SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DOCUCON, INCORPORATED
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
DOCUCON, INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 30, 1999
The annual meeting of Stockholders of Docucon, Incorporated (the
"Company") will be held at The Desmond Great Valley Hotel and Conference Center,
One Liberty Boulevard, Malvern, Pennsylvania, 19355, on Friday, July 30, 1999,
at 9:30 a.m., E.D.T., for the following purposes:
1. To elect six Directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
2. To approve the amendment of the 1998 Employee Stock Option Plan of the
Company to increase the number of shares issuable thereunder from
187,500 shares of Common Stock to 687,500 shares of Common Stock.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Stockholders of record at the close of business on June 21, 1999 are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
If you cannot attend the Annual Meeting in person, please date and execute
the accompanying Proxy and return it promptly to the Company. If you attend the
Annual Meeting, you may revoke your Proxy and vote in person if you desire to do
so, but attendance at the Annual Meeting does not of itself serve to revoke your
Proxy.
RALPH BROWN
Secretary
<PAGE>
DOCUCON, INCORPORATED
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by and on behalf of the Board of Directors of the Company for use at the
Annual Meeting of Stockholders to be held on July 30, 1999 or any adjournment
thereof. This Proxy Statement, the Notice of Annual Meeting and the accompanying
Proxy are being mailed to Stockholders on or about June 30, 1999.
The Company's principal executive offices are located at 20 Valley Stream
Parkway, Suite 140, Malvern, Pennsylvania 19355. The Company's telephone number
is (610) 240-9600.
As to all matters that may come before the Annual Meeting, each
stockholder will be entitled to one vote for each share of Common Stock of the
Company held by him at the close of business on June 21, 1999. The holders of a
majority of the shares of Common Stock of the Company presented in person or by
proxy and entitled to vote will constitute a quorum at the Annual Meeting.
Abstentions and broker non-votes will be counted for purposes of determining the
presence of a quorum. At June 21, 1999, the record date for the Annual Meeting,
there were 3,456,436 shares of Common Stock outstanding and seven (7) shares of
Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock")
outstanding, each share of which is entitled to cast 8,333 votes as Common
Stock. With respect to references to votes to be taken at the Annual Meeting of
the Stockholders herein, the term "Common Stock" shall include the Company's
Common Stock and the shares of Common Stock into which the outstanding Series A
Preferred Stock may be converted, and with respect to which the holders of such
Preferred Stock are entitled to vote. Thus, the equivalent number of shares
entitled to vote at the Annual Meeting of Stockholders is 3,514,767 (3,456,436
shares of Common Stock and 58,331 shares of Common Stock obtainable upon
conversion of Series A Preferred Stock).
The purposes of the Annual Meeting of Stockholders are to (a) elect a
Board of Directors to serve until the next Annual Meeting of Stockholders and
(b) to approve the amendment of the 1998 Employee Stock Option Plan. The Company
is not aware at this time of any other matters that will come before the Annual
Meeting. The approval of a majority of the shares of Common Stock present in
person or by proxy and entitled to vote at the Annual Meeting is required for
election of nominees as Directors of the Company and for approval of Proposal 2
(Amend the 1998 Employee Stock Option Plan). A quorum equal to a majority of the
outstanding Common Stock must be present in person or by proxy at the Annual
Meeting in order to elect Directors and consider Proposal 2.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a proxy, it will be
voted FOR the Board's nominees for Director, FOR the proposal to amend the 1998
Employee Stock Option Plan and in accordance with the proxy-holders' best
judgment as to any other matters raised at the Annual Meeting. Abstentions and
broker non-votes will be counted as shares present for purposes of establishing
a quorum with respect to the proposals to which they apply. Abstention votes
will be counted as voted AGAINST the proposals with respect to which they apply.
Broker non-votes will not be considered as either FOR or AGAINST votes with
respect to the proposals to which they apply. A form of Proxy for use at the
Annual Meeting is also enclosed. A stockholder may revoke any such Proxy at any
time before it is exercised by either giving written notice of such revocation
to the Secretary of the Company or submitting a later-dated Proxy to the Company
prior to the Annual Meeting. A stockholder attending the Annual Meeting may
revoke his Proxy and vote in person if he desires to do so, but attendance at
the Annual Meeting will not of itself revoke the Proxy.
1
<PAGE>
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders of the Company intended to be presented at
the 2000 Annual Meeting of Stockholders must be received by the Company for
inclusion in the Company's Proxy Statement and form of Proxy by December 17,
1999.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTORS
At the Annual Meeting, six Directors are to be elected. The Bylaws of the
Company permit the Board of Directors to determine the number of Directors of
the Company. Unless other instructions are specified, the enclosed Proxy will be
voted in favor of the persons named below to serve until the next Annual Meeting
of Stockholders and until their successors shall have been duly elected and
qualified. In the event any of the nominees shall be unable to serve as a
Director, it is the intention of the persons designated as proxies to vote for
substitutes selected by the Board of Directors. The Board of Directors of the
Company has no reason to believe that any of the nominees named below will be
unable to serve if elected.
