UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 COMMISSION FILE NUMBER 0-27038
SCANSOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3156479
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 CENTENNIAL DRIVE
PEABODY, MASSACHUSETTS 01960
(978) 977-2000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value
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 [] 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. []
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $23,752,027 as of March 26, 1999, based on
$1.625 per share, the last reported sales price on the Nasdaq National Market
for such date. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The number of shares of the registrant's Common Stock, $0.001 par
value, outstanding as of March 26, 1999 was 26,355,780.
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SCANSOFT, INC.
TABLE OF CONTENTS
Page
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PART I.........................................................................1
ITEM 1. Business.........................................................1
ITEM 2. Properties......................................................17
ITEM 3. Legal Proceedings...............................................17
ITEM 4. Submission of Matters to a Vote of Security Holders.............17
PART II.......................................................................18
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................18
ITEM 6. Selected Financial Data.........................................19
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................20
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.....31
ITEM 8. Financial Statements and Supplementary Data.....................32
ITEM 9. Changes in and Disagreements with Accounts on Accounting
and Financial Disclosure........................................51
PART III......................................................................52
ITEM 10. Directors and Executive Officers of the Registrant.............52
ITEM 11. Executive Compensation.........................................54
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.59
ITEM 13. Certain Relationships and Related Transactions.................60
PART IV.......................................................................63
ITEM 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K....................................................63
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PART I
WHEN USED IN THIS REPORT, THE WORDS "EXPECTS," "INTENDS," "BELIEVES,"
"PROJECTS," "PLANS," "ANTICIPATES," "ESTIMATES," AND SIMILAR WORDS AND
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS, WHICH INCLUDE STATEMENTS AS TO THE TIMING OF PRODUCT RELEASES, THE
PERFORMANCE AND UTILITY OF THE COMPANY'S PRODUCTS AND EARNINGS AND
PROFITABILITY, ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE RISKS DISCUSSED BELOW AND UNDER ITEM
7--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND OTHER RISKS DETAILED FROM TIME TO TIME IN OUR PERIODIC REPORTS
AND OTHER INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS THE DATE HEREOF. THE COMPANY EXPRESSLY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISION TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
ITEM 1. BUSINESS
GENERAL
On January 6, 1999, we sold our hardware business to a newly formed
subsidiary of Primax Electronics, Ltd. for approximately $7 million. On March 2,
1999, Visioneer acquired ScanSoft, Inc., an indirect wholly owned subsidiary of
Xerox Corporation, in a cash election merger. The corporate entity "Visioneer"
survived the merger, but changed its name to "ScanSoft, Inc." In addition, we
changed the ticker symbol for our common stock, that trades on the Nasdaq, to
"SSFT." In this Report, the "Company," the "Registrant," "ScanSoft," "We," "Our"
and "Visioneer" refer to the surviving company unless the context otherwise
requires.
Under our agreement with Primax, Primax's subsidiary acquired our
hardware business, including all of our hardware assets, liabilities and related
intellectual property, and the name "Visioneer," and assumed our Fremont,
California lease. In addition, we entered into a multi-year licensing agreement
with Primax's subsidiary (now called Visioneer) to bundle PaperPort software
products with the Visioneer line of hardware imaging products.
Pursuant to the terms of the agreement with Xerox, we acquired ScanSoft
for approximately 6.8 million shares of common stock, a warrant to purchase up
to an additional 1.7 million shares of common stock exercisable upon certain
events, approximately 3.6 million shares of non-voting Series B Preferred Stock
and the assumption of 1.7 million ScanSoft stock options. In connection with the
merger, approximately 5.1 million shares of our outstanding stock, which shares
are now owned by Xerox, were cashed out at $2.06 per share with consideration
from Xerox. Additionally, approximately 330,000 shares were cashed out at $2.06
per share with consideration from the Company. Xerox owns approximately 45% of
the outstanding shares of our common stock and has two designees on the Board,
including Paul A. Ricci, the new Chairman of the Board.
PRODUCTS
Our PaperPort products provide an integrated hardware and software
solution at the desktop through compact sheetfed scanners and larger flatbed
scanners. Our PaperPort sheetfed scanners and PaperPort flatbed scanners and
their associated intellectual property were sold as part of the sale of our
hardware business to Primax in January 1999. After the merger with ScanSoft in
March 1999, we acquired additional software products based on patented optical
character recognition ("OCR") and image processing technologies. The Software
products acquired in the merger with ScanSoft include TextBridge Pro, Pagis Pro,
ProOCR 100 and ScanWorks.
We provide digital imaging software products for retail, OEM and
corporate markets. Our products capture and convert paper documents and photos
into digital documents and images and enhance a user's ability to organize and
share digital documents and images in the office, at home and on the Internet.
Our products are based on patented optical character recognition ("OCR") and
image processing technologies, designed to address the
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needs of a broad group of users ranging from consumers and small office to
medium sized businesses and large corporations.
Our software products include OCR, personal document management and
software suites that offer various combinations of these products and often
third party offerings. We believe that our ability to achieve broad market
acceptance of our products will depend on several factors, including, but not
limited to, ease-of-use, OCR accuracy, speed, and overall functionality. In
addition, the ability of our software to integrate with desktop operating
systems, word processing applications, email software, fax applications, image
editing products and Internet publishing tools will affect our ability to
achieve market acceptance for our products. In that regard, our strategy is to
maintain and enhance our technological position by investing in OCR and image
processing technology and strategic business and technology partnerships with
other leading companies.
We also provide software in two other emerging markets: enterprise
imaging and Internet imaging software. The enterprise imaging software market
includes high-end OCR products and software targeted at the emerging network
scanning market. The network scanning and multifunction market includes devices
from Xerox, Canon, Ricoh, and Hewlett Packard. Several network multifunction
devices offer scanning options that use client software to convert, edit,
organize and distribute digital documents via fax, email and the Internet.
Currently, we bundle client software with Xerox network multifunction devices.
The Internet imaging software market includes products that make it
easier to publish and share paper documents and photos via the Internet.
Currently, our products allow users to capture and convert paper-based documents
to Joint Photographic Experts Group ("JPEG"), Hypertext Mark-up Language
("HTML") and Portable Document Files ("PDF") files and share photos and
documents via email or as part of an Internet site.
During 1998, we provided an integrated hardware and software solution
at the desktop through compact sheetfed scanners and larger flatbed scanners.
PaperPort's high-performance scanners intelligently automated the paper input
process by performing multiple operating functions without user intervention and
provided advantages in scanning speed, image quality and image orientation.
Since we sold our hardware assets, liabilities and intellectual property to
Primax on January 6, 1999, our products have been entirely focused on software
as described above.
PRODUCT DESCRIPTION
The following is a description of our PaperPort Deluxe, PaperPort
Scanner Suite and Visual Explorer software products, as well as the TextBridge
Pro, Pagis Pro, ProOCR 100 and ScanWorks software products which were acquired
in the merger with ScanSoft in March 1999.
PRODUCTS FOR BUSINESSES AND PROFESSIONAL USERS
PAPERPORT DELUXE -- PaperPort Deluxe is paper management software
designed for small office and home office users. It turns a scanner or
multi-function-peripheral into a versatile solution for filing, copying, finding
and sharing paper and photographs. PaperPort Deluxe provides a visual desktop
with thumbnail file representations that allow users to quickly browse and
locate images, Web pages and electronic files. Other key features include
SimpleSearch, which enables users to find scanned images, electronic documents
and Web pages by searching file names, content or keywords, and ScanDirect,
which enables direct scanning into linked applications. PaperPort Deluxe is
compatible with the Windows 95, Windows 98 and Windows NT 4.0 operating systems.
PAPERPORT SCANNER SUITE -- PaperPort Scanner Suite combines all the
features of PaperPort Deluxe and TextBridge Pro to provide a easy way scan,
organize, edit and share paper documents, photos, Web pages and electronic
files. PaperPort Scanner Suite is compatible with the Windows 95, Windows 98 and
Windows NT 4.0 operating systems.
TEXTBRIDGE PRO -- TextBridge Pro is a very accurate and versatile OCR
software that allows users to easily edit paper documents, turn price lists into
spreadsheets, or brochures into Web pages. TextBridge Pro combines
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OCR with page layout comprehension to recreate electronic files that are similar
to the paper originals in terms of page layout, font characteristics and
graphics. For flexibility, TextBridge Pro provides text, table and picture
zoning tools that allow users to choose what sections of a document they want to
recognize. In addition, TextBridge Pro offers built-in post-recognition editing,
which enables users to conveniently proofread converted documents against the
original scanned image. TextBridge Pro is a Windows 95, Windows 98 and Windows
NT compliant application. There are also versions available for Windows 3.x and
Macintosh System 8.x. TextBridge Pro supports recognition for twelve languages
and is localized for European distribution.
PAGIS PRO -- Pagis Pro is a comprehensive scanning suite that combines
the Pagis digital imaging desktop with TextBridge Pro and MGI PhotoSuite to
transform an office personal computer into a paper-to-digital solution for
electronically filing, copying, editing and sharing documents and photos. Pagis
Pro intelligently scans color documents and photos and creates color images that
are easy to view, share, and print. Its folders provide visual image thumbnails
to quickly browse and locate scanned images, and Pagis Pro provides powerful
full-text and keyword indexing to help users retrieve document images, photos
and electronic files. Using the Extended Image File Format ("XIFF"), Pagis Pro
can store and send high-quality color document image files that are a fraction
of the size of images saved in a standard image file format, such as Tagged
Image File Format ("TIFF"). An image viewer provides image editing, selection
and annotation tools. These tools help users enhance an image, select a portion
of the image they want to work with, and add highlights or notes to an image.
TextBridge Pro is integrated into the Pagis desktop, so users can easily convert
paper documents and bring the recognized pages into a word processor or
spreadsheet. For photo editing and photo projects, Pagis Pro integrates a third
party photo editor. Pagis Pro is compatible with Windows 95, Windows 98 and
Windows NT 4.0 operating systems.
PRODUCTS FOR CONSUMERS
VISUAL EXPLORER -- Visual Explorer enables users to visually manage all
their electronic files and Web pages. Visual thumbnails of documents and Web
pages enable users to quickly identify their files. In addition, the software
includes SimpleSearch, which enables users to find documents and Web pages by
searching file names, URLs, content or keywords. A MiniViewer allows users to
easily open and view any email attachments (documents) sent to them. Visual
Explorer is compatible with the Windows 95 and Windows 98 operating systems.
PROOCR 100 -- ProOCR100 is OCR software that is designed for simplicity
and ease-of-use. Users can simply click on the Auto-OCR button to automatically
walk through the text recognition process. Designed to handle real documents,
ProOCR100 can recognize pages with degraded text (like faxes and photocopies)
and complex documents with multiple columns and tables. ProOCR100 is compatible
with the Windows 95, Windows 98 and Windows NT 4.0 operating systems.
SCANWORKS -- ScanWorks combines the Pagis digital imaging desktop with
MGI PhotoSuite to provide an easy to use, consumer oriented scanning software
suite that enables users to edit and share photos, keep track of important
documents and conveniently make color copies at home. ScanWorks intelligently
scans color photos and documents and creates color images that are easy to view,
share, and print. ScanWorks folders provide visual image thumbnails to quickly
browse and locate scanned images, and ScanWorks provides powerful full-text and
keyword indexing to help users retrieve document images, photos and electronic
files. Using the XIFF file format, ScanWorks can store and send high-quality
color document image files that are a fraction of the size of image files saved
in an uncompressed image format. ScanWorks also has a image viewer with image
editing, selection, and annotation tools. For more advanced image editing and
photo projects, ScanWorks integrates a third party photo editor. ScanWorks is
compatible with the Windows 95, Windows 98 and Windows NT 4.0 operating systems.
OEM PRODUCTS
We bundle various versions of Pagis, PaperPort, Visual Explorer and
TextBridge with leading scanner, multifunction device and storage device
manufacturers and leading independent software vendors. OEM customers often
require us to integrate products with other applications or customize existing
products to meet specific requirements. Therefore, we offer OEM customers both
packaged products to bundle and a software developer's toolkit to facilitate the
integration of OCR functionality with other applications.
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PRODUCTS SOLD TO PRIMAX
Our sheetfed and flatbed scanners and their associated intellectual
property were sold to Primax Electronics, Ltd. on January 6, 1999. These
products are described below:
PAPERPORT SHEETFED SCANNERS -- The PaperPort sheetfed scanners are
integrated hardware and software solutions for paper input and digitized
document and image management that are easy to use, fast and cost-effective. The
PaperPort Vx and mx grayscale scanners are small in size (12" x 2.5" x 3.75")
and are designed to operate on the desktop between the keyboard and monitor. The
PaperPort Vx is compatible with Macintosh personal computers, while the
PaperPort mx is compatible with Windows 3.1, Windows 95, Windows 98 and Windows
NT. The PaperPort ix, a scanning keyboard, is a grayscale scanner fully
integrated into a keyboard and is compatible with the aforementioned Windows
releases. The PaperPort Strobe is a color scanner that was smaller (11" x 2.5" x
2") and faster than our grayscale predecessors. It is available in both
Macintosh and Windows versions, Windows 3.1, Windows 95 and Windows 98. The
Windows versions are also available in either a parallel or serial interface,
and the Macintosh version incorporates a SCSI interface. PaperPort sheetfed
scanners are designed to handle multiple sizes, shapes and textures of paper,
including business cards, newspaper articles, business memos, receipts and
photographs, and a broad range of paper types. In 1998, we recognized the end of
life of our grayscale sheetfed scanners and produced only the color PaperPort
Strobe. This scanner features 24-bit, 600 dpi color images, offering high
quality and high-resolution.
PAPERPORT FLATBED SCANNERS -- Our product line included three distinct
groups of flatbed scanners. The first group, the 30-bit line, scans 30-bit color
images in either 300 x 600 dpi optical resolution or 600 x 1200 dpi optical
resolution. In addition, we sold the 3100USB, a scanner with the above
characteristics that utilizes the Universal Serial Bus (USB) port on newer
personal computers that run Windows 98. The second group, the 36-bit line, scans
36-bit color images in 600 x 1200 dpi. The third group, the OneTouch line, scans
36-bit color images in either 300 x 600 dpi optical resolution or 600 x 1200 dpi
optical resolution with the press of a single button. This scanner features
five-button functionality that was automatically linked with the software. All
three groups of scanners are compatible with Windows 95 and Windows 98 and
featured a pass-through parallel port design, as well as USB compatibility for
the 3100USB, that allows them to easily connect to a Windows PC. In addition to
the base version of our document management and image editing software, these
flatbed scanners were bundled with Visioneer's Web Publishing Kit, a collection
of Internet tools and utilities, which simplify the creation of Web sites.
NEW PRODUCTS
We intend to design and develop products to extend the life and
usability of our products for our installed base through the development of
software upgrades and add-on accessory products. We also intend to offer these
upgrades to our OEM partners. We also plan to incorporate new software features
into our software, and to expand our software product lines in 1999 through the
development of alternative form factors comprising enhanced imaging
capabilities, and other features and functionality. We believe that the
development of these and other products and features is essential to our
success. Accordingly, we will continue to make significant investments in the
research and development of new products. Such expenses may fluctuate from
quarter to quarter depending on a wide range of factors, including the status of
various development projects.
ENABLING TECHNOLOGY
We have devoted substantial resources to develop software technologies
to create comprehensive, easy-to-use, and versatile products for users of image
capture devices, such as scanners, multifunction peripherals and digital
cameras.
Our software is developed using OCR and image processing technologies,
Application Programming Interfaces (APIs), object-oriented development tools,
and modern graphical user interface designs. In addition, our products employ
commercial text retrieval database systems, electronic document format
conversion toolkits, and standard scanner device interfaces.
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API -- Our TextBridge and PerfectScan APIs are the foundation for
products in both the TextBridge product-line and Pagis product-line. These APIs
provide an interface to the OCR and image processing technologies and provide
image text conversion, image processing and cleanup, scanner and digital camera
control, image file format read and write with image compression, and image
printing.
For PaperPort and Visual Explorer products, software applications on
the hard drive are recognized, and linking icons to applications supported by
the PaperPort API are placed on the PaperPort or Visual Explorer desktop. In
addition, "AutoLaunch" technology allows users to launch input with digitized
documents directly into third-party software applications and peripherals
already installed on the user's personal computer. The PaperPort software
locates these paper-enabled third-party software applications and peripherals
and builds drag and drop buttons for one-button distribution of these digitized
documents. Using the PaperPort API, developers can create PaperPort links to
expedite the intelligent transfer of documents between the PaperPort software
and their applications. These functions allow developers to automate certain
tasks such as user interface management, file conversion, software
initialization, object control and OCR.
OCR -- Our OCR technology provides image-to-text document conversion.
This technology provides high quality character recognition accuracy with page
layout retention, including the ability to reconstruct headers, footers,
columns, paragraphs, embedded images, captions, inverted text and character font
attributes. Additionally, the OCR engine provides document export directly to
Rich Text Format ("RTF"), PDF, HTML and ASCII text, and many other industry
standard electronic document formats via third-party conversion technology. The
OCR engine employs a number of technologies to improve document recognition
accuracy. These technologies are described below:
CHARACTER/WORD ACCURACY -- Character accuracy refers specifically to
correctly identifying the actual characters in a page image. Traditional OCR
contains basic capabilities for identifying the shapes of the characters through
pattern recognition techniques. The TextBridge OCR engine employs a variety of
different recognition "experts," which work cooperatively in the OCR process.
SEGMENTATION -- Segmentation is the process of differentiating between
the text and picture components of a given page image. The segmentation in
TextBridge performs that function as well as identifies the appropriate
lexicographical ordering of the regions of text on the page, so that the final
output will appear in correct read order.
OUTPUT FORMATTING -- TextBridge's formatting capabilities make it
possible to reconstruct most compound document formats, including multiple
columns, cell tables, pictures, captions, headers and footers, thereby saving
the end-user reformatting time and effort. The most recent additions to
TextBridge's reformatting abilities include reverse video (white-black) text
output and insets.
IMAGE PROCESSING -- Our image processing technology provides capture,
enhancement and compression techniques. The heart of the image processing core
engine is page segmentation capabilities which provide the ability to decompose
a page image into its components, including text, pictures, background tints,
and text color. The image processing core engine also provides efficient page
enhancement technologies such as auto-crop, auto-straighten, automatic picture
enhancement, high-speed rendering, line removal, speck removal, tint removal and
forms field detection.
Our advanced image compression technologies employ wavelet, JPEG,
symbol-based and Huffman compression techniques to facilitate the process of
capturing high-quality compound color documents and store them in the compact
XIFF image format. XIFF images are a fraction of the size of images saved in a
standard image file format, such as TIFF. Moreover, the text is clean and
suitable for OCR, faxing or printing.
MARKETING, SALES AND DISTRIBUTION
The primary market for our products is comprised of computer users who
required access to both paper and electronic information. The SOHO (Small
Office, Home Office) market, which represented a significant majority of our
branded business, has been targeted by us because mobile and home-based
professionals require office-like
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productivity without access to copiers, fax machines and scanners. This market,
within the last 18 months, has been increasingly attracted to scanners offering
color imaging capability. With the advent of color sheetfed and flatbed
scanners, the grayscale sheetfed scanner market continued its decline in 1998.
In 1998 we derived substantially all of our branded revenues from sales
through our independent distributors, retailers and resellers. Although we have
established strategic software OEM partnerships, we expect that sales through
our independent distributors and resellers will continue to account for a
substantial portion of our revenues for the foreseeable future. Our top four
retail customers for 1998 were Sam's Club (owned by "Wal-Mart"), Office Depot,
Inc., Best Buy Company, Inc. and CompUSA, Inc. for distribution of our products
in North America. Sales to these top four independent distributors and resellers
accounted for 46% of our total net revenues in 1998 in the aggregate, or 18%,
12%, 9% and 7%, respectively, as compared to 38% of our total revenues in 1997.
With the transition to a software only business, we expect to derive the
majority of our revenue through our independent distributors, including Ingram
Micro, Tech Data and Merisel. These distributors in turn sell to computer
superstores, such as Comp USA and Fry's Electronics; consumer electronic stores,
such as Best Buy and Circuit City; mail order houses, such as PC Connection and
MicroWarehouse; and office superstores, such as Office Max, Office Depot and
Staples. Our agreements with our distributors and resellers are not exclusive,
and each of our distributors and resellers can cease marketing our products with
limited notice and with little or no penalty. There can be no assurance that our
independent distributors and resellers will continue to offer our products or
that we will be able to recruit additional or replacement distributors. The loss
of one or more of our major distributors or resellers would have a material
adverse effect on our business, operating results and financial condition. Many
of our distributors and resellers offer competitive products. There can be no
assurance that our distributors and resellers will give priority to the
marketing of our products as compared to competitor's products. Any reduction or
delay in sales of our products by our distributors and resellers would have a
material adverse effect on our business, operating results and financial
condition.
