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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-20981
DOCUMENT SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 33-0485994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, SUITE 200, SAN DIEGO, 92122
CALIFORNIA (zip code)
(Address of principal executive offices)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 625-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 27, 1998, there were 10,814,962 shares of the Registrant's
Common Stock outstanding and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on March 27, 1998) was approximately
$12,484,489. Shares of Common Stock held by each executive officer and director
and by each entity that owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the
1998 Annual Meeting of Stockholders to be held on April 28, 1998 are
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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PART I
ITEM 1. BUSINESS.
This item contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth in "Certain
Additional Business Risks" below, the section of Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations
entitled "Factors Affecting Future Results" and elsewhere in this Report.
Document Sciences Corporation (the "Company") develops, markets and
supports a family of document automation software products and services used in
high volume electronic publishing applications. Document automation has become
increasingly important as more companies realize the benefits of automating the
high volume production of individually customized documents that require the
precise layout of information such as financial data, marketing text and graphs.
The Company's document automation software, the Autograph family of products,
enables personalized and customized publishing solutions for many industries
including insurance, managed healthcare, financial services, telecommunications,
manufacturing/distribution, government and commercial print services. The
Company's products facilitate an important form of communication between
organizations and customers by employing enterprise database assets to produce
high-quality documents that are ready to print on demand and distribute in high
volume. Additionally, the Company's core technology is being applied to provide
electronic document automation solutions for the Internet, intranets and
commercial on-line services. Autograph is licensed to more than 670 customers
worldwide who are collectively producing an estimated one billion customized
pages per month. The highly portable Autograph software platform enables
cost-effective, just-in-time, on demand, high volume publishing that is fully
automated, capable of quality document composition, and flexible for enduser
customization. The Company's products are used in a wide array of computing
environments from client/server to large computer systems.
PRODUCTS
The Company's Autograph family of products currently addresses three major
functional areas: Document Composition and Assembly, Document Management, and
Document Viewing, as described below. All of the Company's software products can
be complemented by the Company's Professional Services organization.
The list price for an initial license fee for CompuSet, the Company's core
product, is currently $75,000 for an initial mainframe installation and ranges
down to $35,000 for an initial single PC; options currently range from $3,000 to
$50,000. The Company licenses its products for one year, after which an annual
renewal fee, usually in an amount equal to 15% of the initial license fee, is
required for continued use. A typical new sale is currently about $85,000 for
software licenses and approximately $50,000 for professional services.
DOCUMENT COMPOSITION AND ASSEMBLY
Composition and Assembly. CompuSet, the Company's flagship product,
automates document composition and assembly using data and information in
corporate databases. It is the Company's core technology. CompuSet software
consists of a rulebased language and a composition engine that provide
high-speed composition and assembly of complex documents with high typographic
and aesthetic levels of quality. Information content is marked with CompuSet
tags which, in turn, are defined in logically separate style specifications.
Without requiring real-time user interaction, the composition engine then
transforms the tagged data and information into finished electronic documents
that can be composed and assembled at rates in excess of 50 pages per second,
depending on computing configuration and complexity of the document. Document
construction facilities are extensive, including the full support of dynamic
data driven graphics generation. CompuSet operates on a range of computers and
operating systems including mainframes, workstations, network servers and
personal computers.
Data Capture and Setup. Data capture and setup products include CompuPrep
and a number of Importers, and prepare data and information for subsequent
composition and assembly by CompuSet.
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CompuPrep is an optional tool that enables users to capture and tag raw data and
information from a variety of sources, including corporate databases, for
subsequent processing by CompuSet. It is a high level language that describes
the data environment, related data processing and the tagging instructions for
CompuSet. Importers accept externally generated document objects, including
text, static graphics and scanned images, and convert them into formats
compatible with CompuSet. The Importers support Adobe PostScript, Xerox Metacode
and the TIFF standard for scanned images.
Document Output and Merge. Emitters transform CompuSet's output into a
number of popular Page Description Languages (PDLs) for printing and viewing.
The PDLs provide instructions for rendering text, forms, bitmaps, and graphics
into documents. The PDL formats currently supported are Xerox Metacode, IBM
AFPDS, and Adobe PostScript. This part of the architecture is extensible and new
Emitters can be provided as required.
Application Development Tools. CompuSeries application development tools
run on Microsoft Windows(R) and simplify document design and application
prototyping. CompuSeries currently consists of several modules. CompuSpec is a
tool for defining document formatting rules. Formatting specifications which are
selected from a menu are associated with tags which are referenced in the
document data. The results of the selected formatting specifications are
visually displayed in a preview window. CompuBuild uses a PC version of
CompuSet, combined with an editor to manipulate the tagged document data.
CompuBuild supports all the dynamic functions and features of the CompuSet
production engine. CompuMerge is a tool used to specify the placement of
variable data into fixed document components such as in form-fill applications.
CompuView Proof is a document proofing tool used to preview the document layout
on the computer screen prior to printing. These tools were integrated into a
single Windows application, called CompuSeries II. The Company is in Beta
Testing to OEM JetForm(R) Corporation's JetForm Design product as well as the
JetForm production print drivers for Metacode, Postscript and AFP printers, and
will integrate it with CompuSeries II.
DOCUMENT MANAGEMENT
Document Management tools provide client/server solutions for the creation,
revision and management of document components used in the Company's document
automation solutions. They consist of the Document Library Service (DLS) and
Desktop Document Manager (DDM). DLS manages the document component creation
process required by complex variable documents. In addition, DLS can be used to
define complex assembly rules required for interactive or fully automated
document composition and assembly with CompuSet. DLS uses a client/server
architecture for accessing data and files on a mainframe or network server. DDM
is the client component of DLS and manages text objects created with Microsoft
Word(R). Text objects are tracked and managed in a multi-author environment by
providing access security, revision control and approval levels. DDM also
provides a criteria-based document object selection capability for customized or
personalized documents. These criteria are then used by DLS to generate a
CompuSet-ready tagged data file. The customized or personalized document
assembly can be directed to occur in a high volume fashion on the server or in a
just-in-time, on demand fashion on the local DDM PC.
DOCUMENT VIEWING
Document Viewing enables on-line viewing and archiving of electronic
documents produced by document automation applications. It consists of Document
Viewing Service (DVS) and CompuView. DVS uses a client/server architecture for
the creation and access of electronic document files. DVS is available for a
variety of mainframe, Unix and PC platforms. The electronic document files are
generated in a format called composite container format (CCF), which is
optimized for fast, memory-efficient viewing, transport and storage. CCF files
can then be viewed by CompuView. CCF files consist of three major components: a
page description language (PDL) rendition of the pages for WYSIWYG viewing;
various indices for locating documents; and reusable document elements. CCF
files can also be distributed, archived or printed through document distribution
and archiving systems offered by third party software developers that have
integrated CompuView. CompuView is a Windows application for viewing CCF files.
The view of the document is virtually identical to the printed document.
CompuView may also be integrated with third party document
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retrieval systems. The Company introduced DVS in October 1995 and entered into
several OEM agreements in 1997 to have the program incorporated into archiving
software distributed by other major vendors.
The Company is considering possible future Internet extensions, some of
which are not currently under active development. The Company believes that its
core technology can be extended to the Internet, intranets and commercial online
services and has recently begun initial development activity in this area,
although there can be no assurance that such development activity will result in
commercially successful products. See "Business -- Research and Development".
PROFESSIONAL SERVICES
In addition to its software products, the Company provides a comprehensive
suite of services which can assist customers in the implementation of
enterprise-wide and mission-critical document automation applications.
Professional Services include on-site software installation, customer training
programs, telephone support programs and consulting services. Consulting
services are currently focusing on assisting in the sale of high margin initial
software licenses by providing project management and application development.
Eventually, the Company intends to expand Professional Services to include
document design, systems design and integration. In addition to consulting
services, the Company currently offers introductory-level customer education,
which is included with CompuSet initial licenses. Additional and advanced
classes are provided for additional fees at the Company's headquarters in San
Diego and at customer sites. The Company offers advanced and specialized
customer education in response to the unique needs of certain customers. The
Company believes that expanded Professional Services enables customers to deploy
the Company's document automation products more rapidly and effectively, and
assist the Company in the development of new products and provide recurring
revenue. The Professional Services and support organizations employed a staff of
56 as of December 31, 1997.
SALES AND MARKETING
The Company's sales and marketing organization targets vertical industry
markets that require document automation and high volume document
personalization and customization. The Company currently licenses its products
using a combination of direct sales and alternate channels. In the United
States, the Company markets its products through a direct sales force. Sales
representatives are provided with pre-sales technical support by regional
application specialists. Sales representatives and the regional application
specialists are located in Atlanta, Chicago, Cincinnati, Dallas, Minneapolis,
New York City, Pittsburgh, Richmond, Raleigh, Sacramento, Yorba Linda, San
Antonio, San Diego, Seattle and Washington, D.C. The Company distributes its
products through value added reseller (VAR) relationships with Xerox Canada,
Ltd. in Canada, Fuji Xerox Co., Ltd. in Australia, and Xerox Brazil, Ltd. in
Brazil. The Company's subsidiary, Document Sciences Europe, markets and supports
the Company's products in Europe, Africa and the Middle East by providing
channel management, technical support, consulting and training services, and
defining European market and product requirements. The Company licenses its
products in Europe through VARs and, to a lesser extent, direct sales. The VARs
are principally Rank Xerox Ltd. and other Xerox affiliates who remarket the
Company's products. The Company's revenues from export transactions with Xerox
affiliates were $3.1 million, $2.9 million and $2.9 million in 1995, 1996 and
1997, respectively. The sales, marketing, consulting and customer support
organization employed a staff of 114 as of December 31, 1997.
The Company intends to expand its sales and marketing organization to
provide direct sales and support services throughout the world. Such planned
expansion will occur by first addressing the unique product requirements of a
region followed by developing indirect sales channels to market in the region.
As the Company is able to increase its market presence, it may then augment its
alternate channels with a direct sales capability.
In addition, the Company intends to increase both its product offerings and
markets through marketing, sales and distribution, and development relationships
with other companies. Current relationships include formal and informal
marketing and sales alliances with Xerox, IBM, OCE Printing Systems, Computer
Associates, New Dimension Software, RSD, JetForm Corporation, Systemware, and
Anacomp. These
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relationships provide sales leads for the Company's products and have extended
the Company's sales coverage and networking capabilities.
RESEARCH AND DEVELOPMENT
In general, the Company's strategy is to build products that augment and
extend the document composition and assembly capabilities of its core products.
Initially, product development investments were primarily focused on completing
the Autograph family of products, which included delivering products for
document viewing as well as adding support for additional print environments. In
addition, there was a substantial investment in product maintenance and in
software integration, testing, and documentation. The Company supplements its
product development efforts by reviewing customer feedback on existing products
and working with customers and potential customers to anticipate future product
needs.
To date, the Company's Autograph family of products have been applied
mainly to document automation applications producing paper based documents. The
Company believes that its core technology can be extended to provide electronic
document automation for the Internet, intranets, and commercial on-line
services. The short-term strategy is to engage this emerging opportunity with
two complementary initiatives. First, the Company intends to work closely to
define product requirements with existing customers, many of whom have expressed
interest in using the Internet in their document automation solutions. Second,
the Company intends to develop incremental extensions to its Autograph family of
products which can be incorporated by current customers into existing document
automation products provided by the Company. The Company believes that its core
technology can be extended to the Internet, intranets and commercial on-line
services, and has only recently begun initial development activity in this area.
There can be no assurance that the Company will be successful in developing,
introducing and marketing new products on a timely and cost-effective basis, if
at all, or that new products will achieve market acceptance.
The development organization is composed of self-directed teams, in which
representatives from various disciplines within the Company collectively take
responsibility for the development and delivery of each new feature or product.
The development process includes early review of prototypes and demonstrations
to incorporate customer feedback and provide an opportunity for management
review. A formal sequence of project phases organizes the development and review
process for each team. The Company has a formal release planning process for an
annual maintenance release, and delivers interim versions as needed to support
its customers. The development organization maintains a database of all customer
and internal requests which forms the basis for release planning.
The Company expects to continue to enhance its existing products and to
develop new products, particularly as they relate to electronic publishing
applications. Research and development expenditures have grown substantially
since the Company's inception. Such expenditures were $1.7 million in 1995, $2.3
million in 1996 and $3.3 million in 1997. These amounts do not include product
support activities. The development organization has grown from 22 in 1995 to 32
in 1996 and 58 in 1997. The Company employs independent contractors as needed to
supplement the permanent development staff.
COMPETITION
The market for the Company's document automation products is intensely
competitive, subject to rapid change, and significantly affected by new product
introductions and other market activities of industry participants. The
Company's software products are targeted at document intensive organizations
that require the ability to produce large quantities of customized and
personalized documents in paper or electronic form. The Company faces direct and
indirect competition from a broad range of competitors who offer a variety of
products and solutions to the Company's current and potential customers. The
Company's principal competition currently comes from (i) systems developed
in-house by the internal MIS departments of large organizations, (ii) direct
competition in a number of its vertical markets, including Docucorp, which is
partially owned by Xerox, in the insurance industry, M&I Data Services, Inc. in
banking and financial services, and Group 1 Software, Inc. in commercial direct
mailing, and (iii) direct competitors such as IBM's Direct Composition Facility
(DCF) and Group 1's recently introduced DOC1 product. The Company faces
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market resistance from the large installed base of legacy systems because of the
reluctance of these customers to commit the time and effort necessary to convert
their document automation processes to the Company's document automation
software. Several of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
the Company, greater name recognition and a larger installed base of customers.
It is also possible that the Company will face competition from new
competitors. These include large independent software companies offering
personal computer-based application software solutions, such as Microsoft
Corporation and Adobe Corporation, and from large corporations providing
database management software solutions, such as Oracle Corporation. In addition,
Xerox, either directly or through affiliated entities, could compete with the
Company. Moreover, as the market for document automation software develops, a
number of these or other companies with significantly greater resources than the
Company could attempt to enter or increase their presence in the Company's
market either independently or by acquiring or forming strategic alliances with
competitors of the Company or to otherwise increase their focus on the industry.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's current and
prospective customers. It is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
The Company believes that the principal competitive factors affecting its
market include product performance and functionality, ease of use, scalability,
operation across multiple computer and operating system platforms, product and
company reputation, client service and support, and price. Although the Company
believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company will be able to maintain its
competitive position against current and future competitors or that the Company
will be successful in the face of increasing competition from new products or
solutions introduced by existing competitors or by new companies entering the
market. Further, there can be no assurance that the Company can maintain its
position against current and future competitors, especially those with greater
financial, marketing, service, support, technical and other resources than the
Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's success is dependent, in part, on its ability to protect its
proprietary technology. The Company relies primarily on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary rights. The Company seeks to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company
presently has no patents or patent applications pending. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology. The Company is not aware that any of its products
infringes upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments overlaps.
Any such claims, with or without merit, could be time consuming, result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements.
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Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
In addition, the Company also relies on certain software that it licenses
from third parties, including software that is integrated with internally
developed software and used in the Company's products to perform key functions.
There can be no assurances that such firms will remain in business, that they
will continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software can be
developed, identified, licensed and integrated, which would adversely affect the
Company's business, operating results and financial condition.
EMPLOYEES
As of December 31, 1997, the Company had 189 employees including 114 in
sales, marketing, consulting and customer support, 58 in research and
development, and 17 in finance and administration. None of the Company's
employees are represented by a labor union. The Company has experienced no work
stoppages and believes its relationship with its employees is good. Competition
for qualified personnel in the industry in which the Company competes is
intensive. The Company believes that its future success will depend in part on
its continued ability to attract, hire, and retain qualified personnel.
CERTAIN ADDITIONAL BUSINESS RISKS
The Company's business, financial condition and operating results may be
impacted by a number of factors, including but not limited to those set forth
below, any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future results.
Limited Operating History. The Company was incorporated in October 1991 as
a wholly-owned subsidiary of Xerox, and Xerox currently owns approximately 62%
of the Company's outstanding shares of Common Stock. The Company's limited
operating history makes the prediction of future operating results difficult,
and the Company's operating history during prior periods cannot necessarily be
regarded as indicative of the Company's prospects as an independent company,
especially in light of the Company's investments in sales, marketing,
professional services and development infrastructure. Accordingly, although the
Company has experienced revenue growth in recent years, there can be no
assurance that the Company will sustain such growth in revenues, if any, or that
the Company will remain profitable on a quarterly or annual basis.
Uncertainty of Future Operating Results; Fluctuations in Quarterly
Operating Results. The Company's total revenues and operating results can vary,
sometimes substantially, from quarter to quarter and are expected to vary
significantly in the future. The Company's revenues and operating results are
difficult to forecast. Future results will depend upon many factors, including
the demand for the Company's products, the level of product and price
competition, the length of the Company's sales cycle, the size and timing of
individual license transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the level of
commissions on the sale of Xerox printers under the strategic marketing alliance
between the Company and Xerox, the Company's success in expanding its direct
sales force and indirect distribution channels, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of products and services sold, levels of international sales, activities of
and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, the ability of the Company to develop and market new
products and control costs and general domestic and international economic
conditions. In addition, the Company's sales generally reflect relatively high
revenue per order, and the loss or delay of individual orders, therefore, could
have a significant impact on the revenues and quarterly operating results of the
Company. Moreover, the timing of license revenue is difficult to predict because
of the length of the Company's sales cycle, which is typically three to twelve
months from the initial customer contact.
The Company's initial software license products generally are shipped as
orders are received. As a result, initial license fee revenues are substantially
dependent on orders booked and shipped in that quarter. Because
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the Company's operating expenses are based on anticipated revenue levels and
because a high percentage of the Company's expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of license
transactions could cause significant variations in operating results from
quarter to quarter and could result in losses. To the extent such expenses
precede increased revenues, the Company's operating results would be materially
adversely affected.
The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer purchasing patterns and the
Company's expense patterns. The Company believes that fourth quarter revenues
are positively impacted by year-end capital purchases by large corporate
customers and strong fourth quarter sales of printers by Xerox (which may
generate sales of the Company's products), as well as the Company's sales
compensation plans. As reflected in the fourth quarter of 1997, these seasonal
factors have historically resulted in fourth quarter revenues being
substantially higher than revenues in the preceding three quarters, as well as
being higher than revenues in each of the first two quarters of the next year.
In addition, a significant amount of the Company's revenues occur predominantly
in the third month of each fiscal quarter and tend to be concentrated in the
latter half of the third month.
As a result of these factors, revenues for any quarter are subject to
significant variation, and the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore, due
to all of the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. See "Expansion of Sales and
Distribution Channels" below, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Control by Xerox. Xerox owns approximately 62% of the outstanding shares
of Common Stock of the Company. Consequently, Xerox controls the Company, is
able to elect the entire Board of Directors of the Company and continues to have
significant input into the Company's operations. In addition, Xerox is able to
determine the outcome of all corporate actions requiring stockholder approval,
including potential mergers, acquisitions, consolidations and sales of all or
substantially all of the assets of the Company. The voting power of Xerox could
have the effect of delaying or preventing a change in control of the Company,
and may prevent or discourage tender offers for the Company's Common Stock at a
premium price by another person or entity. At present, Xerox affiliates hold
three of the five seats on the Company's Board of Directors. See "Reliance on
Relationships with Xerox; Lack of Independent Sales and Marketing Channels"
below.
Reliance on Relationships with Xerox; Lack of Independent Sales and
Marketing Channels. The Company currently has a variety of contractual and
informal relationships with Xerox and affiliates of Xerox, including a
Cooperative Marketing Agreement, a Transfer and License Agreement and various
distribution agreements. The Company relies on these relationships and
agreements for a significant portion of its total revenues. In 1995, 1996 and
1997, total revenues derived from relationships with Xerox and affiliates of
Xerox accounted for approximately $3.9 million, $4.2 million and $3.8 million,
representing 37%, 28% and 19% of the Company's total revenues, respectively.
Further, the commissions received by the Company from sales of Xerox printers
under the strategic marketing alliance, which were $752,000, $1.4 million, and
$859,000 in 1995, 1996 and 1997, respectively, have little or no associated
costs, have contributed a substantial portion of the Company's income from
operations and net income for certain prior operating periods, have had a high
degree of inconsistency from quarter to quarter and are difficult to estimate.
Failure to continue to receive such commissions would have a material adverse
effect on the Company's business, operating results and financial condition.
Although neither Xerox nor its affiliated entities has expressed to the Company
any intention to terminate their respective agreements with the Company, these
agreements generally may be terminated on no more than 90 days notice.
Accordingly, there can be no assurance that Xerox or its affiliates will
continue these relationships or, if they do, that they will be on terms
favorable to the Company. Furthermore, there can be no assurance that existing
and potential customers will not be deterred by the existence of these
relationships or by the historical ties between the Company and Xerox and its
affiliates. Though the Company intends to continue its existing relationships
with Xerox, the Company's strategy is to lessen its dependence on Xerox.
However, there can be no assurance that the Company will be able to do so and,
because of the Company's current level of dependence on Xerox, there can be no
assurance that the Company's transition to
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a more independent company will not adversely affect its business, financial
condition or results of operations. The failure by the Company to maintain these
relationships, particularly with Xerox and its affiliates, or to establish new
relationships in the future, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Expansion of Sales and Distribution Channels" below.
Xerox has strategic alliances and other business relationships with other
companies who supply software and services used in high volume electronic
publishing applications and who now or in the future may be a competitor of the
Company. Xerox could in the future expand these relationships or enter into
additional ones, and as a result the Company's business could be materially
adversely affected. There can be no assurance that Xerox or one of its
affiliated companies will not engage in business directly competitive with the
Company. In addition, Xerox has on-going internal development activities which
could in the future lead to products that compete with the Company.
Expansion of Sales and Distribution Channels. The Company has
substantially increased expenditures in support of its strategy to expand its
global marketing, sales and customer support infrastructure in order to expand
the market for the Company's products by providing direct sales and support
services and increased channel distribution throughout the major markets of the
world. Through this expansion, the Company hopes to lessen its dependence on
Xerox and certain Xerox affiliates. In addition, the Company intends to increase
both its product offerings and markets through marketing, sales and distribution
and development relationships with other companies. The Company intends to
increase the number of these strategic relationships as well as form alliances
with system integrators and consultants. Whether the Company can successfully
generate its own sales leads, introduce new products and enter into new markets
will depend on its ability to expand its direct sales and support services,
expand its indirect channel distribution, and increase its relationships and
alliances with other companies. As a result of its planned expansion, the
Company has and will continue to incur significant costs to build such corporate
infrastructure ahead of anticipated revenues, and any failure to achieve growth
in revenues in excess of increased expenses would have a material adverse affect
on the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to successfully expand its direct
sales and support services force, expand its indirect channel distribution, or
establish or maintain successful third party relationships. Any failure to do so
will have a material adverse effect on the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Dependence on Success of New Products and Expansion of Professional
Services. The Company's Autograph family of products have been applied mainly
to document automation applications producing paper based documents. The Company
believes its core technology can be extended to address applications requiring
the delivery of customized and personalized electronic documents over electronic
networks such as the Internet, intranets or commercial on-line services.
The Company began shipping Document Viewing Service (DVS), an optional
on-line viewer for electronic documents produced by document automation
application in October 1995. Document Library Services (DLS), an optional
document management tool, was released for general availability in September
1996. Prior to September 1996, DLS was in a limited release, with certain
configurations still in beta testing. Revenues for DVS were $1.26 million in
1996 and $764,000 in 1997. Revenues for DLS were $1.0 million in 1996 and $1.27
million in 1997. Revenues for DVS and DLS were insignificant in 1995.
In addition, the Company is increasing its focus on the consulting services
component of its Professional Services to assist customers in the planning and
implementation of enterprise-wide, mission-critical document automation
applications. The Company has directed a significant amount of its product
development expenditures to the on-going development of DVS and DLS and plans to
devote a significant amount of future sales and marketing resources to the full
commercial introduction of DVS and DLS.
The Company believes that the long-term growth of license and service
revenue will be dependent, in part, upon the success of DVS, DLS and the
expansion of Professional Services. The Company has limited experience in
developing new products. Because of such limited experience, there can be no
assurance that DVS and DLS will not require substantial software enhancements or
modifications to satisfy performance
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requirements of clients or to correct design defects. Further, there can be no
assurance that the Company will be successful in expanding its consulting
services as part of its Professional Services. If clients experience significant
problems with implementation of the software or are otherwise dissatisfied with
the functionality or performance of DVS and DLS, or if DVS or DLS fails to
achieve market acceptance for any reason, or if the Company fails to
successfully expand its Professional Services, the Company's business, operating
results and financial condition will be materially adversely affected.
Lengthy Sales and Implementation Cycles. The license of the Company's
software products is often an enterprise-wide decision by prospective customers
and generally requires the Company to engage in a lengthy sales cycle, typically
between three and twelve months, to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
In addition, the implementation of the Company's products by customers involves
a significant commitment of resources by such customers over an extended period
of time, and is commonly associated with substantial customer business process
reengineering efforts. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. Delay in the sale or customer
implementation of a limited number of license transactions could have a material
adverse effect on the Company's business and results of operations and cause the
Company's operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Product Concentration. The Company derived 77% of its initial license
revenues from licenses of CompuSet and related CompuSet option products in 1997.
Initial license fees from DVS and DLS comprised 9% and 14%, respectively, in
1997. As a result, factors adversely affecting the pricing of or demand for
CompuSet and related products, such as competition from other products, negative
publicity or obsolesce of the hardware or software environments in which the
Company's products run, could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's financial
performance will continue to depend, in significant part, on the successful
development, introduction and customer acceptance of new and enhanced versions
of the CompuSet software and related products. There can be no assurance that
the Company will continue to be successful in developing and marketing CompuSet
products and related services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Industry Concentration. Licenses to end users in the insurance and
commercial print services industries for 1995, 1996 and 1997 accounted for 61%,
55% and 61% respectively, of total revenues. The future success of the Company
will depend on its ability to continue to successfully market its products in
such industries, and to successfully market its products in other industries.
The failure of the Company to do so would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Dependence on New Products and Product Enhancements. The Company's future
business, operating results and financial condition will continue to depend upon
its ability to develop new products that address the future needs of its target
markets and to respond to emerging industry standards and practices. The Company
believes that its core technology can be extended to the Internet, intranets and
commercial on-line services, and has begun initial development activity in this
area. There can be no assurance that the Company will be successful in
developing, introducing and marketing new products or product enhancements,
including new products or the extension of existing products for the Internet,
intranets and commercial on-line services, on a timely and cost effective basis,
if at all, or that its new products and product enhancements will adequately
meet the requirements of the marketplace or achieve market acceptance. Delays in
the commencement of commercial shipments of new products or enhancements,
including DVS and DLS, may result in client dissatisfaction and delay or loss of
product revenues. If the Company is unable, for technological or other reasons,
to develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or client requirements,
or if new products or new versions of existing products do not achieve market
acceptance, the Company's business, operating results and financial condition
will be materially adversely affected. In order to provide its customers with
integrated product solutions, the Company's future success will also depend in
part upon its ability to maintain and enhance relationships with
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<PAGE> 11
its technology partners, such as Computer Associates, JetForm Corporation,
Anacomp and New Dimension Software. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
International Operations. Revenues from export sales, including sales
through its foreign subsidiary accounted for 42%, 34% and 28% of the Company's
total revenues in 1995, 1996 and 1997, respectively. The Company's wholly owned
subsidiary, Document Sciences Europe, markets and supports the Company's
products in Europe. The Company licenses its products in Europe through value
added resellers (VARs) and to a lesser extent, direct sales. The VARs are
principally Xerox affiliates who re-market the Company's products. In Australia,
Canada and Brazil the Company distributes its products through Fuji Xerox Co.,
Ltd., Xerox Canada, Ltd., and Xerox Brazil, Ltd., respectively. Revenues
generated by these Xerox affiliates were $3.1 million, $2.9 million and $2.9
million in 1995, 1996 and the 1997, respectively. In 1995, a substantial portion
of the Company's revenues from export sales were generated through entities
affiliated with Xerox. In order to successfully expand export sales, the Company
must establish additional foreign operations, hire additional personnel and
develop relationships with additional international resellers. To the extent
that the Company is unable to do so in a timely manner, the Company's growth, if
any, in international export sales will be limited, and the Company's business,
operating results and financial condition could be materially adversely
affected. In addition, there can be no assurance that the Company will be able
to maintain or increase international market demand for its products. Additional
risks inherent in the Company's international business activities generally
include currency fluctuations, unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs of and the Company's limited experience
in localizing products for foreign countries, lack of acceptance of localized
products in foreign countries, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, and the
burdens of complying with a wide variety of foreign laws. A portion of the
Company's business is conducted in currencies other than the U.S. dollar,
primarily the French franc. Although to date exchange rate fluctuations have not
had a significant impact on the Company, fluctuations in the value of the
currencies in which the Company conducts its business relative to the U.S.
dollar could cause currency transaction gains and losses in future periods. The
Company does not currently engage in currency hedging transactions, and there
can be no assurance that fluctuations in the currency exchange rates in the
future will not have a material adverse impact on international revenues and
thus the Company's business, operating results or financial condition. There can
be no assurance that such factors will not have a material adverse effect on the
Company's future international operations and, consequently, the Company's
results of operations. See "Control by Xerox" above and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Dependence on Emerging Markets for Document Automation Software. The
market for document automation software is relatively new, intensely
competitive, highly fragmented, underdeveloped and subject to rapid change.