The following table sets forth certain information concerning the six
nominees for Director of the Company:
PRINCIPAL OCCUPATION
AND ALL POSITIONS DIRECTOR
NAME AGE WITH THE COMPANY SINCE
------ ----- ----------------------- ----------
Edward P. Gistaro 63 Chairman of the Board 1988
Douglas P. Gill 50 President and Chief 1998
Executive Officer
Ralph Brown 65 Attorney, San Antonio, 1987
Texas, Secretary and Director
Al R. Ireton 64 Chairman, 1993
Manchester Partners
and Director
Chauncey E. Schmidt 67 Chairman, C.E. Schmidt 1993
& Associates
and Director
Robert W. Schwartz 54 Managing Director, Schwartz 1998
Heslin Group, Inc.,
and Director
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<PAGE>
Edward P. Gistaro has served as Chairman of the Board since 1990. He
served as Chief Executive Officer of the Company from June 1988 until April
1998, when the Board of Directors accepted his recommendation that he be
replaced by Douglas P. Gill as Chief Executive Officer. Pursuant to Mr.
Gistaro's retirement, the Board requested that he continue to serve as Chairman,
and he accepted. Mr. Gistaro also served as President of the Company from July
1988 until March 1991. Mr. Gistaro was employed by Datapoint Corporation, a
company involved in the manufacturing of computer systems, in various managerial
positions from 1973 to 1987. From 1982 to 1985 Mr. Gistaro served as the
President and Chief Operating Officer of Datapoint Corporation, and he served
from 1985 to 1987 as its President and Chief Executive Officer.
Douglas P. Gill was named President and Chief Executive Officer and
elected as a Director of the Company in April 1998. Mr. Gill was a general
partner of Foster Management Company, a venture capital firm, from 1994 until
1998. From 1984 to 1994, Mr. Gill served as First Vice President of Janney
Montgomery Scott, Inc., a regional investment banking and brokerage firm, and in
various management capacities at Scott Paper Company from 1975 to 1984. Mr. Gill
also served as a senior auditor at Arthur Andersen & Co. (now LLP) from 1972 to
1975.
Ralph Brown, an attorney in private practice since 1968, has served as a
Director and as Secretary of the Company since May 1987. From 1987 to 1989, he
served also as Treasurer of the Company. Mr. Brown has also served since 1975 as
President of Cherokee Ventures, Inc., a real estate leasing firm, since 1978 as
President of East Central Development Corporation and since 1982 as President of
Southeast Suburban Properties, Inc. The latter two businesses are real estate
development firms.
Al R. Ireton was elected as a Director of the Company in May 1993. Mr.
Ireton has been Chairman of Manchester Partners, an investment and growth
strategy advisory organization providing capital and strategic assistance to
growing companies, since October 1988. From 1985 through September 1988, he
served as President and Chief Executive Officer of Texet Corporation, a desktop
publishing company. Mr. Ireton has 25 years experience serving as president and
chief executive officer of growth-oriented companies and has served on several
corporate boards.
Chauncey E. Schmidt was elected as a Director of the Company in February
1993. He has been Chairman of C. E. Schmidt & Associates, an investment firm,
since April 1989. From 1987 to March 1989, he was Vice Chairman of the Board of
AMFAC, Inc., a New York Stock Exchange-listed company engaged in diversified
businesses. He has previously served as President of The First National Bank of
Chicago and Chairman of the Board and Chief Executive Officer of The Bank of
California, N.A. Mr. Schmidt is on the Board of Trustees of the U. S. Naval War
College Foundation and is active in several civic and charitable organizations.
Robert W. Schwartz was elected as a Director of the Company in April 1998.
Mr. Schwartz founded the Schwartz Heslin Group, Inc. ("SHG"), an investment
banking firm, in 1985. As Managing Director of SHG, Mr. Schwartz specializes in
corporate planning, finance and development. From 1980 to 1985, he was founder,
President and Chief Executive Officer of Winsource, Inc., a high tech firm which
packaged and marketed integrated telephone and computer systems. Mr. Schwartz
served as President, Chief Operating Officer and Director of Coradian
Corporation and as Vice President and Chief Financial Officer of Garden Way
Manufacturing Corporation from 1975 to 1980 and 1970 to 1975, respectively.
All nominees for Director are currently serving as Directors of the
Company. Directors hold office until the next Annual Meeting of Stockholders of
the Company and until their successors are elected and qualified. Officers are
elected annually by the Board of Directors and serve at the discretion of the
Board of Directors.