We grant our distributors and resellers price protection and certain
rights of return with respect to products purchased by them. In addition, we
offered various end-user rebate programs for our products. We accrue for
expected returns, anticipated price reductions, and anticipated rebate
redemption in amounts that the Company believes are reasonable. However, there
can be no assurance that these accruals will be sufficient or that any future
returns, price protection charges, or rebate redemption will not have a material
adverse effect on our business and operating results, especially in light of the
rapid product obsolescence which often occurs during product transitions. The
short product life cycles of our products and the difficulty in predicting
future sales increase, the risk of new product introductions, price reductions
by our competitors, or other factors affecting the paper input market could
result in significant product returns. In addition, there can be no assurance
that new product introductions by competitors or other market factors will not
require us to reduce prices in a manner or at a time or rate which gives rise to
significant price protection charges and which would have a material adverse
effect on our operating results. Any product returns, price protection charges,
or rebate redemption in excess of recorded allowances would have a material
adverse effect on our business, operating results and financial condition.
Net revenues from resellers and distributors outside North America
represented approximately 7% of net revenues in 1998 as compared to 10% in 1997.
Prior to the acquisition of ScanSoft, we had limited experience in developing
international versions of our products and marketing, distributing, servicing
and supporting such products. However, ScanSoft derived 19% of its revenues in
1998 from international sales and has a subsidiary in the United Kingdom. We
expect our combined revenues from international sales to account for
approximately 13% of revenues in 1999.
Domestically, full-featured software product customers who register
with us currently receive limited hotline technical support and product
information at no cost. Additional technical support services are available on a
"fee for support" basis. We currently offer several technical support options to
customers of packaged products. These include telephone, fax or email support by
a customer support representative or self help by accessing our technical
information bulletins or frequently asked questions on the Internet. Outside of
the U.S., full-featured software product customers receive technical support
from a third party company on both a fee and non-fee basis.
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OEM RELATIONSHIPS
Prior to the merger with ScanSoft, we had software OEM agreements with
several companies including Western Digital Corporation, Brother Industries,
Ltd., Minolta Co. Ltd., Omron Software Company, Ltd., Agfa-Gevaert N.V. and
Epson America, Inc. These OEM agreements remained with us after the merger.
ScanSoft, as an indirect wholly owned subsidiary of Xerox Corporation,
had software OEM agreements with several companies including: Mustek Systems,
Inc., Microtek International, Inc., Seiko-Epson Corporation, Canon Computer
Systems, Inc., IBM, Plustek USA, Inc., Primax Electronics, Inc., Avision Labs,
Inc., Compaq Computer Corporation, Acer Peripherals, Inc. and Symantec
Corporation. Additionally, ScanSoft also entered into multiple non-exclusive
agreements with Xerox Corporation (a significant stockholder) in which ScanSoft
agreed to license Xerox the royalty-bearing right to copy and distribute certain
versions of Pagis and TextBridge software programs with Xerox's multi-function
peripherals.
We are pursuing and may enter into additional OEM agreements to
distribute our software products. However, there are certain risks associated
with such relationships, including whether sufficient priority will be given by
such OEM partners to market our products and whether such OEM partners will
continue to offer our products. Such risks have been experienced by us in
regards to our agreements with Hewlett-Packard and Compaq. The loss of any OEM
partnership or our inability to enter into additional OEM partnerships could
have a material adverse effect on our business, operating results and financial
condition. See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
RESEARCH AND DEVELOPMENT
Our research and development team, after the merger on March 2, 1999,
is located at our headquarters in Peabody, Massachusetts. As of December 31,
1998, we employed 21 full-time and 4 contract software design and quality
assurance engineers, technicians and support staff in Fremont, California. The
primary activities of these employees during 1998 were the design and
development of the sheetfed and flatbed scanner lines, the development of the
PaperPort flatbed line of products, the development of a new release of
PaperPort Deluxe Software, the development of other new software products
(ProOCR 100, Visual Explorer, Scanner Suite and ScannerWorks), enhancements of
existing products, product testing, and technical documentation development.
In 1998, the research and development team in Fremont, California was
restructured into a smaller group. Our strategy was to concentrate our efforts
on software development, and leverage the hardware and mechanical engineering
capabilities of our manufacturing partners to design and build our future
hardware products. The 30 bit, 36-bit, and One Touch flatbed scanners,
introduced in 1998, were designed in cooperation with our manufacturing
partners, Avision, Inc and Primax Electronic, Ltd. However, all flatbed and
sheetfed scanners and their associated intellectual property were part of the
sale of hardware assets, liabilities and intellectual property sold to Primax
Electronics, Ltd. on January 6, 1999.
Since the completion of the merger, we are consolidating the research
and development organization to the new corporate headquarters. We expect to
complete the transition by the end of June 1999.
Our growth and future financial performance will depend in part upon
our ability to enhance existing applications, and develop and introduce new
applications that keep pace with technological advances, meet changing customer
requirements, respond to competitive products and achieve market acceptance. As
a result, we expect that we will continue to commit substantial resources to
product research and development in the future.
MANUFACTURING
In the past, we contracted nearly all materials procurement,
manufacturing, assembly, testing and quality assurance to third party
manufacturers. Purchase orders were placed on our manufacturing partners for
final assemblies or subassemblies, which in turn were delivered to other
manufacturing partners who perform final assembly, pack-out and shipment to our
customers. This outsourcing strategy allowed us to leverage off of the
manufacturing
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and engineering expertise and economies of scale of our manufacturing partners,
while allowing our manufacturing and operations team to concentrate on value
added activities, such as vendor management, product price negotiations and cost
reduction efforts. However, all flatbed and sheetfed scanners and their
associated intellectual property were part of the sale of our hardware business
in January 1999.
We had six significant independent manufacturing partners in 1998.
Primax Electronics, Ltd., Orient SemiConductor Ltd, Flextronics International
Marketing (L) Ltd., NMB Technologies, Inc., Avision, Inc. and DisCopyLabs.
Flextronics manufactured our standalone grayscale product lines, the PaperPort
Vx for Macintosh, and the PaperPort mx for Windows. NMB manufactured our
scanning keyboard product, the PaperPort ix, and our color sheetfed scanners,
the PaperPort Strobe. On January 19, 1998, we notified NMB that we wished to
terminate the manufacturing agreement for the PaperPort Strobe, based on NMB's
inability to comply with certain cost reduction stipulations as specified. As of
March 16, 1998, we had qualified two manufacturers for the PaperPort Strobe
products, Orient SemiConductors, Ltd. and Flextronics.
In 1999, following the sale of our hardware business to Primax, we have
reduced our key supplier list to one supplier on the west coast, DCL and one
supplier on the east coast, Omnet Technology Corporation, for our software
products.
Unforeseen factors with our suppliers may result in production delays.
Any performance problems or production delays could have a material adverse
effect on our business, operating results and financial condition. In addition,
there can be no assurance that current or future manufacturing partners will be
able to meet our requirements for manufactured products. Any inability to
increase manufacturing capacity as required could have a material adverse effect
on our business, operating results and financial condition. In addition, the
current purchase order arrangements with our manufacturing partners would allow
them to terminate the arrangements by not accepting our purchase orders. The
unanticipated loss of any of our manufacturing partners could cause delays in
our ability to ship orders while the Company identifies a replacement
manufacturer. Such an event would have a material adverse effect on our
business, operating results and financial condition. In addition, we are
continually exploring alternative manufacturing sources, including potential
sources for new products. However, there can be no assurance that such
alternative sources can be successfully developed.
Our manufacturing policies were designed to reduce our investment in
inventories, yet still respond to rapid changes in customer demand, but may in
certain instances result in excess or insufficient inventory, or inappropriate
mix of component inventory, if orders do not match forecasts. To the extent we
have excess inventories, we may experience inventory write-downs or may have to
lower prices of our products which would result in substantial price protection
charges and a negative impact on gross margins. To the extent we have
insufficient inventory, we may be materially adversely impacted by the loss of
one or more of our distribution and reseller relationships and the inability to
obtain market acceptance of our products.
COMPETITION
The digital imaging market is highly competitive. It is subject to
rapid change along with frequent new product introductions and enhancements, as
well as constant pressure to reduce prices. We believe that the principal
competitive factors in this market include OCR accuracy, ease of understanding
and use, product reliability, tolerance for poor media, product features and
functions, price/performance characteristics, brand recognition, and quality of
product support. Our competition within the digital imaging software market
ranges from large corporations to small independent software vendors. We also
expect to encounter continued competition, both from established companies and
from new companies that are now developing, or may develop, competing products.
The TextBridge family of OCR products face competition in two markets:
the market for packaged OCR application programs and OEM bundled OCR products.
Several companies offer packaged OCR application programs through the channel,
including companies such as Caere Corporation and Adobe Corporation and several
small independent software vendors. We face significant price pressure in the
retail channel. In the OEM market in which companies "bundle" the OCR technology
with related hardware products, such as scanners or multifunction peripherals,
or incorporate OCR technology into third party application software products,
competitors include
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Caere Corporation and several small independent software vendors. We have
experienced significant price competition in the OEM market and expect this to
continue. In addition, the "bundled" OCR products themselves present competition
to our fully featured shrinkwrap products.
The Pagis and PaperPort family of products compete with various
products in the digital imaging software marketplace. In the personal document
management segment there are several competitors, including DocuMagix, Inc. (a
division of JetFax Corporation), Caere Corporation, Newsoft (a subsidiary of
UMAX Corporation), and Eastman Software (a subsidiary of Kodak Corporation).
With decreasing prices driving affordable scanning solutions into the
mainstream, we expect to face increasing competition in this product category
from a variety of software developers.
In the scanning software suite segment, our products include various
combinations of the products mentioned above and often include photo-editing
capabilities. Competitors include Adobe Corporation. Caere Corporation has also
announced plans to enter this market segment. Microsoft and MGI Software offer
photo-editing products and could offer products in this market segment in the
future.
We expect that some consolidation in the digital imaging software
industry will occur over the next few years through strategic acquisitions or
alliances, and we expect increased competition from new entrants, including the
possibility that Microsoft will add digital imaging components to its Windows
operating system. In addition, according to PC Data, Inc., the average retail
price of scanners dropped by 47% for the nine months ending September 30, 1998,
as compared to the same period in 1997. Based on this historical trend, we
expect that scanner prices will continue to decline in the future. We believe
that the downward price trend of scanners may reduce prices for digital imaging
software products. These changes in the market could result in price erosion,
reduced gross margins or loss of market share, any of which could have a
material adverse effect on our business, operating results and financial
condition.
There can be no assurance that we will be able to compete successfully
against current and future competitors, especially those with greater financial,
marketing, recruiting, technical and other resources, or that competitive
pressures will not materially adversely affect our business, operating results
and financial condition.
PROPRIETARY TECHNOLOGY
We rely on certain technology which we license from third parties,
including software which is integrated with internally developed software and
used in our products to perform key functions and software which is bundled with
our software to provide additional functionality. There can be no assurance that
these third-party technology licenses will continue to be available to us on
commercially reasonable terms or at all. The loss of or inability to maintain
any of these technology licenses could result in delays or reductions in product
shipments until equivalent technology is identified, licensed and integrated or
bundled. Any such delays or reductions in product shipments would materially
adversely affect our business, operating results and financial condition.
We generally enter into confidentiality or license agreements with our
employees, consultants and vendors, and generally control access to and
distribution of our software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our products or technology without authorization, or to
develop similar technology independently. To license our products, we primarily
rely on "shrink wrap" licenses that are not signed by the end-user customer and,
therefore, may not be enforceable under the laws of certain jurisdictions.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult.
There can be no assurance that we will be able to protect our technology, or
that our competitors will not independently develop technologies that are
substantially equivalent or superior our technology. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same extent
as do the laws of the United States. Furthermore, litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial
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costs and diversion of resources and could have a material adverse effect on our
business, operating results or financial condition.
We currently have two pending U.S. patent applications and one pending
Canadian patent application. As a result of the merger, we have entered into a
license agreement with Xerox that includes limited licenses and the assignment
of certain patents and trademarks. In addition, we have filed counterpart
applications in several European countries, Canada, Japan and Australia. We may
file additional U.S. and foreign patent applications in the future. On January
6, 1999 we sold all assets, liabilities and intellectual property associated
with our hardware business. There can be no assurance that patents will issue
from any application filed by the Company or that, if patents do issue, the
claims allowed will be sufficiently broad to protect our technology. The source
code for our proprietary software is protected both as a trade secret and as a
copyrighted work.
EMPLOYEES
As of December 31, 1998, we had a total of 54 full-time salaried
employees, 21 of which were in research and development, 19 of which were in
sales, marketing, and customer support, 4 of which were in operations and 10 of
which were in administration and finance. Prior to our merger with ScanSoft, we
implemented a restructuring plan to reduce operating expenses. This
restructuring plan included a decrease of approximately 20% of total employee
and consultant headcount.
Following the sale of our hardware business to Primax and upon the
completion of the merger with ScanSoft, we had a total of 138 full time
employees, all of whom are based in the United States and the United Kingdom. Of
the total, 46 are engaged in sales, marketing and support, 67 in research and
development, 20 in administration, MIS and finance and six in operations and
manufacturing. Following the consolidation of research and development on the
east coast, the research and development staff will be reduced to 58 people. Our
future performance depends in significant part on the continued service of our
key technical and senior management personnel. None of our employees are
represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.
FACTORS AFFECTING RESULTS
DIFFICULTIES OF INTEGRATING TWO COMPANIES. The anticipated benefits
merging with ScanSoft will depend in part on whether we can integrate our
operations and products in an efficient and effective manner. We cannot
guarantee that this will occur. Successful integration will require integration
of each company's products and coordination of each company's operating
procedures, financial controls, development efforts and sales and marketing
efforts. This integration may be difficult to accomplish smoothly or
successfully, and may take longer than we expect. If serious difficulties are
encountered during integration, management will have to divert its attention
from normal business operations to address these issues, which could have an
adverse effect on the surviving corporation's business. In addition, the merger
may cause potential customers to cancel or delay orders as the result of
uncertainty over the successful integration of the two companies. Furthermore,
there could be an adverse effect on employee morale and on the ability of the
surviving corporation to retain key personnel. Failure to effectively accomplish
the integration of the two companies' operations could have a material adverse
effect on the surviving corporation's business, operating results and financial
condition.
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER. We expect to incur
certain costs in connection with the integration of Visioneer and ScanSoft's
operations. Such costs cannot now be reasonably estimated, because they depend
on future decisions to be made by our management, but they could be material.
Such costs could relate to the elimination of duplicate facilities and
operations, integration of internal and customer-related activities, and
cancellation and/or overlap of contractual obligations. These costs and expenses
will affect results of operations in the first quarter of 1999, the quarter in
which the merger is consummated.
FAILURE TO ACHIEVE SYNERGIES COULD LEAD TO DECLINE IN STOCK PRICE. The
market price of our common stock may decline significantly if:
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o the integration of the combined companies is not successful;
o we do not experience business synergies as quickly or to the extent
expected by financial analysts; or
o the effect of the merger on earnings per share and operating
results is not in line with the expectations of financial analysts.
DEPENDENCE ON DEVELOPING MARKET; RAPID TECHNOLOGICAL CHANGE. The market
for digital imaging software and, in particular, for our products, is new and
rapidly evolving. It is dependent on market demand for color sheetfed and
flatbed scanners, as well as for other paper input systems. It is characterized
by transforming technology and frequent new product introductions. Developing
new products and product enhancements is a complex and uncertain process
requiring high levels of innovation, as well as the accurate anticipation of
technological and market trends. Our PaperPort, Pagis and TextBridge software
products account for most of our revenues. We expect that these products will
continue to account for most of our revenues for the foreseeable future. Broad
market acceptance of these products is therefore critical to our future success
and will depend in part on the following:
o Our ability and that of our distributors and other industry
suppliers to convince end users to adopt paper input systems and
digital imaging software for the desktop.
o Our ability to educate end users about the benefits of digital
imaging products generally and the specific benefits of our
products.
o Our ability to adapt to emerging industry standards and respond to
our competitors' product announcements.
o Our ability to develop, introduce, upgrade and support competitive,
new products and product enhancements that meet changing customer
requirements and emerging industry standards.
o Our ability to maintain current market share for our products and
increase brand-name recognition.
If we are not successful in meeting the goals listed above, we may not
be able to gain broad market acceptance for our products. Further, a decline in
demand for digital imaging products generally, or for PaperPort, Pagis or
TextBridge products, in particular, could occur as a result of competitive
technological change or other factors and would have a material adverse effect
on our business, operating results and financial condition.
DIFFICULTIES ASSOCIATED WITH TIMING OF NEW PRODUCT INTRODUCTION. The
digital imaging software market is characterized by rapid technological change,
evolving customer needs, frequent new product introductions and evolving
industry standards. Rapid product advancements could erode the market position
of our products or render those products obsolete. Our success depends on how
well we are able to manage the transition to new products and new versions of
existing products. The life cycles of our products are difficult to estimate.
Further, it is not unusual in personal computer software life cycles for the
sales volume of new products to increase in the first few months after their
introduction because distributors and resellers purchase initial inventory
during that time. As a product reaches the end of its life cycle, however,
demand for that product tends to fall in anticipation of new replacement
products. Consequently, announcements about new products at the end of a product
life cycle may cause our customers to defer purchasing existing products, and we
may be forced to lower the prices of older products in anticipation of new
releases. This may result in distributors claiming price protection credits or
returning older products to us, and as a result, our revenues may decline. We
cannot accurately predict the exact timing in which a new product or version
will be ready to ship. Moreover, in order to maintain competitiveness, we must
make substantial investments in product development and testing. We cannot
guarantee that we will have sufficient resources to make the necessary
investments or that we will be able to develop new products or new product
features quickly enough to meet market demand. Any delay in the scheduled
release of new products or features, or lack of market acceptance for such new
products or features, may have a material adverse impact on our business,
results of operations and financial condition.
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DISPOSITION OF HARDWARE BUSINESS; NEED FOR REBRANDING OF PRODUCTS; NEED
FOR SERVICES AGREEMENT WITH PRIMAX. In January 1999, we sold our hardware
business to Primax, which was a principal manufacturer of our flatbed and
sheetfed scanners and other hardware products. In this transaction, Primax
purchased substantially all of our hardware business (including the "Visioneer"
brand and company name), and it assumed all known liabilities associated with
the hardware business. We intend to take steps to rebrand all software products
carrying the Visioneer name so that in the future all such products will be
identified with a new software brand name, such as ScanSoft or PaperPort. In the
same way, Primax will rebrand any hardware products that carry the PaperPort
name so that in the future such products will be identified with a different
name. This rebranding may create confusion for our customers, including OEM
distributors and end-users, and there will necessarily be an adjustment period
during which time new brands will need to be established.
DEPENDENCE ON RELATIONSHIPS WITH XEROX, PRIMAX AND OTHER OEMS. ScanSoft
and Visioneer each had OEM relationships with Xerox prior to the merger, which
relationships remain in effect following the merger. In connection with the sale
of the hardware business to Primax, Visioneer entered into a software license
agreement granting Primax certain rights to "bundle" and sell Visioneer's
software products with certain Primax hardware products. Under the license,
Primax must pay us certain minimum annual royalties during the license term.
Primax, however, is not obligated to bundle or sell our software products with
its hardware products. Other risks include whether Primax will give sufficient
priority to marketing our products, whether Primax will continue to offer our
products at all, and whether Primax will elect instead to bundle software
products of our competitors with its hardware products. Any of the foregoing
actions could adversely impact our future business, results of operations and
financial condition since we expect Primax to become an important OEM partner.
We also rely on other OEM partners to bundle, market and sell our
products with their products. However, there are certain risks associated with
such relationships, including whether sufficient priority will be given by such
OEM partners to marketing our products. In addition, our OEM partners may not
continue to offer our products. If we do not maintain and build our OEM
relationships, our business, operating results and financial condition may
suffer.
COMPETITION. The digital imaging market is highly competitive and
subject to rapid change, with frequent new product introductions and
enhancements, and constant pressure to reduce prices. We believe that the
principal competitive factors in the digital imaging software market include:
o OCR accuracy;
o ease of understanding and use,
o product reliability;
o tolerance for poor media;
o product features and functions;
o price/performance characteristics;
o brand recognition; and
o quality of product support.
Our current competitors include developers of digital image processing
software (including photo-editing software), personal document management
software and scanning software suites and manufacturers of scanners and
multi-function peripheral devices. We also face competition in the market for
packaged OCR application programs and bundled OCR products, both in the retail
channel and in the OEM market. We experience significant price competition in
both the retail channel and the OEM market and expect this to continue. In
addition, our "bundled" OCR products themselves compete with our fully featured
shrinkwrap products. In addition to our
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current competitors, Microsoft Corporation and MGI Software offer photo-editing
products and could offer products in this market segment in the future.
Increased competition may force us to lower our prices, experience decreased
gross margins or lose market acceptance. We face the following challenges from
our competitors:
o Certain of our competitors offer products comparable to ours at
retail prices that are lower than ours.
o Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, support,
sales, marketing, recruiting and other resources.
o Certain of our competitors have greater name recognition and larger
customer bases than we do.
o Certain of our competitors may be better able to withstand
significant price decreases or devote greater resources to the
development, promotion, sale and support of their products than we
can.
o Certain of our competitors may be able to develop digital image
processing software with superior OCR accuracy, ease of
understanding and use, product reliability, tolerance for poor
media, product features and functions and price/performance
characteristics.
We may not be able to compete successfully against current and future
competitors, especially those with greater financial, technical, support, sales,
marketing, recruiting and other resources. If we are not successful in meeting
the challenges listed above, we may not be able to gain broad market acceptance
for our products and our business, financial condition and operating results may
suffer. Competitive pressures may materially affect our business, operating
results, and financial condition.
