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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

(Amendment No. 1)



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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, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the transition period from                     
to

Commission File Number: 0-20981



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DOCUMENT SCIENCES CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 33-0485994                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|5958 Priestly Drive, Carlsbad, California                     |  | 92008                              
|(Address of principal executive offices)                      |  | (Zip code)                         

Registrants telephone number, including area code: (760) 602-1400



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Securities registered pursuant to
Section 12(b)of the Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which
registered
|Common Stock, $.001 par value per share |  | The NASDAQ Capital Market                



Securities registered
pursuant to Section 12(g)of the Act:

Common Stock, $.001 par value per share

(Title of Class)

Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes ̈No  x

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. ̈

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No  x

The aggregate market value of the Registrants voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2006 was $19,858,658.

As of March 20, 2007, there were 4,343,864 shares of the Registrants common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.



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TABLE OF CONTENT
S



|        |  |                                                                                                    |  |     
|------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                    |  | Page
|        |  | PART III                                                                                           |  |     
|Item 10 |  | Directors, Executive Officers and Corporate Governance                                             |  | 1   
|        |  |                                                                                                   
|Item 11 |  | Executive Compensation                                                                             |  | 4   
|        |  |                                                                                                   
|Item 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder     Matters |  | 18  
|        |  |                                                                                                   
|Item 13 |  | Certain Relationships and Related Transactions and Director Independence                           |  | 21  
|        |  |                                                                                                   
|Item 14 |  | Principal Accounting Fees and Services                                                             |  | 21  
|        |  |                                                                                                   
|        |  | PART IV                                                                                            |  |     
|Item 15 |  | Exhibits and Financial Statement Schedules                                                         |  | 22  



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EXPLANATORY NOTE

This Form 10-K/A is to amend Part III, Items 10 through 14, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which was filed with the Securities and Exchange
Commission on March 20, 2007 (the 2006 Form 10-K). In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), new certifications by our principal executive
officer and principal financial officer are being filed as exhibits to this Form 10-K/A under Item 15 of Part IV hereof.

For purposes of this Form 10-K/A, and in accordance with Rule 12b-15 under the Exchange Act, Items 10 through 14 of our 2006 Form 10-K have been amended and restated in their entireties. This Form 10-K/A does not
modify or update other disclosures as presented in the original 2006 Form 10-K.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Our directors, executive officers and key
employees, their respective ages and positions as of March 20, 2007, are as follows:



|                          |  |     |  |                                                                                                                                                                                                                               
|------------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                      |  | Age |  | Principal Occupation                                                                                                                                                                                                          
|John L. McGannon          |  | 46  |  | President, Chief Executive Officer and Director of Document Sciences Corporation.                                                                                                                                             
|Thomas L. Ringer          |  | 75  |  | Chairman of the Boards of Directors of the following: Document Sciences Corporation, M.S. Aerospace, Inc. and The Center for Corporate Innovation. Vice Chairman of the Boards of Directors of
Wedbush Morgan Securities, Inc.
|Ronald S. Beard           |  | 68  |  | Partner in Zeughauser Group, consultants to the legal industry.                                                                                                                                                               
|Margaret A. Breya         |  | 45  |  | Senior Vice President and Chief Marketing Officer of Business Objects S.A.                                                                                                                                                    
|Barton L. Faber           |  | 59  |  | Chairman and Chief Executive Officer of FABERcapital.                                                                                                                                                                         
|Colin J. OBrien          |  | 68  |  | Private investor.                                                                                                                                                                                                             
|Nasser S. Barghouti, PhD. |  | 43  |  | Chief Technology Officer                                                                                                                                                                                                      
|Edward Calnan             |  | 36  |  | Senior Vice President of Sales                                                                                                                                                                                                
|Daniel J. Fregeau         |  | 50  |  | Executive Vice President                                                                                                                                                                                                      
|Todd W. Schmidt           |  | 64  |  | Chief Financial Officer and Secretary                                                                                                                                                                                         
|J. Douglas Winter         |  | 39  |  | Chief Operating Officer                                                                                                                                                                                                       
|Tao Ye                    |  | 40  |  | General Manager of Asian Operations                                                                                                                                                                                           

John L. McGannon has served as President and Chief Executive Officer (CEO) of
Document Sciences since January 2001. He has been a director since January 2001. He has also served as Chief Financial Officer, Vice President, Chief Administrative Officer and Controller since joining Document Sciences in September 1998. From June
1997 through August 1998, he served as the Manager of Financial Analysis and Planning for Simulation Sciences, Inc., a California-based software developer for the oil and chemical engineering industries. Mr. McGannon worked for Chevron
Corporation from 1988 to 1997 in a variety of financial management positions. Mr. McGannon holds a BA degree from Stanford University and an MBA from Carnegie Mellon University.

Thomas L. Ringer has served as Chairman of the Board of Directors of Document Sciences since March 1998 and has been a director of Document
Sciences since 1992. He is currently Chairman of the Boards of Directors of M.S. Aerospace, Inc., a private manufacturing company and The Center for Corporate Innovation, a private services company. In addition, Mr. Ringer serves as Vice
Chairman of the Board of Directors of Wedbush Morgan Securities, Inc., a private investment company and serves on the Board of Directors of California Amplifier, Inc and Maxwell Technologies, Inc. Mr. Ringer holds BS and MBA degrees from
Indiana University.

Ronald S. Beard has served as a director of Document Sciences since December 2004. Mr. Beard is currently
a partner in the Zeughauser Group, consultants to the legal industry. Mr. Beard is a retired former partner of the law firm of Gibson, Dunn & Crutcher LLP. He joined the firm in 1964, served as Chairman of the firm from April 1991
until December 2001, and was also its Managing Partner from April 1991 until mid-1997. Mr. Beard also serves as the Chairman of the Board of Directors of Callaway Golf Company and as a Director of Javo Beverage Company. He received his law
degree in 1964 from Yale Law School.

Margaret A. Breya has served as a director of Document Sciences since August 2005.
Ms. Breya is currently a Senior Vice President and Chief Marketing Officer of Business Objects S.A. Ms. Breya is responsible



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for all aspects of Business Objects marketing operations worldwide. Ms. Breya has over 20 years of high-tech marketing experience. Prior to Business
Objects, Ms. Breya was Senior Vice President and Chief Marketing Officer at BEA Systems, Inc. and Senior Vice President, Marketing and Global Sales Operations, at Sun Microsystems. Ms. Breya holds a Masters of Business Administration from
the University of Oregon and a BSEE from the University of Illinois.

Barton L. Faber has served as a director of Document Sciences
since July 1996. He served as President and Chief Executive Officer of Document Sciences from June 1999 through January 2001. From 1996 to 1998, he served as Chairman of the Board of Directors and Chief Executive Officer of Metromail, an information
company. From April 1985 to June 1996, Mr. Faber held various positions with R.R. Donnelley, a financial printing firm. Before joining R.R. Donnelley, he held various positions with Mobil Oil Corporation and Continental Illinois Corp.
Mr. Faber currently serves as Chairman and Chief Executive Officer of FABERcapital and as a member of the Boards of Directors of IPT Holdings, listed on the AIM Exchange in London, Looking Glass Technologies and Incentive Logic Corporation.
Mr. Faber holds a BS degree from Arizona State University and an MBA from New York University.

Colin J. OBrien has
served as a director of Document Sciences since December 1995. From February 1992 to January 2001, he was employed in various positions at Xerox and last served as Executive Chairman and Chief Executive Officer of XESystems, Inc., a subsidiary of
Xerox. Prior to February 1992, Mr. OBrien was the founder and Chief Executive Officer of Triax Corporation, an investment company specializing in defense electronics companies. Prior to founding Triax Corporation, he was the Chief
Executive Officer of Times Fiber Communications, Inc., a fiber optic company. Mr. OBrien currently serves on the Board of Directors of Kepner-Tregoe, a private consulting firm. Mr. OBrien holds a degree in Chemical Engineering
from the University of New South Wales.

Nasser S. Barghouti, PhD. has served as our Chief Technology Officer since July 2004. Prior
to joining Document Sciences, Mr. Barghouti co-founded Objectiva Software Solutions in August 2001 and served as Chief Technology Officer. Prior to founding Objectiva, he served as the Global Director of Technology at ONEWORLD Software
Solutions from 2000 to 2001, where he was responsible for setting the technology direction of the company, and for providing technical oversight on software projects. Mr. Barghouti was also Associate Director of Information Technology at Bear
Stearns & Co. in New York City, one of the worlds leading investment banks and brokerage clearing houses. He served as a Senior Member of the Technical Staff at AT&T Research Labs in Florham Park, NJ and Bell Labs in Murray Hill,
NJ. Mr. Barghouti received his BS, MS and PhD all in Computer Science from Columbia University. He has published dozens of papers in reference journals and international conferences, and has given numerous presentations at leading research labs
and scientific forums.

Edward Calnan has served as Senior Vice President of Sales for Document Sciences since September 2006. Prior
to joining Document Sciences, Mr. Calnan served as Senior Vice President and General Manager at Capital IQ, a division of Standard & Poors. Mr. Calnan has also held the position of Senior Vice President of Global Sales and
Account Management for Thomson Financial, as well as senior sales leadership positions with WorldStreet Corporation and One World Software Solutions. Mr. Calnan holds a Bachelors of Arts degree in Political Science from Saint Michaels
College.