Marketing and sales techniques in the document automation software marketplace,
as well as the bases for competition, are not well established. There can be no
assurance that the market for document automation software will develop or that,
if it does develop, organizations will adopt the Company's products. The Company
has spent, and intends to continue to spend, significant resources educating
potential customers about the benefits of its products. However, there can be no
assurance that such expenditures will enable the Company's products to achieve
further market acceptance, and if the document automation software market fails
to develop or develops more slowly than the Company currently anticipates, the
Company's business, operating results and financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
In addition, the commercial market for document automation of electronic
documents designed for use with the Internet, intranets and commercial on-line
services has only recently begun to develop, and the success of the Company's
products designed for this market will depend, in part, on their compatibility
with such services. It is difficult to predict with any assurance whether the
Internet, intranets and commercial on-line services will prove to be a viable
commercial marketplace or whether the demand for related products and services
will increase or decrease in the future. Since the increased commercial use of
the Internet, intranets and commercial on-line services could require
substantial modification and customization of certain of the
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<PAGE> 12
Company's products and services and the introduction of new products and
services, there can be no assurance that the Company will be able to effectively
or successfully compete in this emerging market.
Management of Change; Dependence Upon Key Personnel. The Company has
recently experienced a period of growth in total revenues. The Company's ability
to compete effectively and to manage future change will require the Company to
continue to improve its financial and management controls, reporting systems and
procedures on a timely basis and to expand, train and manage its employee work
force. There can be no assurance that the Company will be able to do so
successfully. The Company's failure to do so could have a material adverse
effect on the Company's business, operating results and financial condition. The
Company's future performance depends in significant part upon the continued
service of its key technical, sales and senior management personnel, none of
whom are parties to employment agreements with the Company. The loss of the
services of one or more of the Company's executive officers could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's future success also depends on its continuing
ability to attract and retain highly-qualified product development, sales and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to retain its key employees or
that it will be able to attract, assimilate or retain other highly qualified
product development, sales and managerial personnel in the future. See "Control
by Xerox" above.
Recent Changes In Senior Management. On March 11, 1998, the Company
announced the retirement of Tony N. Domit from his positions as President and
Chief Executive Officer, and that a committee of the Company's Board of
Directors had been established to conduct a search for Mr. Domit's replacement.
While the Company intends to name a new President and Chief Executive Officer as
soon as practicable, there can be no assurance that the change in senior
management and related uncertainties will not adversely affect the Company's
consolidated operating results and financial condition during the period until a
new President and Chief Executive Officer is hired and afterward. The Company's
failure to recruit, retain and assimilate new executives, or the failure of any
such executive to perform effectively, or the loss of any such executive, could
have a material adverse impact on the Company's business, financial condition
and results of operations.
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates. As
a result, in fewer than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance. Any Year 2000 compliance problem of any of the Company, its
customers, or its suppliers could result in a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim or claim arising as a result of professional
services rendered by the Company brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Risk of Product Defects. Software products as complex as those offered by
the Company, particularly the Company's new DVS and DLS products, may contain
undetected defects or errors when first introduced or as new versions are
released. As a result, the Company could in the future lose or delay recognition
of revenues as a result of software errors or defects. In addition, the
Company's products are typically intended for use in applications that may be
critical to a customer's business. As a result, the Company expects that its
customers and potential customers have a greater sensitivity to product defects
than the market for software products generally. Although the Company's business
has not been adversely affected by any such errors to
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<PAGE> 13
date, there can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in new products or
releases after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs, any
of which would have a material adverse effect upon the Company's business,
operating results and financial condition.
ITEM 2. PROPERTIES.
The Company's principal administrative, sales, marketing, training, and
research and development facilities occupy approximately 33,102 square feet in
San Diego, California, pursuant to a lease which expires on February 28, 2002.
In addition, the Company's subsidiary in France occupies approximately 3,500
square feet of office space with a renewable lease expiring in February 1999.
Sales representatives and field technical support personnel operate from their
homes.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party, nor is its property subject, to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages, as of March 13, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
Alan H. Lynchosky.................. 45 Acting President and Chief Executive Officer
Robert D. Gerhart.................. 43 Acting Chief Financial Officer
Thomas Anthony..................... 62 Vice President, Sales
Peter L. Bradshaw.................. 42 Vice President, Development
Daniel J. Fregeau.................. 41 Vice President, Business Development
Robert J. Pryor.................... 45 Vice President, Marketing
</TABLE>
Alan H. Lynchosky has served as Acting President and Chief Executive
Officer since March 1998 and Vice President, Professional Services since April
1997. Prior to joining the Company, Mr. Lynchosky served in a variety of
executive and other positions at Control Data Systems, Inc. over a twenty four
year period. Most recently serving as Vice President, Managed Services Division,
where he created a new global business division focusing on outsourced
electronic commerce services. Other positions within Control Data included a
variety of Vice President and General Manager roles managing several different
business units both domestically and abroad.
Robert D. Gerhart has served as Acting Chief Financial Officer since
November 1997 and Corporate Controller since 1996. Prior to joining the Company,
Mr. Gerhart served as Chief Financial Officer and Vice President of Finance at
Software Sorcery, a multimedia software publishing company from 1994 to 1995.
From 1983 to 1994, Mr. Gerhart served as Managing Partner at Gerhart & Gerstein
P.C. Certified Public Accountants, a local certified public accounting firm.
Thomas Anthony has served as Vice President, Sales since June 1994. Prior
to joining the Company, Mr. Anthony was Executive Vice President, Marketing and
Sales for Innovatech, Inc. from 1992 to 1994, Acer America from 1990 to 1992,
Sweda International from 1987 to 1990, and Frame Technologies from 1986 to 1987.
Mr. Anthony was Vice President, Sales for Altos Computer Systems from 1983 to
1986 and Vice President Marketing and Sales from 1979 to 1983 for Onyx Systems.
Prior to Onyx, Mr. Anthony was with National Semiconductor as a Vice President
and founder of the Datachecker Systems Business Unit.
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Peter L. Bradshaw has served as Vice President of Development since March
1994. Prior to joining the Company, Mr. Bradshaw was manager of the Application
Software Team at Xerox from 1989 to 1994, where he was responsible for
integrating high volume printers with application software. From 1982 to 1989,
Mr. Bradshaw worked in Xerox' Workstation Business Unit where he managed the
development team responsible for the graphical user interface for the 6085
Workstation. From 1977 to 1980, Mr. Bradshaw was at Bell Telephone Laboratories
in system development.
Daniel J. Fregeau has served as Vice President, Business Development since
1997. From 1994 to 1997 Mr. Fregeau served as Vice President, Marketing and from
1992 to 1994, he served as Vice President, Sales for the Company. Prior to
joining the Company, Mr. Fregeau was Marketing Manager for the Networking
Division of Sears Business Centers, San Diego, from 1990 to 1992. Mr. Fregeau
was a founder and principal of MicroAge in San Diego from 1988 to 1990. From
1982 to 1988, Mr. Fregeau held several positions with Xerox Corporation's
Electronic Publishing Business Unit including Manager of Systems Engineering and
Integration, Technical Program Manager, and Project Manager. While at Xerox, Mr.
Fregeau designed and directed the development of several publishing products and
was a key contributor to the launch of the XICS (now CompuSet) product in the
U.S. and Canada.
Robert J. Pryor has served as Vice President, Marketing since May 1997.
Prior to joining the Company, Mr. Pryor served as a principal with web.in.sight,
an Internet consulting group from 1995 to 1997, and was retained by Document
Sciences Corporation to help formulate the Company's Internet strategy. Mr.
Pryor served as President and Chief Executive Officer of Design Intent Software,
Inc. from 1993 to 1995.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
among any directors or executive officers of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the Nasdaq Market under the
symbol "DOCX". The following table sets forth the range of high and low sales
prices on the National Market of the Common Stock for the periods indicated, as
reported by Nasdaq. Such quotations represent inter-dealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
September 20, 1996 through September 30, 1996............... $14.50 $12.00
Forth quarter ended December 31, 1996....................... $16.38 $ 9.50
FISCAL 1997
First quarter ended March 31, 1997.......................... $10.13 $ 3.88
Second quarter ended June 30, 1997.......................... $ 5.50 $ 3.00
Third quarter ended September 30, 1997...................... $ 4.75 $ 3.63
Fourth quarter ended December 31, 1997...................... $ 3.82 $ 2.50
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data of Document Sciences
Corporation. This historical data should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto in Item 8 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7.
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Net revenues................................. $19,740 $15,319 $10,512 $7,171 $ 3,491
Income (loss) from operations................ (58) 1,665 1,685 1,354 720
Net income................................... 838 1,361 1,052 712 413
Net income per share......................... .08 .14 .12 .09 .06
Shares used in per share calculations........ 11,013 9,615 8,563 8,256 7,290
BALANCE SHEET
Working capital.............................. $23,896 $25,807 $ 1,353 $ 537 $ 84
Total assets................................. 34,229 32,022 6,289 4,209 1,805
Capital lease obligations, less current...... 52 116 99 20 18
portion Stockholders' equity (deficit)....... 27,691 26,910 856 71 (308)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to historical information, this Form 10-K contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed herein as well as those discussed in "Certain Additional
Business Risks" on pages 6 through 11. Readers are cautioned not to place undue
reliance on these forward-looking statements, and the Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
Document Sciences Corporation develops, markets and supports a family of
document automation software and services used in high volume electronic
publishing applications. The Company was incorporated in Delaware in October
1991 as a wholly-owned subsidiary of Xerox Corporation ("Xerox"), and following
the Company's initial public offering of stock in September 1996, Xerox
ownership was reduced to approximately 62%.
On May 7, 1997, the Company purchased substantially all of the assets of
Data Retrieval Corporation of America ("Data Retrieval") from the West Group.
Included in the purchase were exclusive ownership of the TextComply, Text DBMS,
TextGen, TextMigrate and TextBook software products and the installed base of
commercial accounts. The Company has retained employees responsible for the
development, product support and customer service of the software products. In
addition, the Company will continue to provide training and consulting support
for existing and future customers. See Note 2 of Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUES
Total revenues were $10.5 million, $15.3 million and $19.7 million in 1995,
1996 and 1997, respectively, representing increases of 46% from 1995 to 1996 and
29% from 1996 to 1997. The Company's revenues are divided into three categories
based upon the sources from which they are derived: initial license fees, annual
renewal license and support fees, and services and other revenues. Initial
license fees are comprised principally of license fees for the first year of use
of the Company's products by end user customers. Annual renewal license and
support fees are comprised principally of mandatory fees paid by customers
annually for continued use and support of the licensed products. Services and
other revenues are comprised principally of fees for
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<PAGE> 16
consulting, application development and training services performed by the
Company as well as fees received from Xerox in connection with the sale of
certain Xerox printer products. The Company recognizes revenue in accordance
with AICPA Statement of Position on Software Revenue Recognition No. 91-1.
Initial license revenue is recognized upon shipment of the product to customers
if no significant Company obligations remain and collection of the receivable is
deemed probable. The portion of the initial license revenue which represents the
software support for the first year is deferred and recognized ratably over the
contract period. Revenues from commissions paid by Xerox in connection with the
sale of Xerox printer products are recognized upon installation of the printer
products. Revenues generated from consulting and training services are
recognized as the related services are performed.
The growth of total revenue in each year was due primarily to increased
numbers of initial software license customers and growth in services and other
revenue, and to the expansion of the Company's sales force and product
consultants.
The Company sells its products principally through a direct sales force
domestically, and internationally principally through distributors and value
added resellers (VARs) and, to a lesser extent, through its direct sales force.
Revenues from export sales and sales through the Company's foreign subsidiary
were $4.4 million, $5.2 million and $5.5 million in 1995, 1996 and 1997,
respectively, representing increases of 18% from 1995 to 1996 and 6% from 1996
to 1997. Revenue from export sales were 42%, 34% and 28% of total revenue for
the 1995, 1996 and 1997, respectively. The increase in total export revenue is
due to the Company's increased presence in foreign markets and the continued
success of the foreign subsidiary in Europe which was established in 1994. This
growth has not paralleled the domestic growth since Professional Services have
been generally performed by VARs in these markets.
The Company and Xerox maintain a strategic marketing alliance agreement
under which the parties have agreed to pay each other fees on referrals that
lead to the successful licensing or sales of each other's products. The
Company's revenues from the strategic marketing alliance, principally
commissions from sales of Xerox printers, were $752,000, $1.4 million and
$859,000 in 1995, 1996 and 1997, respectively. These commissions were 7% of
total revenue in 1995, 9% of total revenue in 1996 and 4% of total revenue in
1997. Failure to continue to receive such commissions would have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company has entered into distributorship agreements with various Xerox
foreign affiliates to remarket the Company's products internationally. The
Company's revenues from such distributorship agreements relating to the
licensing, maintenance and support of the Company's products were $3.1 million,
$2.9 million and $2.9 million in 1995, 1996 and 1997, respectively.
Initial license fees. Initial license fee revenues were $6.3 million, $8.6
million and $8.8 million for 1995, 1996 and 1997, respectively, representing
increases of 37% from 1995 to 1996 and 2% from 1996 to 1997. Initial license
revenues as a percentage of total revenue were 60%, 56% and 44% in 1995, 1996
and 1997, respectively. Initial license revenues have increased in absolute
dollars in each period as a result of increased demand for Professional Services
and have increased in 1997 due to an increase in annual renewal license and
support fees associated with the Data Retrieval acquisition.
Annual renewal license and support fees. Revenues from annual renewal
licenses were $1.9 million, $2.4 million and $4.6 million for 1995, 1996 and
1997, respectively, representing increases of 25% from 1995 to 1996 and 91% from
1996 to 1997. The increase in both periods was principally due to an increase in
the installed base of users of the Company's software products including the
increase in the Company's installed base of customers resulting from the Data
Retrieval purchase. As a percentage of total revenue, annual renewal license and
support fees were 18%, 16% and 23% in 1995, 1996 and 1997, respectively.
Services and other. Revenues from services and other were $2.3 million,
$4.3 million and $6.4 million in 1995, 1996 and 1997, respectively, representing
increases of 90% from 1995 to 1996 and 48% from 1996 to 1997. The increase in
each period was principally due to the increased number of new customer licenses
of the Company's software generating increased demand for services as well as
the increasing scope of professional
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<PAGE> 17
services offered. Revenues from services and other were 22%, 28% and 32% of
total revenues in 1995, 1996 and 1997, respectively.
COST OF REVENUES AND OPERATING EXPENSES
Cost of initial license fees. Cost of initial license revenues were
$351,000, $696,000 and $677,000 in 1995, 1996 and 1997, respectively,
representing 6%, 8% and 8% of initial license revenues in 1995, 1996 and 1997,
respectively. Cost of initial licenses of software includes documentation,
reproduction costs, product packaging, packaging design, product media,
employment costs for training, installation and distribution personnel, the cost
of third party software and amortization of previously capitalized software
development costs. The decrease in the cost of initial licenses was primarily
the result of decreased payments for third party software integrated into the
Company's DLS products which technology was obtained in the purchase of Data
Retrieval.
Cost of annual licenses renewals. Cost of annual licenses renewals
consists principally of the employment-related costs for the Company's technical
support staff, which performs technical software support services. Cost of
annual licenses renewals revenues was $370,000, $497,000 and $750,000 in 1995,
1996 and 1997, respectively, representing 19%, 21% and 16% of annual licenses
renewals revenues. This increase in absolute dollars is attributable to the
additional technical support personnel necessary to support the customer base
acquired from Data Retrieval as well as an increase in the installed base of
users of the Company's software products.
Cost of services and other. Cost of services and other revenues were
$424,000, $1.1 million and $3.1 million in 1995, 1996 and 1997, respectively,
representing 19%, 25% and 48% of services and other revenue. Cost of services
and other consists principally of the employment-related costs for the Company's
staff of product consultants and trainers. The increase in cost of services and
other revenues resulted principally from the additional staffing to perform the
Company's professional services. There are little or no costs related to
commissions from the sale of Xerox printers under the strategic marketing
alliance.
Research and development. Research and development expenses were $1.7
million, $2.3 million and $3.3 million in 1995, 1996 and 1997, respectively,
representing increases of 35% from 1995 to 1996 and 42% from 1996 to 1997.
Research and development expenses consist primarily of the employment-related
costs of personnel associated with developing new products, enhancing existing
products, testing software products and developing product documentation. As a
percentage of total revenue, research and development expenses were 17%, 15% and
17% in 1995, 1996 and 1997, respectively. The Company anticipates that it will
continue to direct significant resources to development and enhancement of
products.
The Company expenses all costs for research and development of new products
until technological feasibility has been assured. Thereafter, costs of
production are capitalized until general release of the product. The capitalized
costs of software production are amortized using the greater of the amount
computed using the ratio of current product revenues to estimated total product
revenues or the straight-line method over the remaining estimated economic lives
of the products. The Company capitalized software development costs of $291,000,
$104,000 and $831,000 in 1995, 1996 and 1997, respectively. The increase in
capitalized software development costs in 1997 compared to 1996 was principally
due to the expansion of the engineering staff and increased costs due to the
development of software that has reached technological feasibility as compared
to prior periods when there were enhancements to existing products.
Selling and marketing. Selling and marketing expenses were $4.4 million,
$7.4 million and $9.1 million in 1995, 1996 and 1997, respectively, representing
increases of 67% from 1995 to 1996 and 23% from 1996 to 1997. Selling and
marketing expenses consist primarily of salaries, commissions, marketing
programs and related costs for pre- and post-sales activity. The increase for
both periods was the result of adding personnel to increase geographic coverage
of the selling organization and, to a lesser extent, the higher commissions
associated with increased revenues. The increase in 1995 compared to 1996 was
also the result of adding employees to develop and deliver the professional
services. The increase from 1996 to 1997 was due principally to increased sales,
sales support and marketing personnel and the related costs and commissions
associated
17
<PAGE> 18
with increased revenues. Selling and marketing expenses were 42%, 48% and 46% of
total revenues in 1995, 1996 and 1997, respectively.
General and administrative. General and administrative expenses consist of
employment-related costs for finance, administration and human resources, and
general corporate management and services. General and administrative expenses
were $1.5 million in 1995, $1.7 million in 1996 and $2.9 million in 1997,
representing 14%, 11% and 15% of total revenue in 1995, 1996 and 1997,
respectively. The increase in general and administrative expenses in absolute
dollars was the result of growth in the finance and administrative operations to
support the growth of the Company and increased expenses associated with being a
publicly traded company.
Interest income (expense), net. Interest income (expense) is primarily
composed of interest income from cash and cash equivalents and short term
investments offset by financing charges related to equipment leases. Interest
income (expense), net was $5,000, $318,000 and $1,079,000 in 1995, 1996 and
1997, respectively. The increase in dollar amount is primarily due to higher
cash balances resulting from the infusion of cash from the Company's initial
public offering of common stock completed in September 1996.
Provision for income taxes. Effective tax rates were approximately 38%,
31% and 22% in 1995, 1996 and 1997, respectively. These rates differ from the
federal statutory rate in 1997 primarily due to the benefits received from
certain credits and to benefits received from tax exempt interest income. During
1996 the Company recognized a benefit from a net operating loss carryforward
from the Company's foreign subsidiary. From its inception to September 19, 1996,
the Company's operating results were included in the consolidated tax returns of
Xerox Corporation. Subsequent to the Company's initial public offering on
September 19, 1996, the Company was no longer included in the consolidated tax
returns of Xerox Corporation.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company's total revenues and operating results can vary, sometimes
substantially, from quarter to quarter and are expected to vary significantly in
the future. The Company's revenues and operating results are difficult to
forecast. Future results will depend upon many factors, including the demand for
the Company's products, the level of product and price competition, the length
of the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the budget
cycles of the Company's customers, the Company's success in expanding its direct
sales force and indirect distribution channels, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of products and services sold, levels of international sales, activities of
and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, the ability of the Company to develop and market new
products and control costs, and general domestic and international economic
conditions. In addition, the Company's sales generally reflect a relatively high
amount of revenues per order, and, therefore, the loss or delay of individual
orders could have a significant impact on revenues and quarterly operating
results of the Company. In addition, a significant amount of the Company's
revenues occur predominantly in the third month of each fiscal quarter and tend
to be concentrated in the latter half of that third month.
The Company's software products generally are shipped as orders are
received. As a result, initial license revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter. The timing of receipt of
initial license revenue is difficult to predict because of the length of the
Company's sales cycle, which is typically three to twelve months from the
initial contact. Because the Company's operating expenses are based on
anticipated revenue trends and because a high percentage of the Company's
expenses are relatively fixed, a delay in the recognition of revenue from a
limited number of initial license transactions could cause significant
variations in operating results from quarter to quarter and could result in
losses. To the extent such expenses precede, or are not subsequently followed
by, increased revenues, the Company's operating results would be materially
adversely affected.
Due to the foregoing factors, revenues and operating results for any
quarter are subject to significant variation, and the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $21.8 million in cash, cash
equivalents and short-term investments. Net cash provided by operating
activities was $1.2 million and $1.7 million in 1995 and 1996, respectively. Net
cash used in operating activities was $637,000 in 1997. Net cash used in
investing activities was $589,000 and $23.8 million in 1995 and 1996,
respectively. In 1995 net cash used in investing activities was primarily used
for the purchase of fixed assets. In 1996, net cash used in investing activities
was primarily used for purchase of short-term investments and to a lesser
extent, for the purchase of fixed assets. Net cash provided by investing
activities was $2.0 million in 1997. In 1995 net cash provided by financing
activities was $27,000, primarily from issuance of the Company's common stock
pursuant to exercise of options granted under the Employee Stock Option Plan,
offset by payments of capital lease obligations. Net cash provided by financing
activities in 1996 was $23.3 million, primarily from net proceeds from the
initial public offering of the Company's common stock. Net cash used in
financing activities was $285,000 in 1997, primarily from the purchase of
treasury stock.
The Company believes that its existing cash balances and anticipated cash
flows from operations will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures at least through the next twelve
months. A portion of the Company's cash could be used to acquire or invest in
complementary businesses or products or obtain the right to use complementary
technologies. The Company is currently evaluating, in its ordinary course of
business, potential investments such as businesses, products or technologies.
The Company has no current understandings, commitments or agreements with
respect to any acquisition of other businesses, products or technologies.
In September 1996, the Company completed an initial public offering of its
common stock. In October 1996, the Underwriters of the offering exercised their
over allotment option. The net proceeds received by the Company from the
offering were approximately $23.3 million. The Company thus far used the
proceeds from the offering as follows:
(i) Approximately $1,380,000 was used to pay income taxes to Xerox
Corporation.
(ii) Approximately $507,000 was used to purchase certain assets of Data
Retrieval Corporation of America.
(iii) Approximately $21,400,000 is available for general working capital
purposes.
RECENTLY ENACTED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently approved the new American
Institute of Certified Public Accountants Statement of Position, Software
Revenue Recognition (SOP 97-2). This statement provides guidance for recognizing
revenue and related to sales by software vendors. SOP 97-2 will be effective for
the Company beginning in the first quarter of 1998. The Company does not believe
the adoption of SOP 97-2 will have a significant impact on its revenue
recognition policy, its policy for capitalization of software development costs,
or its results of operations or financial position.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income and No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 130 establishes rules for reporting
and displaying comprehensive income. SFAS No. 131 will require the Company to
use the "management approach" in disclosing segment information. Both statements
are effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS No. 130 or SFAS No. 131 will have a material impact on
the Company's results of operations, cash flows, or financial position.
YEAR 2000 COMPLIANCE
The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. The Company also
intends to initiate discussions with its significant suppliers, large customers
and financial
19
<PAGE> 20
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues where their systems interface with the Company's systems or
otherwise impact its operations. The Company plans to assess the extent to which
its operations are vulnerable should those organizations fail to remediate
properly their computer systems.
The Company will verify that activities are designed to ensure that there
is no adverse effect on the Company's core business operations and that
transactions with customers, suppliers and financial institutions are fully
supported. The Company expects to have all necessary changes implemented by
1999. While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the Company's systems or
the systems of other companies on which the Company's systems and operations
rely will be converted on a timely basis and will not have a material effect on
the Company. The cost of the Year 2000 initiatives is not expected to be
material to the Company's results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is in Item 14 of Part IV of this
Report and is incorporated into this item by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this item concerning the Company's directors is
incorporated by reference to the information set forth in the section entitled
"Election of Directors -- Nominees" in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders to be filed with the Commission within 120
days after the end of the Company's fiscal year ended December 31, 1997, except
that the information required by this item concerning the executive officers of
the Company is incorporated by reference to the information set forth in the
section entitled "Executive Officers of the Company" at the end of Part I of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Officer Compensation" in the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Management
and Certain Beneficial Owners" in the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended December 31, 1997.
20
<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions" in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders to be filed with the Commission
within 120 days after the end of the Company's fiscal year ended December 31,
1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements. The following consolidated financial statements,
and related notes thereto, of the Company and the Report of Independent Auditors
are included in Part IV of this Report on the pages indicated by the Index to
Financial Statements as presented on page 24 of this Report.
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets -- December 31, 1996 and 1997
Consolidated Statements of Income -- Fiscal Years Ended December 31, 1995,
1996 and 1997
Consolidated Statements of Redeemable Preferred Stock and Stockholders'
Equity -- Four Year Period Ended December 31, 1997
Consolidated Statements of Cash Flows -- Fiscal Years Ended December 31,
1995, 1996 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule. The following financial statement
schedule of the Company for the fiscal years ended December 31, 1995, 1996 and
1997 is filed as part of this Form 10-K and should be read in conjunction with
the Consolidated Financial Statements, and related notes thereto, of the
Company.
Schedule II Valuation and Qualifying Accounts...........................S-1
Schedules other than those listed above have been omitted since they are
either not required, not applicable, or the information is otherwise included.
3. Exhibits: See Item 14(c) below.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fiscal quarter ended December 31, 1997.
(c) Exhibits. The exhibits listed on the accompanying index to exhibits
immediately following the financial statement schedules are filed as part of, or
incorporated by reference into, this Form 10-K.
(d) Financial Statement Schedules. See Item 14(a) above.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized on this 31st day of
March 1998.
DOCUMENT SCIENCES CORPORATION
By: ALAN H. LYNCHOSKY
-----------------------------------
Alan H. Lynchosky
Acting President and Chief Executive
Officer
Dated: March 31, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alan H. Lynchosky his attorneys-in-fact,
each with full power of substitution, for him or her in any and all capacities,
to sign any and all amendments to this Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact or his or her substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN H. LYNCHOSKY Acting President and Chief Executive March 31, 1998
- --------------------------------------------- Officer (principal executive officer)
Alan H. Lynchosky
/s/ ROBERT D. GERHART Acting Chief Financial Officer March 31, 1998
- --------------------------------------------- (principal financial and accounting
Robert D. Gerhart officer)
/s/ THOMAS L. RINGER Chairman of the Board of Directors March 31, 1998
- ---------------------------------------------
Thomas L. Ringer
/s/ JAMES J. COSTELLO Director March 31, 1998
- ---------------------------------------------
James J. Costello
Director March , 1998
- ---------------------------------------------
Tony N. Domit
/s/ BARTON L. FABER Director March 31, 1998
- ---------------------------------------------
Barton L. Faber
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director March , 1998
- ---------------------------------------------
Charles P. Holt
/s/ COLIN J. O'BRIEN Director March 31, 1998
- ---------------------------------------------
Colin J. O'Brien
</TABLE>
23
<PAGE> 24
DOCUMENT SCIENCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Income........................... F-3
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity...................................... F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
24
<PAGE> 25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Document Sciences Corporation
We have audited the accompanying consolidated balance sheets of Document
Sciences Corporation as of December 31, 1996 and 1997, and the related
consolidated statements of income, redeemable preferred stock and stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Document
Sciences Corporation at December 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
January 23, 1998
F-1
<PAGE> 26
DOCUMENT SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,465,694 $ 3,526,301
Short-term investments.................................... 23,142,885 18,228,527
Accounts receivable, less allowance for doubtful accounts
of $227,112 and $218,278 in 1996 and 1997,
respectively........................................... 2,257,025 6,468,751
Due from affiliates....................................... 2,377,364 851,717
Work in process on development contract................... -- 288,932
Deferred income taxes..................................... 170,700 326,500
Other current assets...................................... 232,304 279,888
----------- -----------
Total current assets........................................ 30,645,972 29,970,616
Property and equipment, net................................. 998,203 2,135,930
Goodwill, net of accumulated amortization of $46,749........ -- 1,005,111
Computer software costs, net of accumulated amortization of
$384,785 and $476,125 in 1996 and 1997, respectively...... 377,342 1,117,319
----------- -----------
$32,021,517 $34,228,976
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 698,711 $ 673,657
Accrued compensation...................................... 831,541 787,511
Other accrued liabilities................................. 457,492 348,559
Deferred revenue.......................................... 2,477,723 3,812,365
Current income tax payable to affiliate................... 311,000 387,443
Current portion of obligations under capital leases....... 62,439 65,108
----------- -----------
Total current liabilities................................... 4,838,906 6,074,643
Obligations under capital leases............................ 115,740 52,236
Deferred income taxes....................................... 156,500 411,500
Commitments
Stockholders' equity Common stock, $.001 par value;
Authorized shares -- 30,000,000
Issued and outstanding shares -- 10,722,168 in 1996 and
10,803,369 in 1997..................................... 10,722 10,803
Deferred compensation..................................... (351,473) (241,469)
Treasury stock............................................ -- (240,515)
Unrealized gain on short-term investments................. 13,222 69,506
Additional paid-in capital................................ 25,382,203 25,398,897
Retained earnings......................................... 1,855,697 2,693,375
----------- -----------
Total stockholders' equity.................................. 26,910,371 27,690,597
----------- -----------
$32,021,517 $34,228,976
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 27
DOCUMENT SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Initial license fees (including $2,518,700,
$2,289,300 and $1,765,000 from affiliates in
1995, 1996 and 1997, respectively)........... $ 6,299,230 $ 8,593,220 $ 8,758,364
Annual renewal license and support fees
(including $461,500, $476,500 and $888,700
from affiliates in 1995, 1996 and 1997,
respectively)................................ 1,942,353 2,420,780 4,622,810
Services and other (including $934,700,
$1,456,000 and $1,117,300 from affiliates in
1995, 1996 and 1997 respectively)............ 2,270,460 4,305,294 6,359,135
----------- ----------- -----------
Total revenues.................................... 10,512,043 15,319,294 19,740,309
Cost of revenues:
Initial license fees............................ 350,860 695,750 677,324
Annual renewal license and support fees......... 369,732 496,871 750,069
Services and other.............................. 423,888 1,092,219 3,096,362
----------- ----------- -----------
Total cost of revenues............................ 1,144,480 2,284,840 4,523,755
----------- ----------- -----------
Gross profit...................................... 9,367,563 13,034,454 15,216,554
Operating expenses:
Research and development........................ 1,747,194 2,336,252 3,321,397
Selling and marketing (including $167,200,
$180,600 and $121,000 to affiliates in 1995,
1996 and 1997, respectively)................. 4,415,158 7,359,336 9,088,486
General and administrative...................... 1,519,865 1,673,928 2,864,868
----------- ----------- -----------
Total operating expenses.......................... 7,682,217 11,369,516 15,274,751
----------- ----------- -----------
Income (loss) from operations..................... 1,685,346 1,664,938 (58,197)
Interest income (expense), net.................... 5,079 317,508 1,127,075
----------- ----------- -----------
Income before provision for income taxes.......... 1,690,425 1,982,446 1,068,878
Provision for income taxes........................ 638,400 621,500 231,200
----------- ----------- -----------
Net income........................................ 1,052,025 1,360,946 $ 837,678
=========== =========== ===========
Net income per share -- basic..................... $ 0.15 $ 0.16 $ 0.08
=========== =========== ===========
Weighted average shares used in basic
calculation..................................... 7,259,210 8,525,172 10,743,352
=========== =========== ===========
Net income per share -- diluted................... $ 0.12 $ 0.14 $ 0.08
=========== =========== ===========
Weighted average shares used in diluted
calculation..................................... 8,562,515 9,614,682 11,012,635
</TABLE>
See accompanying notes.