Further, we expect that some consolidation in the digital imaging
software industry will occur over the next few years through strategic
acquisitions or alliances. We expect increased competition from new entrants,
including the possibility that Microsoft will add digital imaging components to
the Windows operating system. In addition, according to PC Data, Inc., the
average retail price of scanners dropped by 47% for the nine months ending
September 30, 1998, as compared to the same period in 1997. Based on this
historical trend, we expect that scanner prices will continue to decline in the
future. We believe that the downward price trend of scanners may reduce prices
for digital imaging software products. These changes in the market could result
in price erosion, reduced gross margins or loss of market share, any of which
could have a material adverse effect on our business, operating results and
financial condition.
PRESSURE ON GROSS MARGIN. We may suffer adverse operating results if
our gross margin fluctuates. Retail prices on software products drop quickly. In
addition, our competitors will attempt to offer products which meet or exceed
our products' performance and capabilities. We intend to introduce new software
products, software upgrades and software features in response to anticipated
competitive price pressures and new product introductions. If prices fall faster
than we expect or if we must reduce our prices for any reason, we may experience
pressure on our gross margin. In addition, our gross margin will depend in part
on certain factors listed below:
o Our success in introducing new products to the market and easing
out old ones.
o Our competitors prices, products and market share.
o The amount of royalties we receive under our OEM arrangements.
o General economic conditions.
If we are not successful in meeting these challenges, our business,
operating results and financial condition may suffer.
DEPENDENCE ON DISTRIBUTORS AND RESELLERS. We expect to continue to
receive a substantial portion of our revenues from sales through our independent
distributors and resellers, but we anticipate that our dependence on
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any one independent distributor or reseller will decrease in the future as we
expand distribution channels. Our agreements with distributors and resellers are
not exclusive; many of our distributors and resellers offer competitive products
and are not required to give our products priority. Each of our distributors and
resellers can cease marketing our products with limited notice and with little
or no penalty. If we lose any one of our independent distributors or resellers,
we may not be able to recruit replacements. If our distributors or resellers
reduce or cease their marketing and sales efforts on our behalf, our business,
operating results and financial condition may suffer.
INTERNATIONAL SALES RISKS. We plan to expand our international sales by
establishing a more extensive network of international distributors and
resellers. We also plan to develop versions of our products suitable to the
market requirements of particular foreign countries, such as different
languages. We have limited experience in developing international versions of
our products and marketing, distributing, servicing and supporting such
products. We may not be able to develop new or additional versions of our
existing products or successfully market, sell, deliver, service or support our
products in international markets. In conducting business outside of the United
States, we are exposed to the risks listed below:
o Unexpected changes in regulatory requirements.
o Import and export duties and restrictions.
o Tariffs and other trade barriers.
o Difficulties in staffing and managing foreign operations.
o Longer payment cycles.
o Uncertainties in connection with collecting accounts receivable.
o Political instability.
o Fluctuations in currency exchange rates.
o Logistical difficulties in managing multinational operations.
o Seasonal reductions in business activity during summer months in
Europe and certain other parts of the world.
o Potentially adverse tax consequences, including our inability to
recover withholding taxes.
If we are not successful in managing the risks listed above, our
business, operating results and financial condition may suffer. One or more of
these factors could have a material adverse effect on our international
operations and, consequently, on our business, operating results and financial
condition.
QUALITY CONTROL RISKS. Our products are complex and may contain certain
software errors or failures which are detected only after we begin to ship a
product, especially when first introduced as new versions or when enhancements
are released. Although we conduct testing during product development, we have at
times been forced to delay commercial release of software until problems were
corrected and, in some cases, have provided enhancements to correct errors in
released software. If we do detect any errors before we ship a product, we might
have to limit product shipment for an extended period of time while we address
the problem. Delay in commercial release, correction of errors or limiting
product shipment could lead to loss of revenues, credibility with customers and
market acceptance of our products. We would also be exposed to additional
warranty and engineering expenses. Despite our testing and testing by current
and potential customers, errors may be found in software or releases after
commencement of commercial shipments, resulting in loss or delay of revenue or
delay in market acceptance, diversion of development resources, damage to our
reputation, or increased service and warranty costs. If we do not successfully
manage our quality control, our business, operating results and financial
condition may suffer.
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DEPENDENCE ON THIRD-PARTY LICENSES. We rely on certain technology which
we license from third parties, including software which is integrated with our
own software and used in our products to perform key functions and provide
additional functionality. Because our products incorporate software developed
and maintained by third parties, we are, to a certain extent, dependent upon
such third parties' ability to maintain or enhance their current products, to
develop new products on a timely and cost-effective basis, and to respond to
emerging industry standards and other technological changes. Further, these
third-party technology licenses may not always be available to us on
commercially reasonable terms or at all.
In the event that our agreements with third-party vendors should fail
to be renewed or the products licensed from such vendors should fail to address
the requirements of our software products, we would be required to find
alternative software products or technologies of equal performance or
functionality. There can be no assurance that we would be able to replace such
functionality provided by software that we currently license from third parties
in the event that we lose the license to such software, such software becomes
obsolete or incompatible with future versions of our products or is otherwise
not adequately maintained or updated. The absence of or any significant delay in
the replacement of that functionality could have a material adverse effect on
our business, operating results and financial condition. Moreover, if we were to
lose any of these technology licenses we might experience product shipment
delays or reductions until equivalent technology were identified, licensed and
used. If we do experience product shipping delays and reductions due to
licensing problems, our business, operating results and financial condition
would suffer.
RISKS ASSOCIATED WITH PROTECTION OF CONFIDENTIAL INFORMATION AND
PROPRIETARY RIGHTS. We generally enter into confidentiality or license
agreements with our employees, consultants and vendors. We also generally
control access to and distribution of our software, documentation and other
proprietary information. We primarily rely on "shrink wrap" licenses that are
not signed by the end-user customer and, therefore, may not be enforceable under
the laws of certain jurisdictions. Unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is difficult and we may
not be able to protect our technology from unauthorized use. Additionally, our
competitors may independently develop technologies that are substantially the
same or superior to ours. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as the laws of the United
States. Although the source code for our proprietary software is protected both
as a trade secret and as a copyrighted work, litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Litigation, regardless of
the outcome, can be very expensive and can divert management efforts. These
risks, if not managed successfully, could have a material adverse effect on our
business, operating results or financial condition.
DEPENDENCE ON KEY PERSONNEL; RISKS ASSOCIATED WITH HIRING AND RETENTION
OF EMPLOYEES. We rely to a significant extent upon our senior management team
and other key employees. Competition for such employees is intense. We cannot
guarantee that we will be able to retain our key employees following the merger.
Our operations could be materially and adversely affected if we were unable to
retain such key employees, or attract new ones. From time to time, we will need
to hire additional or replacement employees. We may not be successful in hiring,
integrating or retaining new employees. If we are not successful in attracting
or retaining qualified personnel, our business, financial condition and
operating results could suffer.
HISTORY OF LOSSES; FLUCTUATIONS IN OPERATING RESULTS. ScanSoft had net
losses for 1996, 1997 and 1998. Visioneer also had net losses for its fiscal
1996, 1997 and 1998, although a substantial portion of those losses were
attributable to the hardware business that was sold to Primax. On a pro forma
basis, the combined companies had a net loss for 1997 and 1998. We may never
become profitable or sustain profitability.
Our revenues frequently fluctuate from quarter to quarter due, to a
large extent, on the following:
o volume, timing and filling of customer orders;
o reduction in prices in response to competition;
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o increased expenditures to pursue new product or market
opportunities;
o fluctuation in sales orders, juxtaposed with a significant portion
of our operating expenses being fixed in advance, based in large
part on forecasts of future sales;
o inability to adjust operating expenses to compensate for shortfalls
in sales orders against forecast;
o price protection charges in excess of recorded allowances;
o demand for products;
o seasonality;
o customer deferrals in anticipation of new versions of products;
o introduction of new products by us or our competitors;
o timing of new product acquisitions; and
o timing of significant marketing and sales promotions.
Further, backlog early in a quarter is generally not large enough to
assure than we will meet our revenue target for any particular quarter. A
shortfall in shipments at the end of any quarter may cause operating results for
that quarter to fall significantly short of anticipated levels.
In addition, if we need to reduce our prices in response to price
competition, we will therefore be at a significant disadvantage with respect to
our competitors that have substantially greater resources. Such competitors may
more readily withstand an extended period of downward pricing pressure. In such
event, we may also incur price protection charges from our distributors and
resellers. Any price protection charges in excess of recorded allowances would
have a material adverse effect on our business, operating results and financial
condition.
Due to the foregoing factors, among others, our revenues are difficult
to forecast. We intend to base our expense levels in significant part on our
expectations of future revenue. As a result, we expect our expense levels to be
relatively fixed in the short term. Our failure to meet revenue expectations
would have a material adverse affect on our business, operating results and
financial condition. Further, an unanticipated decline in revenue for a
particular quarter may disproportionately affect our net income because a
relatively small amount of our expenses are intended to vary with our revenue in
the short term. As a result, we believe that period-to-period comparisons of our
results of operations are not and will not necessarily be meaningful, and you
should not rely upon them as an indication of future performance.
XEROX AS A SIGNIFICANT STOCKHOLDER. Xerox Imaging Systems, Inc., a
wholly owned subsidiary of Xerox, owns approximately 45% of our outstanding
common stock and all of our outstanding Series B Preferred Stock. In addition,
Xerox has the opportunity to acquire additional shares of our common stock
pursuant to a warrant. Xerox is currently our largest stockholder. Although
Xerox does not control us and is restricted for at least two years after the
merger from holding more than 50% of the voting power of our capital stock,
Xerox will have a strong influence over matters requiring approval by our
stockholders. In addition, Xerox has two designees on the board of directors,
including Paul A. Ricci, the new Chairman of the Board.
Xerox has advised us that its current intent is to hold all of its
shares of common stock. However, there can be no assurance concerning the
periods of time during which Xerox will maintain its ownership of our common
stock.
YEAR 2000 RISKS. We have a number of installed computer systems and
software products that are coded to accept only two digit entries in the date
code field. These date code fields will need to distinguish 21st century
16
<PAGE>
dates from 20th century dates (the "Year 2000 bug"). The Year 2000 bug could
lead to system failures or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. We are currently
in the process of establishing procedures for evaluating and managing the risks
and costs associated with this problem. See, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000." Finally,
many of our customers' and suppliers' operations may be affected by Year 2000
complications. As such, the failure of these customers and suppliers to ensure
that their systems are Year 2000 compliant could have a material adverse effect
on our customers and suppliers, resulting in a material adverse effect on our
business, operating results and financial condition.
ITEM 2. PROPERTIES
On January 6, 1999, Primax assumed the lease on our former headquarters
in Fremont, California. Following the completion of the merger with ScanSoft,
Inc., the combined company relocated its headquarters, administrative, sales,
marketing and support functions to our leased headquarters facility in Peabody,
Massachusetts. We currently occupy 37,636 square feet of space at this facility,
and the lease will expire in July 2001. We also lease warehouse space in
Topsfield, Massachusetts and research and development space at a Xerox facility
in Palo Alto, California. In addition, our subsidiary, ScanSoft Europe Ltd.,
leases a sales and support office in Reading, England.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are parties to various legal proceedings or
claims, either asserted or unasserted, which arise in the ordinary course of
business. In addition, during 1998, we were involved in separate legal matters
with Caere Corporation, Flashpix, Incorporated and Storm Technology, Inc.
(1) We were named as the defendant in a complaint filed by Caere
Corporation on August 10, 1998, in the United States District
Court for the Northern District of California. Caere
Corporation alleged that we engaged in false and misleading
advertising concerning our software product, ProOCR100.
Pursuant to a settlement agreement, we agreed to pay Caere the
sum of $75,000, and the lawsuit was dismissed with prejudice.
(2) We were named as a defendant as part of the Digital Imaging
Group, in a complaint filed by Flashpix, Incorporated on July
16, 1998, in the United States District Court for the Eastern
District of Louisiana. The complaint alleged, among other
things, trademark infringement, unfair competition, unfair
trade practices, and dilution of trademark. Subsequent to
December 31, 1998, we have, along with the Digital Imaging
Group, settled this matter.
(3) We were named as the defendant in a complaint filed by Storm
Technology, Inc. on June 2, 1998, in the United States
District Court for the Northern District of California,
alleging patent infringement of specified scanner technology.
Subsequently, the parties settled the matter and executed an
updated Patent Cross License Agreement. Primax assumed this
matter when it purchased our hardware business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET FOR COMMON STOCK
Our Common Stock commenced trading on the Nasdaq National Market on
December 11, 1995 under the symbol "VSNR," and traded under that symbol until
March 3, 1999. Our Common Stock is now traded under the symbol "SSFT." The
following table sets forth for the periods indicated the high and low sale
prices for our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997:
1st quarter........................ $6 $ 3-1/8
2nd quarter........................ 4-3/8 2-1/2
3rd quarter........................ 4-3/4 2-13/16
4th quarter........................ 5-3/4 1-5/8
Fiscal 1998:
1st quarter........................ 3-1/2 1-5/8
2nd quarter........................ 4-1/8 2-1/16
3rd quarter........................ 2-1/4 11/16
4th quarter........................ 2-7/8 11/16
</TABLE>
HOLDERS OF RECORD
As of March 26, 1999, there were approximately 244 holders of record of
our common stock.
DIVIDENDS
To date, we have not paid any cash dividends on shares of our common
stock. We presently intend to retain all future earnings for our business and do
not anticipate paying cash dividends on our common stock in the foreseeable
future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with the
information contained in Item 7--"Management's Discussion and Analysis of
Financial Condition" and Results of Operations and the Financial Statements and
Notes to Financial Statements contained in Item 8 of this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Product revenues............................ $74,674 $50,523 $44,233 $34,734 $ 3,903
Royalty and development revenues............ 4,396 7,100 11,848 2,605 --
------------ ----------- ----------- ------------ ------------
Total net revenues........................ 79,070 57,623 56,081 37,339 3,903
------------ ----------- ----------- ------------ ------------
Cost of revenues:
Cost of product revenues.................... 58,486 49,838 42,164 25,664 4,481
Cost of royalty and development revenues.... 884 887 3,303 1,274 --
------------ ----------- ----------- ------------ ------------
Total cost of revenues.................... 59,370 50,725 45,467 26,938 4,481
------------ ----------- ----------- ------------ ------------
Gross profit (loss)............................ 19,700 6,898 10,614 10,401 (578)
------------ ----------- ----------- ------------ ------------
Operating expenses:
Research and development.................... 4,408 8,115 10,938 8,975 4,532
Selling, general and administrative......... 19,150 22,428 26,342 11,805 6,482
Non-recurring items(2)...................... -- 675 -- 1,600 --
------------ ----------- ----------- ------------ ------------
Total operating expenses.................. 23,558 31,218 37,280 22,380 11,014
------------ ----------- ----------- ------------ ------------
Operating loss................................. (3,858) (24,320) (26,666) (11,979) (11,592)
Net interest income............................ 53 940 2,274 426 137
------------ ----------- ----------- ------------ ------------
Net loss....................................... $(3,805) $(23,380) $(24,392) $(11,553) $(11,455)
============ =========== =========== ============ ============
Net loss per share: basic and diluted......... (0.19) (1.20) (1.34) (4.28) (6.76)
============ =========== =========== ============ ============
Weighted average common shares outstanding:
basic and diluted........................... 19,728 19,450 18,255 2,669 1,694
============ =========== =========== ============ ============
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash, cash equivalents and short-term
investments............................... $ 8,123 $14,452 $31,200 $46,166 $ 4,032
Working capital............................. 6,569 8,389 28,807 46,677 3,376
Total assets................................ 28,445 33,550 51,785 65,793 7,378
Long-term liability......................... 91 125 -- -- --
Capital lease obligations, less current -- -- -- -- 248
portion.....................................
Total stockholders' equity (deficit) ....... 7,582 10,930 33,193 49,860 4,053
- -----------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
Company's fiscal year ends.
(2) See Note 10 of Notes to Financial Statements. Also, the charge in 1995
related to the fair value of securities issued and cash paid in connection
with the settlement of a patent matter.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND THE NOTES THERETO CONTAINED IN ITEM 8 OF THIS REPORT.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
DISCUSSED IN THIS REPORT AND OTHER RISKS DETAILED FROM TIME TO TIME IN OUR
PERIODIC REPORTS.
OVERVIEW
ScanSoft, Inc. was incorporated as Visioneer, Inc. in California in
March 1992, and commenced shipment of our initial product in the first quarter
of 1994. Through September 1995, we financed our operations primarily through
private placements of equity securities, from which we raised an aggregate of
approximately $33 million, net of issuance costs. In December 1995, we
reincorporated in Delaware in conjunction with our initial public offering and
raised $43.5 million, net of issuance costs. In January 1996, the over allotment
option granted to the underwriters in the initial public offering was exercised,
resulting in additional net proceeds of approximately $6.4 million. We have
experienced sequential growth in annual net revenues since the first year of
product shipments. The annual growth rates between 1994 and 1996 were directly
attributable to the growth of the sheetfed scanner and document management
software markets, the development of OEM relationships and new product
introductions. In contrast, the single digit growth rate from 1996 to 1997 was
attributed to several factors. First, the grayscale sheetfed scanner market
declined sharply with the advent of color sheetfed scanners. The transition of
the market from grayscale to color occurred at a much faster rate than we had
anticipated, and as a result, we recorded significant charges relating to
grayscale inventory reserves, purchase order commitments and price protection
charges in the first half of 1997. Second, we were late in introducing a color
scanner product, and as a result, did not capture planned market share. Third,
increased competition caused overall sheetfed scanner average selling prices to
drop significantly. Finally, the growth of the sheetfed scanner market has
leveled off, and, in fact, may be decreasing in size.
A key component of our business strategy in 1997 and 1998 was to
penetrate the much larger and growing flatbed market by leveraging off of our
software. Historically, we have bundled our PaperPort software with our scanner
products, which has provided significant product differentiation. The PaperPort
flatbed scanner line was introduced in September 1997. This line was enhanced
with the introduction of additional 30-bit products as well as the entire 36-bit
and One Touch line of flatbed scanners in 1998. In addition, our focus over time
has shifted from the hardware business to the software business. During 1997 we
implemented a strategy to focus our research and
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<PAGE>
development efforts on software development rather than hardware development and
to leverage the engineering resources of our manufacturing partners to design
future hardware products. In furtherance of this strategy, on December 3, 1998,
we entered into an agreement to sell our hardware business and the Visioneer
brand name to Primax, and to merge with ScanSoft. Following the sale to Primax
and the merger with ScanSoft, our business will focus on software products in
the PaperPort line, and the TextBridge and Pagis line of software products.
Our success in the future will depend on our ability to maintain
software gross margins and increase sales of our software products. This will
depend in part on our ability and the ability of our distributors, resellers and
OEM partners to convince end-users to adopt paper and image input systems for
the desktop and to educate end-users about the benefits of our products. There
can be no assurance that the market for our products will develop or that we
will achieve market acceptance of our products. Despite experiencing several
quarters of minor levels of profitability throughout our history, we have
incurred annual net losses since inception. There can be no assurance that we
will be able to reach quarterly profitability or attain annual profitability in
the near future. As of December 31, 1998, we had an accumulated deficit of $80.4
million.
As a result of the sale of our hardware business in January, our
revenues will decline significantly in the first quarter of 1999. We expect our
revenues to start improving gradually from the quarter ended June 1999, as
revenues from ScanSoft start impacting our operating results.
RESULTS OF OPERATIONS
The following table presents, as a percentage of total net revenues,
certain selected financial data for each of the three years in the period ended
December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Product revenues................................ 94.4% 87.7% 78.9%
Royalty and development revenues................ 5.6% 12.3% 21.1%
----------------- ----------------- -----------------
Total net revenues............................ 100.0% 100.0% 100.0%
Cost of revenues:
Cost of product revenues........................ 74.0% 86.5% 75.2%
Cost of royalty and development revenues........ 1.1% 1.5% 5.9%
----------------- ----------------- -----------------
Total cost of revenues........................ 75.1% 88.0% 81.1%
----------------- ----------------- -----------------
Gross profit....................................... 24.9% 12.0% 18.9%
----------------- ----------------- -----------------
Operating expenses:
Research and development........................ 5.6% 14.1% 19.5%
Selling, general and administrative............. 24.2% 38.9% 47.0%
Non-recurring item(1) .......................... 0.0% 1.2% 0.0%
----------------- ----------------- -----------------
Total operating expenses...................... 29.8% 54.2% 66.5%
----------------- ----------------- -----------------
Operating loss..................................... (4.9%) (42.2%) (47.5%)
Interest income.................................... 0.6% 1.7% 4.2%
Interest expense................................... (0.6%) (0.1%) (0.1%)
----------------- ----------------- -----------------
Net loss........................................... (4.8%) (40.6%) (43.5%)
----------------- ----------------- -----------------
- ----------
(1) See Note 10 of Notes to Financial Statements
</TABLE>
21
<PAGE>
TOTAL NET REVENUES
We derived our revenue primarily from three sources, the sale of
PaperPort hardware products, PaperPort software products, and royalties and
custom software development revenue earned pursuant to arrangements with certain
OEM customers. Through the end of 1998, approximately 86% of our product
revenues have been derived from sales of our PaperPort products to authorized
resellers and independent distributors in North America and, to a lesser extent,
in Europe and the Asia-Pacific regions. Revenues from all sales to distributors
and authorized resellers are subject to agreements allowing price protection and
certain rights of return. Under the price protection rights granted by us, if we
lower our selling price, we are then obligated to issue credit to our
distributors and resellers equal to the difference between the new selling price
and the price paid for all unsold inventory held by the distributor and
reseller. Accordingly, reserves for estimated future returns, exchanges and
price protection are provided upon revenue recognition.