Daniel J. Fregeau has served as our Executive Vice President since January 2001. From 1998 to 2001, he served as Vice
President of Worldwide Sales and Business Development. From 1997 to 1998, he served as our Vice President, Business Development. From 1994 to 1997, he served as our Vice President, Marketing and from 1992 to 1994, he served as our Vice President,
Sales. Before joining Document Sciences, 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, he 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.



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Todd W. Schmidt has served as our Chief Financial Officer (CFO) since December 2005
and our Secretary since February 2006. Prior to joining Document Sciences, Mr. Schmidt served as the CFO of Dickie Walker Marine, Inc. from 2002 to 2005, the CFO of ENCAD, Inc. from 1996 to 2002 and as the Vice President of Finance and
Administration for several Southern California companies from 1976 to 1995, including Biosym Technologies, Inc., Dura Pharmaceuticals and IVAC Corporation. He has served as a Board member and business advisor for several start-up and existing
companies in the biomedical, software and other high-tech fields. Mr. Schmidt holds a BS and MBA from Northwestern University.

J.
Douglas Winter has served as our Chief Operating Officer since April 2005. From July 2004 to April 2005, he served as our General Manager of Technical Operations. Prior to joining Document Sciences, Mr. Winter co-founded Objectiva Software
Solutions in August 2001 and served as CEO. Previously, he served as General Manager of ONEWORLD Software Solutions California client service centers from 1999 to 2001, establishing their west coast operations and also served as part of their
global operations committee, responsible for formulating and executing strategic operations. Mr. Winter also served as Program Manager for Qualcomms 3500 series of CDMA base stations and later was responsible for the product certification
and testing of the QUALCOMM Thin Phone (QCP 860/1960). Mr. Winter holds an MSEE and an MBA from the Massachusetts Institute of Technology and a BSEE from Virginia Technological University. Following his undergraduate work, he worked for three
years for Westinghouse where he was an instructor for the U.S. Navys nuclear training program.

Tao Ye has served as our
General Manager of Asian Operations since July 2004. Prior to joining Document Sciences, Mr. Ye co-founded Objectiva Software Solutions in August 2001 and was Chief Operating Officer and President of Objectiva Software Solutions in China.
Previously, he served as General Manager of the ONEWORLD Softwares Greater China Division from 1999 to 2001. Prior to ONEWORLD, Mr. Ye was Program Manager for Intel Materials eBusiness effort and also worked for Eastman Kodak Company
where he designed and implemented Kodaks supply chain for Greater China Region. He holds an MBA from the MIT Sloan School of Business, a M.S. in Mechanical Engineering from the MIT School of Engineering, an M.S. in Materials Science from the
University of California Santa Barbara and a B.S. in Mathematical Mechanics from Peking (Beijing) University.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (Section 16(a)) requires our directors and
executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the Securities and Exchange Commission and The Nasdaq Capital Market reports of ownership and changes in ownership of our
common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by the SEC to furnish Document Sciences with copies of all Section 16(a) reports they file.

To our knowledge, based solely on review of the copies of such reports furnished to Document Sciences or written representations that no other reports
were required, we believe that during the 2006 fiscal year all filings made by our officers, directors and greater than ten percent stockholders were timely filed, except for the following:

J. Douglas Winter filed two late Form 4 reports with respect to two transactions that were not reported on a timely basis. Edward Calnan filed one late
Form 4 report with respect to one transaction that was not reported on a timely basis. He also filed one late Form 3 report. Margaret A. Breya, Nasser Barghouti and Tao Ye each filed one late Form 4 report with respect to one transaction that was
not reported on a timely basis.

Code of Conduct

Our Board of Directors has adopted a Code of Conduct for Document Sciences which applies to our officers, including our Chief Executive Officer and our principal financial and accounting officer. The Code of



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Conduct is available on our website at www.docsciences.com. The Code of Conduct is also available in print to any stockholder requesting a copy in writing
from our corporate secretary at our executive offices. We intend to disclose any amendments to our Code of Conduct made with respect to our directors or executive officers on our website.

Audit Committee

Our Board of Directors has
established an Audit Committee. In 2006, the Audit Committee consisted of Messrs. Beard, Ringer, OBrien and Ms. Breya. The Board of Directors has determined that each of the members of the Audit Committee is independent under the
Nasdaq marketplace rules and under rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002. The Board of Directors has also determined that all members of the Audit Committee meet the requirements for financial literacy and that
Mr. Ringer qualifies as an audit committee financial expert in accordance with applicable rules and regulations of the SEC. Mr. Beard serves as the Chairman of the Audit Committee.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy

The Compensation Committee
of the Board of Directors has overall responsibility for determining the compensation of our Chief Executive Officer (CEO) and other executive officers. Each member of the Compensation Committee is appointed by the Board and has been
determined by the Board to be an independent director under applicable NASDAQ marketplace rules.

Our executive compensation program is
intended to:



| |  |  | Attract, retain, motivate and reward highly qualified executive officers who create value for our stockholders;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Reinforce our performance oriented, results-based culture that rewards individual, team and corporate success; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Reflect the financial resources available to us based on our board approved annual business plan and our strategic objective to increase stockholder value.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Our program is designed to link executive pay levels with individual performance and our financial performance. Key
elements of our executive compensation program include:



| |  |  | Annual base salaries that are competitive relative to other public technology companies in our peer group;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Annual variable incentive bonuses that are based on financial performance; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | Long-term incentive compensation that is delivered principally through stock awards.
| | - |  | ------------------------------------------------------------------------------------

We believe that our executive compensation program makes a significant contribution to our success, mirrors our culture and adheres to high standards of
corporate governance.

Governance of Executive Compensation

The Compensation Committee of the Board of Directors plays the lead role in the governance of executive compensation at Document Sciences. In 2006, the Compensation Committee consisted of three directorsBarton
Faber (Chairman), Thomas Ringer and Margaret Breya. The Compensation Committee members have extensive management and Board experience, including experience dealing with executive compensation issues.



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The Compensation Committee operates under a charter adopted by the Board of Directors in 2004. The
charter is posted in the About Us/Investor Relations/Board of Director committee charters section of our website at www.docscience.com.

The Compensation Committees duties and responsibilities are listed in its charter and include, but are not limited to, the following:



| |  |  | Establish an executive compensation policy that:
| | - |  | ------------------------------------------------



| |  |  | Supports the companys business strategy and objectives;
| | - |  | --------------------------------------------------------



| |  |  | Attracts and retains key executives;
| | - |  | ------------------------------------



| |  |  | Links compensation with business objectives and company performance under a variety of business conditions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Provides appropriate incentives for executives while enhancing stockholder value;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Review and approve the companys corporate goals and objectives that are relevant to the compensation for the CEO and other executive officers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Review and approve the companys compensation plans, employment contracts and severance arrangements; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Evaluate the performance of the CEO and other executive officers.
| | - |  | -----------------------------------------------------------------

The Compensation Committee has the sole authority to select, retain and/or replace any compensation or other outside consultant for assistance in the evaluation of director, CEO or other executive officers
compensation, including the sole authority to approve the consultants fees and other retention terms. Services provided by the consultant may include evaluating our existing executive officer and director compensation based on market
comparables, analyzing compensation design alternatives and advising us on the new proxy statement disclosure rules. In 2005, the Compensation Committee selected Sibson Consulting (Sibson) as its compensation consultant to evaluate our
then existing executive officer and director compensation based on market comparables, analyze compensation design alternatives and provide specific recommendations on compensation decisions regarding the CEO, executive officers, and directors. The
Compensation Committee considers Sibson to be independent and selected Sibson because of its experience in compensation consulting, and its knowledge of compensation practices in the technology industry and among public companies.

The Compensation Committee met two times in 2006 and acted by unanimous written consent two times. The Chairman of the Compensation Committee prepared
each meetings agenda, which was distributed to Compensation Committee members in advance of the meeting (along with support materials). All three Compensation Committee members attended all of the meetings in 2006. From time to time, the
Compensation Committee has requested that the CEO and the Chief Financial Officer (CFO) attend portions of the meetings. In addition, the Compensation Committee has requested that the CEO make recommendations regarding the compensation
of executive officers.

Objectives of the Document Sciences Executive Compensation Programs

We believe strongly in pay-for-performance and measurement of quantifiable results. While base salaries for the CEO and other executive officers should
reflect the marketplace for similar positions at similar companies, a significant portion of their compensation is earned based on our financial performance and the financial performance of each executives area of responsibility. Quantifiable
performance objectives are established in advance, approved by the Compensation Committee and communicated to our executive officers early in the year. We also provide significant incentives for exceeding these performance objectives. Our emphasis
on measurable performance objectives emanates from our belief that sustained strong financial performance is an effective means of enhancing long-term stockholder return.