F-3
<PAGE> 28
DOCUMENT SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------------------------------------------
SERIES A REDEEMABLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
------------------------ -------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARE AMOUNT CAPITAL
---------- ----------- ---------- ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........ 6,000,000 $ 584,750 3,000 $ 3 $ -- $ -- $ 45,593
Accretion on Series A Redeemable
Preferred Stock.................... -- 333,000 -- -- -- -- --
Net income.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- ------- --------- -----------
Balance at December 31, 1994........ 6,000,000 917,750 3,000 3 -- -- 45,593
Issuance of common stock upon
exercise of options................ -- -- 1,308,423 1,308 -- -- 64,957
Accretion on Series A Redeemable
Preferred Stock.................... -- 333,000 -- -- -- -- --
Net income.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- ------- --------- -----------
Balance at December 31, 1995........ 6,000,000 1,250,750 1,311,423 1,311 -- -- 110,550
Issuance of common stock upon
initial public offering............ -- -- 2,182,500 2,183 -- -- 23,331,329
Issuance of common stock upon
exercise of options................ -- -- 88,245 88 -- -- 6,964
Accretion on Series A Redeemable.... -- 249,750 -- -- -- -- --
Preferred Stock Deferred
compensation....................... -- -- -- -- -- -- 440,000
Amortization of deferred
compensation....................... -- -- -- -- -- -- --
Redemption of Series A Redeemable
Preferred Stock.................... (6,000,000) (1,500,500) 7,140,000 7,140 -- -- 1,493,360
Unrealized gain on short-term
investments........................ -- -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- ------- --------- -----------
Balance at December 31, 1996........ -- -- 10,722,168 10,722 25,382,203
Issuance of common stock upon
exercise of options................ -- -- 81,201 81 -- -- 16,694
Purchase of Treasury Stock.......... -- -- -- -- 75,000 (285,000) --
Sale of Treasury Stock.............. -- -- -- -- (14,928) 44,485 --
Amortization of deferred
compensation....................... -- -- -- -- -- -- --
Unrealized gain on short-term
investments........................ -- -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ------- ------- --------- -----------
Balance at December 31, 1997........ -- -- 10,803,369 $10,803 60,072 $(240,515) $25,398,897
========== =========== ========== ======= ======= ========= ===========
<CAPTION>
STOCKHOLDERS' EQUITY
-----------------------------------------------------
UNREALIZED
GAIN ON RETAINED
DEFERRED SHORT-TERM EARNINGS
COMPENSATION INVESTMENT (DEFICIT) TOTAL
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993........ $ -- $ -- $ (353,299) $ (307,703)
Accretion on Series A Redeemable
Preferred Stock.................... -- -- (333,000) (333,000)
Net income.......................... -- -- 711,775 711,775
--------- ------- ---------- -----------
Balance at December 31, 1994........ -- -- 25,476 71,072
Issuance of common stock upon
exercise of options................ -- -- -- 66,265
Accretion on Series A Redeemable
Preferred Stock.................... -- -- (333,000) (333,000)
Net income.......................... -- -- 1,052,025 1,052,025
--------- ------- ---------- -----------
Balance at December 31, 1995........ -- -- 744,501 856,362
Issuance of common stock upon
initial public offering............ -- -- -- 23,333,512
Issuance of common stock upon
exercise of options................ -- -- -- 7,052
Accretion on Series A Redeemable.... -- -- (249,750) (249,750)
Preferred Stock Deferred
compensation....................... (440,000) -- -- --
Amortization of deferred
compensation....................... 88,527 -- -- 88,527
Redemption of Series A Redeemable
Preferred Stock.................... -- -- -- 1,500,500
Unrealized gain on short-term
investments........................ -- 13,222 -- 13,222
Net income.......................... -- -- 1,360,946 1,360,946
--------- ------- ---------- -----------
Balance at December 31, 1996........ (351,473) 13,222 1,855,697 26,910,371
Issuance of common stock upon
exercise of options................ -- -- -- 16,775
Purchase of Treasury Stock.......... -- -- -- (285,000)
Sale of Treasury Stock.............. -- -- -- 44,485
Amortization of deferred
compensation....................... 110,004 -- -- 110,004
Unrealized gain on short-term
investments........................ -- 56,284 -- 56,284
Net income.......................... -- -- 837,678 837,678
--------- ------- ---------- -----------
Balance at December 31, 1997........ $(241,169) $69,506 $2,693,375 $27,690,597
========= ======= ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 29
DOCUMENT SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $1,052,025 $ 1,360,946 $ 837,678
Adjustments to reconcile net income to net cash
provided used in operating activities
Depreciation and amortization.................. 141,685 254,373 455,663
Amortization of goodwill....................... -- -- 46,749
Loss on disposal of fixed assets............... -- 313 --
Amortization of computer software costs........ 136,068 104,066 91,340
Amortization of deferred compensation.......... -- 88,527 110,004
Current income tax expense payable to
affiliates.................................. 591,400 (1,071,100) 76,443
Deferred income taxes.......................... 47,000 (92,000) 99,200
Provision for doubtful accounts................ 9,344 204,155 432,451
Changes in operating assets and liabilities, net
of effects of acquired business
Accounts receivable............................ (920,885) (1,073,212) (2,677,245)
Work in process on development contracts....... -- -- (288,932)
Other current assets........................... (23,258) (68,071) (47,584)
Accounts payable............................... 209,087 370,102 (25,054)
Accrued liabilities............................ (508,671) 714,137 (152,963)
Deferred revenue............................... 515,250 880,758 404,780
---------- ------------ ------------
Net cash provided by (used in) operating
activities..................................... 1,249,045 1,672,994 (637,470)
INVESTING ACTIVITIES
Purchases of short term investments.............. -- (23,129,663) (16,905,885)
Sales of short-term investments.................. -- -- 19,220,812
Maturities of short-term investments............. -- -- 2,599,431
Purchases of property and equipment, net......... (297,964) (526,895) (1,593,389)
Cash paid for acquired business.................. -- -- (507,000)
Proceeds from disposal of assets................. -- 8,000 --
Additions to computer software costs............. (290,980) (104,236) (831,317)
---------- ------------ ------------
Net cash provided by (used in) investing
activities..................................... (588,944) (23,752,794) 1,982,652
FINANCING ACTIVITIES
Principal payments under capital lease
obligations.................................... (39,080) (66,190) (60,835)
Purchase of treasury stock....................... -- -- (285,000)
Sale of treasury stock........................... -- -- 44,485
Proceeds from issuance of common stock........... 66,265 23,340,564 16,775
---------- ------------ ------------
Net cash provided by (used in) financing
activities..................................... 27,185 23,274,374 (284,575)
---------- ------------ ------------
Increase in cash and cash equivalents............ 687,286 1,194,574 1,060,607
Cash and cash equivalents at beginning of year... 583,834 1,271,120 2,465,694
---------- ------------ ------------
Cash and cash equivalents at end of year......... $1,271,120 $ 2,465,694 $ 3,526,301
========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................... $ 12,283 $ 29,430 $ 17,777
========== ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
property and equipment......................... $ 130,941 $ 101,769 $ --
========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 30
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Document Sciences Corporation (the "Company") was incorporated on October
18, 1991 in Delaware as a subsidiary of Xerox Corporation ("Xerox"). The Company
develops, markets and supports a family of document automation software products
and services used in high volume electronic publishing applications. Autograph,
the Company's document automation software architecture, enables personalized
publishing solutions for many industries including insurance, managed
healthcare, financial services, telecommunications, government agencies and
commercial print service bureaus.
The Company currently derives substantially all of its license revenues
from licenses of CompuSet, Autograph's flagship product, and related products
and from fees for services related to the CompuSet software. The Company's
financial performance will continue to depend, in significant part, on the
successful development, introduction and customer acceptance of new and enhanced
versions of the CompuSet software and related products. There can be no
assurance that the Company will continue to be successful in developing and
marketing CompuSet products and related services.
The Company currently has a variety of contractual and informal
relationships with Xerox and affiliates of Xerox, including a cooperative
marketing alliance agreement, a transfer and license agreement and various
distribution agreements. There can be no assurance that Xerox or its affiliates
will continue these relationships. The failure by the Company to maintain these
relationships with Xerox and its affiliates could have a material adverse effect
on the Company's financial statements.
BASIS OF PRESENTATION
In 1994, the Company established a wholly-owned subsidiary, Document
Sciences Europe, in Sophia Antipolis, France in order to market and support its
products to the European community. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiary. Significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN OPERATIONS
The functional currency of the Company's France subsidiary is the French
Franc. The balance sheet accounts of the subsidiary are translated into United
States dollars at exchange rates prevailing at the balance sheet dates. Revenues
and expenses are translated into U.S. dollars at the average rates of exchange
during the period. Net realized translation adjustments were insignificant in
1995, 1996 and 1997. Foreign currency transaction gains and losses are included
in the consolidated statements of income and were not material during the years
ended December 31, 1995, 1996 and 1997.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of cash and highly liquid investments
which include debt securities with remaining maturities when acquired of three
months or less and are stated at market. The Company
F-6
<PAGE> 31
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
evaluates the financial strength of institutions at which significant
investments are made and believes the related credit risk is limited to an
acceptable level.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and classifies its investments as available-for-sale in accordance
with that standard. Available-for-sale securities are carried at fair value.
Unrealized gains and losses, net of tax, are reported in stockholders' equity.
Realized gains and losses and declines in value judged to be
other-than-temporary, if any, on available-for-sale securities will be included
in investment income. The cost of securities sold is based on the specific
identification method.
CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to large, multinational customers
in the United States, Europe, Canada and Australia. The Company derived 42%, 34%
and 28% of its total revenues from customers outside the United States for the
years ended December 31, 1995, 1996 and 1997, respectively. A significant
concentration of the Company's customers are in the insurance and commercial
print service industries. No customer has accounted for 10% or more of the
Company's revenue in any one year.
Credit is extended based on an evaluation of the customer's financial
condition and a cash deposit is generally not required. The Company estimates
its potential losses on trade receivables on an ongoing basis and provides for
anticipated losses in the period in which the revenues are recognized. Credit
losses have historically been minimal and have been within management's
expectations.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. To date, no such impairments have been identified.
COMPUTER SOFTWARE COSTS
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, costs incurred in the
research and development of new software products and significant enhancements
to existing software products are expensed as incurred until the technological
feasibility of the product has been established. After technological feasibility
has been established, direct production costs, including programming and
testing, are capitalized until general release of the product.
Capitalized software costs are amortized using the greater of the amount
computed using the ratio of current period product revenues to estimated total
product revenues or the straight-line method over the remaining estimated
economic lives of the products (generally five years). It is possible that
estimated total product revenues, the estimated economic life of the product, or
both, will be reduced in the future. As a result, the carrying amount of
capitalized software costs may be reduced in the future, which could result in
charges to the results of operations in future periods.
DEPRECIATION AND AMORTIZATION
Depreciation is provided on a straight-line method over the estimated
useful lives of the assets (generally five years). Amortization of leasehold
improvements is provided over the lesser of the remaining lease term or the
estimated useful life of the improvements.
F-7
<PAGE> 32
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue in accordance with AICPA Statement of
Position on Software Revenue Recognition No. 91-1. Initial license fee revenue
is recognized upon shipment of the product to customers if no significant
Company obligations remain and collection of the receivable is deemed probable.
The portion of the initial license fee revenue which represents the software
support for the first year is deferred and recognized ratably over the contract
period. In subsequent years, customers pay annual license fees for continued use
and support of licensed software. Annual renewal license and support fees
revenue is deferred and recognized ratably over the contract period. Revenues
from commissions paid by Xerox in connection with the sale of Xerox printer
products are recognized upon installation of the printer products. Revenues
generated from consulting and training services are recognized as the related
services are performed.
COMPUTATION OF NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which supersedes Accounting Principles Board Opinion
No. 15. SFAS No. 128 replaces the presentation of primary earnings per share
(EPS) with "Basic EPS" which includes no dilution and is based on weighted-
average common shares outstanding for the period. SFAS No. 128 also requires
companies with complex capital structures to present "Diluted EPS" that reflects
the potential dilution of securities such as employee stock options. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997. On February 3, 1998, the SEC issued Staff Accounting Bulletin
(SAB) No. 98, which revised the previous instructions for determining the
dilutive effects in earnings per share computations of common stock and common
stock equivalents issued at prices below the IPO price prior to the
effectiveness of the IPO. The Company has calculated its net income per share in
accordance with both SFAS No. 128 and SAB No. 48.
The difference between weighted average shares used in determining Basic
EPS versus Diluted EPS relates to dilutive common stock options totaling
434,435, 108,015, and 269,288 shares in 1995, 1996, and 1997, respectively.
389,430 and 248,182 common stock options were excluded from the calculation of
weighted average shares used in determining Diluted EPS for 1996 and 1997,
respectively, as their effect would have been antidilutive. None were excluded
for the 1995 calculation.
STOCK OPTIONS
As permitted by SFAS No. 123, the Company has elected to follow APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations in
accounting for its employee stock options. Under APB 25, when the exercise price
of the Company's employee stock options is not less than the market price of the
underling stock on the date of grant, no compensation expense is recognized.
INCOME TAXES
The Company follows the liability method of accounting for income taxes, as
set forth in SFAS No. 109. Through September 19, 1996, the Company was included
in the consolidated tax returns of Xerox, and the Company's share of Xerox's
consolidated income tax liability was determined on a separate company basis
computed under Internal Revenue Code guidelines. Subsequent to the Company's
initial public offering on September 19, 1996, the Company has no longer been
included in the consolidated tax returns of Xerox and is filing separate tax
returns.
NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants Statement of
Position, Software Revenue Recognition (SOP 97-2) provides guidance for
recognizing revenue related to sales by software vendors. SOP
F-8
<PAGE> 33
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
97-2 will be effective for the Company beginning in the first quarter of 1998.
The Company does not believe the adoption of SOP 97-2 will have a significant
impact on its revenue recognition policy.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income and No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 130 establishes rules for reporting
and displaying comprehensive income. SFAS No. 131 will require the Company to
use the "management approach" in disclosing segment information. Both statements
are effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS No. 130 or SFAS No. 131 will have a material impact on
the Company's results of operations, cash flows, or financial position.
RECLASSIFICATIONS
Certain reclassifications, none of which affect net income, have been made
to prior year's amounts in order to conform to the current year's presentation.
2. ACQUISITION
In 1997, the Company acquired certain assets and liabilities of Data
Retrieval Corporation of America (Data Retrieval) for cash consideration of
$507,000. The acquisition has been accounted for as a purchase, and accordingly,
the total purchase price has been allocated to the assets acquired and
liabilities assumed at their estimated fair values in accordance with the
provisions of Accounting Principles Board Opinion No. 16. The estimated excess
of the purchase price over the net assets acquired of $1,052,000 is being
carried as intangible assets, and will be amortized over an estimated life of 15
years. The Company's consolidated financial statements included the results of
Data Retrieval from May 7, 1997.
A summary of the Data Retrieval acquisition costs and an allocation of the
purchase price to the assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition cost:
Cash paid................................................. $ 507,000
----------
Allocated as follows:
Current assets............................................ $ 135,000
Equipment and capitalized software........................ 232,000
Acquired intangibles...................................... 1,052,000
Liabilities assumed....................................... (912,000)
----------
$ 507,000
==========
</TABLE>
Assuming that the acquisition of Data Retrieval Corporation of America had
occurred on the first day of the Company's fiscal year-ended December 31, 1996
and 1997, pro forma condensed consolidated results of operations would be as
follows:
PRO FORMA RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net sales................................................... $17,730,000 $21,005,000
Net income.................................................. $ 140,700 $ 590,000
Net income per share........................................ $ .01 $ .05
</TABLE>
F-9
<PAGE> 34
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FINANCIAL STATEMENT INFORMATION
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Computer equipment........................................ $ 929,241 $1,632,403
Office furniture and fixtures............................. 236,573 741,618
Office equipment.......................................... 168,432 223,984
Leasehold improvements.................................... 168,246 497,877
---------- ----------
1,502,492 3,095,882
Less accumulated depreciation and amortization............ (504,289) (959,952)
---------- ----------
$ 998,203 $2,135,930
========== ==========
</TABLE>
Equipment acquired under capital leases totaled $145,112, $192,611 and
$140,519 (net of accumulated depreciation of $35,085, $75,161 and $141,866) at
December 31, 1995, 1996 and 1997, respectively.
INVESTMENTS
The Company has classified all of its marketable securities as
available-for-sale securities. The following table summarizes available-for-sale
securities at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST GAINS LOSSES FAIR VALUE
- ------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. treasury securities............. $ 3,513,585 $ -- $ 8,305 $ 3,505,280
U.S. government agency obligations... 2,969,622 1,271 772 2,970,121
Obligations of states, territories
and political subdivisions......... 14,600,365 37,440 15,491 14,622,314
U.S. corporate securities............ 1,544,517 311 1,232 1,543,596
U.S. corporate commercial paper...... 501,574 -- -- 501,574
$23,129,663 $39,022 $25,800 $23,142,885
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST GAINS LOSSES FAIR VALUE
- ------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. treasury securities............. $ 1,515,289 $ 1,750 $ -- $ 1,517,039
U.S. government agency obligations... 2,526,628 1,943 -- 2,528,571
Obligations of states, territories
and political subdivisions......... 10,339,124 64,932 -- 10,404,056
U.S. corporate securities............ 2,299,540 881 -- 2,300,421
U.S. corporate commercial paper...... 1,478,440 -- -- 1,478,440
$18,159,021 $69,506 $ -- $18,228,527
</TABLE>
F-10
<PAGE> 35
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of available-for-sale
securities at December 31, 1997, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................. $ 2,505,480 $ 2,505,484
Due after one year through five years................... 15,653,539 15,723,043
----------- -----------
$18,159,019 $18,228,527
=========== ===========
</TABLE>
4. DOMESTIC AND FOREIGN OPERATIONS
The table below summarizes the Company's domestic operations and those of
its subsidiary, Document Sciences Europe.
<TABLE>
<CAPTION>
UNITED STATES FRANCE ELIMINATIONS TOTAL
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Sales to unaffiliated customers...... $ 5,350,838 $1,246,305 $ -- $ 6,597,143
Sales to affiliates.................. 1,929,300 1,985,600 -- 3,914,900
Transfers between geographic areas... 1,528,352 -- (1,528,352) --
----------- ---------- ----------- -----------
Revenues............................. $ 8,808,490 $3,231,905 $(1,528,352) $10,512,043
=========== ========== =========== ===========
Operating income (loss).............. $ 1,691,074 $ (5,728) $ -- $ 1,685,346
=========== ========== =========== ===========
Identifiable assets.................. $ 4,748,787 $1,557,161 $ (16,666) $ 6,289,282
=========== ========== =========== ===========
YEAR ENDED DECEMBER 31, 1996
Sales to unaffiliated customers...... $10,165,741 $ 931,753 $ -- $11,097,494
Sales to affiliates.................. 3,919,970 301,830 -- 4,221,800
Transfers between geographic areas... 254,611 999,738 (1,254,349) --
----------- ---------- ----------- -----------
Revenues............................. $14,340,322 $2,233,321 $(1,254,349) $15,319,294
=========== ========== =========== ===========
Operating income..................... $ 1,167,424 $ 497,514 $ -- $ 1,664,938
=========== ========== =========== ===========
Identifiable assets.................. $31,335,821 $ 702,362 $ (16,666) $32,021,517
=========== ========== =========== ===========
YEAR ENDED DECEMBER 31, 1997
Sales to unaffiliated customers...... $13,423,889 $2,545,303 $ -- $15,969,192
Sales to affiliates.................. 1,871,136 1,899,981 -- 3,771,117
Transfers between geographic areas... 3,182,658 -- (3,182,658) --
----------- ---------- ----------- -----------
Revenues............................. $18,477,683 $4,445,284 $(3,182,658) $19,740,309
=========== ========== =========== ===========
Operating income (loss).............. $ (267,503) $ 209,306 $ -- $ (58,197)
=========== ========== =========== ===========
Identifiable assets.................. $32,185,873 $2,059,769 $ (16,666) $34,228,976
=========== ========== =========== ===========
</TABLE>
The Company uses affiliated distributors to sell its products in Canada,
Australia and New Zealand (See Note 9).
F-11
<PAGE> 36
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases its corporate office in San Diego, California under an
operating lease which expires in 2000. Under the terms of the lease, effective
February 1, 1997, monthly rental payments will be increased annually by 4%. The
lease provides the Company with an option to extend the lease term for an
additional three years at the base rent in effect for the last year of the
initial lease term. In addition, the Company may exercise a one-time
cancellation option effective any time after January 31, 1998 with the payment
of certain penalties. The Company also leases certain equipment under capital
leases. Annual future minimum lease payments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
- ------------------------- ---------- --------
<S> <C> <C>
1998....................................................... $ 503,130 $ 75,667
1999....................................................... 494,707 43,527
2000....................................................... 528,476 12,346
2001....................................................... 563,770 2,058
2002....................................................... 153,092 --
---------- --------
$2,243,175 133,598
==========
Less amount representing interest.......................... (16,254)
--------
Present value of net minimum lease payments................ 117,344
Less current portion....................................... (65,108)
--------
Long-term portion of capital lease obligations............. $ 52,236
========
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$255,599, $292,098 and $522,694, respectively.
6. SERIES A REDEEMABLE PREFERRED STOCK
Each share of Series A Redeemable Preferred Stock was converted into 1.19
shares of Common Stock upon the Company's initial public offering.
7. STOCKHOLDERS' EQUITY
STOCK SPLIT
On June 19, 1996, the Company's Board of Directors authorized a 3 for 1
stock split for all outstanding Common Stock and Series A Redeemable Preferred
Stock, which received stockholder approval and became effective on September 19,
1996. All share and per share amounts in the accompanying consolidated financial
statements have been retroactively restated to reflect the stock split. Upon
completion of the public offering on September 19, 1996, the authorized capital
stock of the Company consisted of 30,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock.
STOCK INCENTIVE PLANS
The Company's Stock Incentive Plans (the "Plans") provide for the issuance
of incentive and nonstatutory options to purchase Common Shares to eligible
employees, officers, directors of, and consultants to the Company. The Company's
1993 Stock Incentive Plan (the "1993 Plan") provided for the issuance of up to
1,500,000 shares. In October 1995, the Board of Directors approved the 1995
Stock Incentive Plan (the "1995 Plan"), which provided for the issuance of an
additional 779,250 shares which include 29,250 shares
F-12
<PAGE> 37
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
previously reserved for issuance under the 1993 Plan. The 1995 Plan replaces the
1993 Plan. All outstanding options under the 1993 Plan remain exercisable in
accordance with their original terms. Terms of the stock purchase or stock
option agreements, including vesting requirements, are determined by the Board
of Directors, subject to the provisions of the 1995 Plan. The maximum term of
options granted under the 1995 Plan is ten years. The exercise price of
incentive stock options must equal at least the fair market value on the date of
grant. The exercise price of nonstatutory stock options and stock issued under
purchase rights must equal at least 85% of the fair market value on the date of
grant or time of issuance.
The following table summarizes stock option activity under the stock
incentive plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OPTION PRICE AVERAGE PRICE
OF SHARES PER SHARE PER SHARE
---------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1994........... 1,440,750 $ .03 - $ .17 $ .05
Granted................................. 232,575 $ .17 $ .17
Exercised............................... (1,308,423) $ .03 - $ .17 $ .05
Canceled................................ (3,000) $ .17 $ .17
----------
Balance at December 31, 1995.............. 361,902 $ .03 - $ .17 $ .09
Granted................................. 233,538 $ .67 - $15.00 $6.51
Exercised............................... (88,245) $ .03 - $ .17 $ .08
Canceled................................ (9,750) $ .17 - $ 8.50 $ .50
----------
Balance at December 31, 1996.............. 497,445 $ .03 - $15.00 $3.13
Granted................................. 158,850 $3.19 - $ 5.44 $3.94
Exercised............................... (81,201) $ .03 - $ .67 $ .24
Canceled................................ (57,624) $ .03 - $15.00 $4.18
----------
Balance at December 31, 1997.............. 517,470 $ .03 - $15.00 $3.57
==========
</TABLE>
As of December 31, 1997, 130,923 of the options were vested and exercisable
and 394,849 were available for future grant. Following is a breakdown of the
options outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED AVERAGE
RANGE OF AVERAGE AVERAGE EXERCISE PRICE
EXERCISE OPTIONS REMAINING EXERCISE OPTIONS OF OPTIONS
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISABLE
-------- ----------- ------------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ .03 - $ 3.00 246,963 $5.77 $ 0.28 174,373 $ 0.23
$ 4.00 - $ 9.00 156,150 $9.39 $ 4.07 1,668 $ 8.50
$10.00 - $15.00 114,357 $9.51 $10.48 40,406 $10.41
------- ----- ------ ------- ------
517,470 $7.70 $ 3.68 216,447 $ 2.19
======= ===== ====== ======= ======
</TABLE>
In 1996, the Company recorded $440,000 of deferred compensation for options
granted to employees 12 months prior to the initial public offering, which took
place September 19, 1996. The amount recorded represents the difference between
the option grant price and the deemed fair market value of the related shares.
The Company is amortizing such amount ratably over the vesting period of the
options, generally 48 months.
Adjusted pro forma information regarding net income is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. For options granted
in the year ended December 31, 1995 and the period ended September 19,
F-13
<PAGE> 38
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996, the fair value for options was estimated at the date of grant using the
"minimum value" method for option pricing with the following weighted-average
assumptions: risk-free interest rates of 5.5% - 6%; dividend yields of 0%; a
weighted-average expected life of the option of four to seven years. For options
granted from September 19, 1996 to December 31, 1997, the fair value of options
was estimated at the date of grant using the "Black-Scholes" method for option
pricing with the following weighted-average assumptions: risk-free interest
rates of 5.5% - 6%; dividend yields of 0%; expected volatility of .7 to 1.432;
and weighted-average expected life of the option of seven years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The effect
of applying SFAS 123 for purposes of providing pro forma disclosures is not
likely to be representative of the effects on reported net income for future
years because changes in the subjective input assumptions can materially affect
future value estimates. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997
----------- ---------
<S> <C> <C>
Adjusted pro forma net income.............................. $1,379,289 $592,538
Adjusted pro forma net income per share.................... $ 0.15 $ .05
</TABLE>
8. INCOME TAXES
For financial reporting purposes income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States................................ $1,696,153 $1,484,932 $ 778,573
Foreign...................................... (5,728) 497,514 290,305
---------- ---------- ----------
$1,690,425 $1,982,446 $1,068,878
========== ========== ==========
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $469,700 $482,000 $ 3,500
State.......................................... 121,700 119,300 19,900
Foreign........................................ -- 112,200 108,600
-------- -------- --------
591,400 713,500 132,000
Deferred (credit):
Federal........................................ 39,500 (85,300) 122,100
State.......................................... 7,500 (6,700) (22,900)
Foreign........................................ -- -- --
-------- -------- --------
47,000 (92,000) 99,200
-------- -------- --------
$638,400 $621,500 $231,200
======== ======== ========
</TABLE>
F-14
<PAGE> 39
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax liability -- computer software
costs....................................... $(157,000) $(156,500) $(411,500)
Deferred tax assets:
Foreign operating loss carryforwards........ 136,065 -- --
Accrued vacation............................ 75,000 100,000 125,100
Provision for doubtful accounts............. 4,200 29,000 76,600
Research and development credits............ -- -- 118,000
State taxes................................. -- 41,700 6,800
--------- --------- ---------
Total deferred tax assets..................... 215,265 170,700 326,500
Valuation allowance........................... (136,065) -- --
--------- --------- ---------
Net deferred tax assets....................... 79,200 170,700 326,500
--------- --------- ---------
Net deferred tax asset (liability)............ $ (77,800) $ 14,200 $ (85,000)
========= ========= =========
</TABLE>
In 1995, a valuation allowance was recognized to offset deferred tax assets
attributed to foreign operating loss carryforwards. In 1996, the Company
realized the benefit of the foreign operating loss carryforwards and reduced the
valuation allowance.