3
<PAGE>
PROPOSAL 2
AMENDMENT OF 1998 EMPLOYEE STOCK OPTION PLAN
GENERAL
At the Annual Meeting, there will be presented to stockholders a proposal
to approve the amendment of the 1998 Employee Stock Option Plan (the "1998
Employee Plan"), to increase the aggregate number of shares of Common Stock
issuable under the 1998 Employee Plan from 187,500 shares to 687,500 shares of
Common Stock (the "Amendment"). The Board of Directors has adopted the Amendment
subject to stockholder approval. The 1998 Employee Plan provides for the grant
to officers, Directors and key employees of the company of incentive stock
options ("ISOs") intended to qualify under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified stock options
("NQSOs"). The 1998 Employee Plan was approved by stockholders of the Company on
June 9, 1998. As of June, 1999, there were outstanding options under the 1998
Employee Plan to purchase 112,650 shares of Common Stock at prices ranging from
approximately $0.81 to $2.06 per share. See "Executive Compensation".
REASONS FOR THE PROPOSED AMENDMENT
The Board of Directors believes that it is in the best interests of the
Company to increase the number of shares of Common Stock reserved for issuance
under the 1998 Employee Plan to 687,500 shares, an increase of 500,000 shares.
The Board of Directors believes that the success of the Company is greatly
dependent upon its ability to attract and retain key employees of outstanding
ability who are motivated to exert their best efforts on behalf of the Company,
and options granted under the 1998 Employee Plan will be effective in achieving
this goal. The Board also believes that the 1998 Employee Plan will stimulate
the efforts of those employees upon whose judgement, interest, and efforts the
Company will be largely dependent upon for the successful growth of its
business. The Board has concluded that the number of shares available under the
1998 Employee Plan is inadequate for current and future stock option
requirements. In the opinion of the Board, the amendment of the 1998 Employee
Plan to increase by 500,000 the number of shares of Common Stock reserved for
issuance under the plan will allow the Company to retain and attract employees
who are in a position to contribute materially to the successful conduct of the
Company's operations, to meet competitive situations created by the stock option
plans of other corporations, and to stimulate in those eligible for
participation an increased desire to render greater service to the Company.
At the June 17, 1999 meeting of the Board of Directors, the Compensation
Committee recommended and the Board approved, subject to stockholder approval of
Proposal 2 to amend the 1998 Employee Plan, a grant to management and key
employees of an aggregate of 460,000 options to purchase shares of Common Stock
at an exercise price equal to the greater of fair market value or $1.00 on the
effective date of the grant. The recommendation made by the Compensation
Committee and subsequently approved by the Board was based on the belief that
the current group of employees had performed well thus far in the execution of
the Company's turnaround plans and that it had earned an incentive-based
opportunity to participate in the continued success of the plan where its
economic interests would be well aligned with other stockholders. See "Executive
Compensation".
DESCRIPTION OF THE PLAN
Under the 1998 Employee Plan, which is administered by the Stock Option
Committee, key employees may be granted options to purchase shares of the
Company's common stock at 100 percent of fair market value on the date of grant
(or 110 percent of fair market value in the case of an ISO granted to a 10
percent stockholder/grantee). Options granted under the 1998 Employee Plan must
be exercised within 10 years from the date of grant, vest at varying times as
determined by the Stock Option Committee, are nontransferable except by will or
pursuant to the laws of descent and distribution and expire within three months
after termination of employment unless such termination is by reason of death or
disability or for cause. All shares purchased upon
4
<PAGE>
exercise of any option must be paid in full at the time of purchase in
accordance with the terms set forth on the option. Such payment must be made in
cash or through delivery of shares of common stock or a combination of cash and
common stock, all as determined by the Stock Option Committee. The Stock Option
Committee may determine other terms applicable to particular options. The
aggregate fair market value (determined at the time each ISO is granted) of the
shares of common stock with respect to which ISOs issued to any one person under
the 1998 Employee Plan are exercisable for the first time during any calendar
year may not exceed $100,000.
The 1998 Employee Plan may be amended at any time by a vote of the
Board of Directors. However, no amendment made without approval of the
stockholders of the Company may increase the total number of shares which may be
issued under options granted pursuant to the 1998 Employee Plan, reduce the
maximum exercise price, extend the latest date upon which options may be granted
or change the class of employees eligible to receive the options.
FEDERAL TAX CONSEQUENCES
Pursuant to the code, upon the exercise of an NQSO under the 1998 Employee
Plan, the Company is generally entitled to a tax deduction in an amount equal to
the difference between the option price and the fair market value of the Common
Stock on the date the NQSO is exercised. For federal tax purposes, the person
exercising the option must pay personal income taxes on an amount equal to the
difference between the option price and the fair market value of the Common
Stock on the date the NQSO is exercised. The basis of the Common Stock obtained
by exercising the NQSO will be the option price paid plus the amount equal to
the difference between the option price and the fair market value of the Common
Stock on the date the NQSO is exercised, which amount was subject to federal
income tax. A subsequent sale of the Common Stock by the person exercising the
NQSO will result in a long- or short-term capital gain or loss depending on the
total period of time that the NQSO and Common Stock are held. Generally, no
taxable event occurs under the code upon the grant of an NQSO under the 1998
Employee Plan.