The Compensation Committee considers competitive benchmarking data in the establishment of base salaries, incentive targets, equity awards and total compensation levels. In 2006, the Compensation Committee



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relied on a benchmarking study conducted in 2005 by Sibson. This study compared Document Sciences executive compensation levels, mix of compensation
elements and plan design to 12 comparable public technology companies that primarily provide software and servicesStellent Inc., Mobius Management Systems Inc., Docucorp International Inc., Captiva Software Corporation, I-Many Inc., Segue
Software Inc., Scientific Learning Corporation, GSE Systems Inc., Convera Corporation, Peerless Systems Corporation, Astea International inc., and Omrtool Ltd. The Compensation Committee made adjustments to our executive compensation program in late
2005 based on the following results and recommendations of the benchmarking study:



| |  |  | Base salaries for our executive officers approximated the study median. Base salaries were then set at slightly above the study median to remain fixed for three
years, subject to the Compensation Committees evaluation of existing business conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Annual incentive awards for most executive positions were approximately equal to the study median and no adjustment was made.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Total cash compensation targets were approximately equal to the study median and no adjustment was made.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Equity award levels for certain executive officers were adjusted based upon corporate practices and the available remaining stock grant pool.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Employment agreements and change-in-control provisions were significantly less than typical programs offered in the market and were adjusted to approximate market
practices.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Elements of Document Sciences Executive Compensation Program

Our executive compensation program consists of five basic elementsbase salary; variable incentive bonuses; long-term incentive compensation that is
currently delivered through stock options and restricted stock grants; employee benefits and executive perquisites and income protection features such as employment agreements and change-in-control provisions. The remainder of this section provides
details on each of these elements of our executive compensation program.

Base Salary

Our objective is to provide our executive officers and other employees with base salaries competitive with our peer group. We provide this opportunity in
order to attract and retain an appropriate caliber of talent and experience for our workforce. The base salary for each of our executive officers is initially established through negotiation at the time of hire, based on such factors as the
officers qualifications, experience, prior salary and competitive salary information. Any increases thereafter are determined by an assessment of the officers sustained performance as well as competitive salary information. In general,
our Compensation Committee targets base salaries for our executive officers to be slightly above the median level of the compensation range for our peer group of companies.

The Compensation Committee established 2006 through 2008 base salaries for Document Sciences executive officers in July 2005, based on
Sibsons benchmarking study and recommendation and the Compensation Committees assessment of each officers sustained performance. Although the base salaries were set slightly above the median, they were fixed for three years. With
respect to base salaries, the Compensation Committee retains the discretion to modify such salary based upon the Compensation Committees evaluation of existing business conditions.

Annual Variable Incentive Bonuses

We provide the opportunity for our executive officers and
other employees to earn an annual cash bonus. We provide this opportunity in order to attract and retain an appropriate caliber of talent and experience for our key positions and to motivate executive officers and other eligible employees to achieve
our annual business



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goals. A significant portion of each of our executive officers total annual cash compensation is dependent on our companys and the individual
executives achievement of financial and other objectives set forth in our annual Executive Bonus Plan. Any bonus payouts under our annual Executive Bonus Plan to our executive officers are based on the following three factors, which are
discussed in more detail below:



| |  |  | the executive officers cash bonus target;
| | - |  | ------------------------------------------



| |  |  | the financial performance of our company; and
| | - |  | ---------------------------------------------



| |  |  | the executive officers individual performance.
| | - |  | -----------------------------------------------

For the 2006 Executive Bonus Plan, the Compensation Committee established a 2006 annual cash bonus target for each of our executive officers based in part on guidance provided by Sibson . In establishing the annual
cash bonus targets, the Compensation Committees goal was to set bonus targets at a level such that total annual cash compensation paid to each of our executive officers if the 100% target was achieved would be at the median of total annual
cash compensation, including base salary, paid to similarly situated executive officers in the core peer companies identified by Sibson . For 2006, cash bonus targets at the 100% target net income level for our executive officers ranged from 10% to
50% of each executive officers base salary.

For purposes of the 2006 Executive Bonus Plan, our companys financial performance
for fiscal year 2006 was measured by net income. In order for our executive officers to receive any bonus payout for 2006, a minimum net income needed to be reached. If our company did not achieve this threshold, no bonus payouts would be paid
to any of our executive officers with respect to fiscal year 2006. When setting this threshold, the Compensation Committee believed that the performance goal was reasonably achievable. If our company achieved its target net income, each of our
executive officers would become eligible to receive 100% of his target, subject to further adjustment based on his or her performance. If we achieved operating results above the threshold but below the target, the bonus payout would be an amount
less than 100% of the target. If our company exceeded its target net income, the bonus payout would be an amount greater than 100% of the target, but no more that 200% of the target. See the Grants of Plan Based Awards table for
additional information relating to the 2006 Executive Bonus Plan. Our Senior Vice President of Sales participates in a separate variable compensation plan based upon sales bookings and did not participate in the 2006 Executive Bonus Plan.

With respect to individual performance, the Compensation Committee retains the discretion to modify the payout based upon the Compensation
Committees evaluation of the executive officers overall performance and contributions to our company and other events. These adjustments may exclude all or a portion of both the positive or negative effect of external events that are
outside the control of our executive officers, such as natural disasters, litigation, or regulatory changes in accounting or taxation standards. These adjustments may also exclude all or a portion of both the positive or negative effect of unusual
or significant strategic events that are within the control of our executive officers, but that are undertaken with an expectation of improving our long-term financial performance, such as acquisitions.

In 2006, our company did not meet the minimum net income threshold. As a result, the Compensation Committee did not award any bonuses to our executive
officers under the 2006 Executive Bonus Plan, but did award special bonuses outside the plan. The Compensation Committee determined that revenue deferral of certain license agreements due to compliance with accounting standards, as well as, our
decision to incur significant expense by substantially increasing our domestic sales force in the latter part of 2006 to position us to meet 2007 sales objectives impacted our ability to achieve our target net income for 2006.

Long-Term Incentive Compensation

In 2006, our
long-term incentive compensation consisted of stock option and restricted stock awards. We currently believe that stock options and restricted stock awards are the best vehicles for aligning the interests of executives and shareholders of a
growth-oriented company because executives will benefit if there is stock price



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appreciation. Each of our executive officers received an initial stock option or restricted stock grant that was individually negotiated in connection with
his respective employment agreement and each has received subsequent stock option grants as an incentive for continued employment. Because there were a limited number of shares available for issuance under our stock incentive plans, in late 2005, we
reduced stock option grants and replaced them with restricted stock grants. This allows us to utilize fewer shares while still providing the necessary incentives to attract and retain executives and other employees.

Grants of stock options and time-vested restricted stock during 2006 were awarded under our 2004 Stock Incentive Plan and, in the case of our Senior Vice
President of Sales, under a Stock Option and Restricted Stock Plan and Agreement. Details on awards granted during 2006 to our CEO and other Named Executive Officers may be found in the table entitled Grants of Plan-Based Awards. Details
on all options exercised in 2006 by our CEO and other Named Executive Officers may be found in the table entitled Options Exercised and Stock Vested. Consistent with our governance standards and 2004 Stock Incentive Plan guidelines,
stock option grants and restricted stock awards are approved by the Compensation Committee and granted on the date of approval by our Board of Directors at their regular board meetings. Restricted stock awards vest either (i) over four years
starting on the first anniversary of the grant, with an additional 25% of the award vesting each year on the anniversary of the grant or (ii) over three years with 30% on the first anniversary of the grant, 30% on the second anniversary of the
grant, and 40% on the first anniversary of the grant .Stock options are granted at an exercise price equal to the fair market value of the common stock on the date of the grant, vest 25% on the first anniversary of the date of the grant with the
balance vesting monthly in equal installments over the next three years, and remain exercisable until the ten year anniversary of the grant, subject to shorter exercise periods following termination of employment.

Details on all outstanding option awards and stock awards of our CEO and other Named Executive Officers as of the end of 2006 may be found in the table
entitled Outstanding Equity Awards at Fiscal Year End. Only one Named Executive Officer received a restricted stock award in 2006. On February 1, 2006, Mr. Schmidt received a restricted stock grant of 7,500 shares of our
common stock in connection with the beginning of his employment at Document Sciences. No equity incentives were awarded to the CEO or other Named Executive Officers during 2006 in light of their already significant stock option, restricted stock,
and common stock holdings. The Compensation Committee believes that in light of the already significant holdings of the CEO and other Named Executive Officers and the limited number of shares available for issuance under our stock incentive plans,
granting additional equity awards would not provide any additional incentives to such officers.

Employee Benefits and Executive Perquisites

As disclosed in the All Other Compensation column of the Summary Compensation Table, we provide our CEO and other
executive officers with a limited number of special benefits and perquisites. We pay for healthcare premiums for the CEO and each of the executive officers. Mr. McGannon also receives a $500 per month automobile allowance, and Mr. Ye
receives an annual stipend of $50,000 for housing and other living expenses in China. We believe that these benefits and perquisites are not unusual in our industry. In addition, the CEO and other executive officers participate in the same employee
benefit plans as all other employees. The employee benefit programs, which are reviewed periodically by the Compensation Committee, include a 401(k) retirement program to which we make contributions and various health and welfare benefit programs.
We believe that these programs are also generally consistent with technology industry practice for companies of our size and financial position.

