable compensation is intended to reward
individual executives for annual performance against total Company revenue and
operating profit objectives by supplementing the base salary plan. Each
executive's annual incentive is a percentage of base salary modified by plan
achievement. Payout begins at 80% and ranges up to 150% of planned revenues and
profits and averages approximately 25% of annual salary at 100% plan
achievement.
3. Long-Term Incentives: Long-term incentives are provided through grants
of stock options. The Committee is responsible for determining, subject to the
terms of the 1995 Stock Incentive Plan, the individuals to whom grants should be
made, the timing of grants, the exercise or purchase price per share and the
number of shares subject to each option. Stock options are granted under the
1995 Stock Incentive Plan and are primarily used to motivate executives to
maximize stockholder value. The option program also utilizes vesting periods to
encourage key employees to continue in the employ of the Company.
An additional important purpose of the stock option awards is to motivate
executives to make the types of long-term changes in the financial performance
of the business and will maximize long-term total return to stockholders.
OTHER
In addition to the compensation paid to executive officers as described
above, executive officers, like other employees, receive benefits under the
Company's health care and life insurance programs.
PERFORMANCE MEASUREMENTS AND INDUSTRY COMPARISONS
The Company believes that the key to its executive compensation program is
setting aggressive business goals, integrating the executive compensation
program with annual and strategic planning measurement processes, and
establishing an industry comparison to test Company results against industry
performance levels.
COMPANY PERFORMANCE AND CEO COMPARISON
As indicated above, the Company's executive compensation program is based
upon business performance. Specifically, the Chairman and Chief Executive
Officer's target base pay level has been set at approximately the 80th
percentile for software companies, using data specifically for software
companies of similar size.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Thomas L. Ringer
Colin J. O'Brien
11
<PAGE> 15
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph and table compare the cumulative total stockholder
return on the Company's Common Stock from September 20, 1996, the date of the
initial public offering of the Common Stock, through December 31, 1996 with the
Nasdaq Stock Market Index (US) and the Nasdaq Computer & Data Processing
Services Stock Index, using data supplied by the Nasdaq Stock Market. The graph
and table assume an investment of $100 in the Common Stock and each index on
September 20, 1996 and the reinvestment of all dividends.
<TABLE>
<CAPTION>
Indexed Returns Indexed Returns
20Sept96 Dec96
<S> <C> <C>
Document Sciences Corporation 100 82.29
NASDAQ Stock Market 100 105.55
NASDAQ Computer & Data
Processing Services Stocks 100 102.91
</TABLE>
PROPOSAL TWO
ADOPTION OF 1997 EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors in March 1997. A total of 350,000 shares of Common Stock
are reserved for issuance under the Purchase Plan.
The stockholders are requested to approve the adoption of the Purchase Plan
and the reservation for issuance of 350,000 shares thereunder. The Company
believes that the Purchase Plan is a key component of its strategy to attract
and retain skilled employees and quality management. The Board of Directors
believes it is in the Company's best interests to adopt the Purchase Plan so
that the Company may continue to attract and retain the services of key
employees by providing eligible employees the opportunity to purchase the
Company's Common Stock through payroll deductions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION
OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
VOTE REQUIRED
The affirmative vote of a majority of the shares represented, in person or
by Proxy, and voting at the Annual Meeting and constituting at least a majority
of the required quorum will be required to adopt the 1997 Employee Stock
Purchase Plan.
12
<PAGE> 16
SUMMARY OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
A description of the principal features of the Purchase Plan, as amended,
is set forth below:
Purpose. The purposes of the Purchase Plan are to attract and retain
the best available personnel for the Company and promote employee ownership
of the Company's Common Stock.
Administration of the Purchase Plan. The Purchase Plan may be
administered by the Company's Board of Directors or a committee of the
Board. The interpretation and construction of any provision of the Purchase
Plan by the Board or its committee shall be final and binding. Members of
the Board receive no additional compensation for their services in
connection with the administration of the Purchase Plan.
Eligibility. Employees are eligible to participate in the Purchase
Plan if they are customarily employed by the Company for more than five
months per calendar year and at least 20 hours per week. The Purchase Plan
permits eligible employees to purchase the Company's Common Stock through
voluntary payroll deductions (which, subject to stockholder approval of
this Proposal Two, may not exceed ten percent (10%) of an employee's
compensation or as otherwise restricted by the Code), at a price not less
than eighty-five (85%) of the lower of the fair market value of the Common
Stock at the beginning of the offering period or at the end of each
six-month period.
Participation. Eligible employees may become participants in the
Purchase Plan by filing completed enrollment agreements authorizing payroll
deductions. Options to purchase the Company's Common Stock through
voluntary payroll deductions (subject to the limitations described above)
shall be granted to Plan participants on the first day of each offering
period and shall be exercised automatically unless such participants
withdraw from the Purchase Plan. The Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of such participant's option.