Pursuant to the Code, the holder of an ISO will recognize no taxable
income (or loss) upon the grant or exercise of an ISO. Upon the sale of the
underlying shares of Common Stock, the option holder will incur a long-term
capital gain or loss if the provisions of Section 422(b) of the Code are
complied with. In such case, there is no taxable event for the Company. The
principal requirement of Section 422(b), other than the limitations on option
price, duration of option period, time of exercise and volume exercisable in one
year described above, is that, in order for an option to qualify for ISO
treatment, shares received pursuant to exercise of the option may not be
disposed within two years from the date of grant and one year from the date of
exercise of the option. If an option designated as an ISO ceases to qualify as
an ISO, the tax effects for the option holder and the company will be identical
to those described above for NQSOs.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the proposed amendment of the
1998 Employee Stock Option Plan. The affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock present and entitled to
vote at the Annual Meeting will be necessary for stockholder approval of the
amendment.
MANAGEMENT MATTERS
There are no arrangements or understandings known to the Company between
any of the Directors or executive officers of the Company and any other person
pursuant to which any such person was elected as a Director or an executive
officer, except the Employment Agreement between the Company and Mr. Gill,
described under "Executive Compensation" in this Proxy Statement. There are no
family relationships between any Directors or executive officers of the Company.
The Board of Directors of the Company held a total of 12 meetings in 1998.
5
<PAGE>
The Board of Directors has an Executive Compensation Committee consisting
of Messrs. Brown, Gistaro, Ireton, Schmidt and Schwartz, a Stock Option
Committee consisting of Messrs. Gistaro, Schmidt and Schwartz and an Audit
Committee consisting of Messrs. Brown, Gistaro, Ireton, Schmidt and Schwartz.
The Executive Compensation Committee reviews the salaries, incentive
compensation and other direct and indirect benefits for all Company officers,
among other duties. During 1998, the Executive Compensation Committee held four
meetings. The Stock Option Committee administers the Company's 1988 Stock Option
Plan, 1998 Stock Option Plan and 1998 Executive Non-Statutory Plan. During 1998,
the Stock Option Committee held seven meetings and the Audit Committee held one
meeting.
The Company has no other standing audit, nominating or compensation
committees of the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors and persons who beneficially own more than 10%
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, Directors and beneficial owners of more than 10% of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms that they file. Based solely on review of
the copies of such forms furnished to the Company, or written representations
that no reports on Form 5 were required, the Company believes that for the
period from January 1, 1998 through May 31, 1999 all officers, Directors and
greater-than-10% beneficial owners complied with all Section 16(a) filing
requirements applicable to them.
DIRECTOR COMPENSATION
Each Director who is not also an officer of the Company ("non-employee
Director") receives an annual retainer of $12,000 plus $2,000 or $1,000 for each
meeting of the Board he attends which does or does not require travel to another
city, respectively. No fee is paid for telephonic meetings of the Board. At the
March 25, 1999 Board of Directors meeting, the non-employee Directors agreed to
indefinitely defer payment of the annual retainer and per-meeting fees. At the
June 17, 1999 Board of Directors meeting, the non-employee Directors agreed to
receive an aggregate 96,667 shares of the Company's Common Stock as full payment
for the non-employee Directors' aggregate 1998 and 1999 annual retainer and
per-meeting fees payable through June 1999. In addition, pursuant to the 1991
Directors Stock Option Plan, each non-employee director receives options to
purchase stock in accordance with the terms of that plan (see "1991 Director
Non-Statutory Option Plan").
6
<PAGE>
EXECUTIVE COMPENSATION
GENERAL
The following table sets forth compensation paid or awarded to the Chief
Executive Officer for all services rendered to the Company in 1998, 1997 and
1996. No other executive officer of the Company had compensation that exceeded
$100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------- ---------------------------
BONUS/ANNUAL OTHER SECURITIES LONG-TERM OTHER
NAME AND PRINCIPAL INCENTIVE ANNUAL UNDERLYING INCENTIVE COMPEN-
POSITION(1) YEAR SALARY AWARD(2) COMPENSATION(3) OPTIONS(4) PAYOUTS SATION(5)
- ----------- ---- ------ -------- --------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas P. Gill 1998 $149,020 $50,000 $ --- 275,000 $ --- $20
President and
Chief Executive Officer
</TABLE>
(1) Edward P. Gistaro resigned as Chief Executive Officer on April 1, 1998 and
is currently Chairman of the Board. Allan H. Hobgood resigned as
Vice-Chairman and Chief Operating Officer in September 1998 and Lori A.
Turner resigned as Vice President and Chief Financial Officer in December
1998.