Income Protection Programs

Consistent with peer-group practice (as determined in Sibsons 2005 study), we have
entered into employment agreements with our CEO and certain executive officers. The purpose of these employment agreements, which include severance arrangements in the event of termination or a change in control, is to enhance our executive
recruiting and retention efforts by following industry practices, and to provide our



8



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##### Table of Contents

executives with reasonable levels of income protection while being responsible in the potential use of shareholder assets. Sibsons 2005 research
indicated that the severance-related benefits provided to our executive officers at that time were at the lower end of the peer-group range of practices. These employment agreements are explained in more detail under the section Potential
Payments upon Termination or Change in Control. We believe that the employee agreements are in our stockholders best interests because they encourage the CEO and other executive officers to support transactions that are in the best
interests of stockholders.

Stock Ownership Guidelines

We do not currently have stock ownership guidelines for our CEO and other executive officers. Sibsons 2005 research did not indicate that such programs are prevalent practice among our peer group. Also, the
Compensation Committee recognizes that the CEO and most other executive officers hold a significant number of shares and/or stock options and thus are strongly aligned with shareholder interests.

Impact of Regulatory Requirements

The Compensation
Committee considers regulatory requirements and their impact when making executive compensation decisions concerning the CEO and other executive officers. We adopted SFAS No. 123R effective for the 2006 fiscal year. In determining option
awards for 2006, the Compensation Committee generally considered the potential expense of those programs under SFAS No. 123R and the impact on earnings per share. The Compensation Committee concluded that the award levels were in the best
interests of stockholders given competitive compensation practices in the technology industry and among our peer companies, the awards potential expense, the companys performance, and the impact of the awards on employee motivation and
retention.

Conclusions

We believe
that our executive compensation program strongly supports our philosophy of pay-for-performance. We further believe that compensation levels and programs for the CEO and other executive officers are consistent with competitive practices in our
industry and thus advance our recruiting and retention objectives. The Compensation Committee will continue to review our programs on a regular basis and will update them from time to time based on changes in competitive practices, regulatory
requirements and our needs.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
management. Based on these reviews and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Companys Annual Report on Form 10-K.

Respectfully submitted by the Compensation Committee,

Barton L. Faber, Chairman

Thomas L. Ringer

Margaret A. Breya



9



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##### Table of Contents

Summary Compensation Table

The table below summarizes the total compensation paid or earned by our CEO, CFO, and our other three most highly compensated executive officers (the
Named Executive Officers) for the fiscal year ended December 31, 2006.



|                                                     |  |      |  |           |         |     |          |   |                |  |                 |        |                                         |   |                                                                       |   |                          |   |  |           |        |     |  |   |        
|---------------------------------------------------- |  | ---- |  | --------- | ------- | --- | -------- | - | -------------- |  | --------------- | ------ | --------------------------------------- | - | --------------------------------------------------------------------- | - | ------------------------ | - |  | --------- | ------ | --- |  | - | -------
|Name and Principal Position                          |  | Year |  | Salary($) |         |     | Bonus($) |   | StockAwards($) |  | OptionAwards($) |        | Non-EquityIncentive PlanCompensation($) |   | Change inPension ValueandNonqualifiedDeferredCompensationEarnings ($) |   | All OtherCompensation($) |   |  | Total ($)
|(a)                                                  |  | (b)  |  | (c)       |         |     | (d)      |   | (e)(1)         |  | (f)             |        | (g)                                     |   | (h)                                                                   |   | (i)                      |   |  | (j)      
|John L. McGannon President & Chief Executive Officer |  | 2006 |  | $         | 275,000 | (2) |          | $ | 40,000         |  |                 |       |                                         |  |                                                                       |  |                          |  |  | $         | 20,791 | (3) |  | $ | 335,791
|                                                     |  |      |  |           |         |     |          |   |               
|Todd W. Schmidt Chief Financial Officer              |  | 2006 |  | $         | 150,577 |     |          | $ | 6,000          |  | $               | 27,078 |                                         |  |                                                                       |  |                          |  |  |           |       |     |  | $ | 187,962
|                                                     |  |      |  |           |         |     |          |   |               
|Nasser S. Barghouti Chief Technology Officer         |  | 2006 |  | $         | 200,000 | (4) |          | $ | 40,000         |  | $               | 61,194 |                                         |  |                                                                       |  |                          |  |  | $         | 7,163  | (5) |  | $ | 308,357
|                                                     |  |      |  |           |         |     |          |   |               
|J. Douglas Winter Chief Operating Officer            |  | 2006 |  | $         | 200,000 | (6) |          | $ | 40,000         |  | $               | 61,194 |                                         |  |                                                                       |  |                          |  |  | $         | 14,561 | (7) |  | $ | 315,755
|                                                     |  |      |  |           |         |     |          |   |               
|Tao Ye General Manager of Asian Operations           |  | 2006 |  | $         | 175,000 | (8) |          | $ | 40,000         |  | $               | 61,194 |                                         |  |                                                                       |  |                          |  |  | $         | 62,384 | (9) |  | $ | 338,578

---

|(1) | The value reported under the Stock Awards column for each Named Executive Officer is the aggregate cost recognized in the Companys financial statements for such awards for the
fiscal year, including awards granted in prior fiscal years. The costs for awards made during fiscal year 2006 are determined in accordance with SFAS 123(R), and, under SEC rules, disregard adjustments for forfeiture assumptions. The costs for
awards made prior to fiscal year 2006 are determined in accordance with the modified prospective transition method under SFAS 123(R). The assumptions for the valuation determinations are provided in Note 1 to our financial statements contained in
the Form 10-K for the year ended December 31, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This amount includes a $3,000 contribution by Mr. McGannon to his account in the Companys 401(k) plan.
|--- | -------------------------------------------------------------------------------------------------------



|(3) | All Other Compensation includes $11,791 of health and life insurance benefits, a $6,000 automobile allowance and $3,000 of company matching contributions to the 401(k) plan.
Document Sciences matches 100% of its employees 401(k) contributions up to a maximum of $3,000. Mr. McGannons 401(k) account is 100% vested.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | This amount includes a $15,000 contribution by Mr. Barghouti to his account in the Companys 401(k) plan.
|--- | ---------------------------------------------------------------------------------------------------------



|(5) | This amount includes $4,163 of health and life insurance benefits and $3,000 of company matching contributions to the executives 401(k) account. Mr. Barghoutis
401(k) account is 50% vested.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | This amount includes a $15,000 contribution by Mr. Winter to his account in the Companys 401(k) plan.
|--- | ------------------------------------------------------------------------------------------------------



|(7) | In addition to $11,561 of health and life insurance benefits, this amount includes $3,000 of company matching contributions to Mr. Winters 401(k) account. .
Mr. Winters 401(k) account is 50% vested.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | This amount includes a $15,000 contribution by Mr. Ye to his account in the Companys 401(k) plan.
|--- | --------------------------------------------------------------------------------------------------



|(9) | This amount includes $9,384 of health insurance benefits, a $50,000 of annual stipend for housing and other living expenses and $3,000 of company matching contributions to
Mr. Yes 401(k) account. Mr. Yes 401(k) account is 50% vested.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Grants of Plan Based Awards

The following table sets forth, for the fiscal year ended December 31, 2006, certain information regarding incentive plan awards granted to the CEO,
CFO and other Named Executive Officers.



|                    |  |                   |  |                                                                   |        |                                                           |   |                                                       |  |                                                          |         |                                                          |    |                                  |    |         |    |     |          |     |    |         |    |  |   |        
|------------------- |  | ----------------- |  | ----------------------------------------------------------------- | ------ | --------------------------------------------------------- | - | ----------------------------------------------------- |  | -------------------------------------------------------- | ------- | -------------------------------------------------------- | -- | -------------------------------- | -- | ------- | -- | --- | -------- | --- | -- | ------- | -- |  | - | -------
|                    |  |                   |  | Estimated Future Payouts UnderNon-Equity Incentive PlanAwards (1) |        | Estimated Future PayoutsUnder Equity Incentive PlanAwards |   | AllOtherStockAwards:NumberofSharesof Stockor Units(#) |  | All OtherAwards:Number ofSecuritiesUnderlyingOptions (#) |         | All OtherAwards:Number ofSecuritiesUnderlyingOptions (#) |    | GrantDateTotalFairValue ofAwards
|Name                |  | GrantDate         |  | Threshold($)                                                      |        | Target($)                                                 |   | Maximum($)                                            |  | Threshold(#)                                             |         | Target(#)                                                |    | Maximum(#)                       |    |         |    |    
|(a)                 |  | (b)               |  | (c)                                                               |        | (d)                                                       |   | (e)                                                   |  | (f)                                                      |         | (g)                                                      |    | (h)                              |    | (i) (2) |    | (j) |          | (k) |    | (l) (3)
|John L. McGannon    |  | 1/11/2006         |  | $                                                                 | 27,500 |                                                           | $ | 137,500                                               |  | $                                                        | 275,000 |                                                          |   |                                  |   |         |   |     |         |     |   |         |   |  |   |       
|                    |  |                   |  |                                                                   |        |                                                           |   |                                                       |  |                                                          |        
|Todd W. Schmidt     |  | 1/11/20062/1/2006 |  | $                                                                 | 7,500 |                                                           | $ | 15,000                                               |  | $                                                        | 37,500 |                                                          |  |                                  |  |         |  |     |   7,500 |     |  |         |  |  | $ | 57,000
|                    |  |                   |  |                                                                   |        |                                                           |   |                                                       |  |                                                          |        
|Nasser S. Barghouti |  | 1/11/2006         |  | $                                                                 | 20,000 |                                                           | $ | 100,000                                               |  | $                                                        | 200,000 |                                                          |   |                                  |   |         |   |     |         |     |   |         |   |  |   |       
|                    |  |                   |  |                                                                   |        |                                                           |   |                                                       |  |                                                          |        
|J. Douglas Winter   |  | 1/11/2006         |  | $                                                                 | 20,000 |                                                           | $ | 100,000                                               |  | $                                                        | 200,000 |                                                          |   |                                  |   |         |   |     |         |     |   |         |   |  |   |       
|                    |  |                   |  |                                                                   |        |                                                           |   |                                                       |  |                                                          |        
|Tao Ye              |  | 1/11/2006         |  | $                                                                 | 20,000 |                                                           | $ | 100,000                                               |  | $                                                        | 200,000 |                                                          |   |                                  |   |         |   |     |         |     |   |         |   |  |   |       