As of December 31, 1997, the Company has Federal and California research
and development tax credit carryforwards of approximately $83,000 and $50,000,
respectively, which will begin to expire in 2012 unless previously utilized.
The differences between the Company's income tax provision and the amounts
computed by applying the statutory federal income tax rate of 35% in 1995, 1996
and 1997 to income before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Provision at statutory rate................... $ 591,649 $ 693,856 $ 374,107
Benefit for graduated rates................... (16,904) (19,824) (10,689)
State income taxes, net of federal benefit.... 83,980 73,190 (1,950)
Increase (decrease) in valuation allowance.... 2,005 (136,095) --
Benefit of research credits................... (57,547) (71,665) (118,004)
Permanent differences and other .............. 35,217 82,038 (12,264)
--------- --------- ---------
Provision for income taxes.................... $ 638,400 $ 621,500 $ 231,200
========= ========= =========
</TABLE>
9. TRANSACTIONS WITH AFFILIATES
The Company has a strategic marketing alliance with Xerox under which the
parties have agreed to pay each other fees on referrals that lead to the
successful sale or licensing of each other's products. Included in services and
other revenues in the accompanying statements of income are commissions earned
from Xerox totaling $752,000, $1,352,000 and $859,000 in 1995, 1996 and 1997,
respectively. Commissions related to referrals from Xerox are included in
selling and marketing expense in the accompanying statements of income and
totaled $167,000, $181,000 and $121,000 in 1995, 1996 and 1997, respectively.
F-15
<PAGE> 40
DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has distribution agreements with affiliates which provide the
affiliates with the non-exclusive right to sub-license the Company's software in
Australia, New Zealand and Canada. The terms of the distributor agreements
provide that the affiliates receive a discount from the list price of the
Company's products licensed, including maintenance and support. Revenues from
the affiliates under these agreements, net of discounts, were $1,088,000,
$819,000 and $1,012,000 in 1995, 1996 and 1997, respectively. Included in
accounts receivable are $193,500, $385,300 and $333,900 from these revenues at
December 31, 1995, 1996 and 1997, respectively.
The Company has distribution agreements with affiliates which provide the
affiliates the non-exclusive right to sub-license the Company's software in
Europe. Revenues under these agreements totaled $1,986,000, $2,051,000 and
$1,900,000 in 1995, 1996 and 1997, respectively. Related accounts receivable are
$482,900, $646,500 and $414,500 at December 31, 1995, 1996 and 1997,
respectively.
10. EMPLOYEE RETIREMENT PLAN
401(K) PLAN
The Company has an employee savings and retirement plan (the "401(k) Plan")
that is intended to be tax-qualified covering substantially all of the Company's
employees. Under the terms of the 401(k) Plan, employees may elect to contribute
up to 15% of their compensation, or the statutory prescribed limit, if less, to
the 401(k) Plan as a savings contribution. The Company may, in its discretion,
match employee contributions, at such rate as it determines, up to a maximum of
$3,000 or 10% of the employee's compensation. The 401(k) Plan has a profit
sharing element whereby the Company can contribute annually an amount determined
by the Board of Directors. An employee's interest in matching contributions and
profit sharing contributions generally vest over four years from the date of
employment.
F-16
<PAGE> 41
SCHEDULE II
DOCUMENT SCIENCES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for doubtful accounts and
returns.............................. $ 10,000 $ 3,613 $ -- $ 13,613
Year Ended December 31, 1995
Allowance for doubtful accounts and
returns.............................. $ 13,613 $ 9,344 $ -- $ 22,957
Year Ended December 31, 1996
Allowance for doubtful accounts and
returns.............................. $ 22,957 $ 204,155 $ -- $ 227,112
Year Ended December 31, 1997
Allowance for doubtful accounts and
returns.............................. $ 227,112 $ 432,451 $ 441,285 $ 218,278
</TABLE>
S-1
<PAGE> 42
DOCUMENT SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ---------- ------------------- ----------
<S> <C> <C>
3.1(1) Restated Certificate of Incorporation of the Company filed
May 1, 1992.
3.2(1) Form of Amended and Restated Certificate of Incorporation of
the Company.
3.3(1) Amended and Restated Bylaws of the Company.
3.4(1) Form of Certificate of Amendment of Certificate of
Incorporation of the Company.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen Stock Certificate.
10.1(1,3) Form of Indemnity Agreement Between the Company and each of
its Officers and Directors.
10.2(1,3) 1993 Stock Option Plan and Form of Agreement.
10.3(3) 1995 Stock Incentive Plan and Form of Agreement, as amended.
10.4(1,3) Stockholder Rights Agreement dated September 1996 Between
the Company and Xerox
10.5(1) Corporation. Tax Sharing Agreement dated August 1996 Between
the Company and Xerox Corporation.
10.6(1) Transfer and License Agreement dated July 1, 1992, as
amended in September 1994,
10.7(1) Between the Company and Xerox Corporation. Strategic
Marketing Alliance Agreement dated September 1, 1993,
Between the Company and
10.8(1) Xerox Corporation. Value Added Remarketer Agreement Between
Xerox Canada Limited and the Company .
10.9(1) Value Added Reseller Agreement Between N.V. Rank Xerox S.A.
and the Company.
10.10(1) Form of Professional Services Agreement.
10.11(1) Form of Domestic Value Added Remarketer Agreement.
10.12(1) Form of International Value Added Reseller Agreement.
10.13(1) Form of Software License and Software Support Agreement.
10.14(2) Lease for Company's Principal Facilities, as amended and
Assignment of Lease.
10.15(1,3) Letter Agreement Between Tony Domit and the Company.
10.16(1,3) Letter Agreement Between Thomas Anthony and the Company.
10.17(1,3) Letter Agreement Between Judith A. O'Reilly and the Company.
10.18(1,3) Letter Agreement Between Daniel Fregeau and the Company.
10.19(1,3) Letter Agreement Between Alfred G. Altomare and the Company.
10.20(1) Value Added Reseller Agreement Between Geneva Digital Ltd.
and the Company.
10.21(1) Value Added Remarketer Agreement Between Business and
Business and the Company.
10.22(1,2) 1997 Employee Stock Purchase Plan.
10.23 Tony N. Domit Agreement.
10.24 Xerox Cooperative Marketing Agreement.
10.25 Xerox Canada Cooperative Marketing and Customer Support
Agreement.
21.1(1) List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (included on page 22)
27 Financial Data Schedule.
</TABLE>
- ---------------
(1) Previously filed as exhibits to Registration Statement on Form S-1
Registration Number 333-06344.
(2) Previously filed as exhibits to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(3) Indicates management compensatory plan, contract or arrangement.
<PAGE> 1
EXHIBIT 10.3
DOCUMENT SCIENCES CORPORATION
1995 STOCK INCENTIVE PLAN
(as amended March 9, 1998)
1. Purposes of the Plan. The name of this plan is the Document Sciences
Corporation 1995 Stock Incentive Plan (the "Plan"). The purpose of the Plan is
to enable Document Sciences Corporation, a Delaware corporation (the "Company"),
and any Parent or any Subsidiary to obtain and retain the services of the types
of employees, consultants, officers and Directors who will contribute to the
Company's long range success and to provide incentives which are linked directly
to increases in share value which will inure to the benefit of all shareholders
of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
"Administrator" shall have the meaning as set forth in Article 3.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"Committee" means a committee of the Board designated by the Board to
administer the Plan and composed of not less than the minimum number of persons
from time to time required both by Rule 16b-3 and Section 162(m) of the Code,
each of whom is a Disinterested Person and an Outside Director.
"Company" means Document Sciences Corporation, a corporation organized
under the laws of the State of Delaware (or any successor corporation).
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant, or if a different date
is set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"Director" means a member of the Board.
"Disability" means permanent and total disability as defined by the
Administrator.
"Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) under the Exchange Act, or any successor definition adopted by
the SEC.
"Election" shall have the meaning set forth in Section 10.3(d) of the
Plan.
"Eligible Person" means an employee, officer, consultant or Director of
the Company, any Parent or any Subsidiary.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" per share at any date shall mean (i) if the Stock
is listed on an exchange or exchanges, or admitted for trading in a market
system which provides last sale data under Rule 11Aa3-1 of the General Rules and
Regulations of the Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended (a "Market System"), the last reported sales
price per share on the last business day prior to such date on the principal
exchange on which it is traded, or in such a Market System, as applicable, the
last reported sales price per share on the most recent day prior to such date on
which a sale was reported on such exchange or such Market System, as applicable;
or (ii) if the Common Stock is not then traded on an exchange or in such a
Market System, the average of the closing bid and asked prices per share for the
Common Stock in the over-the-counter market as quoted on Nasdaq on the day prior
to such date; or (iii) if the Common Stock is not listed on an exchange or
quoted on Nasdaq, an amount determined in good faith by the Administrator,
taking into account the price at which securities of reasonably comparable
corporations are being traded, adjusted for any dissimilarities, and the
earnings history, book value and prospects of the Company in light of then
existing general market conditions.
"Incentive Stock Option" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
"Non-Statutory Option" means a Stock Option intended to not qualify as
an Incentive Stock Option.
"Offeree" means a Participant who is granted a Purchase Right pursuant
to the Plan.
"Optionee" means a Participant who is granted a Stock Option pursuant
to the Plan.
"Outside Director" means a Director who is not (a) a current employee
of the Company (or any related entity), (b) a former employee of the Company (or
any related entity) who is receiving compensation for prior services (other than
benefits under a tax-qualified retirement plan), (c) a former officer of the
Company (or any related entity), or (d) a consultant or person otherwise
receiving compensation or other remuneration, either directly or indirectly, in
any capacity other than as a Director.
"Parent" means any present or future corporation which would be a
"parent corporation" as that term is defined in Section 424 of the Code.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Article 3, to receive grants of
Rights.
"Plan" means this Document Sciences Corporation 1995 Stock Incentive
Plan, as the same may be amended or supplemented from time to time.
"Purchase Price" shall have the meaning set forth in Section 7.2(b) of
the Plan.
-2-
<PAGE> 3
"Purchase Right" means the right to purchase Stock granted pursuant to
Article 7.
"Rights" means Stock Options and Purchase Rights.
"Retirement" means retirement from active employment with the Company
or any Parent or Subsidiary as defined by the Administrator.
"SEC" means the Securities and Exchange Commission.
"Section 16(b) Person" shall mean a person subject to Section 16(b) of
the Exchange Act.
"Special Terminating Event" with respect to a Participant shall mean
the death, Disability or Retirement of that Participant.
"Stock" means the Common Stock, par value $0.001 per share, of the
Company.
"Stock Option" means an option to purchase shares of Stock granted
pursuant to Article 6.
"Stock Option Agreement" shall have the meaning set forth in Section
6.2 of the Plan.
"Stock Purchase Agreement" shall have the meaning set forth in Section
7.2 of the Plan.
"Subsidiary" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"Tax Date" shall have the meaning set forth in Section 10.3(d) of the
Plan.
"Ten Percent Shareholder" means a person who on the Date of Grant owns,
either directly or indirectly or through attribution as provided in Section
424(d) of the Code, Stock possessing more than 10% of the total combined voting
power of all classes of stock of his or her employer corporation or of any
Parent or Subsidiary.
"Withholding Right" shall have the meaning set forth in Section 10.3(c)
of the Plan.
3. Administration.
3.1 Administrator. The Plan shall be administered by either (i) the
Board, or (ii) the Committee (the group that administers the Plan is referred to
as the "Administrator").
3.2 Powers in General. The Administrator shall have the power and
authority to grant to Eligible Persons, pursuant to the terms of the Plan: (i)
Stock Options; (ii) Purchase Rights; or (iii) any combination of the foregoing.
-3-
<PAGE> 4
3.3 Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights shall be granted; (vi) to determine the number
of shares of Stock to be made subject to each Right; (vii) to prescribe the
terms and conditions of each Stock Option, including, without limitation, the
exercise price, medium of payment, right of first refusal and repurchase
provisions and to determine whether the Stock Option is to be an Incentive Stock
Option or a Non-Statutory Option and to specify the provisions of the Stock
Option agreement relating to such Stock Option; (viii) to prescribe the terms
and conditions of each Stock Option and Purchase Right, including, without
limitation, the purchase price and medium of payment, vesting provisions and
repurchase provisions, and to specify the provisions of the Stock Option
Agreement or Stock Purchase Agreement relating to such sale; (ix) to amend any
outstanding Rights for the purpose of modifying the time or manner of vesting,
the purchase price or exercise price, as the case may be, thereunder or
otherwise, subject to applicable legal restrictions and to the consent of the
other party to such agreement; (x) to determine when a consultant's relationship
with the Company is sufficient to constitute the equivalent of employment with
the Company for purposes of the Plan; (xi) to determine the duration and purpose
of leaves of absences which may be granted to a Participant without constituting
termination of their employment for purposes of the Plan; and (xii) to make any
and all other determinations which it determines to be necessary or advisable
for administration of the Plan.
3.4 Decisions Final. All decision made by the Administrator pursuant
to the provisions of the Plan shall be final and binding on the Company and the
Participants.
3.5 The Committee. The Board may, in its sole and absolute discretion,
from time to time delegate any or all of its duties and authority with respect
to the Plan to the Committee whose members are to be appointed by and to serve
at the pleasure of the Board. Once appointed, the Committee shall continue to
serve until otherwise directed by the Board. From time to time, the Board may
increase or decrease (to not less than the minimum number of persons from time
to time required by both Rule 16b-3 and Section 162(m) of the Code) the size of
the Committee, add additional members to, remove members (with or without cause)
from, appoint new members in substitution therefor, and fill vacancies, however
caused, in the Committee. The Committee shall act pursuant to a vote of the
majority of its members or, in the case of a committee comprised of only two
members, the unanimous consent of its members, whether present or not, or by the
written consent of the majority of its members or, in the case of a committee
comprised of only two members, the unanimous written consent of its members, and
minutes shall be kept of all its meetings and copies thereof shall be provided
to the Board. Subject to the limitations prescribed by the Plan and the Board,
the Committee may establish and follow such rules and regulations for the
conduct of its business as it may determine to be advisable.
-4-
<PAGE> 5
4. Stock Subject to Plan.
4.1 Stock Subject to Plan. Subject to an adjustment as provided in
Article 8, the total number of shares of Stock reserved and available for
issuance under the Plan shall be 1,529,250 shares. Shares reserved hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
4.2 Unexercised Rights; Reacquired Shares. To the extent that any
Rights expire or are otherwise terminated without being exercised, the shares
underlying such Rights (and shares related thereto) shall again be available for
issuance in connection with future Rights under the Plan. Shares acquired by the
Company upon exercise of Rights pursuant to Section 6.2(e) or Section 7.2(c) or
Section 10.3 shall not increase the shares available for issuance under the
Plan.
5. Eligibility. Directors, officers, employees and consultants of the
Company, any Parent or any Subsidiary, who are responsible for or contribute to
the management, growth or profitability of the Company, any Parent or
Subsidiary, shall be eligible to be granted Rights hereunder subject to
limitations set forth in this Plan; provided, however, that only officers and
employees shall be eligible to be granted Incentive Stock Options hereunder.
6. Stock Options.
6.1 General. Stock Options may be granted alone or in addition to
other Rights granted under the Plan. Each Stock Option granted under the Plan
shall be in such form and under such terms and conditions as the Administrator
may from time to time approve: provided, that such terms and conditions are not
inconsistent with the Plan. The provisions of Stock Option Agreements entered
into under the Plan need not be identical. Stock Options granted under the Plan
may be either Incentive Stock Options or Non-Statutory Options.
6.2 Terms and Conditions of Stock Options. Each Stock Option granted
pursuant to the Plan shall be evidenced by a written option agreement between
the Company and the Optionee (the "Stock Option Agreement"), which shall comply
with and be subject to the following terms and conditions:
a) Number of Shares. Each Stock Option Agreement shall state the
number of shares of Stock to which the Stock Option relates.
b) Type of Option. Each Stock Option Agreement shall identify the
portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.
c) Exercise Price. Each Stock Option Agreement shall state the
price at which shares subject to the Stock Option may be purchased (the
"Exercise Price"), which shall with respect to Incentive Stock Options be not
less than 100% of the Fair Value of the shares of Stock on the Date of Grant. In
the case of Non-Statutory Options, the Exercise Price shall be determined in the
sole discretion of the Administrator. In the case of either an Incentive Stock
Option or a Non-
-5-
<PAGE> 6
Statutory Option granted to a Ten Percent Shareholder, the Exercise Price shall
not be less than 110% of such Fair Market Value.
d) Value of Shares. The Fair Market Value of the shares of Stock
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are first exercisable by an Optionee under this Plan and all other
incentive option plans of the Company and any Parent or Subsidiary in any
calendar year shall not, for such year, in the aggregate, exceed $100,000; but
this Section 6.2(d) shall not affect the right of the Administrator to
accelerate or otherwise alter the time of vesting of any Options granted as
Incentive Stock Options, even, if as a result thereof, some of such Options
cease being Incentive Stock Options.
e) Medium and Time of Payment. The Exercise Price shall be paid in
full, at the time of exercise, in cash or cash equivalents or, with the approval
of the Administrator, in shares of Stock which have been held by the Optionee
for a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Exercise Price, or in a combination
of cash and such shares, and may be effected in whole or in part (i) with monies
received from the Company at the time of exercise as a compensatory cash
payment; or (ii) to the extent that the Exercise Price exceeds the par value of
the shares so purchased, with monies borrowed from the Company in accordance
with Section 10.5.
f) Term and Exercise of Stock Options. Stock Options shall be
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option Agreements. The Stock Option
Agreements shall provide that Option Holders shall have the right to exercise
the Stock Options at the rate of at least 20% per year over 5 years from the
Date of Grant of such Stock Options. The exercise period of any Stock Option
shall be determined by the Administrator, but shall not exceed ten years from
the Date of Grant of the Stock Option. In the case of an Incentive Stock Option
granted to a Ten Percent Shareholder, the exercise period shall be determined by
the Administrator, but shall not exceed five years from the Date of Grant of the
Stock Option. The exercise period shall be subject to earlier termination upon
the occurrence of either a Special Terminating Event, as provided in Section
10.6, or the Termination of Employment, as provided in Section 10.7. A Stock
Option may be exercised, as to any or all full shares of Stock as to which the
Stock Option has become exercisable, by giving written notice of such exercise
to the Company.
7. Purchase Rights.
7.1 General. Purchase Rights may be granted alone or in addition to
other Rights under the Plan. Each sale of Stock under this Article 7 shall be in
such form and under such terms and conditions as the Administrator shall from
time to time approve; provided, that such terms and conditions are not
inconsistent with the Plan. The provisions of Stock Purchase Agreements entered
into under the Plan need not be identical.
7.2 Terms and Conditions of Purchase Rights. Each Purchase Right
granted pursuant to the Plan shall be evidenced by a written stock purchase
agreement between the Company and the
-6-
<PAGE> 7
Offeree (the "Stock Purchase Agreement"), which shall comply with and be subject
to the following terms and conditions.
a) Number of Shares. Each Stock Purchase Agreement shall state the
number of shares of Stock which may be purchased pursuant to such agreement.
b) Purchase Price. Each Stock Purchase Agreement shall state the
price at which the Stock subject to such Stock Purchase Agreement may be
purchased (the "Purchase Price"), which, with respect to Stock Purchase Rights,
shall be determined in the sole discretion of the Administrator.
c) Medium and Time of Payment. The Purchase Price shall be paid in
full at the time of exercise, in cash or cash equivalent or, with the approval
of the Administrator, in shares of Stock which have been held by the Offeree for
a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Purchase Price or in a combination
of cash or cash equivalent and such shares, and may be effected in whole or in
part (i) with monies received from the Company at the time of exercise as a
compensatory cash payment; or (ii) to the extent the purchase price exceeds the
par value of the shares so purchased, with monies borrowed from the Company in
accordance with Section 10.5 of the Plan.
8. Adjustments.
8.1 Effect of Certain Changes.
a) Stock Dividends, Splits, Etc. If there is any change in the
number of outstanding shares of Stock through the declaration of Stock dividends
or through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, (i) the number of shares of Stock available
for Rights, (ii) the number of shares covered by outstanding Rights and (iii)
the Exercise Price or Purchase Price of any Stock Option or Purchase Right, in
effect prior to such change, shall be proportionately adjusted by the
Administrator to reflect any increase or decrease in the number of issued shares
of Stock; provided, however, that any fractional shares resulting from the
adjustment shall be eliminated.
b) Liquidating Event. In the event of the proposed dissolution or
liquidation of the Company, or in the event of any corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "Liquidating Event"), the Administrator may provide that the holder of
any Right then exercisable shall have the right to exercise such Right (at the
price provided in the Rights) subsequent to the Liquidating Event, and for the
balance of its term, solely for the kind and amount of shares of Stock and other
securities, property, cash or any combination thereof receivable upon such
Liquidating Event by a holder of the number of shares of Stock for or with
respect to which such Right might have been exercised immediately prior to such
Liquidating Event; or the Administrator may provide, in the alternative, that
each Right granted under the Plan shall terminate as of a date to be fixed by
the Board; provided, however, that not less than 30 days written notice of the
date so fixed shall be given to each Rights holder and if such notice is given,
each Rights
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<PAGE> 8
holder shall have the right, during the period of 30 days preceding such
termination, to exercise the Right as to all or any part of the shares of Stock
covered thereby, to the extent that such Right is then exercisable, on the
condition, however, that the Liquidating Event actually occurs; and if the
Liquidating Event actually occurs, such exercise shall be deemed effective (and,
if applicable, the Rights holder shall be deemed a shareholder with respect to
the Rights exercised) immediately preceding the occurrence of the Liquidating
Event, or the date of record for shareholders entitled to share in such
Liquidating Event, if a record date is set.
c) Merger or Consolidation. In the case of any capital
reorganization, any reclassification of the Common Stock (other than a change in
par value or recapitalization described in Section 8.1(a) of the Plan), or the
consolidation of the Company with, or a sale of substantially all of the assets
of the Company to (which sale is followed by a liquidation or dissolution of the
Company), or merger of the Company with another person (a "Reorganization
Event"), the Administrator shall be obligated to determine whether the
Reorganization Event shall constitute a "Liquidity Event," and to deliver to
Rights holders at least 15 days prior to such Reorganization Event (or at least
15 days prior to the date of record for shareholders entitled to share in the
securities or property distributed in the Reorganization Event, if a record date
is set) a notice which shall (i) indicate whether the Reorganization Event is a
Liquidity Event, and (ii) advise the Rights holder of his or her rights pursuant
to the Agreement applicable to such Rights. If the Reorganization Event is
determined to be a Liquidity Event, in its sole and absolute discretion, the
surviving corporation may, but shall not be obligated to, (i) tender stock
options to the Rights holder with respect to the surviving corporation which
shall contain terms and provisions that substantially preserve the rights and
benefits of the applicable Right, and (ii) in the event that no stock options
have been tendered by the surviving corporation pursuant to the terms of item
(i) immediately above, the Rights holder shall have the right exercisable during
a ten-day period ending on the fifth day prior to the Reorganization Event (or
ending on the fifth day prior to the date of record for shareholders entitled to
share in the securities or property distributed in the Reorganization Event, if
a record date is set) to exercise his or her Rights, to the extent that such
Rights are then exercisable, in whole or in part, on the condition, however,
that the Reorganization Event is actually effected; and if the Reorganization
Event is actually effected, such exercise shall be deemed effective (and, if
applicable, the Rights holder shall be deemed a shareholder with respect to the
Rights exercised) immediately preceding the effective time of the Reorganization
Event (or on the date of record for shareholders entitled to share in the
securities or property distributed in the Reorganization Event, if a record date
is set). If the Reorganization Event is not determined to be a Liquidity Event,
the Rights holder shall thereafter be entitled upon exercise of the Right to
purchase the kind and number of shares of stock or other securities property of
the surviving corporation receivable upon such event by a holder of the number
of shares of the common Stock which the Right entitles the Rights holder to
purchase from the Company immediately prior to such event, and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Plan with respect to the Rights holders' rights and interests
thereafter, to the end that the provisions set forth in the agreement applicable
to such Rights (including the specified changes and other adjustments to the
Exercise Price) shall thereafter be applicable in relation to any shares or
other property thereafter purchasable upon exercise of the Right.
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<PAGE> 9
d) Where Company Survives. Section 8. 1 (c) shall not apply to a
merger or consolidation in which the Company is the surviving corporation,
unless shares of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for actual shares)
or any other thing of value. Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation into the company in which the
Company is the surviving corporation and in which there is a reclassification or
change (including a change to the right to receive an amount of money payable by
cash or cash equivalent or other property) of the shares of Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Administrator may provide that the holder
of each Right then exercisable shall have the right to exercise such Right
solely for the kind and amount of shares of Stock and other securities
(including those of any new direct or indirect parent of the Company), property,
cash or any combination thereof receivable upon such reclassification change,
consolidation or merger by the holder of the number of shares of Stock for which
such Right might have been exercised.
e) Surviving Corporation Defined. The determination as to which
party to a merger or consolidation is the "surviving corporation" shall be made
on the basis of the relative equity interests of the shareholders in the
corporation existing after the merger or consolidation, as follows: if
immediately following any merger or consolidation the holders of outstanding
voting securities of the Company immediately prior to the merger or
consolidation own equity securities possessing more than 50% of the voting power
of the corporation existing following the merger or consolidation, then for
purposes of this Plan, the Company shall be the surviving corporation. In all
other cases, the Company shall not be the surviving corporation. In making the
determination of ownership by the shareholders of a corporation immediately
after the merger or consolidation, of equity securities pursuant to this Section
8.1(e), equity securities which the shareholders owned immediately before the
merger or consolidation as shareholders of another party to the transaction
shall be disregarded. Further, for purposes of this Section 8.1(e) only,
outstanding voting securities of a corporation shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote.
f) Par Value Changes. In the event of a change in the Stock of the
Company as presently constituted which is to a change of all of its authorized
shares with par value, into the same number of shares without par value, or a
change in the par value, the shares resulting from any such change shall be
"Stock" within the meaning of the Plan.
8.2 Decision of Administrator Final. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in respect shall be final,
binding and conclusive; provided, however, that each Incentive Stock Option
granted pursuant to the Plan shall not be adjusted without the prior consent of
the Holder thereof in a manner that causes such Stock Option to fail to continue
to qualify as an Incentive Stock Option.
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<PAGE> 10
8.3 No Other Rights. Except as herein before expressly provided in
this Article 8, no Rights holder shall have any rights by reason of any
subdivision or consolidation of shares of Stock or the payment of any dividend
or any other increase or decrease in the number of shares of Stock of any class
or by reason of any Liquidating Event, merger, or consolidation of assets or
stock of another corporation, or any other issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class;
and except as provided in this Article 8, none of the foregoing events shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Stock subject to Rights. The grant of a Right
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, Exercise Price) shall thereafter
be applicable in relation to any shares or other property thereafter purchasable
upon exercise of the Right.
8.4 No Rights as Shareholder. Except as specifically provided in this
Article 8, a Rights holder or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 8.1(b) or 8.1(c).
9. Amendment and Termination. The Board may amend, alter or discontinue
the Plan, but no amendment, alteration or discontinuation shall be made which
would impair the rights of a Participant under any Right theretofore granted
without such Participant's consent. The Board shall obtain shareholder approval
of an Plan amendment to the extent necessary and desirable to comply with Rule
16b-3, Section 422 of the Code (or any successor rule or statute) or other
applicable law, rule or regulation, including the requirements of any Market
System on which the Stock is listed or quoted. The Administrator may amend the
terms of any award theretofore granted, prospectively or retroactively, but,
subject to Article 3, no such amendment shall impair the rights of any holder
without his or her consent.
10. General Restrictions.
10.1
a) Limitation on Granting of Rights. Subject to adjustment as
provided in Article 8, no Participant shall be granted Rights with respect to
more than 100,000 shares of Stock during any one-year period.
b) No View to Distribute. The Administrator may require each
person acquiring shares of Stock pursuant to the Plan to represent to and agree
with the Company in writing that such person is acquiring the shares without a
view towards distribution thereof. The certificates for such shares may include
any legend which the Administrator deems appropriate to reflect any restrictions
on transfer.
c) Legends. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Administrator may deem advisable
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<PAGE> 11
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Stock is then listed and
any applicable federal or state securities laws.
d) Market Stand-Off. All Stock Option Agreements and Stock
Purchase Agreements shall provide that in connection with any underwritten
public offering by the Company of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the Company's initial
public offering, the Participant agrees (the "Hold-Back Agreement") not to sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer or otherwise agree to engage in
any of the foregoing transactions with respect to any shares purchased by the
Optionee upon exercise of his or her Option ("Purchased Shares") without the
prior written consent of the Company or its underwriters, for such period of
time from and after the effective date of such registration statement as may be
requested by the Company or such underwriters; provided, however, that in no
event shall such period exceed one hundred-eighty (180) days. Stock Option
Agreements and Stock Purchase Agreements may provide that the Hold-Back
Agreement shall terminate following expiration of the two-year period
immediately following the effective date of the Company's initial public
offering.