(2) Mr. Gill is eligible to receive an annual bonus under his employment
contract of up to 50% of his annual base salary, to be awarded at the
discretion of the Board of Directors. For 1998, Mr. Gill was entitled to a
bonus of 25% of his base salary which was accrued but not paid at December
31, 1998. In March 1999, the Company made a $8,333 cash payment to Mr. Gill
as partial payment of his 1998 bonus. At the June 17, 1999 Board of
Directors meeting, the Board approved the issuance of 55,556 shares of
common stock of the Company as full payment for the remainder of Mr. Gill's
1998 bonus.
(3) Aggregate perquisites and other personal benefits did not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus reported
above.
(4) In April 1998, Mr. Gill was awarded options to purchase 225,000 shares of
the Company's common stock at an exercise price of $4.00 per share under the
Company's 1998 Non-Statutory Stock Option Plan. These options become
exercisable in March 2005. Exercisability of the options is accelerated in
12,500 share increments for each $2.00 per share incremental increase in the
quoted market price per share of the Company's common stock above $4.00 per
share. In December 1998, the exercise price of these options was reset to
$1.00 per share.
(5) Consists of premiums paid under the Company's group term life insurance
program.
STOCK OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE DATE
-------- ----------------- -------------------- -------------- --------------
<S> <C> <C> <C> <C>
Douglas P. Gill............... 50,000 5.7% $2.76 04/01/08
Douglas P. Gill............... 225,000(1) 25.7% 1.00 04/01/05
</TABLE>
7
<PAGE>
(1) In April 1998, Mr. Gill was awarded options to purchase 225,000 shares of
the Company's common stock at an exercise price of $4.00 per share under the
Company's 1998 Non-Statutory Stock Option Plan. These options become
exercisable in March 2005. Exercisability of the options is accelerated in
12,500 share increments for each $2.00 per share incremental increase in the
quoted market price per share of the Company's common stock above $4.00 per
share. In December 1998, the exercise price of these options was reset to
$1.00 per share.
STOCK OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
ON VALUE --------------------------------------------------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Douglas P. Gill .......... --- $ --- 16,667 258,333 $ --- $ ---
</TABLE>
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
SECURITIES LENGTH OF
UNDERLYING MARKET PRICE EXERCISE PRICE ORIGINAL OPTION
NUMBER OF OF STOCK AT OF STOCK AT NEW TERM REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- ---- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas P. Gill 12/15/98 225,000 $1.00 $4.00 $1.00 6 years, 5 months
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Gill on April 1,
1998 which carries a seven-year term. Pursuant to the terms of the agreement,
Mr. Gill is to be paid $200,000 per annum, an auto allowance, and an annual
performance bonus to be determined by the Board of Directors.
The Company entered into employment agreements with Messrs. Michael C.
Mooney, Senior Vice President-Sales, Warren D. Barratt, Senior Vice President
and Chief Financial Officer, and Michael Nunley, Vice President Operations and
Technology, in May 1998, December 1998 and January 1999, respectively. Each of
the agreements carries a three-year term and provides for a base salary and an
annual performance bonus to be determined by the Board of Directors.
Each of the agreements for Messrs. Gill, Mooney, Barratt and Nunley are
terminable upon 30 days prior written notice by either the Company or the
employee or by the Company "for cause" at any time. Further, each agreement
requires that the employee keep Company matters confidential, restricts the
employee from being directly or indirectly involved with any entity in a
business competitive with that of the Company for specified periods of time
following the termination of the agreement, and provides for a severance payment
to the employee in the event he is terminated by the Company without cause.
8
<PAGE>
STOCK OPTIONS
1988 STOCK OPTION PLAN
The Company has a 1988 Stock Option Plan currently covering an aggregate
of 415,000 shares of Common Stock. The 1988 Stock Option Plan provides for the
grant to officers, Directors and key employees of the Company of incentive stock
options ("ISOs") intended to qualify under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified stock options
("NQSOs"). The 1988 Stock Option Plan was approved by the stockholders of the
Company on November 15, 1988. Amendments to the 1988 Stock Option Plan
increasing the number of shares covered thereby were approved by the
stockholders of the Company on April 21, 1989, May 14, 1991, May 7, 1992, and
August 12, 1997. As of March 1, 1999, under the 1988 Stock Option Plan there
were outstanding options to purchase 246,066 shares of the Company's Common
Stock at prices ranging from $1.00 to $5.52 per share.
Under the 1988 Stock Option Plan, which is administered by the Stock
Option Committee, key employees may be granted options to purchase shares of the
Company's Common Stock at 100% of fair market value on the date of grant (or
110% of fair market value in the case of an ISO granted to a 10%
stockholder/grantee). The 1988 Stock Option Plan expired on October 31, 1998.