---

|(1) | These awards were granted pursuant to our 2006 Executive Bonus Plan, an annual non-equity incentive plan. This plan is described in more detail in Compensation Discussion and
Analysis above. The target is the amount our Named Executive Officers would receive assuming that our company achieved its target net income in 2006. For the Named Executive Officers, the 2006 Executive Bonus Plan would have paid out if
our company achieved a minimum net income amount in 2006 and was capped at a maximum net income amount. Because we did not achieve our minimum net income in 2006, no bonuses were paid to the Named Executive Officers under our 2006 Executive Bonus
Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This restricted stock award was granted pursuant to our 2004 Stock Incentive Plan. This restricted stock award vests in four equal annual installments beginning on the one year
anniversary of the grant date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This amount represents the grant date fair value, computed in accordance with SFAS No. 123(R), of restricted stock units granted in 2006. The grant date fair value was
determined by multiplying the total number of shares of our common stock underlying the restricted stock award by $7.60, the closing price of our companys common stock on NASDAQ on the grant date in accordance with SFAS No. 123(R).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Outstanding Equity Awards at Fiscal Year End 2006

The following table sets forth certain information concerning outstanding equity awards held by the Named Executive Officers as of December 31,
2006.



|                    |  |                                                     |  |                                                                  |  |                                                                                       |  |                        |                          |                      |                                                              |                                                       |        |                                                          |   |                                                                                             |  |                                                                                                          |  |  
|------------------- |  | --------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ---------------------- | ------------------------ | -------------------- | ------------------------------------------------------------ | ----------------------------------------------------- | ------ | -------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | -
|                    |  | Option Awards                                       |  | Stock Awards                                                    
|Name                |  | Number ofSecuritiesUnderlyingOptions (#)Exercisable |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |  | EquityIncentivePlanAwards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions
(#) |  | OptionExercisePrice($) |                          | OptionExpirationDate |                                                              | Number ofShares orUnits ofStockThat HaveNotVested (#) |        | MarketValue ofSharesor Unitsof StockThatHaveNotVested($) |   | EquityIncentivePlanAwards:Number ofUnearnedShares,Units orOtherrightsThat
HaveNotVested (#) |  | EquityIncentivePlanAwards:Marketor PayoutValue ofUnearnedShares,Units
orOtherrightsThatHave NotVested($)
|(a)                 |  | (b) (1)                                             |  | (c)                                                              |  | (d)                                                                                   |  | (e)                    |                          | (f) (2)              |                                                              | (g)                                                   |        | (h) (3)                                                  |   | (i)                                                                                         |  | (j)                                                                                                     
|John L. McGannon    |  | 15,00095,000114,20040,00075,00040,000               |  |                                                                  |  |                                                                                       |  | $$$$$$                 | 1.751.971.472.813.175.24 |                      | 10/18/200809/14/200902/12/201101/30/201201/27/201304/01/2015 |                                                       |        |                                                          |   |                                                                                             |  |                                                                                                          |  |  
|                    |  |                                                     |  |                                                                  |  |                                                                                       |  |                        |                         
|Todd W. Schmidt     |  |                                                    |  |                                                                 |  |                                                                                      |  |                        |                         |                      |                                                             |                                                       | 7,500  |                                                          | $ | 50,250                                                                                      |  |                                                                                                         |  | 
|                    |  |                                                     |  |                                                                  |  |                                                                                       |  |                        |                         
|Nasser S. Barghouti |  | 20,000                                              |  |                                                                 |  |                                                                                      |  | $                      | 5.24                     |                      | 04/01/2015                                                   |                                                       | 17,500 |                                                          | $ | 117,250                                                                                     |  |                                                                                                         |  | 
|                    |  |                                                     |  |                                                                  |  |                                                                                       |  |                        |                         
|J. Douglas Winter   |  | 20,000                                              |  |                                                                 |  |                                                                                      |  | $                      | 5.24                     |                      | 04/01/2015                                                   |                                                       | 17,500 |                                                          | $ | 117,250                                                                                     |  |                                                                                                         |  | 
|                    |  |                                                     |  |                                                                  |  |                                                                                       |  |                        |                         
|Tao Ye              |  | 20,000                                              |  |                                                                 |  |                                                                                      |  | $                      | 5.24                     |                      | 04/01/2015                                                   |                                                       | 17,500 |                                                          | $ | 117,250                                                                                     |  |                                                                                                         |  | 

---

|(1) | On December 22, 2005, the Board of Directors approved the immediate and full vesting of all unvested stock options, including the options listed in column (b).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | All Options listed have a ten (10) year term.
|--- | ---------------------------------------------



|(3) | This amount was determined by multiplying the total number of shares of our common stock underlying the restricted stock award by $6.70, the closing price of our companys
common stock on NASDAQ on December 29, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Option Exercises and Stock Vested Table

The following table sets forth certain information concerning option exercises and stock vested held by the CEO, CFO and other Named Executive Officers
as of December 31, 2006.



|                    |  |                                          |  |                               |  |                                         |  |                              |       
|------------------- |  | ---------------------------------------- |  | ----------------------------- |  | --------------------------------------- |  | ---------------------------- | ------
|                    |  | Option Awards                            |  | Stock Awards                 
|Name                |  | Number of SharesAcquired on Exercise (#) |  | Value Realizedon Exercise ($) |  | Number of SharesAcquired on Vesting (#) |  | Value Realizedon Vesting ($)
|(a)                 |  | (b)                                      |  | (c)                           |  | (d)                                     |  | (e) (1)                     
|John L. McGannon    |  |                                         |  |                              |  |                                        |  |                              |      
|Todd W. Schmidt     |  |                                         |  |                              |  |                                        |  |                              |      
|Nasser S. Barghouti |  |                                         |  |                              |  | 7,500                                   |  | $                            | 45,375
|J. Douglas Winter   |  |                                         |  |                              |  | 7,500                                   |  | $                            | 45,375
|Tao Ye              |  |                                         |  |                              |  | 7,500                                   |  | $                            | 45,375

---

|(1) | Column (e) indicates the aggregate dollar amounts realized by each Named Executive Officer, upon the vesting of portion of their restricted stocks awarded. September 19,
2006 was the vesting date of the indicated number of shares (Column (d)). The closing price of the company stock on the vesting date was $6.05.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Potential Payments Upon Termination Or Change Of Control

The tables below reflect the amount of
compensation to each of the Named Executive Officers of the Company in the event of termination of such executives employment. The amount of compensation payable to each Named Executive Officer upon voluntary termination, early retirement,
involuntary not-for-cause termination, termination following a change of control and in the event of disability or death of the executive is shown below. The amounts shown assume that such termination was effective as of December 31, 2006 and
thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executives separation
from the Company.

Employment Contracts and Severance Arrangements

Employment Agreement with John L. McGannon

Mr. McGannons Employment Agreement is
effective as of October 1, 2005 and provides for a base annual salary of $275,000 and a performance-based bonus equal to 50% to 100% of such annual base salary. The criteria for the performance-based bonus and amount of the payment will be
determined by the Compensation Committee in its sole and absolute discretion. The Employment Agreement also entitles Mr. McGannon to receive, upon termination of his employment for any reason, payments equal to (i) the portion of his then
current annual base salary which has accrued through the date of his termination, (ii) any vested bonus payments, stock options or restricted stock to which he is entitled as of the date of his termination and (iii) any payments for unused
vacation and reimbursement of expenses which are due, accrued or payable as of the date of his termination. If Mr. McGannon is terminated by the Company without cause, but not in connection with a change in control of the Company as described
below, then in addition to the payments described in (i), (ii) and (iii) above, he is entitled to receive (x) an amount equal to his then-current annual base salary and performance-based bonus for a 12-month period and
(y) continuation of health benefits for a 12-month period. If either 30 days before or within 18 months following a change in control of the Company, Mr. McGannon is terminated by the Company without cause or he terminates his employment
for good reason, then in addition to the payments described in (i), (ii) and (iii) above, he is entitled to receive (A) an amount equal to two times his annual base salary and prorated performance-based target bonus and
(B) continuation of health benefits for a 24-month period. In addition, Mr. McGannon has agreed under his Employment Agreement that he will not, while his Employment Agreement is in effect and for 12 months after its termination, solicit
or attempt to solicit (or assist others to solicit) for employment any person who is, or within the preceding 12 months was, an employee of the Company.