10.2 Other Compensation Arrangements. Nothing contained in this Plan
shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
10.3
a) Disqualifying Disposition. If an Optionee makes a "disposition"
(as defined in the Code) of all or any of the Purchased Shares within two years
from the date of Grant of the Incentive Stock Option covering such shares or
within one year after the issuance of such Purchased Shares, he or she shall
immediately advise the Company in writing as to the occurrence of the sale and
the price upon the sale of such Shares. The Optionee agrees that he or she shall
maintain all Purchased Shares in his or her name so long as he or she maintains
beneficial ownership of such Purchased Shares.
b) Withholding Required. Each Participant shall, no later than the
date as of which the value derived from a Right first becomes includable in the
gross income of the Participant for income tax purposes, pay to the Company, or
make arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Right or its exercise. The obligations of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Participant
shall, to the extent permitted by law, have the right to request that the
Company deduct any such taxes from any payment of any kind otherwise due to the
Participant.
c) Withholding Right. The Administrator may, in its discretion,
grant a Rights holder the right (a "Withholding Right") to elect to make such
payment by irrevocably requiring the Company to withhold from shares issuable
upon exercise of the Right that number of full shares of Common Stock having a
Fair Market Value on the Tax Date (as defined below) equal to the amount
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<PAGE> 12
(or portion of the amount) required to be withheld. The Withholding Right may be
granted with respect to all or any portion of the Right.
d) Exercise of Withholding Right. To exercise a Withholding Right,
the Rights holder must follow the election procedures set forth below, together
with such additional procedures and conditions as may be set forth in the
related Rights agreement or otherwise adopted by the Administrator.
i) The Rights holder must deliver to the Company his or her
written notice of election (the "Election") to have the Withholding Right apply
to all (or a designated portion) of his or her Right.
ii) Unless disapproved by the Administrator as provided in
Subsection (iii) below, the Election once made will be irrevocable.
iii) No election is valid unless the Administrator consents to
the Election; the Administrator has the right and power, in its sole discretion,
with or without cause or reason therefor, to consent to the Election, to refuse
to consent to the Election, or to disapprove the Election; and if the
Administrator has not consented to the Election on or prior to the date that the
amount of tax to be withheld is, under applicable federal income tax laws, fixed
and determined by the Company (the "Tax Date"), the Election will be deemed
approved.
e) Effect. If the Administrator consents to an Election of a
Withholding Right:
i) Upon the exercise of the Right (or any portion thereof) to
which the Withholding Right relates, the Company shall withhold from the shares
otherwise issuable that number of full shares of Stock having an actual Fair
Market Value equal to the amount (or portion of the amount, as applicable)
required to be withheld under applicable federal and/or state income tax laws as
a result of the exercise; and
ii) If the Rights holder is then a Section 16(b) Person who has
made an Election, the related Right may not be exercised, nor may any shares of
Stock issued pursuant thereto be sold, exchanged or otherwise transferred,
unless such exercise, or such transaction, complies with an exemption from
Section 16(b) provided under Rule 16b-3.
10.4 Indemnification. In addition to such other rights of
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrators shall be indemnified
by the Company against the reasonable expenses, including attorney's fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which they or any one of them may be
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted under the Plan, and against all amounts paid
by them in settlement thereof (provided that the settlement has been approved by
the Company, which approval shall not be unreasonably withheld) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to
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<PAGE> 13
which it shall be adjudged in such action, suit or proceeding that such
Administrator did not act in good faith and in a manner in which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however, that within 60 days after institution of any
such action, suit or proceeding, such Administrator shall, in writing, offer the
Company the opportunity at its own expense to handle and defend such action,
suit or proceeding.
10.5 Loans. The Company may make loans to Optionees and Offerees as
the Administrator, in its discretion, may determine in connection with the
exercise of outstanding Stock Options and Purchase Rights granted under the
Plan. Such loans shall (i) be evidenced by promissory notes entered into by the
holders in favor of the Company; (ii) be subject to the terms and conditions set
forth in this Section 10.5 and such other terms and conditions, not inconsistent
with the Plan, as the Administrator shall determine; and (iii) bear interest, if
any, at such rate as the Administrator shall determine. In no event may the
principal amount of any such loan exceed the Exercise Price or the Purchase
Price less the par value of the shares of Stock covered by the Stock Option or
Purchase Right, or portion thereof, exercised by the Optionee or Offeree. The
initial term of the loan, the schedule of payments of principal and interest
under the loan, the extent to which the loan is to be with or without recourse
against the holder with respect to principal and applicable interest and the
conditions upon which the loan will become payable in the event of the holder's
termination of employment shall be determined by the Administrator; provided,
however, that the term of the loan, including extensions, shall not exceed 10
years. Unless the Administrator deems otherwise, when a loan shall have been
made, shares of Stock having a Fair Market Value at least equal to the principal
amount of the loan shall be pledged by the holder to the Company as security for
payment of the unpaid balance of the loan and such pledge shall be evidenced by
a pledge agreement, the terms of which shall be determined by the Administrator,
in its discretion; provided, however, that each loan shall comply with all
applicable laws, regulations and rules of the Board of Governors of the Federal
Reserve System and any other governmental agency having jurisdiction.
10.6 Special Terminating Events. If a Special Terminating Event
occurs, all Rights theretofore granted to such Rights holder may, unless earlier
terminated in accordance with their terms, be exercised by the Rights holder or
by his or her estate or by a person who acquired the right to exercise such
Right by bequest or by reason of the death or Disability of the Rights holder,
at any time within one year after the date of the Special Terminating Event.
Notwithstanding the foregoing, an Incentive Stock Option shall be exercisable at
any time within three months after the date of Retirement or termination of
employment of an Optionee.
10.7 Termination of Employment. Except as provided in this Section
10.7, no Right may be exercised unless the Right holder is then a Director of
the Company, or in the employ of the Company or any Parent or Subsidiary, or
rendering services as a consultant to the Company or any Parent or Subsidiary,
and unless he or she has remained continuously so employed or engaged since the
Date of Grant. If the employment or services of a Right holder shall terminate
(other than by reason of a Special Terminating Event), all Rights previously
granted to the Right holder which are exercisable at the time of such
termination may be exercised for the period ending 90 days after
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<PAGE> 14
such termination, provided, however, that if the employment or services of a
Rights holder is terminated "for cause," such Rights may be exercised for the
period ending 30 days after such termination; provided, further, that no Right
may be exercised following the date of its expiration. Nothing in the Plan or in
any Right granted pursuant to the Plan shall confer upon an employee any right
to continue in the employ of the Company or any Parent or Subsidiary or
interfere in any way with the right of the Company or any Parent or Subsidiary
to terminate such employment at any time.
10.8 Non-Transferability of Rights. Each Stock Option Agreement and
Stock Purchase Agreement shall provide that the Rights granted under the Plan
shall not be transferable otherwise than by will or by the laws of descent and
distribution, and the Rights may be exercised, during the lifetime of the Rights
holder, only by the Rights holder or by his or her guardian or legal
representative.
10.9 Regulatory Matters. Each Stock Option Agreement and Stock
Purchase Agreement shall provide that no shares shall be purchased or sold
thereunder unless and until (i) any then applicable requirements of state or
federal laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel; and (ii) if required to do so by
the Company, the Optionee or Offeree shall have executed and delivered to the
Company a letter of investment intent in such form and containing such
provisions as the Board or Committee may require.
10.10 Recapitalizations. Each Stock Option Agreement and Stock Purchase
Agreement shall contain provisions to reflect the provisions of Article 8.
10.11 Delivery. Upon exercise of a Right granted under this Plan, the
Company shall issue Stock or pay any amounts due within a reasonable period of
time thereafter. Subject to any statutory obligations the Company may have, for
purposes of this Plan, thirty days shall be considered a reasonable period of
time.
10.12 Rule 16b-3. With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"), transactions under this
plan are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provisions of the plan or
action by the Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Administrator.
10.13 Other Provisions. The Stock Option Agreements and Stock Purchase
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
11. Effective Date of Plan. The Plan shall become effective on the date on
which the Plan is adopted by the Board, subject to the approval by the Company's
shareholders, which approval must be obtained within one year from the date the
Plan is adopted by the Board.
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<PAGE> 15
12. Term of Plan. No Right shall be granted pursuant to the Plan on or
after June 30, 2005, but Rights theretofore granted may extend beyond that date.
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<PAGE> 16
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "Option Agreement") is made and
entered into on the execution date of the Option Certificate to which it is
attached (the "Certificate"), by and between Document Sciences Corporation, a
Delaware corporation (the "Company"), and the Director, consultant or employee
named in the Certificate ("Optionee").
Pursuant to the Document Sciences Corporation 1995 Stock Incentive Plan
(the "Plan"), the Board of Directors of the Company (the "Board") has authorized
the grant to Optionee of a non-statutory stock option to purchase shares of the
Company's Common Stock, par value $0.001 per share (the "Common Stock"), upon
the terms and subject to the conditions set forth in this Option Agreement and
in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option
(the "Option"), upon the terms and subject to the conditions set forth in this
Option Agreement, to purchase all or any portion of that number of shares of the
Common Stock (the "Shares") set forth in the Certificate (the "Exercise Price").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date set
forth in the Certificate, unless sooner terminated as provided herein.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Paragraphs 3(b), 5, 7(c) and
7(d) of this Option Agreement, the Option shall become exercisable (in whole or
in part) upon and after the dates set forth under the caption "Exercise
Schedule" in the Certificate. The installments shall be cumulative; i.e., the
Option may be exercised, as to any or all Shares covered by an installment, at
any time or times after the installment first becomes exercisable and until
expiration or termination of the Option.
(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part, unless
and until any then-applicable requirements of all federal, state and local laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in
part. The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical
to Exhibit "A" attached to this Option Agreement stating the number of shares of
Common Stock then being purchased (the "Purchased Shares"); and
<PAGE> 17
(b) payment of the Exercise Price of the Purchased Shares,
either in cash, by check, by cancellation of any indebtedness of the Company to
Optionee for accrued and unpaid salary or, with the consent of the Administrator
of the Plan, by transfer to the Company of issued and outstanding shares of
Common Stock, or by any combination of the above methods of payment. If payment
is made, in whole or in part, by transfer to the Company of issued and
outstanding shares of Common Stock, the value (the "Fair Market Value") of such
shares shall be determined as follows: (i) if the Stock is listed on an exchange
or exchanges, or admitted for trading in a market system which provides last
sale data under Rule 11Aa3-1 of the General Rules and Regulations of the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended (a "Market System"), the last reported sales price per share on
the last business day prior to such date on the principal exchange on which it
is traded, or in such a Market System, as applicable; or if no sale was made on
such day on such principal exchange or in such a Market System, as applicable,
the last reported sales price per share on the most recent day prior to such
date on which a sale was reported on such exchange or such Market System, as
applicable; or (ii) if the Common Stock is not then traded on an exchange or in
such a Market System, the average of the closing bid and asked prices per share
for the Common Stock in the over-the-counter market as quoted on Nasdaq on the
day prior to such date; or (iii) if the Common Stock is not listed on an
exchange or quoted on Nasdaq, an amount determined in good faith by the
Administrator.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Optionee, which Fair
Market Value shall be determined as set forth in the preceding paragraph.
5. TERMINATION OF EMPLOYMENT.
(a) If Optionee shall cease to be a Director of the Company,
or to be in the employ of, or a consultant to the Company, any Subsidiary or any
Parent for any reason other than Optionee's death, permanent disability, or
retirement (a "Special Terminating Event"), Optionee shall have the right to
exercise the Option at any time within 90 days after the date Optionee ceased to
be a Director of the Company, or to be employed by, or to be a consultant to the
Company, and prior to the date of termination of the Option under Paragraph 2 of
this Option Agreement with respect to all shares with respect to which the
Option was exercisable at the date Optionee's employment terminated as to which
the Option had not previously been exercised; and to the extent unexercised at
the end of this period, the Option shall terminate. The Administrator, in its
sole and absolute discretion, shall determine whether or not authorized leaves
of absence shall constitute termination of employment for purposes of this
Option Agreement.
(b) If Optionee shall be terminated "for cause" by the
Company, any Subsidiary or any Parent, Optionee shall have the right to exercise
the Option at any time within 30 days after such termination of employment and
prior to the date of termination of the Option under Paragraph 2 of this Option
Agreement with respect to all Shares with respect to which the Option was
exercisable on the date his employment terminated as to which the Option had not
previously been exercised.
(c) If a Special Terminating Event occurs while Optionee is in
the employ of the Company, any Subsidiary or any Parent, then Optionee,
Optionee's executors or administrators or any person or persons acquiring the
Option directly from Optionee by bequest or inheritance, shall have the right to
exercise the entire Option at any time within one year after such death or
permanent disability, but not later than the Option Expiration Date; to the
extent the Option is unexercised at the end of that period, the Option will
terminated.
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<PAGE> 18
(d) For purposes of this Option Agreement, "cause" shall mean:
(i) with respect to Optionees of the Company:
(1) the failure or refusal by Optionee to perform his
duties to the Company; or
(2) Optionee's willful disobedience of any orders or
directives of the Board or any officers thereof acting under the authority
thereof or Optionee's deliberate interference with the compliance by other
employees of the Company with any such orders or directives; or
(3) the failure or refusal of Optionee to abide by or
comply with the written policies, standard procedures or regulations of the
Company; or
(4) any willful or continued act or course of conduct
by Optionee which the Board in good faith determines might reasonably be
expected to have a material detrimental effect on the Company or the business,
operations, affairs or financial position thereof; or
(5) the committing by the Optionee of any fraud,
theft, embezzlement or other dishonest act against the Company; or
(6) the determination by the Board of Directors of the
Company, in good faith and in the exercise of reasonable discretion, that
Optionee is not competent to perform his duties of employment; and
(ii) with respect to consultants, any material breach of
their consulting agreement with the Company.
(e) For purposes of this Option Agreement, "permanent
disability" shall mean permanent and total disability as defined by the
Administrator. Optionee shall not be considered permanently disabled unless he
furnishes proof of such disability in such form and manner, and at such times,
as the Administrator of the Plan may from time to time require.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) Market Stand-Off.
(i) In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, Optionee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to any Purchased Shares without the prior written consent of the Company
or its underwriters, for such period of time from and after the effective date
of such registration statement as may be requested by the Company or such
underwriters; provided, however, that in no event shall such period exceed one
hundred-eighty (180) days. This Section 6(a)(i) shall only remain in effect for
the two-year period immediately following the effective date of the Company's
initial public offering and shall thereafter terminate and cease to be in force
or effect. Optionee agrees to execute and deliver to the Company such further
documents or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
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<PAGE> 19
(ii) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted, or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this Section 6(a), to the same extent
the Purchased Shares are at such time covered by such provisions.
(iii) In order to enforce the provisions of Section 6(a),
the corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
(b) Noncomplying Transfers Invalid.
(i) Any attempted Transfer which is not in full compliance
with this Paragraph (6) shall be null and void ab initio, and of no force or
effect.
7. ADJUSTMENTS UPON RECAPITALIZATION.
Subject to any required action by the shareholders of the
Company:
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares of the Common Stock, or a dividend in
shares of Common Stock or other securities of the Company convertible into or
exchangeable for shares of the Common Stock (in which latter event the number of
shares of Common Stock issuable upon the conversion or exchange of such
securities shall be deemed to have been distributed) shall be paid in respect of
the shares of Common Stock, the Exercise Price in effect immediately prior to
such subdivision or at the record date of such dividend shall, simultaneously
with the effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately reduced, and conversely, if the outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) When any adjustment is required to be made in the Exercise
Price, the number of Shares purchasable upon the exercise of the Option shall be
adjusted to that number of Shares determined by (i) multiplying an amount equal
to the number of Shares purchasable on the exercise of the Option immediately
prior to such adjustment by the Exercise Price in effect immediately prior to
such adjustment, and then (ii) dividing that product by the Exercise Price in
effect immediately after such adjustment.
(c) In case of any capital reorganization, any
reclassification of the Common Stock (other than a change in par value or
recapitalization described in Paragraph 7(a) of this Option Agreement, or the
consolidation of the Company with, or sale of substantially all of the assets of
the Company to (which sale is followed by a liquidation or dissolution of the
Company), or merger of the Company with another person (a "Reorganization
Event"), the Administrator shall be obligated to determine whether the
Reorganization Event shall constitute a "Liquidity Event," and to deliver to
Optionee at least 15 days prior to such Reorganization Event a notice which
shall (i) indicate whether the Reorganization Event is a Liquidity Event and
(ii) advise Optionee of his or her rights pursuant to this Option Agreement. If
the Reorganization Event is determined to be a Liquidity Event, in its sole and
absolute discretion, the surviving corporation may, but shall not be obligated
to, (i) tender to Optionee Stock Options with respect to the surviving
corporation which shall contain terms and provisions that substantially preserve
the rights and benefits of this Option, and (ii) in the event that no Stock
Options have been tendered by the surviving corporation pursuant to the terms of
item (i) immediately above, Optionee shall have the right exercisable during a
ten-day period ending on the fifth day prior to the Reorganization Event to
exercise his or her Stock Options, to the
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<PAGE> 20
extent that such Stock Options are then exercisable, in whole or in part, on the
condition, however, that the Reorganization Event is actually effected; and if
the Reorganization Event is actually effected, such exercise shall be deemed
effective (and, if applicable, the Optionee shall be deemed a shareholder with
respect to the Stock Options exercised) immediately preceding the effective time
of the Reorganization Event (or on the date of record for shareholders entitled
to share in the securities or property distributed in the Reorganization Event,
if a record date is set). If the Reorganization Event is not determined to be a
Liquidity Event, Optionee shall thereafter be entitled upon exercise of the
Option to purchase the kind and number of shares of stock or other securities or
property of the surviving corporation receivable upon such event by a holder of
the number of shares of the Common Stock which the Option entitles Optionee to
purchase from the Company immediately prior to such event, and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Option Agreement with respect to Optionee's rights and interests
thereafter, to the end that the provisions set forth in this Option Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any shares or other property
thereafter purchasable upon exercise of the Option.
(d) In the event of the proposed dissolution or liquidation of
the Company, or in the event of any corporate separation or division, including,
but not limited to, a split-up, split-off or spin-off (each, a "Liquidating
Event"), the holder of any Stock Option then exercisable shall have the right to
exercise such Stock Option (at the price provided in the Stock Option Agreement)
subsequent to the Liquidating Event, and for the balance of its term, solely for
the kind and amount of shares of Stock and other securities, property, cash or
any combination thereof receivable upon such Liquidating Event by a holder of
the number of shares of Stock for or with respect to which such Stock Option
might have been exercised immediately prior to such Liquidating Event; or, in
the alternative, that each Stock Option granted under the Plan shall terminate
as of a date to be fixed by the Board; provided, however, that not less than 30
days written notice of the date so fixed shall be given to each Option Holder
and if such notice is given, each Option Holder shall have the right, during the
period of 30 days preceding such termination, to exercise the Stock Option as to
all or any part of the shares of Stock covered thereby, to the extent that such
Stock Option is then exercisable, on the condition, however, that the
Liquidating Event actually occurs; and if the Liquidating Event actually occurs,
such exercise shall be deemed effective (and, if applicable, the Option Holder
shall be deemed a shareholder with respect to the Stock Options exercised)
immediately preceding the occurrence of the Liquidating Event, or the date of
record for shareholders entitled to share in such Liquidating Event, if a record
date is set.
(e) To the extent that the foregoing adjustments related to
stock or securities of the Company, such adjustments shall be made by the
Administrator of the Plan, and its determination shall be final, binding and
conclusive.
(f) The provisions of this Paragraph 7 are intended to be
exclusive, and Optionee shall have no other rights upon the occurrence of any of
the events described in this Paragraph 7.
(g) The grant of the Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and
agrees that neither the Company nor any other person or entity is under any
obligation to sell or transfer to Optionee any option or equity security of the
Company, other than the shares of Common Stock subject to the Option and any
other right or option to purchase Common Stock which was previously granted to
Optionee by the Board (or a committee thereof). By signing this
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<PAGE> 21
Option Agreement, Optionee specifically waives all rights which he or she may
have had prior to the date of this Option Agreement to receive any option or
equity security of the Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the
Option in whole or in part and if at the time of such exercise the Plan and /or
the Purchased Shares have not been registered under the Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the
Purchased Shares will be subject to such stock transfer orders and other
restrictions (if any) as the Company may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed and any applicable
federal or state securities laws, and the Company may cause a legend or legends
to be put on such certificates to make appropriate reference to such
restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 8.1 of the Plan, Optionee shall
have no rights as a shareholder with respect to the Shares until the date of the
issuance to Optionee of a stock certificate or stock certificates evidencing
such Shares. Except as may be provided in Paragraph 7 of this Option Agreement,
no adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations
of the Plan, the Board (or a committee thereof) may modify, extend or renew the
Option or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Optionee,
would cause the Option to fail to continue to qualify as an "incentive stock
option" within Section 422 of the Code or would alter or impair any rights of
the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Optionee
agree to remit, at the time of such delivery or later date as the Company may
determine, an amount sufficient to satisfy all federal, state and local
withholding tax requirements relating thereto, and Optionee agrees to take such
other action required by the Company to satisfy such withholding requirements.
(b) With the consent of the Administrator, and in accordance
with any rules and procedures from time to time adopted by the Administrator,
Optionee may elect to satisfy his or her obligations under Paragraph 13(a) above
by (i) directing the Company to withhold a portion of the Shares otherwise
deliverable (or to tender back to the Company a portion of the Shares issued
where the Optionee (a "Section 16(b) Recipient") is required to report the
ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act
of 1934, as amended, and has
-6-
<PAGE> 22
not made an election under Section 83(b) of the Code (a "Withholding Right"));
or (ii) tendering other shares of the Common Stock of the Company which are
already owned by Optionee which in all cases have a Fair Market Value (as
determined in accordance with the provisions of Paragraph 4(b) hereof) on the
date as of which the amount of tax to be withheld is determined (the "Tax Date")
equal to the amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow
the election procedures set forth below, together with such additional
procedures and conditions set forth in this Option Agreement or otherwise
adopted by the Administrator.
(i) the Optionee must deliver to the Company his or her
written notice of election (the "Election") and specify whether all or a stated
percentage of the applicable taxes will be paid in accordance with Paragraph
13(b) above and whether the amount so paid shall be made in accordance with the
"flat" withholding rates for supplemental wages or as determined in accordance
with Optionee's form W-4 (or comparable state or local form);
(ii) unless disapproved by the Administrator as provided
in Subsection (iii) below, the Election once made will be irrevocable; and
(iii) no Election is valid unless the Administrator has
the right and power, in its sole discretion, with or without cause or reason
therefor, to consent to the Election, to refuse to consent to the Election, or
to disapprove the Election; and if the Administrator has not consented to the
Election on or prior to the Tax Date, the Election will be deemed approved.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all
actions and execute all documents requested by the Company which the Company
deems to be reasonably necessary to effectuate the terms and intent of this
Option Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Option Agreement shall be in writing and shall be
given to the parties hereto as follows:
(i) If the Company, to:
Document Sciences Corporation
6333 Greenwich Drive, Suite 120
San Diego, CA 92112
(ii) If to Optionee, to the address set forth in the
records of the Company,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid,
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<PAGE> 23
addressed as aforesaid, or (ii) if given by any other means, when delivered at
the address specified in this subparagraph (b).
(c) TRANSFER OF RIGHTS UNDER THE OPTION AGREEMENT. The Company
may at any time transfer and assign its rights and delegate its obligations
under this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not sell, transfer,
assign or otherwise dispose of the Option except by will or the laws of descent
and distribution, and Stock Options may be exercised during the lifetime of the
Option Holder only by the Option Holder or by his or her guardian or legal
representative.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN , AND TO BE PERFORMED WITHIN, THE STATE.
(g) THE PLAN. This Option Agreement is made pursuant to the
Plan, and it is intended, and shall be interpreted in a manner, to comply
therewith. Any provision of this Option Agreement inconsistent with the Plan
shall be superseded and governed by the Plan.
(h) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
The Signature Page to this Option Agreement consists of the last page
of the Certificate.
-8-
<PAGE> 24
Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
TO: Document Sciences Corporation
The undersigned, the holder of the enclosed Stock Option Agreement
(NonStatutory Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder _______________*
shares of Common Stock of Document Sciences Corporation (the "Company"), and
herewith encloses payment of $_____________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated:____________________________
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Option)
------------------------------------------
(Please print name)
------------------------------------------
(Address)
* Insert here the number of shares called for on the face of the Option
(or, in the case of a partial exercise, the number of shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the provisions of the
Option, may be deliverable upon exercise.
<PAGE> 25
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Document Sciences Corporation, a Delaware
corporation (the "Company"), has granted to the person named below a
non-statutory stock option (the "Option") to purchase shares of the Company's
Common Stock, par value $0.001 per share, under its Stock Incentive Plan, as
follows:
Name of Optionee: "Optionee"
Address of Optionee: "Address1"
"Address2"
"Address3"
Number of Shares: "Shares"
Option Exercise Price: $"Price"
Date of Grant: "GrantDate"
Option Expiration Date: "ExpirationDate"
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
25% on "VestDate", and 2.0833% of the total shares each month
thereafter.
SUMMARY OF OTHER TERMS: This option is defined in the Stock Option
Agreement (NonStatutory Stock Option) (the "Option Agreement") which is attached
to this Option Certificate (this "Certificate") as Annex I. This Certificate
summarizes certain of the provisions of the Option Agreement for your
information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you carefully
review the full Option Agreement prior to signing this Certificate or exercising
the Option.
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to
retain you for any period of time. Unless otherwise agreed in writing, the
Company reserves the right to terminate any employee at any time, with or
without cause.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company (or to hold office if you are a director). If your employment ends "for
cause," the Option terminates 30 days after the date of termination of
employment, and is exercisable during such 30 day period as to the portion of
the Option which had vested prior to the date of termination of employment. If
your employment ends due to death, disability or retirement, the Option
terminates one year after the date of death, disability or retirement, and is
exercisable in full during such one year period. In all other cases, the Option
terminates 90 days after the date of termination of employment, and is
exercisable during such 90 day period as to the portion of the Option which had
vested prior to the date of termination of employment. See Section 5 of the
Option Agreement.
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<PAGE> 26
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in
whole or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Option Exercise Price, set forth above, for the Shares to be purchased. The
Company will then issue a certificate to you for the Shares you have purchased.
You are under no obligation to exercise the Option. See Section 4 of the Option
Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 180 days after the effective date of the offering. See
Section 6 of the Option Agreement.
ANTI-DILUTION PROVISIONS: The Option contains provisions which adjust
your Option to reflect stock splits, stock dividends, mergers and other major
corporate reorganizations which would change the nature of the Shares underlying
your Option. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to any other options or stock which may
have heretofore been promised to you. See Section 8 of the Option Agreement.
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
-2-
<PAGE> 27
AGREEMENT
Document Sciences Corporation, a Delaware corporation (the "Company"),
and the above-named person ("Optionee") each hereby agrees to be bound by all of
the terms and conditions of the Stock Option Agreement (Non-Statutory Stock
Option) which is attached hereto as Annex I and incorporated herein by this
reference as if set forth in full in this document.
------------------------------------------
Certificate Date
DOCUMENT SCIENCES CORPORATION
By: Tony N. Domit
Its: President and CEO
OPTIONEE
------------------------------------------
Signature
------------------------------------------
(Please print your name exactly as you wish
it to appear on any stock certificates issued
to you upon exercise of the Option.)
-3-
<PAGE> 1
EXHIBIT 10.23
March 13, 1998
Mr. Tony N. Domit
12117 El Nora Place
Granada Hills, CA 91344
Dear Tony:
The purpose of this letter is to summarize the arrangements we have discussed
regarding your retiring as President and Chief Executive Officer of Document
Sciences Corporation (DSC) on March 13, 1998.
At the end of your service as employee, you will receive eighteen (18) months of
compensation based on your current annual salary of $192,000. You may elect a
lump sum payment, or to spread payments over whatever period you chose in equal
installments payable up to a maximum of twenty four (24) months. You must make
this election by the close of the business day on your last day of service.
Federal law allows you and/or your spouse and/or your eligible dependents to
continue certain health coverage without interruption under the Company's
medical plan for up to 18 months, normally at your own expense, through the
Consolidated Omnibus Budget Reconciliation Act (COBRA). The monthly premium will
equal the group rate in effect plus an additional two (2) percent administrative
fee. An election form will be provided you that provides further details
regarding COBRA coverage. If you elect COBRA coverage, DSC will pay the premiums
for the eighteen (18) months.
At such time as you cease to serve on the Board of Directors of DSC, DSC shall
fulfill and honor in all respects its obligations under Section 6.1 of the
By-Laws and pursuant to the Indemnification Agreement dated September 18, 1996,
between you and DSC to the extent arising out of or pertaining to any action or
omission in your capacity as a director or officer of DSC or any DSC subsidiary.
All other benefits and perquisites for which you are eligible in your current
position e.g. car allowance, computer and related equipment, cellular phone,
etc. will end effective at the time you cease being an employee of DSC.
<PAGE> 2
Tony N. Domit
March 13, 1998
Page 2 of 3
You will be permitted to retain your DSC laptop for a period of seven (7) days
after your last day as a DSC employee in order to permit you to transfer your
personal files to another computer. In the event you wish to purchase your
current laptop computer, you will be permitted to do so at a price to be agreed
to by you and DSC. You must make and communicate the decision to do this prior
to the end of the seven (7) day period mentioned in this paragraph. As a
condition of retaining your laptop computer for this seven (7) day use period,
you agree to delete all files pertaining to DSC at the conclusion of your
employment.