Amendment and Termination of the Purchase Plan. The Board may amend
or terminate the Purchase Plan from time to time in such respects as the
Board may deem advisable; provided that, to the extent necessary to comply
with Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), or with Section 423 of the Code or any other successor or
applicable law or regulation, the Company must obtain stockholder approval
of any purchase Plan amendment in such a manner and to such a degree as is
required by the applicable law, rule or regulation. In any event, the
Purchase Plan will terminate in March 2007.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and
Section 423 of the Code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the offering period and one year from the date the
shares are purchased, the participant will recognize ordinary income measured as
the lesser of (a) the excess of the fair market value of the shares at the time
of such sale or disposition over the purchase price, and (b) an amount equal to
fifteen (15%) of the fair market value of the shares as of the first day of the
offering period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding periods described above.
13
<PAGE> 17
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP ("Ernst & Young"),
independent auditors, to audit the financial statements of the Company for the
fiscal year ending December 31, 1997. Ernst & Young has audited the Company's
financial statements since December 31, 1992. A representative of Ernst & Young
is expected to be present at the meeting, will have the opportunity to make a
statement, and is expected to be available to respond to appropriate questions.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. In the event that the stockholders do not approve the selection
of Ernst & Young, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
San Diego, California
March 25, 1997
14
<PAGE> 18
APPENDIX A
DOCUMENT SCIENCES CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of Document Sciences Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Document Sciences Corporation, a
Delaware corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and sales commissions, overtime pay and cash bonuses.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any Employee of the Company for tax
purposes whose customary employment with the Company is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
<PAGE> 19
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation The
Nasdaq National Market or the Nasdaq Small Cap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Period" shall mean a period of approximately six
(6) months, commencing on an Enrollment Date and terminating on an Exercise
Date. The first Offering Period shall commence on the first Trading Day
following June 1, 1997 and shall terminate on the last Trading Day of the sixth
month following the commencement of the Offering Period. Thereafter, Offering
Periods shall commence on the first Trading Day following termination of the
prior Offering Period and shall terminate on the last Trading Day of the sixth
month following commencement of such Offering Period.
(l) "Parent" shall mean any corporation, domestic or foreign,
in an unbroken chain of corporations ending with the Company if each corporation
in the chain (other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
(m) "Plan" shall mean this 1997 Employee Stock Purchase Plan.
(n) "Purchase Price" shall mean an amount equal to not less
than 85% of the Fair Market Value of a share of Common Stock on the Enrollment
Date or on the Exercise Date, whichever is lower. If the Enrollment Date shall
fall on a Saturday, Sunday, or other legal holiday, the Fair Market Value shall
be determined as of the trading day immediately preceding the Enrollment Date.
(o) "Reserves" shall mean the number of Treasury Shares
covered by each option under the Plan which have not yet been exercised and the
number of Treasury Shares which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
2
<PAGE> 20
(q) "Trading Day" shall mean a day on which national stock
exchanges and The Nasdaq Stock Market are open for trading.
(r) "Treasury Shares" shall mean shares of Common Stock that
have been previously issued to stockholders and reacquired by the Company.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i)to the
extent, immediately after the grant, such Employee (or any other person whose
stock would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own capital stock and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any Parent,
Subsidiary, or (ii) to the extent his or her rights to purchase stock under all
employee stock purchase plans (as defined in Section 423(b) of the Code) of the
Company and any Parent or its subsidiaries will not accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the
fair market value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time. The accrual of
rights to purchase stock shall be determined in accordance with Section
423(b)(8) of the Code.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods. The first Offering Period shall commence on the first Trading
Day following June 1, 1997 and shall terminate on the last Trading Day of the
sixth month following the commencement of the Offering Period. Thereafter,
Offering Periods shall commence on the first Trading Day following Exercise Date
of the prior Offering Period and shall terminate on the last Trading Day of the
sixth month following commencement of such Offering Period. The Board shall have
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a enrollment agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's Human Resources
office not later than one day prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
3
<PAGE> 21
6. Payroll Deductions.
(a) At the time a participant files his or her enrollment
agreement, he or she shall elect to have payroll deductions made on each pay day
during an Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, but may not otherwise increase or
decrease the rate of his or her payroll deductions during the Offering Period. A
participant's enrollment agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's enrollment agreement
at the beginning of the first Offering Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price. During a six month Offering
Period no Employee shall be permitted to purchase, more than 2,000 shares (or
such lesser number determined by the Administrator); provided, however, that
such limit shall be adjusted proportionately in the event of an Offering Period
longer than six months. All such purchases shall also be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided
4
<PAGE> 22
in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof, and shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be carried over in the participant's account into the next
Offering Period. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the shares shall be credited to an account
in the participant's name with a brokerage firm selected by the Plan Committee
to hold the shares in it's street name.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time up to two weeks prior to any
Exercise Date by giving written notice to the Company in the form of Exhibit B
to this Plan. All of the participant's payroll deductions credited to his or her
account will be paid to such participant promptly after receipt of notice of
withdrawal, such participant's option for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the Offering Period. If a participant withdraws from
an Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
enrollment agreement.