13



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##### Table of Contents

Employment Agreements with Nasser Barghouti, J. Douglas Winter and Tao Ye

Each of Mr. Barghoutis, Mr. Winters and Mr. Yes Employment Agreement is effective as of October 1, 2005 and provides
for a base annual salary of $200,000 for Mr. Barghouti and Mr. Winters, $175,000 for Mr. Ye and a performance-based bonus equal to 50% to 100% of such annual base salary. The criteria for the performance-based bonus and amount
of the payment will be determined by the Compensation Committee in its sole and absolute discretion. The Employment Agreement also entitles each of them to receive, upon termination of his employment for any reason, payments equal to (i) the
portion of his then current annual base salary which has accrued through the date of his termination, (ii) any vested bonus payments, stock options or restricted stock to which he is entitled as of the date of his termination and (iii) any
payments for unused vacation and reimbursement of expenses which are due, accrued or payable as of the date of his termination. If Mr. Barghouti, Mr. Winter or Mr. Ye is terminated by the Company without cause, but not in connection
with a change in control of the Company as described below, then in addition to the payments described in (i), (ii) and (iii) above, each is entitled to receive (x) an amount equal to his then-current annual base salary for a 6-month
period and (y) continuation of health benefits for a 6-month period. If either 30 days before or within 18 months following a change in control of the Company, any of them is terminated by the Company without cause or any terminates his
employment for good reason, then in addition to the payments described in (i), (ii) and (iii) above, he is entitled to receive (A) an amount equal to 1.5 times his annual base salary and prorated performance-based target bonus and
(B) continuation of health benefits for an 18-month period. In addition, each of Mr. Barghouti, Mr. Winter or Mr. Ye has agreed under his Employment Agreement that he will not, while his Employment Agreement is in effect and for
12 months after its termination, solicit or attempt to solicit (or assist others to solicit) for employment any person who is, or within the preceding 12 months was, an employee of the Company.

a) Payments Made Upon Termination

Regardless of the
manner in which a Named Executive Officers employment terminates, he will be entitled to receive amounts earned during his term of employment. Such amounts include:



| |  |  | The portion of his then current annual base salary which has accrued through the date of his termination,
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Vested stock options and restricted stock
| | - |  | -----------------------------------------



| |  |  | Payment for unused vacation
| | - |  | ---------------------------



| |  |  | Unreimbursed business expenses
| | - |  | ------------------------------

b) Payments Made
Upon Termination Without Cause

If a Named Executive Officers employment is terminated by the company without Cause, but not in
connection with a Change in Control, then he/she will receive, in addition to the items identified above (section a), continuation of the Annual Base Salary and the Health Benefits as described in the Employment Contract and Severance Arrangement
section above.

c) Payments Made upon a Change of Control

If, either 30 days before or within 18 months following a Change of Control, the Company terminates a Named Executive Officers employment without Cause, or if a Named Executive Officer terminates his/her
employment for Good Reason, then the executive is entitled to receive, in addition to the items identified above (section a), portions of the Annual Base Salary and the targeted annual Bonus, as well as, continuation of Health Benefits.



14



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##### Table of Contents

d) Other

If a Named Executive Officers employment is terminated by the Company for Cause, in the event of death or disability or due to voluntary resignation for any reason other than for Good Reason either 30 days before or within 18 months
following a Change of Control, the executive will be entitled to the compensation set forth in section (a).

The use of the term
Cause herein shall mean:



| | a) | An act of willful dishonesty taken in connection with the executives responsibilities as an employee and causing damage to the Company;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



| | b) | The executives commission of, or plea of nolo contender to, a felony;
| | -- | ----------------------------------------------------------------------



| | c) | The executives insubordination or willful refusal to follow reasonable directives of the Board of Directors;
| | -- | -------------------------------------------------------------------------------------------------------------



| | d) | The executives violation of the Confidentiality Agreement between him/her and the Company; and
| | -- | -----------------------------------------------------------------------------------------------



| | e) | The executives gross negligence or willful misconduct in the performance of his/her duties as an employee of the Company.
| | -- | --------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

The following tables indicate the potential payments and benefits to which the Named Executive Officers
will be entitled upon termination of employment. Calculations for the following tables are based on the following assumptions: (i) the triggering event occurred on December 31, 2006; (ii) salaries were paid through December 31,
2006; and (iii) the per share price of our common stock is $6.70, the closing price on December 29, 2006.

Voluntary
Termination, Involuntary For Cause Termination, Disability or Death



|                    |  |        |  |       |  |              |           |                           |   |               |  |   |          
|------------------- |  | ------ |  | ----- |  | ------------ | --------- | ------------------------- | - | ------------- |  | - | ---------
|Name                |  | Salary |  | Bonus |  | StockOptions |           | Benefits & UnpaidVacation |   | TotalBenefits
|John L. McGannon    |  |       |  |      |  | $            | 1,599,825 |                           | $ | 22,012        |  | $ | 1,621,837
|Todd W. Schmidt     |  |       |  |      |  |              |          |                           |   |              |  |   |         
|Nasser S. Barghouti |  |       |  |      |  | $            | 29,200    |                           | $ | 7,596         |  | $ | 36,796   
|J. Douglas Winter   |  |       |  |      |  | $            | 29,200    |                           | $ | 21,442        |  | $ | 50,642   
|Tao Ye              |  |       |  |      |  | $            | 29,200    |                           | $ | 20,192        |  | $ | 49,392   

Voluntary Termination for Good Reason or

Involuntary Not for Cause Termination as a result of a Change in Control

Payments for termination associated with Change in Control will be awarded if the triggering event takes place within 30 days before or 18 months
following the change in control of the company.



|                    |  |        |         |       |   |              |  |                           |           |               |   |        |  |   |          
|------------------- |  | ------ | ------- | ----- | - | ------------ |  | ------------------------- | --------- | ------------- | - | ------ |  | - | ---------
|Name                |  | Salary |         | Bonus |   | StockOptions |  | Benefits & UnpaidVacation |           | TotalBenefits
|John L. McGannon    |  | $      | 550,000 |       | $ | 275,000      |  | $                         | 1,599,825 |               | $ | 45,594 |  | $ | 2,470,419
|Todd W. Schmidt     |  |        |        |       |   |             |  |                           |          |               |   |       |  |   |         
|Nasser S. Barghouti |  | $      | 300,000 |       | $ | 150,000      |  | $                         | 29,200    |               | $ | 13,841 |  | $ | 493,041  
|J. Douglas Winter   |  | $      | 300,000 |       | $ | 150,000      |  | $                         | 29,200    |               | $ | 38,784 |  | $ | 517,984  
|Tao Ye              |  | $      | 262,500 |       | $ | 131,250      |  | $                         | 29,200    |               | $ | 90,518 |  | $ | 513,468  

Involuntary Not For Cause Termination



|                    |  |        |         |       |   |              |  |                           |           |               |   |        |  |   |          
|------------------- |  | ------ | ------- | ----- | - | ------------ |  | ------------------------- | --------- | ------------- | - | ------ |  | - | ---------
|Name                |  | Salary |         | Bonus |   | StockOptions |  | Benefits & UnpaidVacation |           | TotalBenefits
|John L. McGannon    |  | $      | 275,000 |       | $ | 137,500      |  | $                         | 1,599,825 |               | $ | 33,803 |  | $ | 2,046,128
|Todd W. Schmidt     |  |        |        |       |   |             |  |                           |          |               |   |       |  |   |         
|Nasser S. Barghouti |  | $      | 100,000 |       |   |             |  | $                         | 29,200    |               | $ | 9,678  |  | $ | 138,878  
|J. Douglas Winter   |  | $      | 100,000 |       |   |             |  | $                         | 29,200    |               | $ | 27,223 |  | $ | 156,423  
|Tao Ye              |  | $      | 87,500  |       |   |             |  | $                         | 29,200    |               | $ | 37,384 |  | $ | 154,084  



16



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##### Table of Contents

Director Compensation

Pursuant to our director compensation arrangement, non-employee directors receive the following compensation:



| |  |  | an annual retainer of $20,000 for each director and $35,000 for the Chairman of the Board;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | $1,200 per day per Board meeting attended in person;
| | - |  | ----------------------------------------------------



| |  |  | $600 per Board meeting attended by teleconference;
| | - |  | --------------------------------------------------



| |  |  | $1,200 for each committee meeting attended in person;
| | - |  | -----------------------------------------------------



| |  |  | $600 for each committee meeting attended by teleconference; and
| | - |  | ---------------------------------------------------------------



| |  |  | a restricted stock grant of 10,000 shares of common stock, granted under our 2004 Stock Incentive Plan, as of the business day immediately following each annual
meeting of stockholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In September 2005, we eliminated the stock option grant to acquire up to 30,000 shares of our
common stock, as of the business day immediately following each annual meeting of stockholders and upon initial appointment to the Board, and replaced it with a restricted stock grant of 10,000 shares of our common stock, vesting over three years.
This grant occurs upon initial appointment to the Board and as a grant occurring once every three years, unless otherwise adjusted at the discretion of the Compensation Committee.