Our records indicate the following with regard to your Document Sciences
Corporation stock options:
<TABLE>
<CAPTION>
Grant Date Grant Approved Option Price
<S> <C> <C>
7/12/96 17,448 $10.00
</TABLE>
Your existing stock options will cease vesting effective the last day of your
employment or service as a DSC director, whichever is later, consistent with the
Company's stock option plan. Stock options will not vest during the period you
may elect to receive your severance salary package, assuming this period is
longer than your period of service as a member of the DSC board of directors.
At the end of your employment, as a retiree under the DSC stock option plan you
will have an additional twelve (12) months to exercise any vested options.
You agree at all times in all communications with any third party regarding DSC
or your employment by the Company to consistently speak favorably of DSC, its
products and of the manner in which you were treated by DSC throughout your
employment and following such employment, without, however, being under any
obligation to make any untrue statements or misrepresentations.
You further agree at all times, unless under compulsion of legal process, to
strictly avoid taking any actions or making any utterance that is likely to
affect adversely on DSC or that may, in any way, prejudice or otherwise
adversely affect or cast aspersions upon DSC (including, without
<PAGE> 3
limitation, the reputation and good will) or the employees, officers, directors,
shareholders thereof, it being acknowledged that similarly DSC will require its
officers, directors, and spokespersons to avoid any action or utterance that
would affect adversely or cast aspersions upon you either personally or
professionally.
<PAGE> 4
Tony N. Domit
March 13, 1998
Page 3 of 3
RELEASE
In consideration of the Company's payments and agreements set out in this letter
you will be required to sign the attached release. We suggest you consult with
legal counsel before signing the release. Your signature below indicates your
understanding and approval of the terms of this agreement.
Please do not hesitate to contact me with any questions you may have concerning
the contents of this letter.
Sincerely,
Thomas L. Ringer
Chairman, Board of Directors
Document Sciences Corporation
- ------------------------------------
Tony N. Domit Date
<PAGE> 5
[DOCUMENT SCIENCES CORPORATION LOGO]
6333 Greenwich Drive,Suite 200, San Diego, CA 92122
GENERAL RELEASE
1. In consideration of Document Sciences Corporation (the "Company") agreement
to provide consideration as more particularly set forth in the letter dated
March 13, 1998, from Thomas L. Ringer to Tony N. Domit, attached hereto and
incorporated herein, and other good and valuable consideration the adequacy and
receipt of which are hereby acknowledged, I, Tony N. Domit, release the Company,
Document Sciences Corporation, and their respective employees, directors,
officers, agents, stockholders, subsidiaries, affiliates, successors and
assigns, and the Company employee benefits plans in which I am now or have been
a participant and their trustees, administrators, successors, assigns, agents
and employees (the "Releasees"), from any and all claims of any kind, known or
unknown, which I now have or may have against the Releasees by reason of facts
which have occurred prior to the date of this Release. Such released claims
include, without limitation, any and all claims of age discrimination under the
Age Discrimination in Employment Act, the Older Worklers' Benefits Protection
Act of 1990, employment discrimination under Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities At of 1990, the Equal Pay Act of 1963,
the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C.
ss.1001, et seq., and the laws of the State of California including by example
and not limitation the California Fair Employment and Housing Act and the Fair
Employment Practices Act, the California Labor Code, as well as any and all
claims arising out of, based upon or relating to the hire, offer of employment
by Releasees, employment contract, if any, between myself and Releasees, any
representations or commitments made by the Releasees regarding future
employment, remuneration, promotion, discipline, termination from employment, or
benefits payable by Releasees to me including but not limited to any and all
claims under State contract or tort law such as breach of the implied covenant
of good faith and fair dealing, negligent or intentional infliction of emotional
distress and defamation, all claims for punitive or compensatory damages, costs
or attorney fees, and any and all claims I have against the Company based upon
its employees relocation policy.
2. I acknowledge and agree that the consideration set forth in this Release is
in addition to anything of value to which I am otherwise entitled by law and the
Company policy.
3. I understand and agree that this Release and Releasees' agreement to provide
consideration as set forth above are not intended and should not be construed,
in any way, as an admission by Releasees of wrongdoing or liability.
4. I agree that I will not file or pursue any charge, claim or action with any
government agency or any court against the Releasees based upon any event or
occurrence which took place prior to the date of this Release. However, I
understand that nothing set forth in this Release shall be construed as a
condition precedent, penalty or other limitation of my right to file a charge or
complaint with, or participate in an investigation or proceeding conducted by,
the EEOC or any comparable state agency.
Page 1 of 2 ________
Initial
<PAGE> 6
5. I agree that if I act contrary to the representations and obligations set
forth in this Release, I shall repay to the Company upon demand any and all
moneys paid to me by the Company in consideration of this release. Moreover, if
I act contrary to paragraph 4 of this Release, I agree to pay all costs and
expenses of defending the charge, claim or action incurred by Releasees,
including reasonable attorneys fees.
6. Should any provision of this Release, with the exception of paragraph 1, be
declared or be determined by any court to be illegal or invalid, the validity of
the remaining parts, terms or provisions shall not be affected thereby and said
illegal or invalid part, term, or provision shall be deemed not to be a part of
this Agreement. Should paragraph 1 be declared or be determined by any court to
be illegal or invalid as a result of legal proceedings instituted by me, the
purpose of this entire Agreement shall be deemed to have failed and I shall
return all cash consideration paid by the Company hereunder.
7. I agree to treat the existence and substance of this Release as Confidential
and shall not disclose it to other persons within or outside the Releasees
except as required by law.
8. I am familiar with the provisions of California Civil Code Section 1542,
which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THIS
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Being aware of this code section, I hereby expressly waive any rights I may have
thereunder, as well as any other statutes or common law principles of similar
effect.
9. I acknowledge that I have been advised by the Company as follows:
- TO CONSULT WITH AN ATTORNEY OF MY CHOOSING TO COUNSEL ME AS TO MY
RIGHTS BEFORE I SIGN THIS RELEASE;
- TO TAKE SUFFICIENT TIME TO DECIDE WHETHER TO SIGN THIS RELEASE. I HAVE
21 DAYS FROM THE DATE THIS RELEASE IS PROVIDED TO ME TO CONSIDER IT
BEFORE I SIGN AND RETURN IT TO THE COMPANY;
- THAT EVEN AFTER I SIGN AND RETURN THIS RELEASE TO THE COMPANY, I WILL
HAVE 7 DAYS THEREAFTER TO CHANGE MY MIND AND REVOKE ANY RELEASE BY
ASKING THE COMPANY FOR ITS RETURN.
Date release provided to Tony N. Domit: _________________________ , 1998
Executed at __________________________________________ , _____________________
Date: __________________ , 1998
By: ______________________________________
Page 2 of 2 ________
Initial
<PAGE> 1
EXHIBIT 10.24
COOPERATIVE MARKETING AGREEMENT (USCO)
XEROX
Whereas Document Sciences Corporation ("You") may provide various added skills,
such as systems management, systems integration, networking, image management,
and have insight concerning the identity of prospects within the United States,
its territories, and possessions (the "Territory"), and have knowledge
concerning the applicability of those Xerox products set forth in EXHIBIT 1
(the "Xerox Products") to the business of such prospects;
Whereas Xerox Corporation ("Xerox") may provide various value added skills,
such as systems management, systems integration, networking, image management,
and have insight concerning the identity of prospects in the Territory as well
as knowledge concerning the applicability of those products you market to the
business of such prospects;
Whereas You and Xerox each wish to engage the other as a non-exclusive
Cooperative Marketing Partner within the Territory;
And whereas You and Xerox are willing to accept such appointment by the other
and to undertake to provide such services pursuant to the terms of this
agreement (the "Agreement");
Now, therefore You and Xerox agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
YOUR RESPONSIBILITIES. If You intend to jointly market your products and
the Xerox Products (the "Products") with Xerox to any customer within the
Territory who purchases, leases, or licenses the Products for their own
use and not for remarketing (a "Customer"), You will notify the Xerox
Sales Representative responsible for that Customer of such marketing
opportunity as soon as practicable and enter into a Cooperative Marketing
Partners Teaming Agreement, as set forth in EXHIBIT 2 (a "Teaming
Agreement").
XEROX RESPONSIBILITIES. If Xerox intends to jointly market the Products to
a Customer, Xerox will notify Your Sales Representative responsible for
that Customer of such marketing opportunity as soon as practicable and
enter into a Teaming Agreement.
JOINT RESPONSIBILITIES.
(a) Xerox and You will each appoint a manager to oversee the relationship
between the parties resulting from this Agreement. These managers will be
responsible for resolving issues that may from time to time arise, will
meet as frequently as both parties believe is appropriate, and will be
responsible for planning and developing a marketing program plan to
facilitate the promotion of the Products.
(b) Xerox and You will each (i) independently set prices for our
respective Products, (ii) independently market our respective Products to
any and all customers in the Territory and (iii) be responsible for
installing and maintaining our respective Products as well as providing
customer training with respect to such Products.
PAGE 1 OF 8
<PAGE> 2
COOPERATIVE MARKETING AGREEMENT (USCO)
(c) Xerox and You will honor the other's reasonable requests for
consultations and visits to each other's facilities for purposes of
fulfilling the intent of our respective obligations under this Agreement.
(d) Xerox and You may develop Customer demonstrations and proposals, and
may conduct joint sales calls and Customer briefings.
(e) Xerox and You may incorporate the other's marketing proposals into
marketing proposals for our respective Products as required and agreed to
in any given situation.
(f) Xerox and You may act as the other's prime contractor or
subcontractor as required and agreed to in any given situation.
2. ENGAGEMENT FEES
ENGAGEMENT FEE VALIDATION. If You and Xerox enter into a Teaming Agreement
with the anticipation of jointly marketing to a Customer in the Territory
and, within one year of the commencement of this Teaming Agreement, Xerox
(a) either sells, licenses, or leases (with an initial term of at least
one year) one or more newly installed Xerox Products to that Customer and
(b) validates that one or more of these transactions resulted in
significant part from your marketing efforts, Xerox will pay you an
Engagement Fee as set forth in EXHIBIT 1 for each such validated Xerox
Product covered under the Teaming Agreement. This Engagement Fee shall not
be payable, however, in the case of rental or upgrade transactions. A
given transaction shall be deemed validated only if the applicable Xerox
Customer Business Unit ("CBU") Controller in his or her sole discretion
completes the bottom portion of the Teaming Agreement and thereby verifies
Xerox' decision that Your marketing efforts played a significant enough
role in one or more of the transactions covered by the Teaming Agreement
to justify the payment of the Engagement Fee. In reaching this decision,
the Controller shall consider the following factors: (i) whether You
established direct contact with the Customer, (ii) whether You provide the
Customer with relevant information regarding your and Xerox Products,
(iii) whether You maintained contact with the Customer throughout the
selling cycle, (iv) whether You actively assisted the Xerox Sales
Representative in the sale, lease, and/or license of the Xerox Products,
and/or (v) whether You actively cooperated with Xerox in ensuring that the
Xerox Products functioned together with your Products sold to the same
Customer in a manner acceptable to that Customer.
MULTIPLE COOPERATIVE MARKETING PARTNERS INVOLVED IN THE SAME TRANSACTION.
If more than one Cooperative Marketing Partner is eligible for fees as set
forth above on the same underlying transaction, Xerox will apportion a
single fee for each Xerox Product validated in the manner set forth above
(a "Validated Xerox Product") amongst the involved Cooperative Marketing
Partners.
REVISIONS TO XEROX PRODUCTS COVERED AND ENGAGEMENT FEES. Xerox may, at any
time and upon written notice to You, amend EXHIBIT 1 to revise the Xerox
Products covered by this Agreement and/or the Engagement Fees associated
with their sale, lease, or license. Any revision to the Engagement Fees,
however, shall be applicable only as to fees earned subsequent to the date
of this revision.
PAYMENT. Engagement Fees shall be deemed earned by You only after a
Validated Xerox Product has been accepted and installed by the Customer.
Xerox will use reasonable efforts to pay such fees within sixty (60) days
after the end of any month during which the installation and acceptance of
the Validated Xerox Product(s) occurred. Each party shall provide to the
other within 60 days of the end of each
PAGE 2 OF 8
<PAGE> 3
month an installation report reflecting those Products installed as the
result of any Teaming Agreements by the other, the amount of fees payable
for each Validated Xerox Product, and the Customer names and installation
address of the Products installed.
REVERSAL. In the event that for any reason Xerox reverses a sale, lease, or
license of any Xerox Product as to which an Engagement Fee has been paid
under this Agreement, and such reversal occurs within six (6) months of the
date the Customer installed and accepted the Product, Xerox shall debit the
amount of this fee against any subsequent Engagement Fees to which you may
become entitled. If You are not entitled to any subsequent Engagement Fees,
You shall pay back to Xerox an amount equal to those Engagement Fee
stemming from the Reversed Transactions.
3. PRODUCT TECHNICAL AND ADMINISTRATIVE SUPPORT
Xerox and You agree that each party will be responsible for the technical
and administrative support of its own Products, and that the Program
Managers will jointly develop procedures to facilitate the resolution of
any mutual technical issues and problems regarding the Products.
4. TRAINING
YOUR PRODUCT TRAINING. You will provide to Xerox, on terms to be agreed
upon by You and Xerox, product training sufficient to provide a reasonable
number of Xerox sales representatives and analysts with a working knowledge
of your products.
XEROX PRODUCT TRAINING. Xerox will provide, on terms to be agreed upon by
You and Xerox, product training sufficient to provide a reasonable number
of Your sales representatives and analysts with a working knowledge of the
Xerox Products.
DOCUMENTATION. The parties will provide to each other one set of sales
representative training documentation and will grant the other the
restricted right to reproduce such documents solely for Customer
demonstrations and training of our respective sales representatives and
sales management relative to the Products.
5. CONFIDENTIAL INFORMATION
You and Xerox agree that it may be necessary from time to time to exchange
information that shall be accepted by the receiving party on a confidential
basis ("Confidential Information"). In order to keep this exchange to a
minimum, however, the parties expressly agree that no information shall be
considered Confidential Information unless the receiving party specifically
requests the receipt of that information in a written document
substantially similar to the attached EXHIBIT 3.
The parties agree to safeguard all Confidential Information received or to
be received from each other, not to disclose such information to any third
party without the prior authorization of the disclosing party, and to
restrict circulation of this information within its own organization to the
extent necessary to fulfill the purposes of this Agreement. All
Confidential Information will remain the property of the disclosing party.
PAGE 3 OF 8
<PAGE> 4
In order to be treated as Confidential Information under this Agreement
section, information must be disclosed either: (i) by written or
electronic communication which is appropriately labeled so as to give
reasonable notice to anyone reading the communication that the contents
thereof are confidential and proprietary or (ii) by oral disclosure, in
which case the party making the disclosure must, at the time the
disclosure is made, state to the recipients thereof that the contents of
the disclosure are confidential and proprietary, and must further reduce
the confidential and proprietary contents of the disclosure to a written
or electronic communication, appropriate labeled as required by clause (i)
above, which is delivered to said recipients within ten (10) days after
the oral disclosure or execution of this Agreement, whichever is later.
The receiving party will be released from the obligations of this
Agreement section with respect to any particular portion of Confidential
Information when:
(a) the receiving party can document that: (i) it was in the public
domain at the time of the disclosing party's communication thereof to
the receiving party, (ii) it entered the public domain through no
fault of the receiving party subsequent to the time of the disclosing
party's communication thereof to the receiving party, (iii) it was in
the receiving party's possession free of any obligation of confidence
at the time of the disclosing party's communication thereof to the
receiving party, (iv) it was rightfully communicated to the receiving
party free of any obligation of confidence subsequent to the time of
the disclosing party's communication thereof to the receiving party,
or (v) it was independently developed by the receiving party's
employees or agents without reference to the Confidential Information
of the disclosing party;
(b) it is communicated by the disclosing party to a third party free
of any obligation of confidence;
or
(c) it was communicated by the disclosing party under this agreement
at least two (2) years earlier.
All materials including, without limitation, documents, drawings, models,
apparatus, sketches, designs, and lists furnished to one party by another
and which are designated in writing to be the property of such party will
remain the property of such party and will be returned to such party
promptly at its request with all copies made thereof. This agreement does
not in any way grant to either party any express or implied license to any
intellectual property rights of the other party except as expressly set
forth herein.
6. TRADEMARKS AND LOGOS
The trademarks and trade names under which each party markets Products
will remain the exclusive property of such party. In addition, each party
agrees not to use the other's name or trademarks in any way that may be
determined objectionable by the other party or confusing to any
third-parties regarding the nature of the relationship between You and
Xerox. This Agreement gives the parties no rights regarding the use of
such names or trademarks except that during the term of this Agreement
each party grants to the other a restricted license to reproduce such
trademarks and trade names in publications and under such terms and
conditions as may hereafter be approved in writing by the granting party.
7. WARRANTY AND INDEMNIFICATION
INTELLECTUAL PROPERTY WARRANTY. Each party represents and warrants to the
other that it has sufficient right, title and interest in and to their
respective Products to enter into this Agreement.
PAGE 4 OF 8
<PAGE> 5
INDEMNIFICATION. Each party (the "Indemnifying Party") will defend and hold
harmless the other party (the "Indemnified Party") from, and pay any
amount due on, any claim, action or other proceeding brought against the
Indemnified Party arising from the use and marketing of the Indemnifying
Party's Products, providing that the Indemnified Party promptly notifies
the Indemnifying Party in writing of any action or claim; allows the
Indemnifying Party, at its expense, to direct the defense, gives the
Indemnifying Party sufficient information in the Indemnified Party's
possession and reasonable assistance required to defend such suit, claim
or proceeding, but at no out-of-pocket expense to the Indemnified Party,
and allows the Indemnifying Party to pay any judgment. In addition, the
parties agree that the Indemnifying Party will have no liability for (a)
any claim, action or other proceeding based primarily upon acts or
omissions by the Indemnified Party; (b) any claim, action, or other
proceeding resulting from the combination of the Indemnifying Party's
Products with third-party products without the express knowledge and
agreement of the Indemnifying Party; or (c) settlements or costs incurred
without the knowledge of the Indemnifying Party. To avoid infringement the
Indemnifying Party may, at the Indemnifying Party's option, and at no
charge to the Indemnified Party, obtain a license, or modify the
Indemnifying Party's Products so that they no longer infringe (provided
that the modification results in an equivalent of the Indemnifying Party's
original Products), or substitute an equivalent of the Indemnifying
Party's Products.
8. RIGHTS OF PARTIES UNDER DEVELOPED INTELLECTUAL PROPERTY RIGHTS
Unless otherwise agreed in writing by the parties, ownership of any
writings, discoveries, inventions or innovations ("Improvements") arising
out of the cooperation of the parties pursuant to this Agreement will
reside with the party whose employee(s) or agent(s): (i) first conceived
the Improvement, in the case of patentable Improvements, and (ii) in the
case of copyrightable Improvements, first fix the Improvement in any
tangible medium of expression, now known or later developed, from which it
can be perceived, either directly or with the aid of a machine or device.
Any improvements jointly conceived by the parties will be jointly owned
and each party will have an unrestricted free worldwide license to make,
use, or market such improvements.
Each party who is an owner of an Improvement will be responsible in its
sole discretion for conducting its own plans and programs relative to
filing for and maintaining patent rights, trade secrets, mask works,
copyrights or other registerable or applied for intellectual property
rights in one or more countries of the world. If any improvements are
jointly owned, the parties will reasonably agree on the responsibilities
with respect to perfecting any intellectual property rights.
9. TERM AND TERMINATION
INITIAL TERM. If you covered substantially the same geographic territory
under a prior Cooperative Marketing Agreement, this Agreement shall be
effective as of the earlier of the date of execution on February 1, 1998;
for all other Agents, this Agreement shall be effective upon the date of
execution by you and Xerox. Subject to the termination provisions set forth
in this Agreement, the initial term shall run through December 31 of the
year in which the Agreement is executed (unless it is executed in the
final calendar quarter of any given year in which case it will run through
December 31 of the following year).
RENEWAL. This Agreement may be renewed for successive one-year periods by
mutual consent of the parties. Silence shall be interpreted as consent to
renew. Either party may decline to renew this
<PAGE> 6
COOPERATIVE MARKETING AGREEMENT (USCO)
Agreement based upon its own reasons and objectives notwithstanding that
the other party is not then in breach of its obligations hereunder. If
either party elects not to renew, it shall notify the other party in
writing of this decision at least 60 days prior to the effective date of
non-renewal.
TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement
based upon its own reasons and objectives notwithstanding that the other
party is not then in breach of its obligations hereunder. In this
circumstance, the terminating party shall give the other party written
notice of termination at least 90 days in advance.
TERMINATION FOR BREACH. Either party may terminate this Agreement if a
breach by the other party remains uncured 30 days after written notice of
breach is given by the non-breaching party. In addition, during the twelve
month period following any instance in which a breach of this Agreement
has been identified and cured pursuant to the provisions of this Section,
the non-breaching party shall have the right to terminate this Agreement
immediately and without providing any opportunity to cure upon the
occurrence of any breach by the other party, regardless of whether the
subsequently identified breach is similar in nature to the previous breach.
RETURN OF PROPERTY UPON TERMINATION. Upon termination, each party shall
return to the other in a commercially reasonable manner all of the other
party's property and materials in its possession or control.
10. GENERAL PROVISIONS
LIMITATIONS OF LIABILITY. Except as set forth in the indemnification
provisions of this Agreement, neither party will be liable to the other
for any punitive, indirect, special, consequential or incidental damages
(including but not limited to lost profits), whether arising in contract
or in tort (including but not limited to negligence) arising out of or
relating to this Agreement and/or its termination or non-renewal. In
addition, the parties agree (a) that neither party shall be liable to the
other for direct damages in excess of $100,000 and (b) that Xerox shall
not be liable to You for any claimed Engagement Fees where the underlying
installation was completed more than 120 days prior to the commencement of
your specific claim for the related fees (regardless of when You learned
or could have learned of any of the facts surrounding the transaction or
claim).
RELATIONSHIP OF THE PARTIES. We agree that we are independent parties and
that neither of us is authorized to make any commitment or representation
on the other's behalf. During the term of this Agreement, should the term
"partnership," "partner" or "marketing partner" be used to describe the
Cooperative Marketing relationship, we agree to make it clear to third
parties that these terms refer only to the spirit of cooperation between
us and do not describe or create the legal status of partners or joint
ventures.
GOVERNMENT COMPLIANCE. Each party will comply fully with all federal,
state and local laws and regulations relating to its obligations under
this Agreement.
ETHICAL STANDARDS. The conduct of each party, its employees, and
representatives shall conform to the highest ethical standards and shall
reflect favorably on the good name and reputation of the other. Any
failure on the part of either party or that of its employees or
representatives to conduct themselves in this
Page 6 of 8
<PAGE> 7
COOPERATIVE MARKETING AGREEMENT (USCO)
manner as reasonably determined by the other party shall be grounds for
immediate termination of this Agreement. Breaches of this obligation shall
include, but not be limited to, acts involving dishonesty.
FORCE MAJEURE. Except as otherwise provided herein, neither party will be
liable to the other for its failure to perform any of its obligations
hereunder during any period in which such performance is delayed by
circumstanced beyond its reasonable control, provided that the party
experiencing such delay promptly notifies the other party of the delay. In
the event that such a delay by a party continues for more than sixty (60)
days, the other party may, at its sole option, and in addition to its other
rights and remedies under this Agreement, at law, or in equity, suspend its
obligations under this Agreement during the period of delay.
ASSIGNMENT. Neither party will assign this Agreement or any rights and
obligations thereunder to any third party without the express written
permission of the other party, except that each party may assign this
Agreement to an entity directly or indirectly controlling, controlled by,
or under common control with Xerox.
SEVERABILITY. If any provision of this Agreement is held invalid by any
law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity will not
affect the enforceability of any other provision not held to be invalid.
WAIVER. Any delay by either party to exercise any right or remedy under
this Agreement will not be construed to be a waiver of any other right or
remedy hereunder. All of the rights of either party under this Agreement
will be cumulative and may be exercised separately or concurrently.
ALTERNATE DISPUTE RESOLUTION.
(a) The parties will attempt to resolve any dispute, controversy or claim
arising out of or relating to this Agreement and/or its termination or
non-renewal (collectively referred to as a "Covered Dispute") in a
non-judicial manner and forum. Any such Covered Dispute will be initially
referred for resolution to the respective parties' Program Managers
appointed pursuant to this Agreement. If such individuals cannot resolve
the matter within sixty (60) days after the matter in dispute has been
submitted to them for resolution, then the matter will be referred to one
Vice-President of each of he parties for resolution within a subsequent
sixty day period. In the event the parties are unable to informally resolve
a Covered Dispute, they hereby agree that it will be decided through
arbitration as the sole and exclusive remedy for resolving the dispute. The
arbitration shall be conducted before a single arbitrator pursuant to the
applicable rules of the American Arbitration Association then in effect. In
undertaking the arbitration, the parties agree that (i) the direct costs of
the arbitration shall be shared equally by the parties (with the expenses
of each party to be self-funded); (ii) they shall be limited to taking no
more than three depositions each and that no interrogatories shall be
permitted; (iii) that the arbitration shall be completed within six months
from the date the arbitrator is selected (unless any delays arise that are
beyond the control of the parties); (d) that the arbitration shall be
governed by the United States Arbitration Act; and (iv) that the resulting
arbitration award will be final and binding upon the parties and may be
entered by any court of competent jurisdiction. Any monetary awards shall
be limited in accordance with the Limitations of Liability provisions of
this Agreement and, as such, (i) the Arbitrator is specifically prohibited
from awarding any punitive damages or other damages excluded by this
Limitation and (ii) each party irrevocably waives any right to recover
damages outside the scope of these limitations.
Page 7 of 8
<PAGE> 8
COOPERATIVE MARKETING AGREEMENT (USCO)
(b) If either party to this Agreement brings a judicial action that seeks to
resolve a Covered Dispute, this action shall be barred as a result of the
exclusive remedy provided in this section and the prevailing party in any such
action shall be entitled to recover its related costs and expenses from the
other, including reasonable attorneys' fees.
(c) Any arbitration as set forth in this section and any claim therein arising
from or related to the Agreement must be brought within one (1) year from the
date such action could have first been brought. The parties expressly agree to
this provision notwithstanding any longer periods that may be provided by statue
for bringing actions in court or arbitration, with any such periods being
expressly waived.
CONTROLLING LAW. This Agreement will be governed by and construed in all
respects in accordance with the laws of the State of New York.
ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties
as to the subject matter hereof and supersedes any and all prior oral or written
memoranda, understandings and agreements as to such subject matter. This
Agreement may be amended only by a written agreement signed by authorized
representatives of both parties.
DOCUMENT SCIENCES CORPORATION XEROX CORPORATION
Signature Authorization: Signature Authorization:
- ---------------------------------- ---------------------------------
Printed Name: Printed Name:
TONY DOMIT MICHELE MASSAGLIA
Title: Title:
PRESIDENT MANAGER, MARKETING PARTNERS GROUP
Date: Date:
----------------------------- ----------------------------
Mailing Address: Mailing Address:
6333 GREENWICH DRIVE 100 CLINTON AVENUE SOUTH
SAN DIEGO, CA 92122 ROCHESTER, NY 14644
Phone: Fax: Phone: Fax:
(619) 625-2000 (619) 625-3031 (716) 423-5789 (716) 423-4060
Page 8 of 8
<PAGE> 9
Cooperative Marketing Agreement XEROX
Between Xerox and Document Sciences
Xerox Products/Fee Schedule EXHIBIT 1
As of February 1, 1998
================================================================================
SNB & XTI
XEROX PRODUCTS FEE AMOUNT*
- -------------- -----------
DocuTech Production Publisher 135 $ 4,700
DocuTech Network Publisher 135 $ 5,200
DocuTech 6135 $ 5,700
DocuTech 6180 $ 8,700
DocuTech Network Server $ 700
DocuTech Media Server $ 600
DocuTech Extended Storage $ 800
DocuTech Signature Booklet Maker $ 1,700
DocuColor 40 $ 2,900
DocuColor 70 $11,300
DocuPrint 4635 $ 7,100
DocuPrint 4890 $ 5,200
DocuPrint 4850 $ 3,100
DocuPrint 4090 $ 2,700
DocuPrint 4050 $ 1,300
DocuPrint 377CF $ 9,600
DocuPrint 420CFT $16,000
DocuPrint 180 $ 9,100
* Fees will be paid for Sale New Business (SNB) and Xerox Trade in (XTI)
transactions. Fees will not be paid for Rental or Upgrade transactions
<PAGE> 10
CONFIDENTIAL INFORMATION REQUEST FORM
Under the terms of the Cooperative Marketing Agreement ("CMA") between Xerox
Corporation and Document Sciences Corporation, dated ______________________,
the following information is requested by ______________________ of
______________________:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
This information is needed in order to permit the requesting party to fulfill
the purposes of the CMA in the following specific manner:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Date: _______________
Signature: _______________
Exhibit 3 to the Cooperative Marketing Agreement
<PAGE> 11
COOPERATIVE MARKETING TEAMING AGREEMENT
XEROX/DOCUMENT SCIENCES
<TABLE>
<CAPTION>
<S> <C>
CUSTOMER INFORMATION
Company Name: ___________________________________ New Xerox Customer? Yes [ ] No [ ]
Site Address: ___________________________________ Products already installed: __________________________
1 _________________________________________________
Xerox Customer Number: __________________________ New Document Sciences Customer? Yes [ ] No [ ]
Xerox Product Opportunity & qty _________________ Products already installed: __________________________
Estimated Installation Date: (mnyr): ____________ Document Sciences Product Opportunity: _______________
Is this an XBS site? Yes [ ] No [ ] Estimated Installation Date (mnyr): __________________
- ------------------------------------------------------------------------------------------------------------------
XEROX DISCLOSURE: Is another Marketing Partner involved in this opportunity: Yes [ ] No [ ]
If Yes, Company:
- ------------------------------------------------------------------------------------------------------------------
Signature of the sales persons creating this teaming agreement indicate their intent to pursue a joint selling
opportunity with the above named customer and disclosure of other partnership involvement, as applicable.