Total net revenues increased 37% to $79.1 million in 1998 from $57.6
million in 1997, despite a 38% reduction in royalty and development revenues
from $7.1 million in 1997 to $4.4 million in 1998. The decline in royalty
revenues in 1998 was due to the termination, in the third quarter of 1996, of
royalties under an OEM agreement with Hewlett-Packard and the termination of
royalties under our OEM agreement with Compaq in the first quarter of 1997. In
regards to another OEM agreement with Hewlett-Packard, which involved the
licensing of our software for Hewlett-Packard scanners, Hewlett-Packard informed
us, in the fourth quarter of 1997, that commencing January 1, 1998, it would no
longer be building new scanner products incorporating our software. We
experienced declining royalties from this agreement in 1998 as Hewlett-Packard
sold existing inventory of products incorporating our software which it held at
December 31, 1997. Net revenues from hardware product sales increased to $66.0
million in 1998 compared to $41.5 million in 1997. As a result of the addition
of the PaperPort 36-bit and OneTouch flatbed color scanner lines in 1998,
overall scanner unit sales in 1998 increased by approximately 248% over 1997,
despite a 79% decrease in grayscale scanner unit sales. Revenues did not
increase at the same rate as unit increases because of the sharp decline in
average retail prices offset the net revenue from the increased hardware unit
sales from 1997 to 1998. Software revenues increased 4.3% to $8.7 million in
1998 from $8.3 million in 1997. The increase was primarily attributable to the
commencement of sales of new PaperPort software products that included ProOCR
100, PaperPort ScannerSuite, Visual Explorer, and PaperPort Deluxe 5.3 released
in the second quarter of 1998.
Total net revenues increased 3% to $57.6 million in 1997 from $56.1
million in 1996, despite a 40% reduction in royalty and development revenues
from $11.8 million in 1996 to $7.1 million in 1997. The decline in royalty
revenue in 1997 was due to the termination of the royalties associated with our
OEM agreement with Hewlett-Packard and our OEM agreement with Compaq Computers.
Our second OEM agreement with Hewlett-Packard, which related to the licensing of
our software for Hewlett-Packard scanners, was terminated in the fourth quarter
of 1997.
Our ability to increase our revenues will depend upon our ability to
attain wider market acceptance for our software products and our ability to
introduce new products with enhanced end-user features on a timely basis. As a
result of the sale of our hardware assets, liabilities and intellectual property
to Primax Electronics, Ltd., our revenues will be substantially reduced in 1999,
even taking into consideration the addition of revenues from the merger with
ScanSoft.
Our four largest resellers for 1998 were Sam's Club, Office Depot,
Inc., Best Buy Company, Inc. and CompUSA, Inc. for distribution of our products
in North America. Sales to these top four independent resellers accounted for
46% of our total net revenues in 1998 in the aggregate, or 18%, 12%, 9% and 7%,
respectively. Our four largest resellers and distributors of our products in
1997 were Ingram, Best Buy, Office Depot and Micro Warehouse. Sales to these
independent distributors and resellers, in the aggregate, accounted for
approximately 38% of total net revenues in 1997. The four largest distributors
and resellers in 1996 were Ingram, Best Buy, Tech Data and Merisel. Sales to
these independent distributors, in the aggregate, accounted for approximately
52% of our total net revenues in 1996. In 1998, all four of our top customers
were resellers compared to 1997, when three out of four of our largest
customers, excluding OEMs, were resellers. In contrast in 1996, three out of
four of our customers were distributors. We have focused on establishing direct
relationships with major resellers, thus
22
<PAGE>
bypassing distributors. This strategy, to a limited extent, reduces a layer of
our inventory in the retail channel, thereby reducing inventory risk and
increasing channel inventory visibility.
Total net revenues from independent distributors outside North America,
primarily in Europe and the Asia-Pacific regions, were approximately 7%, 10% and
13% of total net revenues in 1998, 1997 and 1996, respectively. Net revenues
from international sales increased from $5.6 million in 1997 to $5.9 million in
1998, whereas sales decreased from $7.1 million in 1996 to $5.6 million in 1997.
The reduction in international revenues from 1996 to 1997 was primarily due to
the delayed introduction of Japanese localized PaperPort Strobe products, the
first of which were shipped in February 1998, and our decision to restructure
our international sales and marketing operations in May 1997. Although our
international sales are all denominated in U.S. dollars, these sales are subject
to a number of risks inherent in doing business on an international level, such
as unexpected changes in regulatory requirements, import and export duties and
restrictions, fluctuations in currency exchange rates, and the logistical
difficulties of managing multinational operations, any of which could adversely
impact the success of our international operations. The growth of our
international business will depend, in part, on our ability to increase
awareness of our products in international markets. See "Item 1--Business--
Marketing, Sales and Distribution."
The introduction of major new software products and enhancements of
existing products, such as PaperPort Deluxe, as well as potential OEM
agreements, are expected to have a significant impact on our quarterly and
annual revenues. As is characteristic of the initial stages of personal computer
product life cycles, we expect that sales volumes of any new software product
may increase in the first few months following introduction due to the purchase
of initial inventory by our distribution channel. Thereafter, revenues may
stabilize or decline until the end of a product life cycle, at which time
revenues are likely to decline significantly, as a result of unit sales and
price reductions. At the end of a product life cycle we may experience higher
rates of return and/or increased price protection charges as a result of price
reductions. This could have a material adverse impact on our total net revenues
and operating results. Although we have sought to mitigate the effect of such
transition by controlling inventory levels of our distributors and resellers,
channel inventory levels are very difficult to quantify accurately, and we may
experience higher than normal rates of return on our older version products and
may incur significant price protection charges in connection with our planned
release of new PaperPort products and price reductions in 1999. In this regard,
receivable allowances were $4.2 million and $5.3 million at December 31, 1998
and 1997, respectively. A substantial portion of these reserves related to the
hardware business and were eliminated as part of the sale to Primax on January
6, 1999. Due to the inherent uncertainties of product development and new
product introductions, we cannot accurately predict the exact quarter in which a
new product or version will be ready to ship. Any delay in the scheduled release
of major new products would have a material adverse impact on our total net
revenues and operating results.
We have experienced and may continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and from
year to year due to a combination of factors, many of which are outside of our
direct control. After taking into consideration the sale of our hardware
business in January 1999, and the merger with ScanSoft in March 1999, these
factors include the integration of the Visioneer and ScanSoft businesses,
development of the paper input systems market, demand for our products, our
success in developing, introducing and shipping new products and product
enhancements, the market acceptance of such products, our ability to respond to
new product introductions and price reductions by our competitors, the timing,
cancellation or rescheduling of significant orders, the purchasing patterns and
potential product returns from our distribution channels, our relationships with
our OEM partners and distributors, our ability to attract, retain and motivate
qualified personnel, the timing and amount of research and development and
selling, general and administrative expenditures, and general economic
conditions.
Revenues and operating results in any quarter depend, to a large
extent, on the volume, timing and ability to fulfill customer orders, which is
difficult to forecast. A significant portion of our operating expenses are
relatively fixed, based in large part on our forecasts of future sales. If sales
are below expectations in any given period, the adverse effect of a shortfall in
sales on our operating results may be magnified by our inability to adjust
operating expenses to compensate for such shortfall. Accordingly, any
significant shortfall in revenues relative to our expectations would have an
immediate material adverse impact on our business, operating results and
financial condition. We may also be required to reduce prices in response to
competition or to increase our spending to
23
<PAGE>
pursue new product or market opportunities. In the event of significant price
competition in the market for our products, which is anticipated, we will be
required to decrease costs at least proportionately and we will be at a
significant disadvantage with respect to our competitors that have substantially
greater resources. Such competitors may more readily withstand an extended
period of downward pricing pressure. In such event, we will also incur price
protection charges from our distributors. Any price protection charges in excess
of recorded allowances would have a material adverse effect on our business,
operating results and financial condition.
Due to all of the foregoing factors, it is likely that at some point in
the future our operating results will be below the expectations of public market
analysts and investors. In such event, the price of our common stock would
likely be materially adversely affected. Accordingly, our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies participating in new and rapidly evolving markets.
There can be no assurance that we will be successful in addressing such risks.
TOTAL COST OF REVENUES
Total cost of revenues consists primarily of the costs associated with
the purchase of PaperPort products and related costs of freight, inventory
rework, inventory obsolescence and warranty. For 1998, our PaperPort hardware
products were manufactured, assembled and tested by five manufacturing partners,
Avision, Primax, Flextronics, NMB and Orient SemiConductor. Grayscale sheetfed
scanners were manufactured by Flextronics. Our scanning keyboard, PaperPort ix,
and the color sheetfed scanner, the PaperPort Strobe, were manufactured by NMB
and Orient SemiConductor; and the PaperPort flatbed scanners were manufactured
by Primax and Avision. We sold our hardware business to Primax in January 1999.
Our software products are manufactured by DCL, which also package and ships the
majority of our hardware and software products to our customers. See "Item
1--Business--Manufacturing."
Total cost of revenues, as a percentage of total net revenues,
decreased in 1998 to 75% as compared to 88% in 1997. The decrease was primarily
a result of approximately $9.5 million of charges taken in the first quarter of
1997 for write-offs and increased reserves relating to excess and obsolete
grayscale inventory and cancellation charges relating to adverse purchase
commitments for grayscale products. Total cost of revenues as a percentage of
total net revenues was 88% in 1997 as compared to 81% in 1996. The increase was
primarily a result of the charges taken in 1997 as described above.
As a result of the sale of our hardware business, we expect our total
cost of revenues, as a percentage of revenue, to decline significantly from the
historical levels reported in the statement of operations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist principally of personnel
costs, costs of contractors and outside consultants, supplies and material
expenses, equipment depreciation and overhead costs relating to occupancy. As of
December 31, 1998, we employed 21 full-time and 3 contract software design
engineers, technicians and support staff. Upon the completion of the merger on
March 2, 1999, we employed 67 full-time technicians and support staff.
Research and development expenses were 6%, 14% and 20% of total net
revenues for 1998, 1997 and 1996, respectively. Research and development
expenses decreased 46% in absolute dollars to $4.4 million in 1998 from $8.1
million in 1997. Due to our strategy to concentrate our engineering efforts on
software development, all of our flatbed scanner lines that were introduced in
1997 and 1998 were designed in cooperation with our manufacturing partners,
Primax and Avision.
Research and development expenses decreased 26% in absolute dollars to
$8.19 million in 1997 from $10.6 million in 1996. The decrease was primarily the
result of the restructuring of the engineering group in May 1997.
24
<PAGE>
We believe that the development of new products and the enhancement of
existing products are essential to our success. Accordingly, we will continue to
invest in research and development activities. However, such expenses may
fluctuate from quarter to quarter depending on a wide range of factors including
the status of various development projects. To date, we have not capitalized any
development costs and do not anticipate capitalizing any such costs in the
foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include personnel and
related overhead costs for sales, marketing, customer support, finance, human
resources and general management. Such costs also include advertising,
commissions to manufacturers' representative organizations, co-op paid to our
distributors and resellers, trade shows and other marketing and promotional
expenses.
Selling, general and administrative expenses decreased 14% in absolute
dollars to $19.2 million in 1998 from $22.4 million in 1997, and also declined
as a percentage of total net revenues, to 24% in 1998 from 39% in 1997. The
decrease was the direct result of a Company-wide restructuring plan implemented
in May 1997, in which we reduced overall headcount and spending by approximately
40% of first quarter 1997 levels, as well as an additional restructuring in
August 1998 which cut existing headcount by an additional 20%. We believe that
these spending reductions were necessary in order to reduce our cost structure
to allow us to compete more effectively. As noted below, the May 1997
restructuring resulted in a $675,000 one-time charge. The restructuring in
August 1998 did not result in a significant one-time charge.
Selling, general and administrative expenses decreased 15% in absolute
dollars to $22.4 million in 1997 from $26.3 million in 1996. As a percentage of
total net revenues, selling, general and administrative expenses decreased to
39% in 1997 from 47% in 1996. The decrease in spending was primarily attributed
to the restructuring plan implemented in May 1997, described above.
We will continue to attempt to control selling, general and
administrative expenses. However, if net revenues continue to grow, in order to
support our growing operations, selling, general and administrative expenses may
increase in absolute terms. Such expenses may fluctuate from quarter to quarter
depending on a variety of factors, including the timing of the introduction of
any new products, expansion of our distribution channels, general advertising
not related to product introductions and expansion into international markets.
NON-RECURRING ITEM
The non-recurring item in 1997 represents expenses incurred for
severance and other charges related to the termination of approximately 40
employees and 20 contract employees in connection with the Company-wide
restructuring plan implemented in May 1997. The restructuring actions were fully
completed as of December 1997.
OTHER INCOME, NET
Other income, net, consists primarily of interest earned on cash
equivalents and short-term investments. Other income, net, was $53,000,
$940,000, and $2.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The decrease in other income, net from 1997 to 1998, and 1996 to
1997 was a result of decreased interest income from significantly lower cash,
cash equivalents and short-term investments, which were used primarily to fund
our operating losses.
TAXATION
At December 31, 1998, we had federal net operating loss carryforwards
of approximately $61 million, of which approximately $900,000 related to tax
deductions from stock compensation. The tax benefit related to the stock
compensation benefit, when realized, will be accounted for as an addition to
additional paid in capital rather than as a reduction of the provision for
income tax. Research and development credit carryforwards as of December 31,
1998 were approximately $2.0 million. The net operating loss and credit
carryforwards will expire at
25
<PAGE>
various dates beginning in 2007, if not utilized. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may result in the
expiration of net operating losses and credits before utilization. As a result
of the new stock issued in conjunction with the merger with ScanSoft, we are not
certain whether we will be able to utilize our net operating loss and credit
carryforwards without limitations. (See Note 6 of Notes to Financial
Statements).
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1995, we financed our operations primarily
through private placements of equity securities, from which it raised an
aggregate of approximately $33 million, net of issuance costs. In December 1995,
we completed our initial public offering, and raised approximately $43.5
million, net of issuance costs. In January 1996, the over allotment option
granted to the underwriters in the initial public offering was exercised,
resulting in proceeds of approximately $6.4 million, net of issuance costs. As
of December 31, 1998, we had cash, cash equivalents and short-term investments
of $7.9 million and working capital of $6.6 million, as compared to $14.5
million in cash, cash equivalents and short-term investments and $8.4 million of
working capital at December 31, 1997.
We used $9.5 million of cash for our operating activities for 1998, as
compared to $20.0 million for 1997 and $18.9 million for 1996. Negative cash
flows from operating activities for these periods were attributed primarily to
net losses incurred of $3.8 million, $23.4 million and $24.4 million for 1998,
1997 and 1996, respectively, offset by non-cash charges and changes in working
capital.
Cash provided by investing activities during 1998 was $2.3 million as
we decreased short-term investments by $2.6 million and made capital
expenditures of $0.3 million. Capital expenditures for 1998 consisted primarily
of purchases of manufacturing tools and molds, computer equipment and software
tools.
Cash provided by financing activities was $3.5 million during 1998. At
December 31, 1998, we had short-term bank borrowings of $3.2 million, and $0.3
million was provided by proceeds from the issuance of Common Stock in connection
with our employee stock purchase plan and the exercises of stock options.
On March 19, 1998, we amended our $7.5 million line of credit,
increasing the line to $12.5 million and extending the expiration date to March
1999. The line bore an interest rate of 0.25% over the Prime Rate, and was
collateralized by a security interest in our assets. As of December 31, 1998, we
had $6.0 million of short-term borrowings and $0.3 million of letters of credit
outstanding under the line of credit, and we were not in compliance with all
financial covenants under the agreement. As a result of the sale of our hardware
business to Primax, we paid all amounts owed on the line, cancelled the line and
obtained a waiver of covenant default for the period ended December 31, 1998.
Our principal sources of liquidity as of December 31, 1998 consisted of
approximately $7.9 million of cash, cash equivalents and short-term investments.
Subsequent to our year end, we sold our hardware business to Primax for $7
million. In addition, the merger with ScanSoft provided additional cash of $0.8
million with no associated long- or short-term debt. Based upon these events and
existing cash balances, we believe that our existing sources of liquidity will
provide adequate cash to fund our operations for at least the next twelve
months. Thereafter, if cash generated by operations is insufficient to satisfy
our liquidity requirements, we may be required to sell additional equity or debt
securities, or increase or obtain additional lines of credit. The sale of
additional equity or convertible debt securities may result in additional
dilution to our stockholders.
PRO FORMA RESULTS AND RELATED MANAGEMENT DISCUSSION AND ANALYSIS
The following two tables present, as dollar amounts and as a percentage
of total net revenues, the condensed unaudited pro forma total net revenues, and
certain selected financial data for each of the two years in the period ended
December 31, 1998, assuming the sale of the hardware business and the merger
with ScanSoft
26
<PAGE>
occurred at the beginning of the periods presented and after excluding the
impact of non-recurring charges resulting from the merger, such as in process
research and development:
<TABLE>
SCANSOFT, INC.
UNAUDITED PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
1998 Pro Forma 1997 Pro Forma
Combined Combined
------------------- -----------------
<S> <C> <C>
Total net revenues....................... $ 34,791 $ 33,924
Total cost of revenues................... 9,669 8,444
------------------- -----------------
Gross profit............................. 25,122 25,480
------------------- -----------------
Operating expenses:
Research and development............... 9,812 11,256
Selling, general and administrative.... 15,006 15,763
Other operating expenses............... 2,276 2,276
------------------- -----------------
Total operating expenses............ 27,094 29,295
------------------- -----------------
Operating loss........................... (1,972) (3,815)
Other income (expense) .................. 28 198
------------------- -----------------
Net loss................................. $ (1,944) $ (3,617)
=================== =================
Net loss per share: basic and diluted... (0.07) (0.14)
=================== =================
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
1998 Pro Forma 1997 Pro Forma
Combined Combined
------------------- -----------------
<S> <C> <C>
Total net revenues....................... 100.0% 100.0%
Total cost of revenues................... 27.8% 24.9%
------------------- -----------------
Gross profit............................. 72.2% 75.1%
------------------- -----------------
Operating expenses:
Research and development............... 28.2% 33.2%
Selling, general and administrative.... 43.1% 46.4%
Other operating expenses............... 6.6% 6.7%
------------------- -----------------
Total operating expenses............ 77.9% 86.3%
------------------- -----------------
Operating loss........................... (5.7%) (11.2%)
Other income (expense) .................. 0.1% 0.5%
------------------- -----------------
Net loss................................. (5.6%) (10.7%)
------------------- -----------------
</TABLE>
UNAUDITED PRO FORMA TOTAL NET REVENUES
The pro forma net revenues represent revenues from the combination of
our software business with that of ScanSoft's and comes primarily from two
sources, the sale of PaperPort, TextBridge, and Pagis software products, and
royalties and custom software development revenue earned pursuant to
arrangements with certain OEM customers. To date, a vast majority of our product
revenues have been derived from sales of our software products to authorized
resellers and independent distributors.
Total net revenues increased in 1998 from 1997, due primarily to the
increase in unit shipments of products offset partially by a decline in royalty
revenues.
The decline in royalty revenues in 1998 was due to the termination, in
the third quarter of 1996, of royalties under our OEM agreement with
Hewlett-Packard.
The introduction of major new software products and enhancements of
existing products, as well as potential OEM agreements, are expected to have a
significant impact on our quarterly and annual revenues.
UNAUDITED PRO FORMA TOTAL COST OF REVENUES
The pro forma cost of revenues consists primarily of the costs
associated with the purchase of software products and related costs of freight,
inventory obsolescence and warranty.
The pro forma cost of revenues, as a percentage of total net revenues,
increased in 1998 to 28% as compared to 25% in 1997. The increase was
attributable primarily to the reduction in royalty revenues, which carry minimal
or no cost of revenues.
UNAUDITED PRO FORMA RESEARCH AND DEVELOPMENT EXPENSES
Pro forma research and development expenses consist principally of
personnel costs, costs of contractors and outside consultants, supplies and
material expenses, equipment depreciation and overhead costs relating to
occupancy.
28
<PAGE>
Pro forma research and development expenses decreased 13% in absolute
dollars to $9.8 million in 1998 from $11.3 million in 1997. The decrease was
primarily the result of the restructuring of the engineering group in May 1997
and the focus on software development rather than hardware development.
UNAUDITED PRO FORMA SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Pro forma selling, general and administrative expenses include
personnel and related overhead costs for sales, marketing, customer support,
finance, human resources and general management. Such costs also include
advertising, commissions to manufacturers' representative organizations, co-op
paid to our distributors and resellers, trade shows and other marketing and
promotional expenses.
Pro forma selling, general and administrative expenses decreased 5% in
absolute dollars to $15.0 million in 1998 from $15.7 million in 1997, and also
declined as a percentage of total net revenues, to 43% in 1998 from 46% in 1997.