Directors who are also our employees of Document Sciences do not receive extra compensation for their service on our Board of Directors.



|                  |  |                               |        |                |   |                 |  |                                         |  |                                                                     |  |                          |  |           |  |   |       
|----------------- |  | ----------------------------- | ------ | -------------- | - | --------------- |  | --------------------------------------- |  | ------------------------------------------------------------------- |  | ------------------------ |  | --------- |  | - | ------
|Name              |  | Fees Earnedor Paid inCash ($) |        | StockAwards($) |   | OptionAwards($) |  | Non-EquityIncentive PlanCompensation($) |  | Change inPension Value andNonqualified DeferredCompensationEarnings |  | All OtherCompensation($) |  | Total ($)
|(a)               |  | (b) (1)                       |        | (c) (2)        |   | (d)             |  | (e)                                     |  | (f)                                                                 |  | (g)                      |  | (h)      
|Thomas L. Ringer  |  | $                             | 57,550 |                | $ | 15,818          |  |                                        |  |                                                                    |  |                         |  |          |  | $ | 73,368
|Ronald S. Beard   |  | $                             | 33,800 |                | $ | 15,818          |  |                                        |  |                                                                    |  |                         |  |          |  | $ | 49,618
|Margaret A. Breya |  | $                             | 27,800 |                | $ | 47,203          |  |                                        |  |                                                                    |  |                         |  |          |  | $ | 75,003
|Barton L. Faber   |  | $                             | 30,200 |                | $ | 15,818          |  |                                        |  |                                                                    |  |                         |  |          |  | $ | 47,018
|Colin J. OBrien  |  | $                             | 33,800 |                | $ | 15,818          |  |                                        |  |                                                                    |  |                         |  |          |  | $ | 49,618

---

|(1) | Amounts in column (b) include retainer, committee and board meeting fees.
|--- | -------------------------------------------------------------------------



|(2) | The value reported under the Stock Awards column for each director is the aggregate cost recognized in the Companys financial statements for such awards for the fiscal year,
including awards granted in prior fiscal years. The costs for awards made during fiscal year 2006 are determined in accordance with SFAS 123(R), and, under SEC rules, disregard adjustments for forfeiture assumptions. The costs for awards made prior
to fiscal year 2006 are determined in accordance with the modified prospective transition method under SFAS 123(R). The assumptions for the valuation determinations are provided in Note 1 to our financial statements contained in the Form 10-K for
the year ended December 31, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2006, the Compensation Committee of the Board of Directors consisted of Mr. Faber, Mr. Ringer and Ms. Breya. None of our executive
officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our Board of Directors or Compensation Committee.

During 2006, none of our executive officers served as: (i) a member of the compensation committee (or other committee of the board of directors
performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation Committee; (ii) a director of another entity, one of whose
executive officers served on our Compensation Committee; or (iii) a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served as one of our directors.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information with respect to our equity compensation
plans as of December 31, 2006, which plans were as follows: the 1995 Stock Incentive Plan, the 2004 Stock Incentive Plan and the 1997 Employee Stock Purchase Plan, as amended.



|                                                           |  |                                                                                             |     |  |                                                                              |      |     |                                                                                                                                          |         |    
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------- | ---- | --- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---
|Plan Category                                              |  | (a) Number of Securitiesto be Issued uponExercise of OutstandingOptions, Warrants
andRights |     |  | (b) Weighted-averageExercise Price ofOutstanding Options,Warrants and Rights |      |     | (c) Number of SecuritiesRemaining Availablefor Future Issuanceunder EquityCompensation
Plans(Excluding SecuritiesReflected inColumn (a)) |        
|Equity compensation plans approved by security holders     |  | 2,277,613                                                                                   | (1) |  | $                                                                            | 2.97 |     |                                                                                                                                          | 196,513 | (3)
|Equity compensation plans not approved by security holders |  | 50,000                                                                                      | (1) |  | $                                                                            | 3.10 | (2) |                                                                                                                                          |        |    
|                                                           |  |                                                                                             |     |  |                                                                              |      |     |                                                                                                                                          |         |    
|Totals                                                     |  | 2,327,613                                                                                   |     |  | $                                                                            | 2.97 |     |                                                                                                                                          | 196,513 |    
|                                                           |  |                                                                                             |     |  |                                                                              |      |     |                                                                                                                                          |         |    

---

|(1) | Includes restricted stock grants at no cost to grantee.
|--- | -------------------------------------------------------



|(2) | Does not include restricted stock, which does not have an exercise price.
|--- | -------------------------------------------------------------------------



|(3) | Includes 74,657 shares of our common stock that may be issued under the 1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan expired on March 31, 2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

BENEFICIAL OWNERSHIP

The following table sets forth the beneficial ownership of Document Sciences common stock as of March 20, 2007, for the following: (i) each person or group of affiliated persons known to us to
beneficially own 5% or more of our common stock; (ii) each of our directors and nominees; (iii) each of our executive officers listed in the Summary Compensation Table; and (iv) all of our directors and executive officers as a group.



|                                                                         |  |                            |  |                       |  |                               |  |                                   |  
|------------------------------------------------------------------------ |  | -------------------------- |  | --------------------- |  | ----------------------------- |  | --------------------------------- | -
|                                                                         |  | Common Stock               | 
|Name and Addresses (1)                                                   |  | Number of Shares Owned (2) |  | Rights to Acquire (3) |  | Shares Beneficially Owned (4) |  | Percentage Beneficially Owned (4) |  
|Principal Stockholders                                                   |  |                            |  |                       |  |                               |  |                                   |  
|Kevin C. Howe (5)                                                        |  | 278,977                    |  |                      |  | 278,977                       |  | 6.45                              | %
|5416 Arbor Hollow McKinney, Texas 75070                                  |  |                            |  |                       |  |                               |  |                                   |  
|E. M. Palandri                                                           |  | 174,079                    |  | 70,000                |  | 244,079                       |  | 5.55                              |  
|c/o Document Sciences Corporation 5958 Priestly Drive Carlsbad, CA 92008 |  |                            |  |                       |  |                               |  |                                   |  
|E. Jeffrey Peierls (6)                                                   |  | 349,100                    |  |                      |  | 349,100                       |  | 8.07                              |  
|c/o U.S. Trust Company of N.Y. 114 West 47th Street New York, NY 10036   |  |                            |  |                       |  |                               |  |                                   |  
|Thomas Satterfield, Jr. (7)                                              |  | 236,996                    |  |                      |  | 236,996                       |  | 5.48                              |  
|2609 Caldwell Mill Lane Birmingham, AL 35243                             |  |                            |  |                       |  |                               |  |                                   |  
|Wedbush, Inc. (8)                                                        |  | 329,696                    |  |                      |  | 329,696                       |  | 7.62                              |  
|1000 Wilshire Blvd. Los Angeles, CA 90017                                |  |                            |  |                       |  |                               |  |                                   |  
|Daniel Zeff (9)                                                          |  | 601,816                    |  |                      |  | 601,816                       |  | 13.91                             |  
|500 California Street, Suite 1500 San Francisco, CA 94111                |  |                            |  |                       |  |                               |  |                                   |  
|                                                                         |  |                            |  |                      
|Directors and Nominees                                                   |  |                            |  |                       |  |                               |  |                                   |  
|John L. McGannon                                                         |  | 5,000                      |  | 379,200               |  | 384,200                       |  | 8.16                              |  
|Thomas L. Ringer (10)                                                    |  | 376,516                    |  | 280,000               |  | 656,516                       |  | 14.26                             |  
|Ronald S. Beard                                                          |  | 2,500                      |  | 60,000                |  | 62,500                        |  | 1.42                              |  
|Margaret A. Breya                                                        |  | 3,000                      |  |                      |  | 3,000                         |  | *                                 |  
|Barton L. Faber                                                          |  | 64,000                     |  | 365,000               |  | 429,000                       |  | 9.15                              |  
|Colin J. OBrien                                                         |  | 14,600                     |  | 150,000               |  | 164,600                       |  | 3.67                              |  
|Additional Named Executive Officers Todd W. Schmidt                      |  | 1,875                      |  |                      |  | 1,875                         |  |                                   |  
|Nasser S. Barghouti                                                      |  | 199,617                    |  | 20,000                |  | 219,617                       |  | 5.05                              |  
|J. Douglas Winter                                                        |  | 228,709                    |  | 20,000                |  | 248,709                       |  | 5.72                              |  
|Tao Ye                                                                   |  | 207,996                    |  | 20,000                |  | 227,996                       |  | 5.24                              |  
|                                                                         |  |                            |  |                       |  |                               |  |                                   |  
|All directors and executive officers as a group (12 persons)             |  | 1,188,573                  |  | 1,516,700             |  | 2,705,273                     |  | 42.32                             | %
|                                                                         |  |                            |  |                       |  |                               |  |                                   |  