XEROX CORPORATION DOCUMENT SCIENCES CORPORATION
Sales Rep Name: _________________________________ Sales Rep Name: _________________________________
2 CBU: _____________________________________ 3 District: _____________________________________
Telephone: ______________________________________ Telephone: ______________________________________
Signature: ______________________ Date: _________ Signature: _______________________ Date: ________
- ------------------------------------------------------------------------------------------------------------------
Mail/Fax to MPG Business Operations, XRX 2 - 21 8*223 4060 or (716) 423 4060
- ------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------
XEROX EQUIPMENT INSTALLATION COMPLETE
Product Serial Number: __________________________ Date Installed: _________________
5 Xerox Headquarters Approval:
Name: ___________________________________________ Signature: ___________________________________________
Title: __________________________________________ Telephone: _______________________ Date: _____________
- ------------------------------------------------------------------------------------------------------------------
CBU VALIDATION
The individuals below have verified that Document Sciences is entitled to receive the applicable
Engagement Fees for the equipment listed above pursuant to the Cooperating Marketing Agreement
between Xerox and Document Sciences based on the determination that Document Sciences' marketing
efforts played a significant enough role in the sale, license, or lease of this equipment to justify
this payment. In reaching this decision, the CBU Controller considered whether Document Sciences:
(a) established direct contact with the Customer, (b) provided the Customer with relevant
information regarding Document Sciences and Xerox products, (c) maintained contact with the Customer
throughout the selling cycle, (d) actively assisted the Xerox Sales Representative in the sale,
lease, and/or license of the above-referenced Xerox products, and/or (e) actively cooperated with
Xerox in ensuring that the Document Sciences Products sold to the Customer functioned together with
the above-referenced Xerox products in a manner acceptable to the Customer.
FIRST LINE MANAGER APPROVAL: CBU CONTROLLER APPROVAL:
First Line
Manager's Name: _________________________________ Controller's Name: ___________________________________
6 Signature: ______________________________________ 7 Signature: ___________________________________________
Title: __________________________________________ Title: _______________________________________________
Date: ___________________________________________ Date: ________________________________________________
Telephone: ______________________________________ Telephone: ___________________________________________
=============================================================================================================
1 2 3 4 5 6 7
Identify Customer and Xerox Rep Signs Document Sciences Fax/Mail STOP!!!
Equipment Rep Signs to Xerox Headquarters/CBU Use Only
=============================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.25
[DOCUMENT SCIENCES LOGO]
6333 Greenwich Drive, Suite 200
San Diego, CA 92130
Telephone: (619) 625-2000
Facsimile: (619) 625-3031
- -------------------------------------------------------------------------------
COOPERATIVE MARKETING AND CUSTOMER SUPPORT AGREEMENT
Whereas Document Sciences Corporation, ("DOCUMENT SCIENCES") wishes to engage
Xerox Canada Ltd., ("XEROX") as a non-exclusive Cooperative Marketing Partner,
and whereas, XEROX has insight concerning the identity of prospects in the
Territory and has knowledge concerning the applicability of DOCUMENT SCIENCES
products to the business of such prospects and whereas, XEROX has expertise and
skill in installation, training and support of DOCUMENT SCIENCES Products: Now,
therefore DOCUMENT SCIENCES and XEROX agree as follows:
<TABLE>
<CAPTION>
TABLE OF CONTENTS EXHIBITS
- ----------------- --------
<S> <C> <C> <C>
Article I Definitions Exhibit A Products
Article II Term Exhibit B Territory
Article III Responsibilities of the Parties Exhibit C Sample Customer Identification Form
Article IV Contract Administration Exhibit D Fee Schedule
Article V Customer Support Exhibit E DOCUMENT SCIENCES End User
Article VI Fees and Order Processing Software License and Support Agreement
Article VII Confidential Information Exhibit F Product and Services Pricing Schedule
Article VIII Trademarks and Logos Exhibit G Software Support Agreement
Article IX Indemnification and Warranties Exhibit H Sample Customer Configuration Form
Article X Termination Exhibit I Sample License Termination Letter
Article XI General Provisions
</TABLE>
DOCUMENT SCIENCES and XEROX agree that the terms and conditions of this
Agreement will govern the Cooperative Marketing and Customer Support Activities.
This Agreement is entered into by and between DOCUMENT SCIENCES and XEROX as of
July 1, 1997.
The parties acknowledge that they have read this Agreement as well as the
Exhibits and agree to be bound by all terms and conditions.
<TABLE>
<CAPTION>
DOCUMENT SCIENCES CORPORATION XEROX CANADA LTD.
<S> <C> <C> <C>
By: /s/ [SIG] By: /s/ [SIG]
--------------------------- ----------------------------
Date: 7/24/97 Date: [ILLEGIBLE]
--------------------------- ----------------------------
Name: Tony N. Domit Name: William B. Albino
President & CEO Title: Vice President & General Manager
Production Systems Group
Address: Document Sciences Corporation Address: Xerox Canada Ltd.
6333 Greenwich Drive, Suite 200 5650 Yonge Street
San Diego, CA 92122 North York, Ontario, M2M 4G7
Phone: (619) 625-2000 Phone: (416) 733-6331
FAX: (619) 625-3031 FAX: (416) 733-6431
</TABLE>
Page 1 of 21
<PAGE> 2
ARTICLE 1. DEFINITIONS
1.01 Confidential Information. All confidential and proprietary information
which in any way relates to the function, description, or operation of DOCUMENT
SCIENCES Products, including without limitation, data, designs, processes,
specifications, software in both source and object code and trade secrets,
together with non-public information such as that relating to suppliers,
service information, know how, product program schedules, project plans,
financial projections, business correspondence and such other similar
non-public information.
1.02 Customer. An end-user customer in the Territory who licenses DOCUMENT
SCIENCES Products for its own use and not for remarketing, and who is referred
to DOCUMENT SCIENCES by XEROX and identified on a Customer Identification Form,
Exhibit C, or who licenses DOCUMENT SCIENCES PRODUCTS through a XEROX Order
Agreement.
1.03 Effective Date. The date first above written.
1.04 Products. Products identified in Exhibit A.
1.05 Territory. The geographic or market coverage areas identified in
Exhibit B.
1.06 End-User License. DOCUMENT SCIENCES's standard Software License and
Software Support Agreement, Exhibit E.
ARTICLE II - TERM
2.01 Term. Subject to earlier termination as provided in Article X, the term
of this Agreement will commence on the Effective Date and will be for a period
of six (6) months, subject to automatic successive six (6) month renewal
periods. Provided, however, either party may terminate this Agreement at any
time without cause, upon ninety (90) days written notice of termination to the
other party.
ARTICLE III - RESPONSIBILITIES OF THE PARTIES
3.01 Joint Responsibilities. (a) XEROX and DOCUMENT SCIENCES will each
appoint a manager ("Program Manager") to oversee the program. These managers
will be responsible for (a) developing, implementing, and supporting joint
marketing programs in the Territory; (b) evaluating joint marketing programs
semi-annually to determine effectiveness; (c) devoting time to drive joint
marketing programs.
3.02 XEROX Responsibilities. (a) XEROX will identify sales prospects and
make referrals of prospects to DOCUMENT SCIENCES in the Territory; (b) XEROX
will designate a Program Manager who will devote approximately 25% of their
time to implement joint programs into the XEROX Customer Business Units (CBUs)
in order to maintain Customer and XEROX awareness of DOCUMENT SCIENCES
Products; (c) XEROX will list DOCUMENT SCIENCES Product prices in Canadian
dollars on XEROX' Pricing Information Documentation and will reflect quarterly
changes thereto.
3.03 DOCUMENT SCIENCES Responsibilities. (a) DOCUMENT SCIENCES will provide
a monthly status report on all XEROX referred active prospects and support only
prospects in the Territory to XEROX; (b) DOCUMENT SCIENCES will establish
prices for Products at published US prices plus 10% and will notify XEROX in
writing 90 days in advance of any price changes; (c) DOCUMENT SCIENCES will
prepare and distribute periodic publications and bulletins to all XEROX CSC's,
Analysts, BGU Staff, and Technical Support; (d) DOCUMENT SCIENCES will develop
and conduct, at a location and time designated by DOCUMENT SCIENCES, an annual
one (1) week Technical Support training program for XEROX Technical Support
staff and provide written logistical information regarding the event ninety
(90) days in advance; (e) DOCUMENT SCIENCES Sales Representatives will work
with XEROX Customer Business Units (CBU's), within a timely manner, to provide
(i) product and application training; (ii) proposal writing support; (iii)
customer call assistance; (iv) trade show facilitation and support; (v)
customer pre-sale application analysis and development; and (vi) customer
presentations; and (f) DOCUMENT SCIENCES will provide software maintenance
pursuant to and in accordance with the Software Maintenance Agreement attached
as Exhibit G. It is understood and agreed that DOCUMENT SCIENCES
Representatives will make best possible efforts to ensure all commitments to
XEROX staff and Customers are delivered within the committed timeframes.
DOCUMENT SCIENCES agrees to notify and solicit input from XEROX' Production
Systems Group regarding any proposed deviation from standard pricing.
Page 2 of 21
<PAGE> 3
ARTICLE IV - CONTRACT ADMINISTRATION
4.01 XEROX agrees to provide the following contract administration services
on behalf of DOCUMENT SCIENCES for all transactions resulting from identified
sales prospects referred to DOCUMENT SCIENCES: (i) Obtain signed End-User
License from Customer; (ii) Prepare and submit to Customer an invoice in
Canadian Dollars for the total price of the transaction; (iii) Collect accounts
receivable from Customers; (iv) Prepare and submit to Customer annual invoice
for Annual License Fee; (v) XEROX will remit DOCUMENT SCIENCES's portion of
Annual License Fees invoiced during a calendar quarter within thirty (30) days
after the end of the quarter.
ARTICLE V - CUSTOMER SUPPORT
5.01 XEROX agrees to provide a minimum of two dedicated support employees to
assist Customers with initial product installation, if required, telephone
hot-line support, post-sale technical support and required customer training for
all Core Products indicated in Exhibit A. Employees shall maintain up-to-date
product knowledge on existing and new product enhancements through periodic
DOCUMENT SCIENCES publications and bulletins and through participation in annual
one week training programs conducted at a time and location to be designated by
DOCUMENT SCIENCES.
5.02 XEROX will have the following obligations for all Core Products, as
listed in Exhibit A: (a) Provide support to all Customers in the Territory
including, without limitation (i) on-site installation of the Products, if
required, or support sufficient to enable the Customers to install the Products
themselves; (ii) customer training regarding operation of the Products; (iii)
telephone hot-line support from 8:30 a.m. to 5 p.m. EST, Monday to Friday; (b)
Promptly inform DOCUMENT SCIENCES about new problems or errors with any of the
Products which are reported by Customers or discovered by XEROX. XEROX may, at
its sole discretion, provide product based application consulting to customers
in the Territory provided the individuals providing such consulting have been
adequately trained to do so; any fees payable for such consulting shall be for
Xerox account.
5.03 DOCUMENT SCIENCES will use reasonable efforts to resolve
extraordinary technical problems or errors with any Products which are
identified by XEROX and which XEROX is unable to resolve. DOCUMENT SCIENCES
will respond to XEROX within the timeframes outlined below:
Severity 1 (The system is down and or the
user has no production capability)....................Within 4 business hours
Severity 2 (The systems is up but production
capability is seriously degraded).....................Within 12 business hours
Severity 3 (The systems is up but production
capability is reduced)................................Within 18 business hours
Severity 4 (The systems is up with no significant
impact to production)................................Within 24 business hours
DOCUMENT SCIENCES will provide XEROX with a report on the status of Severity 1
problems once per business day.
Each problem or error must be identified by telephone or, when appropriate, in
writing and faxed to DOCUMENT SCIENCES designated support person or fax number
in San Diego, CA. DOCUMENT SCIENCES does not guarantee it will be able to
resolve all identified problems or errors.
ARTICLE VI - FEES AND ORDER PROCESSING
6.01 DOCUMENT SCIENCES agrees to pay fees to XEROX for all qualified
Customer lead referrals or Customer orders on XEROX Order Agreements according
to the following: (a) 10% of all Product initial license revenue, as listed in
Exhibit A; (b) Training fees in accordance with fees listed on Exhibit D for
all training designated to be delivered with Product initial licenses; (c)
Support fees in accordance with fees listed on Exhibit D for all Core Products
listed on Exhibit A; (d) DOCUMENT SCIENCES will remit fees earned during each
calendar quarter to XEROX within thirty (30) days after the end of a quarter.
6.02 Upon receipt of XEROX order form and End-User License (Exhibit E)
signed by Customer, DOCUMENT SCIENCES will ship Product according to XEROX
order form information.
6.03 DOCUMENT SCIENCES will submit invoices in US dollars to XEROX for the
Product initial license fee. Invoices are payable in US dollars upon receipt
and are considered delinquent if not paid within thirty (30) days of receipt.
If under applicable law, Xerox is required to withhold tax or any amount from
any payment to Document Sciences, the amount will be withheld and remitted to
Revenue Canada. For greater certainty, the amount withheld is not subject to
reimbursement to Document Sciences by Xerox.
Page 3 of 21
<PAGE> 4
Invoices will be faxed to: Xerox Canada Ltd.
5650 Yonge Street
North York, Ontario
M2M 4G7
Attention: Production Systems Group, Financial
Analyst (416) 733-6431
6.04 Product Acceptance: DOCUMENT SCIENCES warrants its products as per
Section 9.03 in this Agreement. Any other Customer Acceptance terms must be
individually negotiated and accepted by DOCUMENT SCIENCES in writing prior to
order acceptance.
6.05 In the event that DOCUMENT SCIENCES for any reason reverses a License
transaction of any DOCUMENT SCIENCES Product and the DOCUMENT SCIENCES Product
is returned to XEROX, DOCUMENT SCIENCES will refund all money from the original
customer invoice less any referral or support fees paid to XEROX. XEROX will
forward the original amount of the License invoice to the Customer and forward
the returned Product to DOCUMENT SCIENCES. Prior to refunding any money, the
Customer must sign and return to DOCUMENT SCIENCES a License Termination Form,
Exhibit I. DOCUMENT SCIENCES retains sole authority regarding any decision to
reverse a DOCUMENT SCIENCES Product License transaction.
ARTICLE VII - CONFIDENTIAL INFORMATION
7.01 Both parties agree that it may be necessary from time to time to
exchange Confidential Information.
7.02 XEROX and DOCUMENT SCIENCES agree to safeguard all Confidential
Information received or to be received from each other and will not disclose
such information to any third party without the prior authorization from the
other, and will further restrict circulation of Confidential Information within
its organization except to the extent necessary to fulfill the purpose of this
Agreement. All Confidential Information will remain the property of the
disclosing party.
7.03 In order to be subject to the provisions of this Article VII,
Confidential Information which is to be disclosed after the Effective Date must
be disclosed either: (i) by written or electronic communication which is
appropriate labeled so as to give reasonable notice to anyone reading the
communication that the contents thereof are confidential and proprietary or,
(ii) by oral disclosure, in which case the party making the disclosure must, at
the time the disclosure is made, state to the recipients thereof that the
contents of the disclosure are confidential and proprietary, and must further
reduce the confidential and proprietary contents of the disclosure to a written
or electronic communication, appropriately labeled as required by clause (i)
above, which is delivered to said recipients within ten (10) days after the
oral disclosure of execution of this Agreement, whichever is later.
7.04 The receiving party will be released from the obligations of Article
VII with respect to any particular portion of Confidential Information when:
(a) the receiving party can document that: (i) it was in the public domain at
the time of the disclosing party's communication thereof to the receiving
party, (ii) it entered the public domain through no fault of the receiving party
subsequent to the time of the disclosing party's communication thereof to the
receiving party, (iii) it was in the receiving party's possession free of any
obligation of confidence at the time of the disclosing party's communication
thereof to the receiving party, (iv) it was rightfully communicated to the
receiving party free of any obligation of confidence subsequent to the time of
the disclosing party's communication thereof to the receiving party, or (v) it
was independently developed by the receiving party without reference to the
Confidential Information of the disclosing party; or (b) it is communicated by
the disclosing party to a third party free of any obligation of confidence; or
(c) it is after three (3) years after the disclosing party's communication
thereof to the receiving party.
7.05 All materials including, without limitation, documents, drawings,
models, sketches, designs, and lists furnished to one party by another and
which are designated in writing to be the property of such party will remain
the property of such party and will be returned to such party promptly at its
request with all copies made thereof.
ARTICLE VIII - TRADEMARKS AND LOGOS
8.01 The trademarks and trade names under which DOCUMENT SCIENCES markets
Products will remain the exclusive property of DOCUMENT SCIENCES. This
Agreement gives XEROX no rights therein except that during the term of this
Agreement DOCUMENT SCIENCES grants to XEROX a restricted license to reproduce
such trademarks and trade names in publications and under written terms and
conditions as may hereafter be approved by DOCUMENT SCIENCES.
Page 4 of 21
<PAGE> 5
ARTICLE IX - INDEMNIFICATION AND WARRANTIES
9.01 Intellectual property. DOCUMENT SCIENCES represents and warrants to
the other that it has sufficient right, title and interest in and to the
Products to enter into this Agreement and further warrants that it is not aware
that its Products infringe any patent, copyright or other proprietary right of a
third party and that it has not been notified by a third party of a possibility
that its Products might infringe any patent, copyright or other proprietary
right of a third party.
9.02 General. DOCUMENT SCIENCES will defend and hold harmless XEROX from,
and pay any amount due, any claim, action or other proceeding brought against
XEROX arising from the use and marketing of the Products, providing that XEROX
promptly notifies DOCUMENT SCIENCES in writing of any action or claim, allows
DOCUMENT SCIENCES at its expense. to direct the defense, gives DOCUMENT
SCIENCES sufficient information and reasonable assistance required to defend
such suit, claim or proceeding, but at no out-of-pocket expense to XEROX, and
allows DOCUMENT SCIENCES to pay any judgment, provided further that DOCUMENT
SCIENCES will have no liability for any claim, action or other proceeding based
upon acts or omissions by XEROX or for settlements or costs incurred without
the knowledge of DOCUMENT SCIENCES. To avoid infringement DOCUMENT SCIENCES may
at DOCUMENT SCIENCE'S option, and at no charge to XEROX, obtain a license, or
modify the Products so that they no longer infringe, but only if the
modification is still an equivalent of the Products, or substitute an
equivalent of the Products.
ARTICLE X - TERMINATION
10.01 Termination for Cause. (a) Either party may terminate this Agreement
upon written notice of termination to the other party in any of the following
events: (i) the other party materially breaches this Agreement and such breach
remains uncured for thirty (30) days following written notice of breach by the
terminating party; provided, however, that in the case of a repeat of a
material breach earlier cured, the new cure period will be ten (10) days; or
(ii) causes beyond the reasonable control of the other party delay its
performance for more than thirty (30) days; provided, however, that in the
case of a repeated force majeure delay earlier cured, the new cure period will
be ten (10 days; or (iii) a petition for relief under any bankruptcy
legislation is filed by or against the other party, or the other party makes an
assignment for the benefit of creditors. or a receiver is appointed for all or a
substantial part of the other party's assets, and such petition, assignment or
appointment is not dismissed or vacated within thirty (30) days; of (iv) change
in majority ownership or change of control of the other party. (b) Either party
may terminate this Agreement without cause, upon ninety days written notice of
termination to the other party.
10.02 Survival. The provisions of this Agreement will, to the extent
applicable, survive the expiration or any termination hereof.
ARTICLE XI - GENERAL PROVISIONS
11.01 LIMITATION OF LIABILITY, EXCEPT AS SET FORTH HEREIN, NEITHER PARTY WILL
BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES, WHETHER ARISING IN CONTRACT OR IN TORT (INCLUDING BUT NOT LIMITED TO
NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
11.02 Relationship of the Parties. (a) Both parties agree that they are
independent and neither is authorized to make any commitment or representation
in the other's behalf. (b) During the term of this Agreement, both parties agree
that the terms "partner" or "partnership", used in reference to this Agreement
be used to describe the Cooperative Marketing and Customer Support relationship
between the parties and do not describe or express an implied legal status of
partners or joint venturers. Under no circumstances shall any of the employees
of one party be deemed the employees of the other for any purpose.
11.03 Government Compliance. Each party will comply fully with all federal,
state, provincial, and local laws and regulations relating to its obligations
under this Agreement.
11.04 Force Majeure Except as otherwise provided herein, neither party will
be liable to the other for its failure to perform any of its obligations
hereunder during any period in which such performance is delayed by
circumstances beyond its reasonable control, provided that the party
experiencing such delay promptly notified the other party of the delay. In the
event that such a delay by a party
Page 5 of 21
Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing and Customer Support Agreement
July 1, 1997
<PAGE> 6
continues for more than sixty (60) days, the other party may, at its sole
option, and in addition to its other rights and remedies under this Agreement or
at law or in equity, suspend its obligations under this Agreement during the
period of delay.
11.05 Headings. The headings and titles of the Articles of this Agreement are
inserted for convenience only and will not affect the construction or
interpretation of any provision.
11.06 Amendment. This Agreement may be amended only by a written agreement
duly signed by authorized representatives of both parties.
11.07 Assignment. Neither party will assign this Agreement or any rights and
obligations thereunder to any third party without the express written
permission of the other party.
11.08 Severability If any provision of this Agreement is held invalid by
any law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity will not affect
the enforceability of any other provisions not held to be invalid.
11.09 Waiver. Any delay by either party to exercise any right or remedy
under this Agreement will not be construed to be a waiver of any other right or
remedy hereunder. All of the rights of either party under this Agreement will
be cumulative and may be exercised separately or concurrently.
11.10 Alternate Dispute Resolution. The parties will attempt to resolve any
dispute, controversy or claim arising under this Agreement in a non-judicial
manner and forum. Any such dispute, controversy, or claim hereunder will be
initially referred to resolution to the respective parties' representatives. If
such individuals cannot resolve the matter with sixty (60) days after the matter
in dispute has been submitted to them for resolution, then the matter will be
referred to one corporate Vice President of each of the parties for resolution
within a subsequent sixty (60) day period.
11.11 Controlling Law. This Agreement will be governed by and construed in
all respects in accordance with the laws of the Ontario, Canada.
11.12 Entire Agreement. This Agreement constitutes the entire agreement of
the parties as to the subject matter hereof and supersedes any and all prior
oral or written memoranda, understandings and agreements as to such subject
matter.
11.13 Publicity; Neither party will publicly disclose any information
concerning this Agreement without the prior written consent of the other party.
11.14 Other Distribution: DOCUMENT SCIENCES may consider additional
distribution channels in the Territory in order to access markets or sales
opportunities where XEROX would not normally be involved. Should this occur,
DOCUMENT SCIENCES would not pay XEROX referral fees for orders received through
these alternate channels but would pay support fees as outlined in Exhibit
D should such services be required. XEROX would, however, always receive
pricing which is as favorable as that made to any other distribution channel in
the Territory.
11.15 Ethical Standards: Each party agrees that, with respect to its
performance under this Agreement including any interaction with any employee of
the other party pursuant to the Agreement, such party will not: (a) give of
offer to give any gift or benefit to said employee, (b) solicit or accept any
information, data services, equipment, or commitment from said employee unless
same is (i) required or permitted to be solicited or accepted under a contract
or other arrangement between XEROX and DOCUMENT SCIENCES, or (ii) made pursuant
to a written disclosure Agreement between XEROX and DOCUMENT SCIENCES, or (iii)
specifically authorized in writing by the employee's management. As used
herein, "employee" includes members of the employee's immediate family and
household, plus any other person who is attempting to benefit from his other
relationship to the employee. A "party" in this context includes all employees
and agents of the party "Gift or benefit" includes money, goods, services,
discounts, favors and the like in any form but excluding low value advertising
items such as pens, pencils, and calendars "Favoritism" means partiality in
promoting the interest of a party over that of the other vendors. Such activity
by either party will constitute breach of this Agreement by that party.
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Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 7
11.16 Notices. Any notice which may be or is required to be given under
this Agreement will be written. Any written notices will be sent by registered
mail or certified mail, postage prepaid, return receipt requested. All such
notices will be deemed to have been given when received, properly addressed
pursuant to the addresses below:
<TABLE>
<CAPTION>
<S> <C>
Xerox Canada Ltd. DOCUMENT SCIENCES Corporation
Attention: Vice President & General Manager Attention:Vice President, Business Development
Production Systems Group 6333 Greenwich Drive - Suite 200
5650 Yonga Street San Diego, CA 92122
North York Ontario M2M 4G7
</TABLE>
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Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 8
EXHIBIT A - PRODUCTS
CORE PRODUCTS:
Composition and Development Software, including all operating system platform
versions of:
CompuSet
CompuPrep
Emitters (PostScript, PCL5, Metacode, XES, AFP)
Importers (TIFF, PCL)
Netprint
CompuSeries
NON-CORE PRODUCTS:
Document Library Services
Desktop Document Manager (DDM)
Document Viewing Services
CompuView Navigator
All releases, platforms, and upgrades to both Core and Non-Core listed software.
Page 8 of 21
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Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 9
EXHIBIT B - TERRITORY
Canada
Page 9 of 21
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Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 10
EXHIBIT C - SAMPLE CUSTOMER IDENTIFICATION FORM
________________________________________________________________________________
Prospect/Customer Information:
Company Name:____________________________Contact Name___________________________
Site Address:____________________________Title:_________________________________
Main Telephone Number:___________________Fax Number:____________________________
________________________________________________________________________________
________________________________________________________________________________
Xerox Canada Sales Rep Information:
Sales Rep Name:_________________________________________________________________
Telephone Number:________________________Fax Number:____________________________
Signature:_______________________________Date:__________________________________
________________________________________________________________________________
________________________________________________________________________________
DOCUMENT SCIENCES Sales Rep Information:
Sales Rep Name:_________________________________________________________________
Telephone Number:________________________Fax Number:____________________________
Signature:_______________________________Date:__________________________________
________________________________________________________________________________
Proposed DOCUMENT SCIENCES Product Information:
________________________________________________________________________________
DSC Products Processing Projected In-Place Printers New Printers
Platform Order Be Supported To Be
Date Supported
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
XEROX APPROVAL:_________________________ DSC APPROVAL:_________________________
Page 10 of 21
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<PAGE> 11
EXHIBIT D - FEE SCHEDULE
SUPPORT FEES:
Fees to be paid to XEROX for providing support as descried in Section 5.02 on
DOCUMENT SCIENCES Core Products, as specified in EXHIBIT A, are:
<TABLE>
<CAPTION>
ANNUAL VOLUME OF PRODUCT INITIAL LICENSE FEE AS % OF INVOICED
- ---------------------------------------- --------------------
FEES INVOICED: AMOUNT:
------------- ------
<S> <C>
$0 - $500,000 15%
$500,001 to $1,000,000 30%
over $1,000,001 40%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL VOLUME OF PRODUCT ANNUAL LICENSE FEE AS % OF INVOICED
---------------------------------------- --------------------
RENEWAL FEES INVOICED FOR ALL CORE PRODUCTS AMOUNT:
- ------------------------------------------- ------
<S> <C>
All 50%
</TABLE>
TRAINING FEES:
Fees to be paid to XEROX for providing local initial license training, where
included in the price as per Price List (Exhibit F) are:
<TABLE>
<CAPTION>
PRODUCT TRAINING DURATION FEE PAID
------- ----------------- --------
<S> <C> <C>
Compuset 4.5 Days 5,000
</TABLE>
COST PER COPY LICENSES FEES:
DOCUMENT SCIENCES is currently exploring a Cost Per Copy pricing structure to
replace or supplement initial license fees for certain high print volume
customers. In the event that an agreement is reached with an existing XEROX
customer, DOCUMENT SCIENCES agrees to work with XEROX to develop an appropriate
fee sharing formula.
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<PAGE> 12
EXHIBIT E - DOCUMENT SCIENCES END USER SOFTWARE LICENSE AND SUPPORT AGREEMENT
DOCUMENT SCIENCES CORPORATION
CANADIAN SOFTWARE LICENSE & SOFTWARE SUPPORT AGREEMENT
SHIP TO: BILL TO:
CUSTOMER: CUSTOMER:
- -------------------------------------- ------------------------------------
ATTENTION: ATTENTION:
- -------------------------------------- ------------------------------------
TITLE: TITLE:
- -------------------------------------- ------------------------------------
DEPARTMENT DEPARTMENT
- -------------------------------------- ------------------------------------
ADDRESS ADDRESS
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
CITY: PROVINCE: CITY: PROVINCE:
- -------------------------------------- ------------------------------------
POSTAL CODE COUNTRY POSTAL CODE COUNTRY
- -------------------------------------- ------------------------------------
TELEPHONE: FAX: TELEPHONE: FAX
- -------------------------------------- ------------------------------------
SOFTWARE SCHEDULE
ADDENDUM #____
SECTION 1: - LICENSED SOFTWARE
<TABLE>
<CAPTION>
Software Platform Operating System Quantity Initial License Fees Annual License Fee*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRICE QUOTE GOOD FOR 90 DAYS
* Beginning second year of software usage. Years three and onward will be
calculated as 15% of the then-current Initial License Fee
SECTION 2 - HOST COMPUTER SYSTEM
The Licensed software listed herein is licensed for use only on the following
CPU host computer system.