Options granted under the 1988 Stock Option Plan must be exercised within ten
years from the date of grant, vest at varying times as determined by the Stock
Option Committee, are nontransferable except by will or pursuant to the laws of
descent and distribution, and are protected against dilution. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase in accordance with the terms set forth in the option. Such payment must
be made in cash or through delivery of shares of Common Stock or a combination
of cash and Common Stock, all as determined by the Stock Option Committee. The
Stock Option Committee may determine other terms applicable to particular
options. No one person may receive ISOs for which the aggregate fair market
value (determined at the time each ISO is granted) of options exercisable for
the first time during any calendar year exceeds $100,000.
1991 DIRECTOR NON-STATUTORY STOCK OPTION PLAN
The Company also has a 1991 Director Non-Statutory Stock Option Plan (the
"1991 Director Plan"), currently covering an aggregate of 210,000 shares of
Common Stock. The 1991 Director Plan was approved by the stockholders of the
Company on May 7, 1992 and provides for the grant of NQSOs to non-employee
Directors of the Company. An amendment to increase the number of shares offered
and reserved for the 1991 Director Plan was approved by the stockholders of the
Company on June 9, 1998. As of March 1, 1999, there were outstanding under the
1991 Director Non-Statutory Stock Option Plan options to purchase 96,250 shares
of the Company's Common Stock at prices ranging from $2.00 to $5.52 per share.
Under the 1991 Director Plan, which is administered by the Board of
Directors, non-employee Directors are granted options to purchase 10,000 shares
of the Company's Common Stock upon their initial election as Directors and 7,500
shares on the second anniversary date of such election at the then-current
market price of such shares. One-third of the initial grant shall vest on each
anniversary of the date of grant, and one-third of the second grant shall vest
every six months after the date of grant. The 1991 Director Plan expires on
February 10, 2001. Under an amendment to the 1991 Director Plan adopted by the
Board of Directors in June 1998, each eligible Director will receive an
additional annual grant of options covering 6,250 shares of Common Stock
commencing with the fiscal year of the Company immediately following the fiscal
year in which all shares of Common Stock covered by the initial grant and the
second grant described above are fully vested. Such annual grant will continue
each fiscal year thereafter until options covering all shares reserved for
issuance under the 1991 Director Plan have been granted. Options granted under
the 1991 Director Plan must be exercised within ten years from the date of
grant, are nontransferable except by will or pursuant to the laws of descent and
distribution, are protected against dilution and expire within three months
after termination of service as a Director of the Company, unless such
termination is by reason of death or disability or for cause. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth in the option. Such payment
must be
9
<PAGE>
made in cash or through delivery of shares of Common Stock or a combination of
cash and Common Stock. The 1991 Director Plan may be amended at any time by vote
of the Board of Directors.
During 1998, Messrs. Brown, Ireton, and Schmidt, all Directors of the
Company, were each granted options covering 6,250 shares of Common Stock at an
exercise price of $2.00 per share. Messrs. Gistaro and Schwartz, both Directors
of the Company, were each granted options covering 10,000 shares of Common Stock
at an exercise price of $2.76 and $2.00, respectively. The exercise price per
share of each such option was not less than the closing bid price of the Common
Stock reported on The NASDAQ Stock Market on the date of the grant.
1998 EMPLOYEE STOCK OPTION PLAN
On April 1, 1998, the Board of Directors of the Company approved the
1998 Employee Stock Option Plan (the "1998 Employee Plan"), covering 187,500
shares of common stock. Unless terminated earlier by the Board of Directors the
1998 Employee Plan will terminate on March 31, 2008. The purpose of the plan is
to supplement and replace the Company's 1988 Stock Option Plan which ceased
granting options on October 31, 1998. The 1998 Employee Plan provides for the
grant of ISOs, intended to qualify under Section 422(b) of the Internal Revenue
Code, and NQSOs to key employees of the Company.
Under the 1998 Employee Plan, which is administered by the Stock
Option Committee, key employees may be granted options to purchase shares of the
Company's common stock at 100 percent of fair market value on the date of grant
(or 110 percent of fair market value in the case of an ISO granted to a 10
percent stockholder/grantee). Options granted under the 1998 Employee Plan must
be exercised within 10 years from the date of grant, vest at varying times as
determined by the Stock Option Committee, are nontransferable except by will or
pursuant to the laws of descent and distribution and expire within three months
after termination of employment unless such termination is by reason of death or
disability or for cause. All shares purchased upon exercise of any option must
be paid in full at the time of purchase in accordance with the terms set forth
on the option. Such payment must be made in cash or through delivery of shares
of common stock or a combination of cash and common stock, all as determined by
the Stock Option Committee. The Stock Option Committee may determine other terms
applicable to particular options. The aggregate fair market value (determined at
the time each ISO is granted) of the shares of common stock with respect to
which ISOs issued to any one person under the 1998 Employee Plan are exercisable
for the first time during any calendar year may not exceed $100,000.