---

|* | Less than 1%.
|- | -------------



|(1) | Unless otherwise indicated, the address of each of the individuals or entities named above is: c/o Document Sciences Corporation, 5958 Priestly Drive, Carlsbad, California 92008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes shares for which the named person has sole or shared voting and investment power. Excludes shares that may be acquired through stock option exercises.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Shares that can be acquired through stock options that are exercisable on or before May 19, 2007.
|--- | -------------------------------------------------------------------------------------------------



|(4) | The number and percentage of shares beneficially owned is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares that the individual has the right to acquire
within sixty days of March 20, 2006, through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes, each person has sole voting and investment power (or shares such powers with his or her spouse) with
respect to the shares shown as beneficially owned. The applicable percentage is based on 4,323,752 shares of our common stock outstanding as of March 20, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Kevin C. Howe exercises voting and dispositive power over such shares on behalf of Mercury Management, the General Partner of Mercury Ventures, which is the General Partner of
Mercury IV and Mercury V. Includes 110,020 shares owned by Mercury IV, 161,845 shares owned by Mercury V and 7,112 shares owned by Mr. Howe directly. This information is based on a Schedule 13G filed by Kevin C. Howe with the Securities and
Exchange Commission on January 30, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The Peierls Foundation, Inc., E. Jeffrey Peierls, Brian E. Peierls, Malcolm A. Moore, Ethel F. Peierls Trust for Brian E. Peierls, Ethel F. Peierls Trust for E. Jeffrey Peierls,
Jennie N. Peierls Trust for Brian E. Peierls, Jennie N. Peierls Trust for E. Jeffrey Peierls and U.S. Trust Company of N.Y. are each reporting persons with respect to the shares shown as beneficially owned and report varying amounts of sole and
shared voting and dispositive power over such shares. This information is based on a Schedule 13G filed with the Securities and Exchange Commission on May 23, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Thomas A. Satterfield, Jr., individually and as power of attorney for A.G. Family LP, David A. Satterfield, Jeanette P. Satterfield and Margarette M. Satterfield, has shared voting
and dispositive power with respect to the shares shown as beneficially owned. Thomas A. Satterfield, Jr. has (i) sole voting and sole dispositive power over 54,000 shares and 236,996 shares, and (ii) shared voting and shared dispositive
power over 182,996 shares, respectively. This information is based on a Schedule 13G/A filed by Thomas A. Satterfield, Jr. with the Securities and Exchange Commission on February 1, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Wedbush, Inc., Edward W. Wedbush and Wedbush Morgan Securities, Inc. have shared voting and dispositive power with respect to the shares shown as beneficially owned. Each of
Wedbush, Inc., Edward W. Wedbush and Wedbush Morgan Securities, Inc. have: (i) sole voting and sole dispositive power over 164,588 shares, 92,334 shares and 12,339 shares, respectively, (ii) shared voting power over 269,261 shares, and
(iii) shared dispositive power over 329,696 shares. This information is based on a Schedule 13G/A filed by Wedbush, Inc. with the Securities and Exchange Commission on February 13, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Daniel Zeff as sole manager and member of Zeff Holding Company, LLC which in turn serves as the general partner for Zeff Capital Partners I, L.P. has sole voting and sole
dispositive power over 601,816 shares. Mr. Zeff also provides discretionary investment management services to Zeff Capital Offshore Fund (ZCF), a class of shares of Spectrum Galaxy Fund Ltd. This information is based on a Schedule
13G/A filed by Daniel Zeff with the Securities and Exchange Commission on February 13, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Mr. Ringer is the Chairman of the Board of Directors of Wedbush Morgan Securities, Inc. and has been attributed the beneficial ownership of the 329,696 shares reported as
beneficially owned by Wedbush Morgan Securities, Inc. Mr. Ringer disclaims beneficial ownership of the 329,696 shares reported as beneficially owned by Wedbush Morgan Securities, Inc. In addition, pursuant to a trust, Mr. Ringer and his
spouse share voting and investment powers as co-trustees with respect to 46,820 shares of our common stock shown as beneficially owned.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

Except as disclosed elsewhere in this document,
no director, executive officer, nominee for election as a director nor any beneficial holder of more than five percent of Document Sciences outstanding capital stock, had any material interest, direct or indirect, in any reportable transaction
with Document Sciences during the last fiscal year, or since the commencement of the current fiscal year, or any reportable business relationship with Document Sciences during such time.

Indemnification Agreements

We have entered into indemnification agreements with each of our
executive officers and directors. Those indemnification agreements require us to indemnify these individuals to the fullest extent permitted by Delaware law. In addition, we have purchased a policy of directors and officers liability
insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances.

Procedures
for Approval of Related Person Transactions

Our policy for the review and approval of transactions between us and related persons is
set forth in the charter of our Audit Committee. Pursuant to the charter of our Audit Committee, it is the responsibility of our Audit Committee to review and approve all transactions or arrangements to which we were or will be a participant in
which any director or executive officer had or will have a direct or indirect material interest.

Director Independence

Our Board of Directors has determined, after considering all the relevant facts and circumstances, that each of Messrs. Ringer, Faber, OBrien,
Beard and Ms. Breya are independent directors, within the meaning of Rule 4200(a)(15) under NASDAQ listing standards. Mr. McGannon does not meet the aforementioned independence standards because of his relationship as an employee of
Document Sciences.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The following table shows the aggregate fees paid or
accrued by us for audit and other services provided by Ernst & Young for fiscal years ended December 31, 2006 and December 31, 2005.



|                                                                                                                                                            |  |      |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                            |  | 2006 |         | 2005
|Audit Fees (for annual audit, reviews of our quarterly reports on Form 10-Q, review of the annual proxy statement and consents for filings on
Form S-8) (1) |  | $    | 343,113 |      | $ | 294,299
|Audit-related Fees related to the restatement of our financial statements in 2005                                                                           |  |      |        |      | $ | 75,000 
|Tax Fees                                                                                                                                                    |  | $    | 12,000  |      |   |       
|All Other Fees                                                                                                                                              |  |      |        |      |   |       
|                                                                                                                                                            |  |      |         |      |   |        
|Total Fees                                                                                                                                                  |  | $    | 355,113 |      | $ | 369,299
|                                                                                                                                                            |  |      |         |      |   |        

---

|(1) | Includes fees and out-of-pocket expenses for the years audit and related quarterly reviews, whether or not yet invoiced.
|--- | -------------------------------------------------------------------------------------------------------------------------

The charter of our Audit Committee provides that the duties and responsibilities of our Audit Committee include the pre-approval of all audit,
audit-related, tax and other services permitted by law or applicable SEC regulations (including fee and cost ranges) to be performed by our independent registered public accounting firm. Any pre-approved services that will involve fees or costs
exceeding pre-approved levels will also require specific pre-approval by the Audit Committee.



21



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To the extent deemed appropriate, the Audit Committee may delegate pre-approval authority to the Chairman
of the Audit Committee or any one or more other members of the Audit Committee provided that any member of the Audit Committee who has exercised any such delegation must report any such pre-approval decision to the Audit Committee at its next
scheduled meeting.

Our Audit Committee requires that our independent registered public accounting firm, in conjunction with our Chief
Financial Officer, be responsible for seeking pre-approval for providing services to us and that any request for pre-approval must inform the Audit Committee about each service to be provided and must provide detail as to the particular service to
be provided.

All of the services provided by Ernst & Young LLP described above under the captions Audit Fees,
Audit-Related Fees and Tax Fees were approved by our Audit Committee.

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

(a) The
following documents are filed as part of this Form 10-K/A:



| | 1. | Exhibits. See Item 15(b) below.
| | -- | -------------------------------

(b)
Exhibits. The exhibits listed on the accompanying index to exhibits.



22



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



DOCUMENT SCIENCES CORPORATIONBy:

/s/    JOHN L.
MCGANNONJohn L. McGannon President and Chief Executive Officer


Dated: April 30, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John L. McGannon his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this report, 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 said attorney-in-fact or his substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant on April 30, 2007 in the capacities indicated:



|                                           |  |                                                                                   
|------------------------------------------ |  | ----------------------------------------------------------------------------------
|Signatures                                 |  | Title                                                                             
|                                           | 
|/s/    JOHN L.
MCGANNON John L. McGannon   |  | President, Chief Executive Officer and Director (principal executive officer)     
|                                           | 
|/s/    TODD W.
SCHMIDT Todd W. Schmidt     |  | Chief Financial Officer and Secretary (principal financial and accounting officer)
|                                           | 
|/s/    THOMAS L.
RINGER Thomas L. Ringer   |  | Chairman of the Board of Directors                                                
|                                           | 
|/s/    RONALD S.
BEARD Ronald S. Beard     |  | Director                                                                          
|                                           | 
|/s/    MARGARET A.
BREYA Margaret A. Breya |  | Director                                                                          
|                                           | 
|/s/    BARTON L.
FABER Barton L. Faber     |  | Director                                                                          
|                                           | 
|/s/    COLIN J.
OBRIEN Colin J. OBrien   |  | Director                                                                          



23



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DOCUMENT SCIENCES CORPORATION

ANNUAL REPORT ON FORM 10-K/A

FOR YEAR ENDED DECEMBER 31, 2006

INDEX TO EXHIBITS





|              |  |                                                                                                                                
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                            
|              | 
|31.1(*)       |  | Certification of CEO Pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|              | 
|31.2(*)       |  | Certification of CFO Pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

---

|(*) | Filed herewith.
|--- | ---------------



24