The decrease was the direct result of a Company-wide restructuring plan
implemented in May 1997, in which we reduced overall headcount and spending, as
well as an additional restructuring in August 1998 which cut existing headcount.
We anticipate that selling, general and administrative expenses as a
percentage of net revenues, and absolute dollars will decrease in the future due
to the merger.
UNAUDITED PRO FORMA OTHER OPERATING EXPENSES
Pro forma other operating expense contains the amortization of goodwill
and other identified intangible assets arising from the merger that have
estimated useful lives ranging from three to seven years.
UNAUDITED PRO FORMA OTHER INCOME, NET
Pro forma other income, net, consists primarily of interest earned on
cash equivalents and short-term investments. Other income, net, was $28,000 and
$198,000 for the years ended December 31, 1998 and 1997, respectively. The
decrease from 1997 to 1998 was a result of decreased interest income from
significantly lower cash, cash equivalents and short-term investments, which
were used primarily to fund our operating losses.
YEAR 2000 COMPLIANCE
We are aware of the potential business risks associated with the "Year
2000" millennium issue. Based upon this potential business risk, we have
developed a strategy to examine the potential effect of this issue. The
following strategy outlines the process by which we are trying to minimize the
potential risk associated with the "Year 2000" millennium issue.
We are in the process of assessing the potential effects of the "Year
2000" millennium change on our business systems and processes, including
facilities, software and components used by our employees, as well as our
outsourcing vendors and critical suppliers. Our Year 2000 project is proceeding
on schedule. The project goal is to ensure that our business is not impacted by
the date transitions associated with the Year 2000.
Our Year 2000 project plan is coordinated by a team that reports to
senior management. The project team is evaluating the Year 2000 compliance of
our business systems and processes, including facilities, software and
components used by our employees, as well as our outsourcing vendors and
critical suppliers who provide services relating to our business. Our Year 2000
project is comprised of the following phases:
o Phase 1 - Inventory all business systems and processes, including
facilities, software and components used by our employees, in order
to assign priorities to potentially impacted systems and services.
This phase was completed by January 31, 1999 and a complete
inventory was compiled.
29
<PAGE>
o Phase 2 - Assess the Year 2000 compliance of all inventoried
business systems and processes, including facilities, software and
components used by our employees, and determine whether to renovate
or replace any non-Year 2000 compliant systems and services. This
phase was completed by March 31, 1999.
o Phase 3 - Complete remediation, if any is required, of any
non-compliant business systems and processes, including facilities,
software and components used by our employees and outsourcing
vendors. Conduct procurements to replace any other non-Year 2000
compliance business systems and processes, including facilities,
software and components used by our employees and outsourcing
vendors that won't be remediated. We expect to complete all
remediation efforts, if any are required, by June 30, 1999.
o Phase 4 - Test and validate remediated and replacement systems, if
any such remediation or replacement is required, to ensure
inter-system compliance and mission critical system functionality.
We expect to complete testing and validation efforts, if any are
required, by July 31, 1999.
o Phase 5 - Deploy and implement remediated and replacement systems,
if any deployment or implementation is required, after the
completion of successful testing and validation. We expect to
complete the deployment and implementation of the remediated or
replacement systems, if any is required, by September 30, 1999.
o Phase 6 - Design contingency plan and business continuation plans
in the event of the failure of business systems and processes,
facilities, data networking infrastructure, software and components
used by our employees due to the Year 2000 millennium change. We
expect that the initial contingency and business continuation plan
will be in place by November 30, 1999.
Based on our inventory and assessment to date, we believe that our
internal mission critical systems are Year 2000 compliant and that our
facilities can be Year 2000 compliant. In addition, we are seeking assurances
from our facilities' landlords and equipment vendors and data circuit providers
regarding the Year 2000 compliance of their facilities and equipment.
At this time, we believe that our incremental remediation costs, if
any, needed to make our current business systems and processes, including
facilities, software and components used by our employees and outsourcing
vendors, are not material. While we are incurring some incremental costs, our
incurred costs through December 31, 1998 were less than $60,000. Our expected
total costs, including remediation and replacement costs, if any, are estimated
to be between $100,000 and $200,000 over the life of the Year 2000 project.
We are contacting our hardware and software vendors, other significant
suppliers, manufacturers, outsourcing service providers and other contracting
parties to determine the extent to which we are vulnerable to any one of their
failures to achieve Year 2000 compliance for their own systems. At the present
time, we do not expect Year 2000 issues of any such third parties to materially
affect our business.
Should we fail to solve a Year 2000 compliance problem to our critical
business systems and processes, the result could be a failure or interruption to
normal business operations.
Despite the assurances of our third-party suppliers, hardware and
software vendors, and outsourcing service providers regarding Year 2000
compliance of their products and services, the potential exists that a Year 2000
problem relating to such third-party suppliers, vendors and outsourcing service
providers products and services could have a material impact on our business. We
are conducting monthly discussions with our critical outsourcing service
providers to determine the progress of their Year 2000 compliance programs.
Despite extensive preparation and effort to ensure Year 2000
compliance, implementation of our business continuation contingency plan for a
very short time may be required while we remediate the Year 2000 problem.
30
<PAGE>
Despite our belief that our mission critical computer software
applications and systems are Year 2000 compliant and our expectation that our
enhancement effort will result in Year 2000 compliant systems, we are currently
developing a business continuation contingency plan. We expect to finalize our
initial contingency plan to complete the testing of all existing systems by
November 30, 1999.
The Foregoing Year 2000 discussion contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements, including without limitation, anticipated costs and
the dates by which certain actions are expected to be completed, are based on
management's best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued availability of certain
resources, representations received from third parties and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
ability to identify and remediate all relevant systems, results of Year 2000
testing, adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are outsourcing service providers
suppliers and vendors, unanticipated system costs, the adequacy of and ability
to implement contingency plans and similar uncertainties. The "forward-looking
statements" made in the foregoing Year 2000 discussion speak only as of the date
on which such statements are made, and management does not undertake any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT RISK
As of December 31, 1998, our investment portfolio consisted of fixed
income securities. These securities, like all fixed income instruments, carry a
degree of interest rate risk. Fixed rate securities may have their fair market
value adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements:
Report of Independent Accountants...................................... 33
Balance Sheets......................................................... 34
Statements of Operations .............................................. 35
Statements of Cash Flows............................................... 36
Statements of Stockholders' Equity..................................... 37
Notes to Financial Statements.......................................... 38
Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules..... 50
Schedule II -Valuation and Qualifying Accounts and Reserves............ 51
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ScanSoft, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of ScanSoft, Inc.
(formerly Visioneer, Inc.) at December 31, 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 1999, except for Note 3, which is as of March 2, 1999
33
<PAGE>
<TABLE>
SCANSOFT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 7,659 $11,361
Short-term investments......................................................... 202 3,029
Restricted cash................................................................ 262 62
Accounts receivable, less allowances of $4,171 and $5,315...................... 13,512 12,295
Inventory...................................................................... 4,777 3,078
Prepaid expenses and other current assets...................................... 929 1,059
-------------- -------------
Total current assets......................................................... 27,341 30,884
Property and equipment, net....................................................... 1,039 2,454
Other assets...................................................................... 65 212
-------------- -------------
Total Assets................................................................. $28,445 $33,550
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings..................................................... $ 6,000 $2,821
Accounts payable............................................................... 11,053 12,837
Accrued sales and marketing incentives......................................... 1,165 1,460
Accrued payable to sub-contractors............................................. 625 1,500
Other accrued liabilities...................................................... 1,929 3,877
-------------- -------------
Total current liabilities.................................................... 20,772 22,495
-------------- -------------
Long-term liability............................................................... 91 125
Commitments and contingencies (Note 9)............................................ -- --
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 19,852,952 and
19,563,854 shares issued and outstanding..................................... 20 20
Additional paid-in capital..................................................... 87,995 87,682
Deferred compensation relating to stock options................................ (50) (150)
Notes receivable from stockholders............................................. -- (44)
Accumulated deficit............................................................ (80,383) (76,578)
-------------- -------------
Total stockholders' equity................................................... 7,582 10,930
-------------- -------------
Total Liabilities and Stockholders' Equity................................... $28,445 $33,550
============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
34
<PAGE>
<TABLE>
SCANSOFT, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Product revenues.................................. $74,674 $50,523 $44,233
Royalty and development revenues.................. 4,396 7,100 11,848
----------------- ------------------ ------------------
Total net revenues.............................. 79,070 57,623 56,081
----------------- ------------------ ------------------
Cost of revenues:
Cost of product revenues.......................... 58,486 49,838 42,164
Cost of royalty and development revenues.......... 884 887 3,303
----------------- ------------------ ------------------
Total cost of revenues.......................... 59,370 50,725 45,467
----------------- ------------------ ------------------
Gross profit......................................... 19,700 6,898 10,614
----------------- ------------------ ------------------
Operating expenses:
Research and development.......................... 4,408 8,115 10,938
Selling, general and administrative............... 19,150 22,428 26,342
Non-recurring item (Note 10)...................... -- 675 --
----------------- ------------------ ------------------
Total operating expenses........................ 23,558 31,218 37,280
----------------- ------------------ ------------------
Operating loss....................................... (3,858) (24,320) (26,666)
Interest income...................................... 507 984 2,344
Interest expense..................................... (454) (44) (70)
----------------- ------------------ ------------------
Net loss............................................. $(3,805) $(23,380) $(24,392)
================= ================== ==================
Net loss per share: basic and diluted............... (0.19) (1.20) (1.34)
================= ================== ==================
Weighted average common shares outstanding: basic
and diluted (Note 1).............................. 19,728 19,450 18,255
================= ================== ==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
35
<PAGE>
<TABLE>
SCANSOFT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(3,805) $(23,380) $(24,392)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 1,720 2,052 1,982
Accounts receivable allowances........................... (1,144) 1,384 1,400
Other.................................................... 144 385 493
Changes in assets and liabilities:
Accounts receivable.................................... (73) (2,899) (1,042)
Inventory.............................................. (1,699) 1,430 (744)
Prepaid expenses and other current assets.............. 130 (148) 631
Other assets........................................... 147 16 (99)
Accounts payable....................................... (1,784) 1,388 1,237
Accrued sales and marketing incentives................. (295) (1,014) 321
Accrued payable to sub-contractors..................... (875) 400 775
Other accrued liabilities.............................. (1,982) 433 574
-------------- -------------- --------------
Net cash used in operating activities......................... (9,516) (19,953) (18,864)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of short--term investments............ 2,827 5,718 (3,852)
Transfer from (to) restricted cash......................... (200) -- 1,300
Capital expenditures for property and equipment............ (305) (348) (3,086)
-------------- -------------- --------------
Net cash provided by (used in) investing activities........... 2,322 5,370 (5,638)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank borrowings, net............................ 3,179 2,821 --
Proceeds from issuance of common stock, net................ 313 732 7,232
Payments on capitalized lease obligations.................. -- -- (248)
-------------- -------------- --------------
Net cash provided by financing activities..................... 3,492 3,553 6,984
-------------- -------------- --------------
Net decrease in cash and cash equivalents..................... (3,702) (11,030) (17,518)
Cash and cash equivalents at beginning of year................ 11,361 22,391 39,909
-------------- -------------- --------------
Cash and cash equivalents at end of year...................... $7,659 $11,361 $22,391
============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................................. 444 44 71
The accompanying notes are an integral part of these financial statements.
</TABLE>
36
<PAGE>
<TABLE>
SCANSOFT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except for share amounts)
<CAPTION>
Notes
Common Stock Additional Receivable
------------------ Paid In Deferred from Accumulated
Shares Amount Capital Compensation Stockholders Deficit Total
---------- ------ --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. 18,371,047 $ 18 $ 79,444 $ (350) $ (446) $ (28,806) $ 49,860
Issuance of common stock pursuant
to exercise of the over-allotment
option granted to underwriters......... 600,000 1 6,415 - - - 6,416
Deferred compensation expense
related to stock options............... - - - 100 - - 100
Issuance of common stock pursuant
to stock option exercises.............. 278,066 - 513 - - - 513
Issuance of common stock pursuant
employee stock purchase plan........... 110,996 - 637 - - - 637
Repurchase of restricted stock........... (157,500) - (58) - 117 - 59
Net loss................................. - - - - - (24,392) (24,392)
---------- ------ --------- ---------- ------- ---------- ---------
Balance on December 31, 1996............. 19,202,609 19 86,951 (250) (329) (53,198) 33,193
Deferred compensation expense
related to stock options............... - - - 100 - - 100
Issuance of common stock pursuant
to stock option exercises.............. 402,865 1 196 - - - 197
Issuance of common stock pursuant
employee stock purchase plan........... 188,797 - 627 - - - 627
Repurchase of restricted stock........... (230,417) - (92) - 285 - 193
Net loss................................. - - - - - (23,380) (23,380)
---------- ------ --------- ---------- ------- ---------- ---------
Balance on December 31, 1997............. 19,563,854 20 87,682 (150) (44) (76,578) 10,930
Deferred compensation expense
related to stock options............... - - - 100 - - 100
Issuance of common stock pursuant
to stock option exercises.............. 172,129 - 126 - - - 126
Issuance of common stock pursuant
employee stock purchase plan........... 116,969 - 187 - - - -
Repayment of notes receivable from
stockholder............................ - - - - 44 - 231
Net loss................................. - - - - - (3,805) (3,805)
---------- ------ --------- ---------- ------- ---------- ---------
Balance on December 31, 1998............. 19,852,952 $ 20 $ 87,995 $ (50) $ - $ (80,383) $ 7,582
---------- ------ --------- ---------- ------- ---------- ---------
---------- ------ --------- ---------- ------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
</TABLE>
37
<PAGE>
SCANSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND PRESENTATION
ScanSoft, Inc. (the "Company") was incorporated as Visioneer, Inc. in
the state of California on March 10, 1992 and was reincorporated in the state of
Delaware on December 5, 1995. The Company develops and markets scanner hardware
and software for sale primarily through retail distributors or directly to
retailers. The Company began primarily as a scanner hardware company and spent
most of its research and development time on the development of scanner products
and related bundled software for this market. In 1997, the Company decided to
leverage off the merits of its software in an attempt to penetrate the flatbed
scanner market and to introduce stand alone software products. The Company's
focus over time has shifted from the hardware business to the software business
and during 1997, the Company implemented a strategy to focus its research and
development efforts on software development rather than hardware development and
to leverage the engineering resources of its manufacturing partners to design
future hardware products. As a follow on to this strategy, the Company
negotiated an agreement with Primax Electronics, Ltd. ("Primax") to sell the
hardware business of the Company which was completed on January 6, 1999. (See
Note 2). As part of the sale to Primax, the name "Visioneer" was also sold and a
majority of the Company's employees, including its president and selected vice
presidents, became employees of Primax.
As a result of the change in business strategy, the Company also
entered into an agreement to purchase the business of ScanSoft, Inc., an
indirect wholly owned subsidiary of Xerox. This transaction was consummated on
March 2, 1999. (See Note 3). In connection with this acquisition, the Company
changed its name to ScanSoft, Inc.
The Company's fiscal year ends on the Sunday closest to December 31.
Accordingly, fiscal 1998 ended January 3, 1999 and contained 53 weeks. Fiscal
years 1997 and 1996 each had 52 weeks. The Company reports quarterly results
generally on thirteen-week quarterly periods, each ending on the Sunday closest
to month-end. For purposes of presentation, the Company has indicated its
accounting year as ending on December 31 or our interim quarterly periods as
ending on the respective calendar month-end.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from product sales to customers is generally recognized when
the product is shipped, provided no significant obligations remain and
collectibility is probable. Revenues from sales to distributors and authorized
resellers are subject to agreements allowing price protection and certain rights
of return. Accordingly, reserves for estimated future returns, exchanges and
credits for price protection are provided for upon revenue recognition. The
Company has limited control over the extent to which products sold to
distributors and resellers are sold through to end users. Accordingly, a portion
of the Company's sales may from time to time result in increased inventory at
its distributors and resellers. The Company provides sales returns reserves for
distributor and reseller inventories. These reserves are based on the Company's
estimates of inventory held by its distributors and resellers and the expected
sell through of its products by its distributors and resellers.
Actual results could differ from these estimates.
38
<PAGE>
The Company earns royalty and custom software development revenue
pursuant to certain license agreements and records revenue when earned. Payments
received from customers prior to revenue recognition and gross profits on
shipments to customers prior to related revenue recognition are reported as
"deferred revenues" and are included in other accrued liabilities in the balance
sheet.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid instruments with
original maturities of 90 days or less. The Company has classified all its
securities as "available for sale." These securities are comprised primarily of
commercial paper with maturities within one year. At December 31, 1998 and 1997
the fair market value of these securities approximated cost.
INVENTORY
Inventory is stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which is generally one to five years.
Leasehold improvements are amortized over the term of the related lease or the
useful life, if shorter.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to establishment of
technological feasibility are expensed as incurred. The Company defines
establishment of technological feasibility as the completion of a working model.
Software development costs incurred subsequent to the establishment of
technological feasibility through the period of general market availability of
products will be capitalized, if material. To date, all software development
costs have been expensed.
WARRANTY COSTS
The Company provides for the estimated cost which may be incurred under
its product warranties upon product shipment.
INCOME TAXES
The Company accounts for income taxes utilizing an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's Financial Statements or income tax returns. In estimating future
tax consequences, the Company generally considers all expected future events
other than enactments of changes in the tax laws or rates.
COMPREHENSIVE INCOME (LOSS)
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." Comprehensive income is defined as the change in equity of a company
during a period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners.
The Company's comprehensive loss for 1996, 1997 and 1998 is the same as its
reported net loss.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
equivalents, short-term investments and trade accounts receivable. The Company
invests
39
<PAGE>
in a wide variety of financial instruments, such as certificates of deposits,
commercial paper, municipal debt and U.S. government agency debt. The Company,
by policy, limits the amount of credit exposure to any one financial
institution. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains an allowance for uncollectible receivables
based upon expected collectibility of accounts receivable. At December 31, 1998,
1997 and 1996 the Company's top two customers in aggregate accounted for 30%,
42% and 40% respectively, of accounts receivable.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments at December 31, 1998
and 1997 was not significantly different than the values presented in the
balance sheets.
NET LOSS PER SHARE
Basic loss per share is based on the weighted average number of common
shares outstanding, and diluted loss per share is based on the weighted average
number of common shares outstanding and dilutive potential common shares
outstanding. However, because the Company has been in a net loss position on an
annual basis since 1995, the effects of potential common shares outstanding have
been excluded as they would be anti-dilutive in the loss per share calculation.
All options outstanding during 1998, 1997 and 1996 were excluded from diluted
loss per share calculations because they were anti-dilutive in view of the
losses incurred by the Company.
EMPLOYEE STOCK PLANS
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Compensation." SFAS 123 establishes an accounting
method based on the fair value of equity instruments awarded to employees as
compensation. The Company has elected to retain its current application of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted, as required, the disclosure provisions
of SFAS No. 123.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. The Company is currently assessing the disclosure
effects of adopting SFAS 133, which will be effective for the Company's fiscal
2000 financial statements.
NOTE 2. SALE OF HARDWARE BUSINESS:
On December 3, 1998, the Company entered into an agreement to sell its
hardware assets, liabilities and intellectual property to Primax for
approximately $7 million in cash. The terms of the agreement also grant to
Primax a software license agreement that allows them to "bundle," market and
sell the Company's PaperPort software with Primax hardware products. The
agreement requires the payment of certain royalties by Primax to the Company.
On January 6, 1999 the agreement with Primax was consummated.
Accordingly, in the quarter ending March 31, 1999, the Company will report a
non-operating gain related to the sale of the hardware business, less costs and
expenses of disposing of the business. The most significant assets and
liabilities at December 31, 1998 of the hardware business were receivables,
inventories and accounts payable in the approximate amounts of $12.7 million,
$4.4 million and $10.7 million, respectively. In addition, Primax assumed the
lease of the Company's current corporate facilities. The Company entered into an
agreement with Primax to pay Primax rent for their use of this facility until
the move of the corporate offices to Peabody, Massachusetts after the
acquisition of ScanSoft in March 1999.
40
<PAGE>
HARDWARE BUSINESS PRO FORMA INFORMATION (UNAUDITED)
As a result of the sale of the hardware business on January 6, 1999,
the revenues and other operating expenses related to the hardware business will
not continue. The following summarizes the unaudited pro forma operating
information for the hardware business and the remaining software business for
the year ended December 31, 1998:
<TABLE>
<CAPTION>
Hardware Software
Business Business Combined
------------- ------------- -------------
<S> <C> <C> <C>
Total net revenues......................... $66,015 $13,055 $79,070
Total cost of revenues..................... 55,474 3,896 59,370
------------- ------------- -------------
Gross profit............................... 10,541 9,159 19,700
------------- ------------- -------------
Operating expenses:
Research and development................... 734 3,674 4,408
Selling, general and administrative........ 15,887 3,263 19,150
------------- ------------- -------------
Total operating expenses.............. 16,621 6,937 23,558
------------- ------------- -------------
Operating income (loss) ................... (6,080) 2,222 (3,858)
Other income (expense) .................... 26 27 53
------------- ------------- -------------
Net income (loss) ......................... $(6,054) $2,249 $(3,805)
============= ============= =============
</TABLE>
NOTE 3. ACQUISITION OF SCANSOFT:
The Company acquired ScanSoft, a company that develops, markets,
distributes and supports systems and software that capture, communicate and
print documents at the desktop, effective March 2, 1999 for approximately 6.8
million shares of Common Stock of the Company, 3.6 million shares of non-voting
Preferred Stock of the Company and exchange of 1.7 million employee stock
options to purchase Common Stock of the Company in exchange for outstanding
employee stock options of ScanSoft. Additionally, in conjunction with the
acquisition, the Company incurred approximately $1.5 million of acquisition
related costs.