The 1998 Employee Plan may be amended at any time by a vote of the
Board of Directors. However, no amendment made without approval of the
stockholders of the Company may increase the total number of shares which may be
issued under options granted pursuant to the 1998 Employee Plan, reduce the
maximum exercise price, extend the latest date upon which options may be granted
or change the class of employees eligible to receive the options.
1998 EXECUTIVE NON-STATUTORY PLAN
In 1998, the Company approved the 1998 Executive Non-Statutory Plan
(the 1998 NQSO Plan), covering 375,000 shares of common stock. Unless terminated
earlier by the Board of Directors, the 1998 NQSO Plan will terminate on March
31, 2008. The 1998 NQSO Plan provides executives of the Company the added
incentive of performance-based compensation and stock ownership through the
grant of NQSOs. The purpose of the plan is to incentivise executive management
to achieve specified goals which are intended to be aligned with the objectives
of increasing the market price of the Company's Common Stock and enhancing
shareholder wealth.
Under the 1998 NQSO Plan, identified executives may be granted
long-term options to purchase shares of the Company's common stock at a price
specified on the date of the grant subject to certain acceleration rights upon
attainment of specific goals. The 1998 NQSO Plan is administered by the Stock
Option Committee. Options granted under the 1998 NQSO Plan will expire 10 years
from the date of grant, vest immediately or at varying
10
<PAGE>
times as determined by the Stock Option Committee, are nontransferable except by
will or pursuant to the laws of descent and distribution. All shares purchased
upon exercise of any option must be paid in full at the time of purchase, in
accordance with the terms set forth on the option. Such payment must be made in
cash or through delivery of shares of common stock or a combination of cash and
common stock, all as determined by the Stock Option Committee. The Stock Option
Committee may determine other terms applicable to particular options. The 1998
NQSO Plan may be amended at any time by a vote of the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1993 Employee Stock Purchase Plan (the "Stock Purchase
Plan") was approved by the stockholders at the 1994 Annual Meeting of
Stockholders and amended on August 12, 1997 and June 9, 1998. Under the Stock
Purchase Plan, eligible employees may elect to have up to 10% of their Base Pay
(as defined) deducted and utilized for the purchase of Common Stock of the
Company in annual or semiannual offerings to be made by the Company to eligible
employees. The Company has reserved 350,000 shares of Common Stock for issuance
pursuant to the Stock Purchase Plan. The Company's stockholders approved an
increase of an additional 100,000 shares and an extension of the Stock Purchase
Plan until December 31, 2001 in June 1998. The Company issued 24,398, 26,809,
and 71,512 shares in January 1999, 1998 and 1997 pursuant to this plan at
purchase prices of $.77, $3.40 and $1.28 per share, which represents 85% of the
closing price on December 31, 1998, December 30, 1997, and January 2, 1996,
respectively. At June 1, 1999, 184,390 shares remain available for issuance.
Under the Stock Purchase Plan, the Company will make available in each
year from January 1, 1994 through December 31, 2001 up to 50,000 shares of
Common Stock. Such shares will be offered to participating employees in annual
or semiannual offerings. Participating employees will be deemed to have been
granted options to purchase Common Stock in each offering in an amount equal to
the amount of their respective payroll deductions divided by 85% of the market
value of the Common Stock of the Company on the applicable Offering Commencement
Date. The option price shall be the lesser of 85% of the closing price of the
Common Stock on the Offering Commencement Date (or the next preceding trading
day) or 85% of the closing price of Common Stock on the Offering Termination
Date (or the next preceding trading day). Unless a participating employee
terminates participation as provided in the Stock Purchase Plan, such employee
shall be deemed to have exercised such option on the Offering Termination Date
and shall be issued a corresponding number of shares of Common Stock.
The Stock Purchase Plan is administered by the Compensation Committee and
will expire on December 31, 2001, unless sooner terminated or amended by the
Board of Directors.
11
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1999, by all persons
known to the Company to own beneficially more than 5% of the Company's Common
Stock.
NAME AND AMOUNT AND
ADDRESS OF NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------------------------------------
Common Stock, Demuth, Folger & Terhune 225,000 (1) 6.02
par value $.01 One Exchange Plaza
per share 55 Broadway
New York, New York 10006
Edward P. Gistaro 220,411 (2) 6.27
565 E. Swedesford Rd.
Suite 209
Wayne, PA 19087
- ----------------------
(1) Consists of 225,000 shares of Common Stock underlying a Warrant to
Purchase Common Stock exercisable at an exercise price of $8.00 per share.
The percentage of ownership is calculated based on 3,739,767 shares
outstanding.
(2) Includes 3,333 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,518,100 shares outstanding.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1999 (a) by each of the
Company's Directors, (b) by the Company's Chief Executive Officer (there were no
other executive officers whose 1998 compensation exceeded $100,000), and (c) by
all Directors and executive officers as a group.