(b) Upon a participant's ceasing to be an Employee (as defined
in Section 2(g) hereof) for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period will
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
5
<PAGE> 23
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be three hundred
fifty thousand (350,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. Shares issuable
under the Plan shall be Treasury Shares. If on a given Exercise Date the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
6
<PAGE> 24
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof. Shares of
Common Stock acquired through exercise of options granted pursuant to this Plan
may not be sold or otherwise transferred until at least twelve months after the
Exercise Date. The Company shall have the right to place a legend on all stock
certificates delivered pursuant to this Plan setting forth the restriction on
transferability of such shares.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Dissolution;
Liquidation; Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of
7
<PAGE> 25
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"). The
New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date, unless prior to
such date the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason amend or terminate the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted. Except as
provided in Section 18 hereof, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Rule 16b-3 or under Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain shareholder approval in such a manner and to such a
degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods
(provided no Offering Period may be more than seven months), limit the frequency
and/or number of changes in the amount withheld during an Offering Period,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount designated
by a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant
8
<PAGE> 26
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
9
<PAGE> 27
EXHIBIT A
DOCUMENT SCIENCES CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Document Sciences Corporation 1997 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares
of the Company' s Common Stock in accordance with this Enrollment
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Gross Compensation (not to exceed 10%) beginning on the
first payday after the Grant Date and on each payday thereafter until
the Exercise Date, as determined by the Board, in accordance with the
Employee Stock Purchase Plan. (Please note that no fractional
percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Company's Common Stock at the applicable Purchase
Price determined in accordance with the Section 9.3 of the Employee
Stock Purchase Plan. I understand that, prior to the Exercise Date, I
shall be permitted only once to (a) withdraw accumulated payroll
deductions, (b) discontinue payroll deductions, or (c) decrease, but
not increase, the percentage of Gross Compensation withheld. I further
understand that I may withdraw all but not less than all the payroll
deductions credited to my account and not yet used to exercise my
option under the Plan at any time up to two weeks prior to the Exercise
Date by giving written notice to the Company.
4. I have received a copy of the complete "Employee Stock Purchase Plan."
I understand that my participation in the Employee Stock Purchase Plan
is in all respects subject to the terms of the Plan. I understand that
the grant of the option by the Company under this Enrollment Agreement
is subject to obtaining shareholder approval of the Employee Stock
Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse Only):
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<PAGE> 28
6. I understand that I may not sell or otherwise transfer shares of Common
Stock purchased pursuant to this Plan until at least twelve months
after the Exercise Date and that the Company shall have the right to
place a legend on all stock certificates representing Option Shares
setting forth the restriction on transferability of such shares.
7. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30 days after the date of
any disposition of shares and I will make adequate provision for
Federal, state or other tax withholding obligations, if any, which
arise upon the disposition of the Common Stock. The Company may, but
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year holding period, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
8. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Enrollment Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
-------------------------------------------------
(First) (Middle) (Last)
Relationship
-------------------------------------------------
-------------------------------------------------
(Address)
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<PAGE> 29
NAME: (Please print)
-------------------------------------------------
(First) (Middle) (Last)
Relationship
-------------------------------------------------
-------------------------------------------------
(Address)
Employee's Social
Security Number:
-------------------------------------------------
Employee's Address:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
I UNDERSTAND THAT THIS ENROLLMENT AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
----------------------------------
Signature of Employee
----------------------------------
Spouse's Signature
(If beneficiary other than spouse)
3
<PAGE> 30
DOCUMENT SCIENCES CORPORATION
PROXY FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
stockholder of DOCUMENT SCIENCES CORPORATION, a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated March 25, 1997, and hereby appoints Tony N. Domit and
Barbara E. Amantea, and each of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 1997 Annual Meeting of Stockholders of DOCUMENT
SCIENCES CORPORATION to be held on Friday, April 25, 1997, at 10:00 a.m., local
time, at The Embassy Suites, 4550 La Jolla Village Drive, San Diego, California
92122 and at any adjournment or adjournments thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth below.
A majority of such attorneys or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall represent and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
1. ELECTION OF DIRECTORS:
[ ] FOR [ ] WITHHELD
NOMINEES: Tony N. Domit, Charles P. Holt, Thomas Ringer, Colin J. O'Brien,
James J. Costello, Barton L. Faber
- --------------------------------------------------------------------------------
For all nominees except as noted above
2. Proposal to approve the adoption of the company's employee qualified stock
purchase plan and the reservation of 350,000 shares of the company's common
stock thereunder:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of the company for fiscal 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued, and to be signed, on other side)
<PAGE> 31
(continued from other side)
In their discretion, the proxies are authorized to vote upon such other
matter or matters which may property come before the meeting or any adjournment
or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE ADOPTION TO THE
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN, FOR THE RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
THIS PROXY SHOULD BE MARKED, DATED AND SIGNED BY THE STOCKHOLDER(S) EXACTLY
AS HIS OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED
ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF SHARES
ARE HELD BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
[ ] MARK HERE FOR ADDRESS CHANGE
AND NOTE BELOW
Dated: , 1997
----------------------------------
------------------------------------
SIGNATURE
------------------------------------
SIGNATURE IF HELD JOINTLY