This acquisition is being accounted for under the purchase method of
accounting. Based on a preliminary appraisal, the Company expects to record a
one time write-off of approximately $4 million in the quarter ending March 31,
1999 related to the estimated value of in-process research and development
acquired as part of the purchase. For its year ended December 31, 1998, ScanSoft
had net revenues of $21.7 million (unaudited) and a net loss of $1.9 million
(unaudited). Also at December 31, 1998 ScanSoft had total assets of
approximately $6.8 million (unaudited).
41
<PAGE>
NOTE 4. BALANCE SHEET COMPONENTS:
The following table summarizes key balance sheet components:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Inventory:
Raw materials.............................. $ 429 $ 1,536
Work-in-process............................ 2,261 329
Finished goods............................. 2,087 1,213
-------- --------
$ 4,777 $ 3,078
======== ========
Property and equipment:
Machinery and equipment.................... $ 3,029 $ 3,672
Software................................... 1,522 1,377
Leasehold improvements..................... 308 289
Furniture and fixtures..................... 701 688
-------- --------
5,560 6,026
Accumulated depreciation and amortization.. (4,521) (3,572)
-------- --------
1,039 2,454
======== ========
</TABLE>
NOTE 5. BANK LINE OF CREDIT:
At December 31, 1998, the Company had a $12.5 million line of credit
with a bank with an expiration date in March 1999. The line of credit was
collateralized by a security interest in the Company's assets and carried an
interest rate of 8.25%. At December 31, 1998, the Company had bank borrowings of
$6.0 million under this line of credit and the Company was not in compliance
with certain covenants, for which the bank issued a waiver. In connection with
the sale of the hardware business in January 1999 (see Note 2), the outstanding
borrowings were paid and the line of credit was terminated.
42
<PAGE>
NOTE 6. INCOME TAXES:
No provision for federal or state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1998.
<TABLE>
Deferred tax assets (liabilities) consist of the following:
<CAPTION>
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
Deferred Tax Assets:
Federal and state loss and credit carryforwards......... $ 24,414 $ 21,774
Capitalized start-up and development costs.............. 882 1,255
Other asset valuation reserves.......................... 2,669 3,473
Other................................................... 1,961 1,849
---------- ----------
Gross deferred tax assets............................... 29,926 28,351
Deferred tax liabilities................................ (255) (119)
Valuation allowance..................................... (29,671) (28,232)
---------- ----------
Net deferred tax assets............................ $ - $ -
========== ==========
</TABLE>
Management believes that based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that full valuation allowance has been recorded.
These factors include the lack of significant history of profits, the fact that
the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology, and lack of carryback capacity to
realize these assets.
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $61 million, of which approximately $900,000
related to tax deductions from stock compensation. The tax benefit related to
the stock compensation benefit, when realized, will be accounted for as an
addition to additional paid in capital rather than as a reduction of the
provision for income tax. Research and development credit carryforwards as of
December 31, 1998 were approximately $2.0 million. The net operating loss and
credit carryforwards will expire at various dates beginning in 2007, if not
utilized. Utilization of the net operating losses and credits may be subject to
a substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization. At December 31, 1998 the federal net operating loss and
credit carryforwards of the Company were not subject to any material
limitations. The federal net operating loss carryforwards differ from the
accumulated deficit principally due to temporary differences in the recognition
of certain expense items for financial statement and federal tax reporting
purposes, consisting primarily of certain reserves and allowances not currently
deductible for tax and start-up and development costs capitalized for tax
purposes.
NOTE 7. STOCKHOLDERS' EQUITY:
RESTRICTED COMMON STOCK
In February 1993, the Company's board of directors adopted the 1993
Restricted Stock Purchase Plan (the "Purchase Plan") which provided for the sale
of Common Stock to employees and consultants. Restricted shares purchased under
the Purchase Plan are subject to a repurchase right by the Company. This
repurchase right generally lapses over a 48-month period. This plan was
terminated on October 16, 1995. As of December 31, 1998, no shares were subject
to repurchase under the Purchase Plan.
43
<PAGE>
COMMON STOCK WARRANTS
At December 31, 1994, the Company had 101,500 Series C Convertible
Preferred Stock warrants outstanding which were exercisable at $4 per share. In
conjunction with its initial public offering, 85,000 of these warrants were
exercised on a net issuance basis for 65,000 Common shares. The remaining 16,500
warrants automatically converted into Common Stock warrants upon the completion
of the Company's initial public offering.
These warrants will expire on June 30, 2004.
During the quarter ended December 31, 1995 the Company issued a warrant
to purchase 110,000 shares of its Series C Convertible Preferred Stock in
connection with a technology licensing arrangement. The warrant expires on
November 1, 1999 and is exercisable at $9 per share. The Company assigned a
value of $300,000 to this warrant. The warrant automatically converted into a
Common Stock warrant upon the completion of the Company's initial public
offering.
DEFERRED COMPENSATION RELATING TO STOCK OPTIONS
Based on an independent consultant's valuation report, management
believes that the exercise price for certain options granted during 1995 was
below the estimated fair value of the Company's Common Stock at the dates of the
grants. The Company recorded deferred compensation expense of $400,000 related
to these grants which is being amortized over related vesting periods of the
options. As of December 31, 1998, the Company has recorded an expense of
$350,000 related to this compensation.
NOTES RECEIVABLE FROM STOCKHOLDERS
In exchange for the issuance of Common Stock in fiscal 1995 and 1994
under the 1993 Restricted Stock Purchase Plan, the Company received notes
receivable from certain stockholders that bore interest at rates varying from
4.86% to 7.2% per annum. During 1998, all loan balances were fully settled.
NOTE 8. STOCK COMPENSATION PLANS:
1993 INCENTIVE STOCK OPTION PLAN
In February 1993, the Company's board of directors adopted the 1993
Incentive Stock Option Plan (the "Option Plan"). Under the Option Plan, the
Board of Directors are authorized to issue options for up to 3,870,000 shares of
Common Stock to employees and consultants of the Company at grant prices
determined by the Board of Directors on the date of grant. The Option Plan
allows for incentive stock options to be granted to employees and non-statutory
stock options to be granted to employees and consultants.
Options granted under the Option Plan expire no later than ten years
from the date of grant (no later than five years for 10% shareholders). The
exercise price will be at least 100% and 85% of the fair value of the stock
subject to the option on the date the option is granted as determined by the
Board of Directors for incentive stock options and non-statutory stock options,
respectively (110% of the fair value for 10% shareholders). The options
generally become exercisable in increments over a period of four years from the
date of grant, with the first increment vesting after one year. At the
discretion of the Board of Directors, options may be granted with different
vesting terms.
1995 DIRECTORS' STOCK OPTION PLAN
In October 1995, the Company instituted a directors' stock option plan
and reserved a total of 200,000 shares of the Company's Common Stock for
issuance of stock options thereunder. On October 3, 1997, at the Company's
Annual Meeting of Stockholders, an amendment was approved to increase the
options available in this plan by 120,000 to an aggregate of 320,000. The Plan
allows for granting of stock options to members of the Board of Directors who
are not employees of the Company. The options generally become exercisable in
increments over
44
<PAGE>
a period of four years from the date of grant, with the first increment vesting
after one year. The price of the options are equal to the fair market value of
the Company's Stock on the date of the grant.
1997 EMPLOYEE STOCK OPTION PLAN
In February 1997, the Board of Directors adopted the 1997 Employee
Stock Option Plan (the "1997 Option Plan") to provide for the granting of
non-statutory stock options only to eligible employees and consultants who are
not officers or directors of the Company, with the exception of officers who
were not previously employed by the Company and for whom an option grant is an
inducement essential to such officers' entering into an employment relationship
or contract with the Company. The 1997 Option Plan was adopted in response to
the non-availability of options for future grant under the Option Plan. The
Company has reserved a total of 1,300,000 shares under this plan.
Options granted under the 1997 Option Plan expire no later than ten
years from the date of grant (no later than five years for 10% shareholders).
The exercise price will be at least 100% and 85% of the fair value of the stock
subject to the option on the date the option is granted as determined by the
Board of Directors for incentive and non-statutory stock options, respectively
(110% of the fair value for 10% shareholders). The options generally become
exercisable in increments over a period of four years from the date of grant. At
the discretion of the Board of Directors, options may be granted with different
vesting terms.
NON-STATUTORY OPTION GRANT TO A DIRECTOR
On April 9, 1997, the Company's Board of Directors granted
non-statutory stock options for 30,000 shares of Common Stock to Mr. Jeffrey
Heimbuck, in conjunction of him becoming a member of the Company's Board of
Directors. The option grants were made outside of the 1995 Directors' Stock
Option Plan at an exercise price of $3.50 per share. All such options become
exercisable in annual installments of 25% of the total number of shares subject
to each option on each anniversary of the date of grant. On October 15, 1998,
Mr. Heimbuck resigned as a member of the Company's Board of Directors and the
Non-Statutory Option Grant was canceled.
REPRICING OF STOCK OPTIONS
In January 1998, the Company allowed all holders of outstanding options
to exchange higher priced options for new options at $1.75 per share, the fair
market value at the time of the exchange. The repricing terms provided that for
each seven shares of options exchanged, six new options would be granted. The
repriced options maintained the same vesting schedule. Options for 2,656,449
shares were exchanged for new options for 2,276,956 shares and are included in
the summary stock option table in the options cancelled and options granted
categories.
45
<PAGE>
<TABLE>
The following table summarizes activity under all stock option plans:
<CAPTION>
Options Outstanding
Shares --------------------------
Available Number Price per
for Grant of Shares Share
--------- --------- ----- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1995................. 1,016,329 1,759,017 $0.15 - $7.00
Options granted.............................. (1,825,600) 1,825,600 $0.40 - $10.75
Options exercised............................ - (278,066) $0.15 - $10.75
Options canceled............................. 1,187,841 (1,187,841) $0.15 - $10.75
---------- ----------
Balance at December 31, 1996................. 378,570 2,118,710 $0.15 - $10.75
Additional shares authorized................. 2,450,000 -
Options granted.............................. (2,671,200) 2,671,200 $2.63 - $4.50
Options exercised............................ - (402,865) $0.15 - $3.50
Options canceled............................. 1,244,135 (1,244,135) $0.15 - $10.75
---------- ----------
Balance at December 31, 1997................. 1,401,505 3,142,910 $0.15 - $10.75
Options granted.............................. (3,147,801) 3,147,801 $0.91 - $3.00
Options exercised............................ - (172,129) $0.15 - $1.75
Options canceled............................. 3,536,679 (3,566,679) $0.15 - $7.00
---------- ----------
Balance at December 31, 1998................. 1,790,383 2,551,903 $0.15 - $10.75
========== ==========
</TABLE>
1995 EMPLOYEE STOCK PURCHASE PLAN
In October 1995, the Company instituted an employee stock purchase plan
(the "1995 Purchase Plan") and reserved a total of 300,000 shares of the
Company's Common Stock for issuance thereunder. On October 3, 1997, at the
Company's Annual Meeting of Stockholders, an amendment was approved to increase
the shares available in this plan by 400,000 to an aggregate of 700,000. The
1995 Purchase Plan permits employees to acquire shares of the Company's Common
Stock through payroll deductions. During 1996, 1997, and 1998 shares issued
under this plan aggregated 110,996, 188,797, and 116,969 respectively.
PRO FORMA INFORMATION
As of December 31, 1998, the Company had five stock-based compensation
plans as described above. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for these stock option plans. Had compensation cost for
options granted in 1998, 1997 and 1996 under the Company's option plans been
determined based on fair market value at the grant dates, as prescribed by SFAS
No. 123, the Company's net loss and pro forma net loss (in thousands) and the
Company's net loss and pro forma net loss per share would have been as follows:
46
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
--------- ---------- ----------
(In Thousands, except for per share amounts)
<S> <C> <C> <C>
Net loss -as reported: basic and diluted............ $ (3,805) $ (23,380) $ (24,392)
Net loss per share -pro forma: basic and diluted.... $ (6,483) $ (25,247) $ (26,172)
Met loss per share -as reported: basic and diluted.. $ (0.19) $ (1.20) $ (1.34)
</TABLE>
The weighted average fair market value of options granted was $ 1.16
per share, $3.87 per share and $3.80 per share for the years ended December 31,
1998, 1997 and 1996, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the applicable period: expected volatility of
70% for all periods, risk-free interest rate of 5.12% for options granted in
1998, 5.71% for options granted in 1997 and 6.19% for options granted in 1996,
and a weighted average expected option term of 5.0 years for all periods. The
Company has not paid dividends and assumed no dividend yield.
The following table summarizes information about stock options
outstanding under the 1993 Incentive Stock Option Plan, the 1997 Employee Stock
Option Plan, the 1995 Directors' Stock Option Plan and the Non-Statutory Option
Grant to Director at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Shares Remaining Average Shares Average
Exercise Price Range Outstanding Life in Years Exercise Price Exercisable Exercise Price
- -------------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.15 -- $ 1.06 203,414 8.79 $0.85 46,076 $0.38
$ 1.75 -- $ 1.75 1,809,239 8.36 $1.75 929,587 $1.75
$ 2.25 -- $ 2.31 387,250 9.45 $2.30 43,498 $2.31
$ 2.63 -- $ 10.75 152,000 8.15 $6.82 73,133 $8.88
--------- ---- ----- --------- -----
$ 0.15 -- $ 10.75 2.551,903 8.55 $2.06 1,092,294 $2.19
--------- ---- ----- --------- -----
</TABLE>
For the Employee Stock Purchase Plan, the fair value of each purchase
right is estimated at the beginning of the offering period using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used in 1998, 1997 and 1996: expected volatility of 70% for all
three years; risk-free interest rate of 5.12%, 5.71% and 5.17% for 1998, 1997
and 1996, respectively; and expected lives of six months for all three years.
The Company has not paid dividends and assumed no dividend yield. The
weighted-average fair value of all purchase rights granted in 1998, 1997 and
1996, were $0.70, $2.14 and $2.89, respectively.
47
<PAGE>
NOTE 9. COMMITMENTS AND CONTINGENCIES:
OPERATING AND CAPITAL LEASES
The Company leases its facility in California and certain equipment
under noncancelable operating leases. Total rent expense under these operating
leases for the years ended December 31, 1998, 1997 and 1996 was $339,000,
$657,000, and $546,000, respectively.
In August 1997, the Company entered into an agreement with a third
party to sublease 17,928 square feet within the Company's leased facility in
Fremont, California. The term of the sublease is forty-six months. The income is
used to offset the Company's rent expense. As indicated in Note 2, as part of
the sale of its hardware business, the Company's leases were included in the
sale and therefore the Company's lease and sublease commitments outstanding at
December 31, 1998, were assumed by Primax.
LETTERS OF CREDIT
As of December 31, 1998, the Company had two letters of credit
outstanding totaling $0.3 million. The letters of credit were secured by the
Company's line of credit. The letters of credit are secured by certificates of
deposit which are presented as restricted cash at December 31, 1998. As
indicated in Note 2, as part of the sale of its hardware business all of the
Company's commitments associated with the letters of credit were included in the
sale.
LITIGATION AND OTHER CLAIMS
The Company is a party to litigation and patent infringement matters
and claims which arose in the course of the Company's operations. While the
results of such litigation and claims cannot be predicted with certainty, the
Company believes that the final outcome of such matters will not have a
significant adverse effect on the Company's financial position and results of
operations. However, should the Company not prevail in any such litigation, its
operating results and financial position could be adversely impacted.
NOTE 10. NON-RECURRING ITEM:
The Company implemented a restructuring plan of all its organizations
in May 1997 which included a decrease of approximately 40% of total employee and
consultant headcount. A one-time restructuring charge of $675,000 was recorded
in the three month period ended June 30, 1997, representing severance paid to
terminated employees.
NOTE 11. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
In 1998, the Company adopted Statement of Financial Accounting
Standards (FAS) 131, "Disclosures about Segments of an Enterprise and Related
Information." FAS 131 supersedes FAS 14, "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. FAS
131 also requires disclosures about products and services, geographic areas and
major customers. The adoption of FAS 131 did not affect results of operations or
financial position or the segment information reported in 1997. Based on its
management structure, the Company has one reporting segment.
48
<PAGE>
<TABLE>
The following is net sales information by geographic area:
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
United States............ $ 73,219 $ 52,023 $ 48,981
Foreign.................. 5,851 5,600 7,100
---------- --------- ---------
Total.................... $ 79,070 $ 57,623 $ 56,081
---------- --------- ---------
</TABLE>
During 1998, two customers accounted for 18% and 12% of total net
revenues, respectively. One customer accounted for 21% of total net revenues in
1997. In 1996, one customer accounted for 37% of total net revenues.
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of ScanSoft, Inc.
Our audits of the financial statements referred to in our report dated
January 27, 1999, except for Note 3, which is as of March 2, 1999, appearing on
page 33 in the 1998 Annual Report on Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, the Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 1999
50
<PAGE>
Schedule II
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
ACCOUNTS RECEIVABLE
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at beginning of period..................... $ 5,315 $ 3,931 $ 2,531
Additions charged to costs and expenses............ 19,480 7,122 4,469
Deductions and write-offs.......................... (20,624) (5,738) (3,069)
---------------- ---------------- ----------------
Balance at end of period........................... $ 4,171 $ 5,315 $ 3,931
================ ================ ================
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding our
executive officers and directors as of March 26, 1999.
Name Age Position
---- --- --------
Michael K. Tivnan 46 President, Chief Executive Officer, and Director
Paul A. Ricci(1)(2) 42 Chairman of the Board of Directors
Wayne S. Crandall 40 Vice President Sales and Channel Marketing
Steven C. Ricketts 36 Vice President Marketing
Stanley E. Swiniarski 41 Vice President Development
J. Larry Smart(1) 51 Director
William J. Harding(1)(2) 51 Director
David F. Marquardt(2) 50 Director
Mark B. Myers 59 Director
- ----------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mr. Tivnan has served as the President and Chief Executive Officer of
the Company since March 2, 1999. From February 1998 until March 2, 1999, Mr.
Tivnan served as the President of ScanSoft, Inc., which was then operating as an
indirect wholly owned subsidiary of Xerox. From November 1993 until February
1998, Mr. Tivnan served as General Manager and Vice President of ScanSoft. From
January 1991 until November 1993, Mr. Tivnan served as Chief Financial Officer
of ScanSoft.
Mr. Ricci has served as the Chairman of the Board of Directors since
March 2, 1999. Mr. Ricci joined Xerox in 1992 and is currently the Vice
President, Corporate Business Development, a position he has held since January
1998. Prior to assuming his current position, Mr. Ricci has held several
positions within Xerox, including serving as President, Software Solutions, in
Xerox's Document Services Group, and as President of the Desktop Document
Systems Division. Mr. Ricci has served as Chairman of the Board of Directors of
ScanSoft since June 1997 and has served as the sole director of ScanSoft since
September 1996. From September 1996 until February 1998, Mr. Ricci served as
President of ScanSoft.
Mr. Crandall has served as the Vice President Sales and Channel
Marketing of the Company since March 2, 1999. From December 1989 until March 2,
1999, Mr. Crandall oversaw all domestic and international sales activity of
ScanSoft, Inc., which was then operating as an indirect wholly owned subsidiary
of Xerox. Mr. Crandall originally joined ScanSoft in November 1988 as the
Director of North America Sales.
Mr. Ricketts has served as Vice President Marketing of the Company
since March 2, 1999. Mr. Ricketts joined ScanSoft, Inc., which was then
oeprating as an indirect wholly owned subsidiary of Xerox, in December 1992 as
the Manager of OEM Marketing and held roles that include leadership over the
program management teams and worldwide product marketing function. Mr. Ricketts
served as Director of Marketing of ScanSoft for three years before being
promoted to Vice President in August 1998.
Mr. Swiniarski has served as Vice President Development of the Company
since March 2, 1999. From November 1991 until March 2, 1999, Mr. Swiniarski
served as the Director of Product Development. From 1988 until 1991, Mr.
Swiniarski served as the Director of Technology Development and Marketing for
Siemens Nixdorf Information Systems, Inc. and held a number of engineering
positions with software companies that include Apollo Computer, High Order
Software, Inc. and Systems Architects, Inc.
52
<PAGE>
Mr. Smart has served as a director of the Company since March 2, 1999.
From April 1997 until March 2, 1999, Mr. Smart served as President and Chief
Executive Officer of Visioneer. Mr. Smart served as Chairman of the Board of
Directors of Visioneer from February 1997 until April 1997. From April 1996 to
March 1997, Mr. Smart was Chairman, President and Chief Executive Officer of
StreamLogic Corporation, a network storage company. From July 1995 to March
1996, Mr. Smart was President and CEO of Micropolis Corporation, a disk drive
design and manufacturing company. From March 1994 to February 1995, Mr. Smart
was President and Chief Executive Officer of Maxtor Corporation, a disk drive
development and manufacturing company. Mr. Smart currently serves as Chairman of
the Board of Southwall Technologies Inc., a thin film technology company, and is
a director of Savoir Technology Group, Inc., a distributor of electronic
components and systems, and Midisoft Corp., a developer of music and sound
software for personal computers.