NAME AND AMOUNT AND
ADDRESS OF NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS (3)
- --------------------------------------------------------------------------------
Common Stock, Edward P. Gistaro 219,411(4) 6.24
par value $.01 Douglas P. Gill 100,190(5) 2.82
per share Ralph Brown 99,608(6) 2.81
Al R. Ireton 47,583(7) 1.34
Chauncey E. Schmidt 85,083(7) 2.40
Robert W. Schwartz 18,001(8) 0.51
All Directors and
Executive Officers
as a Group (9
persons including
the above) 570,876(9) 15.72
12
<PAGE>
- --------------------
(1) The address for all persons named is 20 Valley Stream Parkway, Suite 140,
Malvern, Pennsylvania 19355.
(2) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
except as otherwise indicated.
(3) Unless otherwise indicated below, the percentage of ownership is based
upon 3,514,767 shares of Common Stock outstanding, which includes 58,331
shares of Common Stock into which outstanding shares of Preferred Stock
are convertible and which the holders of the Preferred Stock are entitled
to vote.
(4) Includes 3,333 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,518,100 shares outstanding.
(5) Includes 33,334 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,548,101 shares outstanding.
(6) Includes 23,750 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,538,517 shares outstanding.
(7) Includes 26,250 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,544,142 shares outstanding.
(8) Includes 3,334 shares subject to currently exercisable stock options. The
percentage of ownership is based on 3,518,101 shares outstanding.
(9) Includes 116,251 shares subject to currently exercisable stock options.
The percentage of ownership is based on 3,631,018 shares outstanding.
RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been engaged by the Board of Directors of the
Company as independent public accountants for the Company and its subsidiaries
for the fiscal year 1998, and it is currently expected that such firm will serve
in that capacity during the 1999 fiscal year. Management expects that a
representative of Arthur Andersen LLP will be present at the Annual Meeting to
make a statement if he or she desires to do so and to be available to answer
appropriate questions posed by stockholders.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1998 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated herein by reference to the
Company's 1998 Annual Report to Stockholders which is being mailed to
stockholders with this Proxy Statement.
13
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any business which will be presented for consideration
at the Annual Meeting other than that specified herein and in the Notice of
Annual Meeting of Stockholders, but if other matters are presented it is the
intention of the persons designated as proxies to vote in accordance with their
judgment on such matters.
SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. In addition to the solicitation of Proxies by the use of the mails,
certain officers and associates (who will receive no compensation therefor in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone and telegraph. In addition, banks, brokers and other
custodians, nominees and fiduciaries will be requested to forward copies of the
Proxy material to their principals and to request authority for the execution of
Proxies. The Company will reimburse such persons for their expenses in so doing.
In addition, the Company has engaged MacKenzie Partners, Inc., New York, New
York to assist in soliciting Proxies for a fee of approximately $1,500 plus
reasonable out of pocket expenses.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1998, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS
SOLICITED BY THE FOREGOING PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH
PERSON ADDRESSED TO MR. RALPH BROWN, SECRETARY, DOCUCON, INCORPORATED, 20 VALLEY
STREAM PARKWAY, SUITE 140, MALVERN, PENNSYLVANIA 19355. SUCH A REQUEST FROM A
BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK MUST CONTAIN A GOOD-FAITH
REPRESENTATION BY SUCH PERSON THAT, AS OF JUNE 21, 1999, HE WAS A BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK.
Please SIGN and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors:
RALPH BROWN
Secretary
June 30, 1999
14
<PAGE>
DOCUCON, INCORPORATED
PROXY
ANNUAL MEETING OF STOCKHOLDERS-JULY 30, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints EDWARD P. GISTARO and DOUGLAS P. GILL or
____________________________________, and each of them, with several powers of
substitution, proxies to vote the shares of Common Stock, par value $.01 per
share of Docucon, Incorporated which the undersigned could vote if personally
present at the Annual Meeting of Stockholders of Docucon, Incorporated to be
held at The Desmond Great Valley Hotel and Conference Center, One Liberty
Boulevard, Malvern, Pennsylvania, 19355, on Friday, July 30, 1999, at 9:30 a.m.,
E.D.T., and any adjournment thereof:
<TABLE>
<CAPTION>
1. Election of Directors:
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
INSTRUCTION: To withhold authority for any individual nominee, mark a
line through the nominee's name in the list below.
Ralph Brown Al R. Ireton
Douglas P. Gill Chauncey E. Schmidt
Edward P. Gistaro Robert W. Schwartz
2. To approve the amendment of the 1998 Employee Stock Option Plan of the
Company to increase the number of shares issuable thereunder from 187,500
shares to 687,500 shares of Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, to act upon any matters incidental to the foregoing and
such other business as may properly come before the Annual Meeting, or any
adjournment thereof.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy
will be voted FOR Item 1, above.
Dated ________________, 1999 Signatures(s) ____________________________
__________________________________________
(Please sign exactly and as fully as your
name appears on your stock certificate. If
shares are held jointly, each stockholder
should sign.)
Print Name(s)_____________________________
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