<TABLE>
<CAPTION>
Model Operating System Serial Number Location
<S> <C> <C> <C>
- -------- ------------------ ----------------- --------------
</TABLE>
THE INDIVIDUAL SIGNING BELOW AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF
THE LICENSE GRANT, TERMS AND CONDITIONS (SECTIONS 1 THROUGH 16) ATTACHED HERETO
AND HEREBY MADE A PART OF THIS AGREEMENT AND WARRANTS HE/SHE IS AN AUTHORIZED
REPRESENTATIVE OF CUSTOMER. THIS AGREEMENT SHALL NOT BE EFFECTIVE UNTIL
EXECUTED BY CUSTOMER AND ACCEPTED BY AN AUTHORIZED HEADQUARTERS REPRESENTATIVE
OF DOCUMENT SCIENCE CORPORATION.
<TABLE>
<S> <C>
Executed: Accepted:
CUSTOMER: DOCUMENT SCIENCE CORPORATION
---------------------------
By: By:
--------------------------------- --------------------------------
Name: Name: Tony N. Domit
--------------------------------- --------------------------------
Title: Title: PRESIDENT & CEO
--------------------------------- --------------------------------
Date: Date:
--------------------------------- --------------------------------
</TABLE>
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July 1, 1997
<PAGE> 13
SOFTWARE LICENSE GRANT, TERMS AND CONDITIONS
This Agreement is made and entered into between DOCUMENT SCIENCES CORPORATION
("Document Sciences") and ______________________ ("Customer"), a corporation,
with its principal place of business at _____________________________________.
1. LICENSED SOFTWARE
The term "Licensed Software" shall mean any or all of object code, support
documentation, including but not limited to the Reference Manual, System Guide,
Quick Reference, User Guide, Release Notes, Font Data Base Reference Manual,
Message Guide, PCL Importer Manual, CompuView Manual, CompuPrep Manual, TIFF
Importer Manual, NetPrint Notes, Multi-Graphic Consolidator Manual and other
related material of the Document Sciences Software Products listed in the
Software Schedule(s) and delivered to Customer under this Agreement.
2. LICENSE GRANT
a. Subject to the payment of the Initial License Fees set forth on the
Software Schedule and Addendums thereto, and all other applicable license
fees, if any, and subject to the terms and conditions of this Agreement,
Document Sciences grants to the Customer a non-transferable, non-assignable
(by operation of law or otherwise), non-exclusive license to use the
Licensed Software solely for Customer's own internal business purposes on
the size, type, and number of central processing units ("CPU") specified on
the Software Schedule(s).
b. Customer expressly acknowledges and agrees that license agreements shall be
required for all CPU's on which Customer uses the Licensed Software.
Customer may license additional Licensed Software for operation on
additional CPU's at Document Sciences' then-current charges and subject to
Document Sciences' then prevailing terms and conditions, by and through
Customer's execution of and Document Sciences' acceptance of Addendums to
the Software Schedule which shall become effective upon such acceptance.
c. Title and full ownership rights to the Licensed Software and any copies
thereof, shall at all times reside exclusively with Document Sciences
and/or its licensors.
3. PAYMENT
Following the Customer's receipt of the Licensed Software, Xerox Canada on
behalf of Document Sciences shall invoice the Customer for the amount owed under
this Agreement. Such invoice(s) are payable upon receipt and are considered
delinquent if not paid within thirty (30) days.
4. REDESIGNATION OF HOST COMPUTER SYSTEM
If Customer desires to transfer use of the Licensed Software, wither temporarily
or permanently, to a different CPU, or if Customer desires to change CPU's
physical location, Customer shall notify Xerox Canada in writing at least 60
days prior to such proposed transfer or relocation and specifically designate
the new CPU and/or location. In the event that such prior notice is not possible
when the CPU becomes inoperative due to malfunction, Customer may temporarily
transfer use of the Licensed Software to a back-up system and promptly notify
Xerox Canada in writing of such transfer. With respect to any transfer of the
Licensed Software to a new CPU and/or location, Customer (a) assumes full
responsibility for all operational changes thereto, and (b) shall bear all costs
associated with such transfer and/or relocation, including but not limited to,
any and all additional license fees and support costs which may be payable to
Xerox Canada in accordance with Document Sciences' then-current charges.
5. CUSTOMER'S RESPONSIBILITIES
In addition to the other obligations set forth in this Agreement, Customer shall
(a) be solely responsible for and bear all costs associated with determining and
maintaining the configuration and operation of the CPU and all associated
operating system software and (b) install and operate the Licensed Software on
the CPU in accordance with Document Sciences' support documentation.
6. CONFIDENTIALITY
Customer acknowledges that the Licensed Software contains confidential
information of Document Sciences and its licensors. Customer agrees to disclose
such confidential information only to its employees and consultants having a
clear need for such information to enable Customer to exercise its right under
this Agreement. This obligation shall not apply to any portion of the
confidential information to the extent that it (a) is or becomes part of the
public domain through no fault of Customer or its employees or consultants, (b)
was rightfully communicated to Customer free of any obligation of confidence
subsequent to the time of receipt, (c) was developed by Customer independently
of and without reference to the confidential information, (d) is communicated by
Document Sciences to a third party free of any obligation of confidence, or (e)
is more than five years after termination of this Agreement.
7. COPYING RESTRICTIONS
Customer may copy the Licensed Software in whole or in part, only for backup or
archive purposes consistent with the license grant in Paragraph 2, but in no
event shall the number of copies exceed two. Each copy shall include in readable
format any and all confidential, proprietary, and copyright notices or markings
contained on the original provided by Document Sciences.
8. UNAUTHORIZED USE AND CUSTOMER COMPLIANCE
Customer agrees to use all reasonable efforts to ensure that persons employed by
Customer or under Customer's direction and control (including consultants) abide
by the terms and conditions of this Agreement including, without limitation, not
knowingly permitting anyone to use any portion of the Licensed Software for the
purpose of deriving its source code. In the event the Customer becomes aware
that the Licensed Software is being
Page 13 of 21
Document Sciences Corporation - Xerox Canada Ltd.
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July 1, 1997
<PAGE> 14
used by such persons in a manner not authorized by this Agreement, Customer
shall immediately use all reasonable efforts to have such unauthorized use of
such Licensed Software immediately cease and shall immediately notify Document
Sciences in writing of the unauthorized use.
9. THIRD PARTY SOFTWARE
The Licensed Software is protected by Copyright and other proprietary rights of
Document Sciences and/or, its licensors. Customer may be held directly
responsible by such third party licensor for acts relating to the Licensed
Software which are not authorized by this Agreement.
10. TERM OF LICENSE AGREEMENT AND RENEWAL OF LICENSE AGREEMENT
The term of the Agreement shall be twelve (12) months commencing on the date
Document Sciences accepts this Agreement and shall be subject to automatic
renewal at Document Sciences' then current Annual License Fee applicable to the
Licensed Software for additional one year terms unless either party notifies the
other of cancellation at least thirty (30) days prior to the end of an annual
term. the Annual License Fee shall be due and payable in full on the first day
of such one year term.
11. SOFTWARE SUPPORT
a. Software Support (defined below) for Licensed Software shall be included in
the Initial License Fees and Annual License Fees. For purposes of this
Agreement, Software Support shall consist of:
1. Document Sciences sending to Customer from time to time, as Document
Sciences deems appropriate, Licensed Software releases or upgrades the
primary purpose of which is to maintain compatibility with the then
current supported host environment and/or add or enhance Licensed
Software features and capabilities.
2. The provision by Xerox Canada on behalf of Document Sciences of a
Customer Support Center Hot-Line number for the resolution of user
problems and questions relating to the Licensed Software. The Hot-Line
shall be available for live communication between 8:30 a.m. and 5 p.m.
EST, Monday through Friday. For the remaining period, Xerox Canada on
behalf of Document Sciences shall provide a telephone message
recording device which will record Customer's reports.
3. The submission of Licensed Software problems to Xerox Canada on behalf
of Document Sciences via a Problem Report. Document Sciences does not,
however, guarantee the correction of any Licensed Software problem.
b. The implementation of all software releases/upgrades is mandatory and the
previous release of software will only be supported for six months
following the "general availability" of the current release/upgrade as
determined by Document Sciences.
c. If Customer fails to implement the most current release or upgrade of the
Licensed Software product for any reason whatsoever, Xerox Canada on behalf
of Document Sciences may discontinue providing Software Support for any
affected Licensed Software product without further liability to Customer.
d. Xerox Canada on behalf of Document Sciences reserves the right to
discontinue Software Support for any Licensed Software product at any time
after the first anniversary of this Agreement. Xerox Canada on behalf of
Document Sciences shall give the Customer at least 30 days prior written
notice of the effective date of such discontinuance and shall reimburse
Customer the pro rata portion of any prepaid Annual License Fee for
Software Support provided that Customer is in full compliance with the
terms of this Agreement.
12. TERMINATION OF AGREEMENT
a. This Agreement shall terminate immediately: (i) upon expiration of its
annual term, with written notification (see Paragraph 10 above); (ii) if,
upon expiration of thirty (30) days from the date of written notice by
Document Sciences of a material curable default under this Agreement is
sent to Customer, such default has not been cured; (iii) immediately upon
notice in the event of a material default which by its nature cannot be
cured; (iv) if Document Sciences elects to accept return of the Licensed
Software under Paragraphs 12b or 13 of this Agreement; or (v) to the extent
permitted by applicable law, if Customer enters into any composition or
arrangement with or for the benefit of its creditors, becomes bankrupt, has
a receiver and/or manager appointed to manage its assets, or goes into
liquidation, voluntarily or under supervision.
b. Following termination Customer shall (i) promptly discontinue use of the
Licensed Software and shall either deliver to Document Sciences and/or
destroy all Licensed Software and related materials furnished by Document
Sciences, together with all copies of the Licensed Software (including
erasing Licensed Software from memory or data storage apparatus under the
control of Customer) and (ii) warrant in writing to Document Sciences
within thirty (30) days of termination that the Licensed Software, related
materials and all copies thereof have been either returned to Document
Sciences and/or destroyed and erased from memory and/or data storage
apparatus.
c. The obligations of Customer under Paragraph 6 relating to confidential
information shall survive termination of this Agreement.
GENERAL PROVISIONS
13. WARRANTY AND DISCLAIMER
a. Document Sciences warrants the physical media on which the Licensed
Software is embedded or resident will be free from material defects in
material for a period of thirty (30) days from the date of delivery to
Customer. Document Sciences shall replace floppy disks, on which the
Licensed Software is resident, or incomplete or illegible documentation
upon receipt of notification of defect. Customer's sole remedy shall be for
Document Sciences to replace the defective media.
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July 1, 1997
<PAGE> 15
b. Document Sciences warrants that for a period of ninety (90) days from the
date of delivery to Customer of the Licensed Software, the Licensed
Software shall be free from material coding errors. A "material coding
error" is an error which results in the Licensed Software being in material
nonconformity to its published Document Sciences specifications. Document
Sciences does not warrant that the operation of the Licensed Software will
be uninterrupted or error-free. The Customer must notify Document
Sciences in writing of a material coding error within the 90 day warranty
period.
Document Sciences, at its option, may either provide Customer with Licensed
Software which is free from, or a workaround which avoids, the material
coding error or accept return of the Licensed Software and refund the
Customer the license fees paid for such Licensed Software. Document
Sciences shall provide the replacement Licensed Software or workaround or
refund the license fees within a reasonable time after receiving the notice
of a material coding error from Customer. If Document Sciences does not,
within a reasonable time after notification, provide the replacement
Licensed Software or workaround, Customer's sole remedy shall be to rescind
this Agreement.
c. THE EXPRESS WARRANTIES SET FORTH ABOVE ARE THE ONLY EXPRESS WARRANTIES.
DOCUMENT SCIENCES DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. DOCUMENT SCIENCES DISCLAIMS ANY AND ALL
WARRANTIES AND REPRESENTATIONS MADE BY PERSONS OTHER THAN DOCUMENT SCIENCES
INCLUDING, BUT NOT LIMITED TO, DISTRIBUTORS OF ANY DOCUMENT SCIENCES
LICENSED SOFTWARE.
D. The express warranties set forth above shall be void if Customer fails to
properly use the Licensed Software in the appropriate environment as
specified in the support documentation.
14. PATENT AND COPYRIGHT INDEMNIFICATION
Document Sciences will defend Customer from, and pay any ultimate judgment for,
direct infringement in the United States by the Licensed Software of any patent,
trade secret, or copyright, if Customer promptly notifies Document Sciences in
writing of any alleged infringement, allows Document Sciences to defend, and
cooperate with Document Sciences. Document Sciences is not responsible for any
non-Document Sciences litigation expenses or settlements unless Document
Sciences agrees to them in writing. To avoid infringement, even if not alleged,
Document Sciences may, at its option, and at no charge to Customer, obtain a
license, or modify, or substitute an equivalent of, or remove the Licensed
Software. If Licensed Software is removed by Document Sciences for this reason,
the pro rata portion of any prepaid Initial License Fee or Annual License Fee
will be refunded. Document Sciences is not liable for any infringement due to
the Licensed Software being made or modified (by Document Sciences or others,
including Customer) to Customer specifications, or being used or sold in
combination with equipment, software, or supplies not provided by Document
Sciences. DOCUMENT SCIENCES HAS NO OTHER EXPRESS OR IMPLIED WARRANTY OF
NONINFRINGEMENT OR LIABILITY FOR INFRINGEMENT OR ANY DAMAGES THEREFROM.
15. LIMITATION OF LIABILITY
EXCEPT AS TO INDEMNIFIED MATTERS UNDER 14 ABOVE, IN NO EVENT SHALL DOCUMENT
SCIENCES BE LIABLE TO CUSTOMER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT.
IN ADDITION, DOCUMENT SCIENCES' LIABILITY TO CUSTOMER FOR DIRECT DAMAGES SHALL
IN NO EVENT EXCEED THE TOTAL AMOUNT OF MONEY ACTUALLY PAID BY CUSTOMER TO
DOCUMENT SCIENCES UNDER THIS AGREEMENT.
16. MISCELLANEOUS
a. No delay or failure of Document Sciences to exercise any right or remedy
will operate as a waiver of such right of remedy.
b. Customer acknowledges that its rights in and to the Licensed Software may
not be assigned, licensed or otherwise transferred by operation of law or
otherwise without the prior written consent of Document Sciences.
c. This Agreement shall be construed in accordance with and be governed by
the laws of the State of California.
d. Any notice given under this Agreement shall be in writing and sent by
prepaid registered mail or certified airmail, or commercial courier
service, return receipt requested. All such notices shall be deemed to have
been given when received, addressed in the manner indicated below or at
such other addresses as the parties may from time to time notify each other
of.
Notice to Customer: Notice to Document Sciences:
_______________________________ Barbara E. Amantea, CFO
_______________________________ Document Sciences Corporation
_______________________________ 6333 Greenwich Drive - Suite 100
_______________________________ San Diego, CA 92122
Page 15 of 21
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e. This Agreement is the entire agreement between Customer and Document
Sciences pertaining to the Licensed Software and supersedes all proposals
or prior and contemporaneous agreements or understandings of Customer and
Document Sciences regarding the Licensed Software. CUSTOMER AGREES THAT ANY
TERMS AND CONDITIONS CONTAINED IN ANY CUSTOMER PURCHASE ORDER OR OTHER
ORDERING DOCUMENT SHALL HAVE NO BINDING EFFECT ON DOCUMENT SCIENCES AND
WILL NOT MODIFY THIS AGREEMENT IN ANY WAY. Modification of this Agreement
shall not be valid unless in writing and signed by duly authorized
representative of both parties.
f. This Agreement may be executed in two or more counterparts, each of which
when so executed and delivered, shall constitute a single agreement.
g. If any provision of this Agreement is held invalid, such invalidity shall
not effect the validity or enforccability of the other provisions of this
Agreement or of the Agreement as a whole.
h. Customer shall be responsible for the payment of any and all taxes on the
Initial License Fee and Annual License Fees, other than taxes based on
Document Sciences' net income or Document Sciences' privilege taxes.
Page 16 of 21
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July 1, 1997
<PAGE> 17
EXHIBIT F - DOCUMENT SCIENCES PRODUCTS AND SERVICES PRICE LIST
DOCUMENT SCIENCES SOFTWARE INITIAL LICENSE FEES
- FOR CANADIAN INSTALLATIONS - PRICES IN $US
EFFECTIVE 4/1/97
HOST AND SERVER PRODUCTS
________________________________________________________________________________
Software Licenses (1) Mainframe (2) Midrange (3) PC (4)
________________________________________________________________________________
CompuSet (5) 6.x $82,500 $60,500 $38,500
________________________________________________________________________________
Upgrade (6) from XICS 5.x $22,000 -- --
________________________________________________________________________________
Platform Migration to Midrange
or PC Class $11,000 -- --
________________________________________________________________________________
CompuPrep 6.x $13,200 $8,800 $4,400
________________________________________________________________________________
Emitters (7) - Metacode, PostScript,
AFP, or PCL5 $11,000 $7,700 $3,300
________________________________________________________________________________
DLS Server (8) 4.x $110,000 (9) -- $55,000
________________________________________________________________________________
DVS Server (10) 1.x - includes
Xerox Print Emulator $55,000 $44,000 $33,000
________________________________________________________________________________
DVS CompuSet (10) 6.x - includes 10
CompuViews $33,000 $27,500 $22,000
________________________________________________________________________________
DESKTOP WINDOWS PRODUCTS
COMPUSERIES* Requires CompuSet License
_____________________________________________________
Software Licenses (1) Each Seat
_____________________________________________________
CompuSeries II Win95 $13,200
_____________________________________________________
Upgrade from CompuPack $2,200
_____________________________________________________
Upgrade from Build/Spec $3,300
_____________________________________________________
Upgrade from Build $7,700
_____________________________________________________
CompuBuild DDE Win 3.x $5,500
_____________________________________________________
DOCUMENT VIEWING* Requires
DVS CompuSet or Server License
_____________________________________________________
Software Licenses (1) Seat Pricing
_____________________________________________________
CompuView Win95 $275 (QTY=1) TO $55 (QTY=1000)
_____________________________________________________
DLS NETDRIVE* Requires CompuSet or CompuSeries License
_____________________________________________________
Software Licenses (1) Win95 PC
_____________________________________________________
DLS NetDrive (8) Win95 $38,500
_____________________________________________________
DLS NetDrive (8) Bundle with $55,000
CompuSeries II, Emitter Win95
_____________________________________________________
DOCUMENT MANAGER* Requires DLS Server
or NetDrive License
_____________________________________________________
Software Licenses (1) Each Seat
_____________________________________________________
DDM/Migrate Client Win3.x $5,500
_____________________________________________________
DDM/Edit Client Win3.x $3,300
_____________________________________________________
DDM/Modify Client Win3.x $2,200
_____________________________________________________
Win3.xx for Win3.1 or later, Win95 for Win95 or later. Pricing in $US. Prices
and conditions subject to change without notice.
(1) Initial License Fee for the first 12 months is prepaid in advance.
Beginning on the first day of the 13th month of usage and each year
thereafter, the Annual License fee must be paid to retain use rights.
Annual License Fee, calculated at 15% of Initial License Fees, will be
billed annually in advance. Software support, as defined in Section 11 of
the Sofware License & Software Support Agreement, is included in the
Initial and Annual License Fees.
(2) Mainframe Class. Mainframe Operating Systems including: IBM MVS, VM, and
DOS/VSE; DEC Vax VMS, Alpha Open VMS; UNISYS 1100/90, 2200, and A-Series.
DVS Server available on select systems. DLS Server available on IBM/MVS
only.
(3) Midrange Class: Unix Operating Systems including: DEC Alpha OSF, DG
Unix, HP Unix, IBM AIX, NCR Unix, Pyramid Unix, SGI Unix, Sequent, Sun
Solaris, and UNISYS Unix. DVS Server available on select Unix systems. DLS
Server NOT available on Unix systems.
(4) PC Class: PC Operating Systems including: SCO Unix, IBM OS/2, Windows NT,
Windows 95, and PC DOS. DVS Server available on select PC systems. DLS
Server available on Windows NT and OS/2 systems only.
(5) One week of training at XEROX Training Center is included in the Initial
License Fee. If required by the Customer, Software installation and Setup
at Customer Site is also included by XEROX in the Initial License Fee.
(6) CompuSet 6.x Upgrade for XICS 5.x. Upgrade fee includes software support,
per Section 11 of the Software License & Software Support Agreement.
Page 17 of 21
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July 1, 1997
<PAGE> 18
7 CompuSet 6.x includes choice of one Emitter (Metacode, Postscript, AFP, or
PCL5). Additional Emitters are optional.
8 Mainframe DLS Server for IBM/MVS CICS systems only. PC DLS for OS/2 and
Windows NT systems only. DLS/NetDrive available on Windows 95 only.
Software Installation, Integration, Training and Setup at Customer Site is
available, at an incremental price, from DOCUMENT SCIENCES Consulting
organization or its Authorized providers.
9. Mainframe DLS for IBM/MVS is a Data Retrieval product and is licensed and
warranted by Data Retrieval. DOCUMENT SCIENCES is an Authorized Distributor
of this product.
10. DVS Server includes viewing support for CompuSet (All Platforms) and Xerox
LCDS and Metacode print streams (MVS and select Unix platforms only). DVS
CompuSet includes viewing support for CompuSet Only. Software installation
and Setup at Customer Site is included by DOCUMENT SCIENCES in the initial
License Fee. One Day of training at the San Diego Training Center is also
included by DOCUMENT SCIENCES in the Initial License Fee.
ANNUAL SOFTWARE RENEWAL LICENSE FEES
Additional One Year Software License Renewal Fee*......15% of DOCUMENT SCIENCES'
then-current License Fee
*as per End User License Agreement, Exhibit E Section 10.
SERVICES PRICING
SOFTWARE INSTALLATION
STANDARD: Software installation and Setup at customer site is included in
the Initial License Fee for CompuSet and/or installation of one copy (seat)
of CompuSeries II,........................................provided by XEROX
SUPPLEMENTAL: If DOCUMENT SCIENCES software installation is desired
on-site...................................................$2,750/day*
CUSTOMER TRAINING
STANDARD: Basic training at the XEROX Toronto Training Center, for 2
students attending within one year of initial software licensing, is
included in the Initial License Fee for
CompuSet..................................................provided by XEROX
If DOCUMENT SCIENCES TRAINING IS DESIRED PER STUDENT:
SAN DIEGO TRAINING CENTER
COMPUSET BASIC: 4 1/2 Days Classroom.................$1,375*
COMPUSET ADVANCED: 3 Days Classroom..................$2,035*
COMPUSET SYSTEM: 2 Days Classroom....................$1,100*
DLS BASIC: 2 Days Classroom..........................$ 825*
DVS BASIC: 1 Day Classroom...........................$ 275*
CUSTOMER SITE: Per 6 students. Additional students quoted separately.
BASIC, ADVANCED, OR CUSTOMIZED TRAINING CLASSES......$1,650/day*
APPLICATION CONSULTING PROVIDED BY DOCUMENT SCIENCES
Application Design, Data Tagging, StyleSpec/PrepSpec
Development, DLS Integration, Text and Graphics
Conversion, DCLIB Creation, Font Database
Customization, DVS Indexing, Printer Integration,
and Creation of Masters or Print-ready files will be
priced by job........................................Quoted
*Travel and accommodations additional
Prices and conditions subject to change without notice.
Page 18 of 21
Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 19
EXHIBIT G - SOFTWARE MAINTENANCE AGREEMENT
10 XEROX'S RESPONSIBILITIES:
XEROX shall have the following responsibilities for all Core Products, as listed
in Exhibit A: (a) Provide support to all Customers in the Territory including,
without limitation (i) on-site installation of the Products, if required, or
support sufficient to enable the Customers to install the Products themselves;
(ii) customer training regarding operation of the Products; (iii) telephone
hot-line support from 8:30 a.m. to 5 p.m. EST, Monday to Friday; (b) Promptly
inform DOCUMENT SCIENCES about new problems or errors with any of the Products
which are reported by Customers or discovered by XEROX.
20 DOCUMENT SCIENCES' RESPONSIBILITIES
a) Software Support (defined below) for Licensed Software shall be included
in the Initial And Annual License Fees. For purposes of this Agreement,
Software Support shall consist of the following:
i) DOCUMENT SCIENCES sending to XEROX from time to time, as DOCUMENT
SCIENCES deems appropriate, Licensed Software releases or upgrades made
generally available by DOCUMENT SCIENCES to its customers, the primary
purpose of which is to maintain compatibility with the then current
supported host environments and/or add or enhance Licensed Software
features and capabilities. However, DOCUMENT SCIENCES reserves the right
to charge End User customers a separate License and/or support fee for a
release or upgrade of the primary feature of which, in DOCUMENT
SCIENCES' sole discretion, is a material enhancement to the features
and/or capabilities of the Licensed Software.
ii) The provision by DOCUMENT SCIENCES of a XEROX Support Center Hot-Line
number for the resolution of problems and questions relating to the
Licensed Software. The Hot-Line shall be available to XEROX for live
communication from 6am to 5pm Pacific Time, Monday through Friday. For
other periods, DOCUMENT SCIENCES will provide a telephone message
recording device which will record XEROX's reports.
iii) The submission of Licensed Software problems to DOCUMENT SCIENCES via
a Problem Report. DOCUMENT SCIENCES does not, however, guarantee the
correction of any Licensed Software Problem.
b) The implementation of all software releases/upgrades is mandatory and the
previous release of software will only be supported for six (6) months
following the "general availability" of the current release/upgrade as
determined by DOCUMENT SCIENCES.
c) if XEROX fails to implement the most current release or upgrade of a
Licensed Software Product supplied by DOCUMENT SCIENCES, for any reason
whatsoever, DOCUMENT SCIENCES may discontinue providing Software Support
for any affected Licensed Software Product within further liability to
XEROX.
d) DOCUMENT SCIENCES reserves the right to discontinue Software Support for
any Licensed Software product at any time after the first anniversary of
this Agreement. DOCUMENT SCIENCES shall give XEROX at least ninety (90)
days prior written notice of the effective date of such discontinuance and
shall reimburse XEROX the pro rata portion of any prepaid Annual License
Fees for Software Support provided that XEROX is in full compliance with
the terms of this Agreement.
e) DOCUMENT SCIENCES will provide all and any reasonable information to XEROX
regarding any Licensed Software configuration or supported applications
where XEROX was not involved in the sale referral but where XEROX will be
providing local software support services, as outlined above. Exhibit H
lists the minimum information that XEROX would require to provide such
support.
Page 19 of 21
Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 20
EXHIBIT H - SAMPLE CUSTOMER CONFIGURATION FORM
CUSTOMER CONFIGURATION INFORMATION
Customer:
Name: _______________________________________
Address: _______________________________________
_______________________________________
CPU Location:
Contact: _______________________________________
Address: _______________________________________
_______________________________________
_______________________________________
Telephone: ( )___-___________Fax: ( )___-_______
Software Information:
Effective Date: ___/___/19__
Platform for production: IBM / SUN / DEC / PC / Other _________
Model of Host: __________ / __________
Platform for development: IBM / SUN / DEC / PC / Other _________
Model of Host: __________ / __________
List included software: ______________________________________
______________________________________
______________________________________
List output devices: ______________________________________
______________________________________
Describe connectivity for above ______________________________________
for above output devices:
______________________________________
If networked, describe type: ______________________________________
______________________________________
List Third Party Protocol Boxes: ______________________________________
Page 20 of 21
Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 21
EXHIBIT I - SAMPLE LICENSE TERMINATION LETTER
CERTIFICATION LETTER
RE: TERMINATED LICENSED SOFTWARE
This letter will certify that on ____________ (date), we/I discontinued use of
___________________________________________________ (Document Sciences
Corporation) software products and have destroyed or have delivered to Document
Sciences Corporation all the above named software and related materials.
We/I further certify that above listed Document Sciences Corporation software
products were erased from memory or data storage apparatus under the control
of the undersigned.
By:
_____________________________
Company Name
_____________________________
Address
_____________________________
Signature and Title
_____________________________
Date
Page 21 of 21
Document Sciences Corporation - Xerox Canada Ltd.
Cooperative Marketing And Customer Support Agreement
July 1, 1997
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Document Sciences Corporation of our report dated January 23, 1998, included
in the 1997 Annual Report to Stockholders of Document Sciences Corporation.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8) of our report dated January 23, 1998, with respect to the
consolidated financial statements of Document Sciences Corporation incorporated
by reference in the Annual Report (Form 10-K) for the year ended December 31,
1997.
/s/ ERNST & YOUNG LLP
San Diego, California
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,526,301
<SECURITIES> 18,228,527
<RECEIVABLES> 7,538,746
<ALLOWANCES> 218,278
<INVENTORY> 0
<CURRENT-ASSETS> 29,970,616
<PP&E> 3,095,882
<DEPRECIATION> 959,952
<TOTAL-ASSETS> 34,228,976
<CURRENT-LIABILITIES> 6,074,643
<BONDS> 0
0
0
<COMMON> 10,803
<OTHER-SE> 27,679,794
<TOTAL-LIABILITY-AND-EQUITY> 34,228,976
<SALES> 13,381,174
<TOTAL-REVENUES> 19,740,309
<CGS> 1,427,393
<TOTAL-COSTS> 4,523,755
<OTHER-EXPENSES> 14,842,300
<LOSS-PROVISION> 432,451
<INTEREST-EXPENSE> 17,777
<INCOME-PRETAX> 1,068,878
<INCOME-TAX> 231,200
<INCOME-CONTINUING> 837,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 837,678
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