Dr. Harding has served as a director of the Company since May 1995.
Since 1994, Dr. Harding has been a general partner of Morgan Stanley Venture
Partners II, L.P., which manages the Morgan Stanley Venture Capital Funds.
During 1994, Dr. Harding was a private investor. From 1985 through 1993, Dr.
Harding was a general partner of J.H. Whitney & Co., a venture capital firm.
Mr. Marquardt has served as a director of the Company since November
1992. Since August 1980, Mr. Marquardt has been a general partner of Technology
Venture Investors, a venture capital firm. Mr. Marquardt currently serves as a
director of Auspex Systems, Inc., a provider of network server hardware and
software.
Dr. Myers has served as a director of the Company since March 2, 1999.
Since February 1992, Dr. Myers has served as Senior Vice President, Xerox
Research and Technology, responsible for worldwide research and technology. Dr.
Myers earned an A.B. degree from Earlham College, Richmond, Indiana in 1960, and
a Ph.D. in material sciences from Pennsylvania State University in 1964.
53
<PAGE>
ITEM 11.EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years 1996, 1997 and 1998 concerning compensation paid to the Company's Chief
Executive Officer and to the Company's four other named executive officers whose
compensation exceeded $100,000 in 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------ ------------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#)
- -------------------------------------- ------ ---------- ----------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
J. Larry Smart(2) ................. 1998 $314,357 $154,500 $ -- 698,574
President and Chief Executive 1997 190,500 98,429 21,500 815,000
Officer 1996 -- -- -- --
Rudolph E. Burger.................. 1998 193,269 25,000 -- 215,128
Senior Vice President of Business 1997 173,077 27,424 -- 205,000
Development 1996 137,307 -- -- 40,006
Geoffrey C. Darby(3) .............. 1998 117,944 10,000 -- 71,430
Vice President of Finance and 1997 159,346 17,498 -- 10,000
Chief Financial Officer 1996 156,000 20,000 -- 30,000
Murray Dennis(4) .................. 1998 193,817 86,550 -- 222,577
Vice President of Sales and 1997 175,000 80,045 -- 75,000
Marketing 1996 87,500 51,023 -- 150,000
Michael T. Burt(5) ................ 1998 136,254 20,000 -- 130,715
Vice President of Operations 1997 83,077 21,522 -- 100,000
1996 -- -- -- --
- ----------
(1) Includes amounts paid in the subsequent year for bonuses earned in the
indicated year.
(2) Mr. Smart joined the Company in April 1997.
(3) Mr. Darby left the Company in August 1998.
(4) Mr. Dennis joined the Company in May 1996.
(5) Mr. Burt joined the Company in April 1997.
</TABLE>
54
<PAGE>
RECENT OPTION GRANTS
The following table sets forth certain information regarding options
granted during the fiscal year ended January 3, 1999 to the Named Executive
Officers.
<TABLE>
<CAPTION>
Percent of Potential Realizable Value at
Total Options Assumed Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for Option
Underlying Employees in or Base Term ($)(2)
Options Fiscal Price Expiration -----------------------------------
Name Granted(#) Year(%)(1) ($/Share) Date 5% 10%
- -------------------- ------------- ---------------- ------------ ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Smart 115,715 3.68% $1.75 4/1/07 $114,980 $ 284,938
154,287 4.90 1.75 7/1/07 158,831 396,591
428,572 13.61 1.75 10/1/07 455,772 1,146,159
Rudolph E. Burges 34,286 1.09 1.75 9/27/05 27,389 65,072
156,556 4.97 1.75 5/20/07 158,384 393,998
4,286 0.14 1.75 10/6/07 4,558 11,462
20,000 0.64 2.31 6/23/08 29,055 73,631
Geoffrey C. Darby 17,143 0.54 1.75 12/9/08 21,085 54,860
25,715 0.82 1.75 7/25/06 23,233 56,476
8,572 0.27 1.75 10/6/07 9,116 22,925
20,000 0.64 2.31 6/23/08 29,055 73,631
Murray Dennis 2,111 0.07 1.75 7/24/06 1,906 4,634
126,461 4.02 1.75 7/25/06 114,254 277,735
52,576 1.67 1.75 2/4/07 51,166 126,249
21,429 0.68 1.75 10/6/07 22,789 57,309
20,000 0.64 2.31 6/23/08 29,055 73,631
Michael T. Burt 85,715 2.72 1.75 5/8/07 86,336 214,571
25,000 0.79 3.00 3/30/08 47,167 119,531
20,000 0.64 2.31 6/23/08 29,055 73,631
- ----------
(1) Based on options to purchase an aggregate of 3,147,801 shares of common
stock granted during fiscal 1998.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of five percent (5%) and
ten percent (10%) compounded annually from the date the respective options
were granted to their expiration date and are not presented to forecast
possible future appreciation, if any, in the price of our common stock. The
gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or the sale of the underlying shares of common stock. The actual
gains, if any, on the stock option exercises will depend on the future
performance of our common stock, the optionee's continued employment
through applicable vesting periods and the date on which the options are
exercised.
</TABLE>
55
<PAGE>
The following table shows the number of shares of common stock
represented by outstanding stock options held by each of the Named Executive
Officers as of January 3, 1999.
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Options at Fiscal Year-End
Name Year-End Exercisable/Unexercisable ($) Exercisable/Unexercisable
- ----------------------------- ----------------------------------------- ---------------------------------------
<S> <C> <C>
J. Larry Smart 395,001/303,573 $--/--
Rudolph E. Burges 86,825/138,303 863/6,038
Geoffrey C. Darby --/-- --/--
Murray Dennis 91,136/121,723 --/--
Michael T. Burt 42,901/87,814 --/--
- ----------
(1) Based on a per share price of $1.1875, the closing price of our common
stock as reported by The Nasdaq National Market on December 31, 1998,
the last trading day of the fiscal year.
</TABLE>
In January 1998, the Company allowed all holders of outstanding options
to exchange higher priced options for new options at $1.75 per share, the fair
market value at the time of the exchange. The repricing terms provided that for
each seven shares of options exchanged, six new options would be granted. The
repriced options maintained the same vesting schedule. Options for 2,656,449
shares were exchanged for new options for 2,276,956 shares.
<TABLE>
TEN-YEAR OPTION/SAR REPRICINGS
(as of March 26, 1999)
<CAPTION>
LENGTH OF
ORIGINAL
OPTION TERM
NUMBER OF REMAINING
SECURITIES NUMBER OF MARKET PRICE EXERCISE AT DATE OF
UNDERLYING SHARES OF STOCK AT PRICE AT TIME NEW REPRICING
OPTIONS/SARS REISSUED TIME OF OF REPRICING EXERCISE OR
DATE OF REPRICED OR 7:6 RATIO REPRICING OR OR AMENDMENT PRICE AMENDMENT
EXECUTIVE OFFICER REPRICING AMENDED (#) (#) AMENDMENT ($) ($) ($) (YEARS)
- ---------------------- ---------- -------------- ----------- --------------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Larry Smart...... 1/12/98 135,000 115,715 $1.75 $3.75 $1.75 9.25
President and 1/12/98 180,000 154,287 1.75 3.44 1.75 9.50
Chief Executive 1/12/98 500,000 428,572 1.75 3.88 1.75 9.75
Officer
Jay Hanson.......... 7/25/96 5,000 5,000 6.50 10.75 6.50 9.83
Vice President, 1/12/98 10,000 8,572 1.75 4.25 1.75 7.67
Engineering 1/12/98 5,000 3,750 1.75 4.25 1.75 7.67
1/12/98 5,000 4,286 1.75 6.50 1.75 8.58
1/12/98 5,000 4,286 1.75 6.50 1.75 8.58
1/12/98 10,000 8,572 1.75 3.50 1.75 9.08
1/12/98 8,000 6,858 1.75 2.63 1.75 9.42
1/12/98 3,300 2,829 1.75 3.63 1.75 9.67
1/12/98 30,000 25,715 1.75 3.88 1.75 9.75
Bruce S. Mowery..... 7/25/96 150,000 150,000 6.50 10.75 6.50 9.83
Vice President
Marketing
</TABLE>
56
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 15 meetings during the fiscal
year ended January 3, 1999. Each director attended at least 75% of the aggregate
number of meetings of (i) the Board of Directors and (ii) the committees of the
Board of Directors on which he served, except David F. Marquardt, who attended
66.6% of the meetings.
The Board of Directors has an Audit Committee and a Compensation
Committee. It does not have a nominating committee or a committee performing the
functions of a nominating committee.
The Audit Committee of the Board of Directors, which currently consists
of directors Paul A. Ricci, J. Larry Smart and William J. Harding, held one
meeting during 1998. The Audit Committee, which meets periodically with
management and our independent public accountants, recommends engagement of our
independent public accountants and is primarily responsible for approving the
service performed by our independent public accountants and reviewing and
evaluating our accounting principles and the adequacy of our internal auditing
procedures and controls.
The Compensation Committee of the Board of Directors, which currently
consists of directors Paul A. Ricci, William J. Harding and David F. Marquardt,
held three meetings during 1998. The Compensation Committee, in conjunction with
the Board of Directors, establishes salaries, incentives and other forms of
compensation for directors, officers and other employees, administers the
various incentive compensation and benefit plans (including our stock purchase
and stock option plans) and recommends policies relating to such plans.
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company are automatically granted options
to purchase shares of the Company's Common Stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors' Option Plan").
Under such plan, each person who was a nonemployee director of the Company on
the date of the Company's initial public offering, which was December 11, 1995,
was granted an option to purchase 20,000 shares of Common Stock on the date of
such offering and each person who thereafter first becomes a nonemployee
director will be granted an option to purchase 20,000 shares of Common Stock on
the date on which he or she first becomes a nonemployee director (the "First
Option"). Thereafter, on January 1 of each year, commencing January 1, 1997,
each nonemployee director shall be automatically granted an additional option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
(6) months. The Directors' Plan provides that the First Option shall become
exercisable in installments as to twenty-five percent (25%) of the total number
of shares subject to the First Option on each anniversary of the date of grant
of the First Option and each Subsequent Option shall become exercisable in full
on the first anniversary of the date of grant of that Subsequent Option. Options
granted under the Directors' Option Plan have an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant, and a term
of ten (10) years. Pursuant to the Directors' Option Plan, on January 1, 1998,
each nonemployee director was granted an option to purchase 5,000 shares of
Common Stock. The terms of such options, including vesting terms, are
substantially similar to the terms of the First Option.
CHANGE IN CONTROL AND EMPLOYMENT AGREEMENTS
AGREEMENTS WITH VISIONEER'S EXECUTIVE OFFICERS
Two executive officers of Visioneer prior to the merger, J. Larry
Smart, President and Chief Executive Officer and a director, and Murray Dennis,
Vice President of Sales and Marketing, executed employment and non-compete
agreements with Primax V Acquisition Corp., a wholly owned subsidiary of Primax
Electronics Ltd. After the sale of the hardware business to Primax in January
1999, Mr. Dennis became employed by Primax, and received a signing bonus paid by
Primax equal to six months of his Visioneer salary as part of his new employment
compensation package. He also released Visioneer from its obligations under his
existing employment agreement with Visioneer. Mr. Smart is entitled to receive
payment of six months additional salary by Visioneer since his termina-
57
<PAGE>
tion of employment. Michael T. Burt, Vice President of Operations, received a
payment of four months additional salary upon termination of employment.
Pursuant to an engagement letter dated August 11, 1998 between Visioneer and The
Brenner Group LLC, Richard Brenner serves as the Company's Chief Financial
Officer. Visioneer paid The Brenner Group hourly fees for Mr. Brenner's services
and paid a success fee of 90,000 for completion of the hardware sale and the
merger with ScanSoft. The total amount of payments to Messrs. Smart and Brenner
will be approximately 325,000.
In November 1998, Visioneer's Board of Directors approved the
acceleration of vesting of 50% of unvested options held by Messrs. Dennis and
Burt upon each individual's termination of employment with Visioneer. Visioneer
also accelerated the vesting of certain options held by Mr. Smart in accordance
with the vesting schedules set forth in letter agreements between Visioneer and
Mr. Smart dated April 9, 1997, July 7, 1997 and October 6, 1997. Options to
purchase a total of approximately 151,787 shares held by Mr. Smart have also
been accelerated.
In November 1998, Visioneer's Board of Directors also approved offering
to employees, including executive officers, whose employment was terminated by
Visioneer prior to the effective time of the merger the right to receive 0.20
per share for each option share held by such employee that is or would have
vested as of the effective time of the merger (including options that will be
accelerated prior to such time), provided that the employee agreed to terminate
all additional outstanding unvested options held by such employee. Accordingly,
Mr. Dennis received approximately 30,500 for options exercisable as of the date
of the hardware sale to Primax and options accelerated as a result of their
termination of employment. Similarly, Messrs. Smart and Burt received
approximately 134,000 and 17,400, respectively, for options that would be
exercisable as of the closing of the merger and for options accelerated in
connection with the closing of the merger or their termination of employment.
58
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 26, 1999, as to (1) each
person (or group of affiliated persons) who is known by us to own beneficially
more than 5% of our common stock; (2) each of our directors; (3) each of our
executive officers; and (4) all directors and executive offices as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(2)
---------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- -------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Xerox Imaging Systems, Inc.(3).................................... 11,853,602 45.0%
800 Long Ridge Road
Stamford, CT 06904
Technology Venture Investors - IV................................. 917,001 3.5
2480 Sand Hill Road
Menlo Park, CA 94025
Morgan Stanley Venture Capital Fund II, L.P.(4)................... 734,036 2.8
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Michael K. Tivnan(5).............................................. 80,938 *
Paul A. Ricci(6).................................................. 130,000 *
Wayne S. Crandall(7).............................................. 46,275 *
Steven C. Ricketts(8)............................................. 21,765 *
Stanley E. Swiniarski(9).......................................... 28,214 *
William J. Harding(10)............................................ 759,036 2.9
David F. Marquardt(11)............................................ 945,451 3.6
Mark B. Myers..................................................... -- --
J. Larry Smart(12)................................................ 8,346 *
All directors and executive officers as a group
(9 persons)(13).............................................. 2,020,026 7.6%
- ----------
* Less than 1%.
(1) Unless otherwise indicated, the address for the following stockholders
is c/o ScanSoft, Inc., 9 Centennial Drive, Peabody, Massachusetts
01960.
(2) Applicable percentage ownership is based on 26,355,780 shares of common
stock outstanding as of March 26, 1999. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a
person and the percentage of ownership of that person, shares of common
stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of March 26, 1999 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage of ownership of any other person.
The persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned
by them, subject to the community property laws where applicable and
except as indicated in the other footnotes to this table.
(3) Excludes a warrant to purchase up to 1,738,552 shares of common stock.
(4) Includes 486,544 shares owned by Morgan Stanley Venture Capital Fund
II, L.P., 126,276 shares owned by Morgan Stanley Venture Investors,
L.P., 121,216 shares owned by Morgan Stanley Venture Capital Fund II,
C.V.
59
<PAGE>
(5) Includes 70,938 shares subject to options exercisable within 60 days of
March 26, 1999.
(6) Excludes 11,853,602 shares of common stock held by Xerox Imaging
Systems, Inc.
(7) Includes 36,275 shares subject to options exercisable within 60 days of
March 26, 1999.
(8) Includes 21,765 shares subject to options exercisable within 60 days of
March 26, 1999.
(9) Includes 28,214 shares subject to options exercisable within 60 days of
March 26, 1999.
(10) Includes 486,544 shares owned by Morgan Stanley Venture Capital Fund
II, L.P., 126,276 shares owned by Morgan Stanley Venture Investors,
L.P., 121,216 shares owned by Morgan Stanley Venture Capital Fund II,
C.V., and 25,000 shares subject to options exercisable within 60 days
of March 26, 1999 held by William J. Harding, a director of ScanSoft.
Dr. Harding is a general partner of Morgan Stanley Venture Partners II,
L.P., the general partner of Morgan Stanley Venture Capital II, L.P.,
Morgan Stanley Venture Investors, L.P., and Morgan Stanley Venture
Capital Fund II, C.V., and, as such, may be deemed to share voting and
investment power with respect to such shares. Dr. Harding disclaims
beneficial ownership with respect to such shares except to the extent
of his pecuniary interest in such shares.
(11) Includes 917,001 shares owned by Technology Venture Investors IV, L.P.,
and 25,000 shares subject to options exercisable within 60 days of
March 26, 1999, held by David F. Marquardt, a director of ScanSoft. Mr.
Marquardt is a general partner of TVI Management IV, L.P., which is the
sole general partner of Technology Venture Investors IV, L.P., and, as
such, Mr. Marquardt may be deemed to share voting and investment power
with respect to such shares. Mr. Marquardt disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
in such shares. Also includes 3,450 shares held directly by Mr.
Marquardt.
(12) Includes 6,250 shares subject to options exercisable within 60 days of
March 26, 1999.
(13) Includes 213,442 shares subject to options exercisable within 60 days
of March 26, 1999.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
The following is a summary of certain agreements we have entered into
with Xerox, which currently owns approximately 45% of our outstanding common
stock. The following summaries of these agreements are qualified in their
entirety by reference to each of the agreements, copies of which are included as
exhibits to this Report.
VOTING AGREEMENT. Xerox, Xerox Imaging Systems, Inc., Visioneer and
several holders of Visioneer common stock entered into a voting agreement
effective at the close of the merger with ScanSoft, pursuant to which they
agreed to vote to elect certain nominees to the Board of Directors, including up
to two persons designated by Xerox (the "Voting Agreement").
At each annual meeting of stockholders during the term of the Voting
Agreement, or at any special meeting of stockholders at which board members are
to be elected, the parties to the Voting Agreement will vote their shares so as
to elect the following directors:
(i) so long as Xerox owns at least 20% of our outstanding
voting stock: two persons designated by Xerox, two individuals
designated by the four members of the Board of Directors who were not
nominated by Xerox and who are not our Chief Executive Officer or our
then-current Chief Executive Officer, and two independent members with
relevant industry experience who are to be designated by at least four
out of the five directors who are not considered to be independent
directors; or
60
<PAGE>
(ii) so long as Xerox owns at least 10% of our outstanding
voting stock: one person designated by Xerox, two individuals
designated by the five members of the board who were not nominated by
Xerox and who are not our Chief Executive Officer or our then-current
Chief Executive Officer, and three independent members with relevant
industry experience who are designated by at least three out of the
four directors who are not considered to be independent directors.
The Voting Agreement will terminate upon the earliest to occur of: (1)
the sale of all or substantially all of our property or business or our merger
into or consolidation with any other corporation or if we effect any other
transaction(s) in which more than 50% of our voting power is disposed of; (2)
such time as Xerox owns less than 10% of our outstanding voting stock; or (3)
such time as the non-reporting person parties to the Voting Agreement own, in
the aggregate, less than 7% of our outstanding voting stock; provided, however,
that if such time occurs prior to March 2, 2001 and Xerox holds at such time
shares of our Series B Preferred Stock, the Voting Agreement will not terminate
until the earlier of (x) March 2, 2001 or (y) the date on which Xerox (together
with its affiliates) no longer holds any shares of our Preferred Stock.
THE SERIES B PREFERRED STOCK. In connection with the merger, Xerox
Imaging Systems, Inc. was issued 3,562,238 shares of our nonvoting Series B
Preferred Stock. The Series B Preferred Stock is convertible into shares of
common stock on a share-for-share basis at the option of Xerox Imaging Systems,
Inc. at any time after March 2, 2001; provided, however, that the Series B
Preferred Stock becomes convertible immediately if Xerox Imaging Systems, Inc.'s
ownership of our outstanding common stock is less than 30%, unless such
conversion would result in Xerox Imaging Systems, Inc. owning more than 50% of
our outstanding common stock. The Series B Preferred Stock is entitled to
noncumulative dividends at the rate of 0.065 per annum only if and to the extent
declared by our Board of Directors. The Series B Preferred Stock has a
liquidation preference of 1.30 per share plus all declared but unpaid dividends.
The Series B Preferred Stock does not have any voting rights, except for such
rights as are provided under Delaware law.
COMMON STOCK WARRANT. At the closing of the merger, we issued to Xerox
Imaging Systems, Inc. a ten-year warrant (the "Warrant") that allows Xerox
Imaging Systems, Inc. to acquire a number of shares of common stock equal to the
number of options to purchase common stock (whether vested or unvested) that
remain unexercised at the termination of any ScanSoft option assumed by us in
the merger. The exercise price for each warrant share is the same as the
exercise price of each assumed ScanSoft option, as adjusted by the exchange
ratio in the merger. If all of the assumed ScanSoft options terminate without
being exercised, Xerox Imaging Systems, Inc. would be entitled to purchase
approximately 1,738,552 additional shares of our common stock. The Warrant is
exercisable at any time that shares are available for acquisition under the
Warrant; provided, however, Xerox Imaging Systems, Inc. may not exercise the
Warrant prior to two years from the date of its initial issuance unless,
immediately after such exercise, Xerox Imaging Systems, Inc. owns directly or
indirectly a number of outstanding shares of our common stock that represents
less than 45% of the total number of shares of our common stock outstanding
immediately after such exercise.
REGISTRATION RIGHTS AGREEMENT. We have entered into a registration
rights agreement (the "Registration Rights Agreement") with Xerox and Xerox
Imaging Systems, Inc. in connection with the merger with ScanSoft. Pursuant to
the Registration Rights Agreement, Xerox may demand registration under the
Securities Act of some or all of the shares of common stock owned by Xerox
(including upon conversion of the Series B Preferred Stock or pursuant to the
exercise of the Warrant). Each such registration will be at our expense. We may
postpone such a demand under certain circumstances. In addition, Xerox may
request that we include shares of common stock held by Xerox in any registration
proposed by us of our common stock.
(b) Certain Business Relationships
Not applicable.
61
<PAGE>
(c) Indebtedness of Management
Not applicable.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements - See Index to Financial Statements in
Item 8 of this Report.
(2) Financial Statement Schedule - The following financial
statement schedule for our fiscal years ended December 31,
1998, 1997 and 1996 is contained in Item 8 of this Report:
II - Valuation and Qualifying Accounts and Reserves
Report of PricewaterhouseCoopers LLP, Independent
Accountants. Refer to Item 8 above.
All other schedules have been omitted as the
requested information is inapplicable or the
information is presented in the financial statements
or related notes included as part of this Report.
(3) Exhibits -Refer to Item 14(c) below.
(b) Reports on Form 8-K.
(1) On December 8, 1998, the Registrant filed a current report on
Form 8-K, dated December 3, 1998, to report under Item 5 the
signing of the agreement to acquire ScanSoft and to sell its
hardware business to Primax Electronics, Ltd., and to file,
under Item 7, the press releases associated therewith.
(c) Exhibits.
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description of Exhibits
----------- -----------------------
2.1(1) Agreement and Plan of Merger dated December 2, 1998, between
Visioneer, Inc., a Delaware corporation, and ScanSoft, Inc., a
Delaware corporation.
3.1(2) Bylaws of Registrant.
3.2(3) Amended and Restated Certificate of Incorporation of Registrant.
4.1(3) Specimen Common Stock Certificate.
4.2(4) Preferred Shares Rights Agreement, dated as of October 23, 1996,
between the Registrant and U.S. Stock Transfer Corporation,
including the Certificate of Designation of Rights, Preferences
and Privileges of Series A Participating Preferred Stock, the
form of Rights Certificate and Summary of Rights attached thereto
as Exhibits A, B and C, respectively.
4.3 Voting Agreement dated March 2, 1999 between Xerox, Xerox Imaging
Systems, Inc., Visioneer, Inc. and several holders of Visioneer
common stock.
63
<PAGE>
Exhibit No. Description of Exhibits
----------- -----------------------
10.1(2) Form of Indemnification Agreement.
10.2(2)** 1993 Incentive Stock Option Plan and form of Option Agreement.
10.3(2)** 1995 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.4(2)** 1995 Directors' Option Plan and form of Option Agreement.
10.5(5)** 1997 Employee Stock Option Plan.
10.6(5)** Director 1997 Compensation Plan.
10.7(2) LZW Paper Input System Patent License Agreement dated October 20,
1995 between the Registrant and Unisys Corporation.
10.8(2) Patent License agreement dated November 13, 1995 between the
Registrant and Wang Laboratories, Inc.
10.9(2) Building Lease dated May 21, 1996 between the Registrant and John
Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Arrillaga Family Trust) as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T.
Peery, Separate Property Trust) as amended.
10.10(2) Software License Agreement dated August 14, 1996 between the
Registrant and Hewlett-Packard Company.
10.11(6) Form of Employment Agreement between the Registrant and each
individual who was an executive officer prior to the merger with
ScanSoft and the sale of the hardware business.
10.12+ Software Distribution Agreement dated April 26, 1995 between
Xerox Imaging Systems, Inc. and Tech Data Corporation.
10.13 Assignment, Assumption, Renewal and Modification Agreement dated
June 18, 1997 between Xerox Imaging Systems, Inc., ScanSoft, Inc.
and Tech Data Product Management, Inc.
10.14+ Distribution Agreement dated September 22, 1993 between Ingram
Micro, Inc. and Xerox Imaging Systems, Inc., as amended.
10.15+ Gold Disk Bundling Agreement: Pagis SE & Pagis Pro, dated June
29, 1998 between Xerox Corporation, through its Channels Group
and ScanSoft, Inc., as amended.
10.16+ Gold Disk Bundling Agreement dated March 25, 1998 between Xerox
Corporation, Office Document Products Group and ScanSoft, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney. (See page 66)
27.1 Financial Data Schedule.
64
<PAGE>
- ----------
** Denotes Management compensatory plan or arrangement.
+ Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on April 2, 1999. The portions of
the exhibit for which confidential treatment has been requested have
been omitted from the exhibit. The omitted information has been filed
separately with the Commission as part of the confidential treatment
request.
(1) Incorporated by reference from the Registrant's Registration Statement
on From S-4 (No. 333-70603) filed with the Commission on January 14,
1999.
(2) Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (No. 333-98356) filed with the Commission on October 19,
1995.
(3) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (No. 333-74343) filed with the Commission on March 12,
1999.
(4) Incorporated by reference from the Registrant's current Report on Form
8-K dated October 30, 1996.
(5) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1997.
(6) Incorporated by reference from the Registrant's Annual Report on Form
10-K/A-2 for the fiscal year ended December 31, 1996.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Peabody, State of
Massachusetts, on March 29th, 1999.
SCANSOFT, INC.
By: /s/ MICHAEL K. TIVNAN
---------------------------------------
Michael K. Tivnan
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael K. Tivnan and Richard M. Brenner,
and each of them, his attorneys-in-fact and agents, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therein, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ MICHAEL K. TIVNAN President, Chief Executive Officer and March 29, 1999
- ------------------------------ Director (Principal Executive Officer)
Michael K. Tivnan
/S/ RICHARD M. BRENNER Chief Financial Officer (Principal March 29, 1999
- ------------------------------ Accounting Officer)
Richard M. Brenner
/S/ PAUL RICCI Director March 29, 1999
- ------------------------------
Paul Ricci
/S/ J. LARRY SMART Director March 29, 1999
- ------------------------------
J. Larry Smart
/S/ DAVID F. MARQUARDT Director March 29, 1999
- ------------------------------
David F. Marquardt
/S/ WILLIAM HARDING Director March 29, 1999
- ------------------------------
William Harding
/S/ MARK MYERS Director March 29, 1999
- ------------------------------
Mark Myers
</TABLE>
66
VISIONEER, INC.
VOTING AGREEMENT
----------------
This Voting Agreement (the "AGREEMENT") is made as of the 2nd day of
March 1999, by and among Visioneer, Inc., a Delaware corporation (the
"COMPANY"), Xerox Imaging Systems, Inc. a Delaware Corporation, and Xerox
Corporation, a New York corporation (together "XEROX"), and the current holders
of shares of the Company's Common Stock listed on EXHIBIT A (collectively, the
"CURRENT HOLDERS").
RECITALS
--------
The Company and ScanSoft, Inc., a Delaware corporation ("SCANSOFT") and
a wholly-owned subsidiary of Xerox, are concurrently with the execution of this
Agreement entering into an Agreement and Plan of Merger dated as of the date
hereof (the "MERGER AGREEMENT"). Section 6.12 of the Merger Agreement provides
that the Company, Xerox and the Current Holders enter into this Agreement to
provide for the nomination and election of the Company's Board of Directors.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Merger Agreement.
AGREEMENT
---------
The parties agree as follows:
1. ELECTION OF DIRECTORS.
1.1 BOARD REPRESENTATION. As of the Effective Time of the Merger
Agreement, the Company's Bylaws shall provide for a Board of Directors comprised
of seven (7) members. At the first meeting of the Board of Directors after the
Effective Time, the current directors of the Company shall vote to appoint to
the Board two (2) new directors based on nominations received from Xerox and the
Company's new Chief Executive Officer (the "CEO"). Thereafter, at each annual
meeting of the stockholders of the Company, or at any meeting of the
stockholders of the Company at which members of the Board of Directors of the
Company are to be elected, or whenever members of the Board of Directors are to
be elected by written consent, Xerox and the Current Holders agree to vote or
act with respect to their shares so as to elect the following directors:
(a) so long as Xerox owns at least twenty percent (20%) of the
Company's outstanding voting stock: (i) two (2) members of the Company's Board
of Directors designated by Xerox; (ii) two (2) members of the Company's Board of
Directors designated by the four members of the Board who were not nominated by
Xerox and who are not the CEO (the "NON-XEROX/NON-CEO DIRECTORS"); (iii) the
Company's then current CEO; and (iv) two (2) independent members of the
Company's Board of Directors with relevant industry experience who are
designated by at least four out of the five directors who are not considered
independent directors; or
<PAGE>
(b) so long as Xerox owns at least ten percent (10%) of the Company's
outstanding voting stock: (i) one (1) member of the Company's Board of Directors
designated by Xerox; (ii) two (2) members of the Company's Board of Directors
designated by the Non-Xerox/Non-CEO Directors; (iii) the Company's then current
CEO; and (iv) three (3) independent members of the Company's Board of Directors
with relevant industry experience who are designated by at least three out of
the four directors who are not considered independent directors;
1.2 APPOINTMENT OF DIRECTORS. In the event of the resignation, death,
removal or disqualification of a director designated pursuant to Section 1.1
above, the party or parties who were authorized to nominate such director
pursuant to Section 1.1 above shall promptly nominate a new director, and, after
written notice of the nomination has been given by such nominating party or
parties to the Company's Board of Directors, then each party hereto shall vote
its shares of capital stock of the Company to elect such nominee to the Board of
Directors.
1.3 REMOVAL. Any director may be removed hereunder only in accordance
with the Bylaws of the Company and Delaware General Corporation Law; PROVIDED,
HOWEVER, that Xerox may remove its designated directors at any time and from
time to time, with or without cause (subject to the Bylaws of the Company as in
effect from time to time and any requirements of law), in its sole discretion,
and after written notice to each of the parties hereto of the new nominee to
replace such director, each party hereto shall promptly vote its shares of
capital stock of the Company to elect such nominee to the Board of Directors.
2. ADDITIONAL REPRESENTATIONS AND COVENANTS.
2.1 NO REVOCATION; GRANT OF PROXY. The voting agreements contained
herein are coupled with an interest and may not be revoked during the term of
this Agreement. Should the provisions of this Agreement be construed to
constitute the granting of proxies, such proxies shall be deemed to be coupled
with an interest and are irrevocable for the term of this Agreement.
2.2 CHANGE IN NUMBER OF DIRECTORS. The parties hereto will not vote for
any amendment or change to the Certificate of Incorporation or Bylaws providing
for the election of more or less than seven (7) directors, or any other
amendment or change to the Certificate of Incorporation or Bylaws inconsistent
with the terms of this Agreement.
3. TERMINATION.
3.1 TERMINATION EVENTS. This Agreement shall terminate
upon the earlier
of:
(a) The sale, conveyance, disposal, or encumbrance of all or
substantially all of the Company's property or business or the Company's merger
into or consolidation with any other corporation (other than a wholly-owned
subsidiary corporation) or if the Company effects any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, PROVIDED that this Section
-2-
<PAGE>
3.1(a) shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company;
(b) Such time as Xerox owns less than twenty percent (10%) of the
outstanding voting stock of the Company; or
(c) Such time as the Current Holders own, in the aggregate, less than
seven percent (7%) of the outstanding voting stock of the Company; provided,
however, that if such time occurs prior to the second anniversary of the
Effective Time and Xerox (or an affiliate thereof) holds at such time shares of
the Company's Series B Preferred Stock, this Agreement shall not terminate
pursuant to this Section 3.1(c) until the earlier of (X) the second anniversary
of the Effective Time and (Y) the date on which Xerox (together with its
affiliates) no longer hold any shares of the Company's Series B Preferred Stock.
4. MISCELLANEOUS.
4.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
4.2 AMENDMENTS AND WAIVERS. Any term hereof may be amended or waived
only with the written consent of the Company, Xerox and each of the Current
Holders. Any amendment or waiver effected in accordance with this Section 4.2
shall be binding upon the Company, Xerox and each of the Current Holders, and
each of their respective successors and assigns.
4.3 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax (with
confirmation of successful transmission), or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address or
fax number as set forth on the signature page or on EXHIBIT A hereto, or as
subsequently modified by written notice.
4.4 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
4.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and
-3-
<PAGE>
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of law.
4.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
4.7 TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.8 SPECIFIC ENFORCEMENT. It is agreed and understood that monetary
damages would not adequately compensate an injured party for the breach of this
Agreement by any party hereto, that this Agreement shall be specifically
enforceable, and that any breach or threatened breach of this Agreement shall be
the proper subject of a temporary or permanent injunction or restraining order.
Further, each party hereto waives any claim or defense that there is an adequate
remedy at law for such breach or threatened breach.
[Signature Page Follows]
-4-
<PAGE>
The parties hereto have executed this Voting Agreement as of the date
first written above.
COMPANY:
VISIONEER, INC.
By: /s/ Larry Smart
-------------------------------------
Larry Smart, President
Address: 9 Centennial Drive
Peabody, MA 01960
Fax Number: (510-608-0300)
XEROX CORPORATION
By: /s/ Paul A. Ricci
-------------------------------------
Name:
-----------------------------------
(print)
Title:
----------------------------------
Address: 800 Long Ridge Road
Stamford, CT 06904-1600
Fax Number: (203) 968-4566
XEROX IMAGING SYSTEMS, INC.
By: /s/ Paul A. Ricci
-------------------------------------
Name:___________________________________
Title:__________________________________
(print)
Address: 800 Longe Ridge Road
Stamford, CT 06904-1600
Fax Number: (203) 968-4301
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
CURRENT HOLDERS:
TECHNOLOGY VENTURE INVESTORS-IV
AS NOMINEE FOR
TECHNOLOGY VENTURE INVESTORS-4 L.P.
TVI PARTNERS-4, L.P. AND
TVI AFFILIATES-4, L.P.
BY: TVI MANAGEMENT-4, L.P., GENERAL PARTNER
BY: /s/ David Marquardt
------------------------------------
GENERAL PARTNER
MORGAN STANLEY VENTURE CAPITAL FUND II, L.P.
By: /s/ William J. Harding
------------------------------------
Name:
----------------------------------
(print)
Title:
---------------------------------
PARVEST U.S. PARTNERS II, C.V.
By: /s/ Vincent Worms
------------------------------------
Name: Vincent Worms
----------------------------------
(print)
Title: General Partner
---------------------------------
<PAGE>
EXHIBIT A
---------
CURRENT HOLDERS
Name/Address/Fax No.
--------------------
Technology Venture Investors - IV
2480 Sand Hill Road
Suite 101
Menlo Park, CA 94025
Fax Number: 650-854-4187
Morgan Stanley Venture Capital Fund II, LP
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Fax Number: 650-233-2626
Parvest U.S. Partners II, C.V.
Partech International Ventures VOF
U.S. Growth Fund Partners C.V.
Double Black Diamond I LLC
Almanori Limited
Multinvest LLC
Vencent Worms
Thomas G. McKinley
BVI Venture Managers
101 California Street, Suite 3150
San Francisco, CA 94111
Fax Number: 415-788-6763
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
---------------------------------------------------------
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION
--------------------------------------------------
SOFTWARE DISTRIBUTION AGREEMENT
BETWEEN
TECH DATA CORPORATION
AND
XEROX IMAGING SYSTEMS, INC.
TECH DATA: PKC XEROX IMAGING: WSC
----- -----
<PAGE>
SOFTWARE DISTRIBUTION AGREEMENT
THIS SOFTWARE DISTRIBUTION AGREEMENT, (Agreement) dated this 26th day
of April, 1995 (the "Effective Date"), between TECH DATA CORPORATION, a Florida
corporation ("Tech Data"), with its principle place of business at 5350 Tech
Data Drive, Clearwater, FL 34668 and XEROX IMAGING SYSTEMS INC., a Delaware
corporation ("XEROX IMAGING") with its principle place of business at 9
Centennial Drive, Peabody, MA 01960.
WITNESSETH:
WHEREAS, Tech Data desires to purchase certain Products from XEROX
IMAGING from time to time; and
WHEREAS, XEROX IMAGING desires to sell certain Products to Tech Data in
accordance with the terms and conditions set forth in this Agreement; and
WHEREAS, XEROX IMAGING desires to appoint Tech Data as its
non-exclusive distributor to market Products within the territory defined below;
NOW, THEREFORE, in consideration of the mutual premises herein
contained and other good and valuable consideration, Tech Data and XEROX IMAGING
hereby agree as follows:
ARTICLE I. TERM OF AGREEMENT
----------------------------
1.1 TERM OF AGREEMENT. During the term of this Agreement, XEROX IMAGING will
provide to Tech Data the Products set forth in Purchase Orders (as defined
herein) in accordance with the terms and conditions set forth in this
Agreement. The term of this Agreement shall commence on the Effective Date
and, unless terminated by either party as set forth in this Agreement,
shall remain in full force and effect for a term of one (1) year, and may
be renewed for successive one (1) year terms upon written confirmation of
both parties.
1.2 DEFINITIONS. The following definitions shall apply to this Agreement.
(a) "Applicable Specification" shall mean the functional performance,
operational and compatibility characteristics of a Product agreed upon
in writing by the parties or, in the absence of an agreement, as
described in applicable Documentation.
(b) "Documentation" shall mean user manuals, training materials,
product descriptions and specifications, technical manuals, license
agreements, supporting materials and other printed information
relating to the Products, whether distributed in print, electronic, or
video format, in effect as of the date of the applicable Purchase
Order and incorporated therein by reference.
(c) "Products" shall mean, individually or collectively the sealed
software packages comprised of the computer programs encoded on
software diskettes in form generally released by XEROX IMAGING, listed
in and more fully described in Exhibit A attached and other computers
or materials that may be developed and/or licensed and sold by XEROX
IMAGING for use in connection with computer programs.
TECH DATA: PKC XEROX IMAGING: WSC
----- -----
<PAGE>
(d) "Update" shall mean revised versions of the Product which include
any alterations, changes, enhancements, error corrections,
modifications or other revisions to the Product which alter or improve
the Products or revisions thereof, provided that the term "Update"
shall be deemed to include only new version of the Products which are
marketed with a change to the number or letter to the right of the
decimal in the version number (for example Version 2.1, 2.2A or 2.25)
(e) "New Release" shall mean Products marketed with a change to the
number or letter to the left of the decimal in the version number (for
example 3.0 or 4.0) or Products which have terms appended to their
name such as "II" "Plus" or the like.
(f) "Territory shall mean the United States of America and its
territories and possessions, Canada and Latin America.
(g) "Customers" of Tech Data shall include dealers, resellers,
commercial customers, value added resellers and other similar
customers, but shall not include End Users unless specifically set
forth.
(h) "End Users" shall mean final retail purchasers or licensees who
have acquired Products for their own use and not for resale,
remarketing or redistribution, unless specifically set forth in a
separate agreement.
(i) "Services" means any warranty, maintenance, advertising, marketing
or technical support and any other services performed or to be
performed by XEROX IMAGING.
1.3 LICENSE. XEROX IMAGING hereby grants to Tech Data and Tech Data accepts a
non-exclusive right and license to distribute XEROX IMAGING software
products and third party software products licensed to XEROX IMAGING for
re-distribution within the territory as herein defined, together with any
Updates and enhancements thereto (collectively referred to as "Software").
This license includes the right to (i) order, use, posses and distribute
quantities of Software, (ii) grant a sublicense to resellers to license
Software directly to End Users; and (iii) sublicense Software to resellers
solely for the resellers use on a demonstration unit. XEROX IMAGING
reserves the right to appoint other authorized distributors and grant
other licenses. Tech Data will use its best efforts to promote sales of
the Products.
ARTICLE II. PURCHASE ORDERS
---------------------------
2.1 PRODUCT AVAILABILITY. From time to time or at Tech Data's request, XEROX
IMAGING shall inform Tech Data of Products available from XEROX IMAGING
including, but not limited to, replacement Products, New Releases,
enhancements or versions of existing Products. XEROX IMAGING shall notify
Tech Data at least thirty (30) days prior to the date any new Product is
to be introduced and shall make such Product available to Tech Data for
distribution no later than the date it is first introduced in the market
place.
If for any reason XEROX IMAGING Imagining's production is not on schedule,
XEROX IMAGING agrees to allocate Product to Tech Data's orders based upon
a percentage equal to the same percentage as XEROX IMAGING Imagining's
like customers purchasing like volume of same Products.
2.2 PURCHASE ORDERS. Tech Data may purchase and XEROX IMAGING shall sell to
Tech Data as follows:
TECH DATA: PKC XEROX IMAGING: WSC
----- -----
<PAGE>
(a) Purchase Orders for Product shall be placed by Tech Data either in
writing, by fax or electronically transferred or if placed orally,
shall be confirmed in writing within ten (10) business days.
(b) Each Purchase Order may include other terms and conditions which
are consistent with the terms and conditions of this Agreement or
which are necessary to place a Purchase Order, such as billing and
shipping information, required delivery dates, delivery locations, and
the purchase price or charges for Products, including any discounts or
adjustments for special marketing programs.
(c) A Purchase Order shall be deemed accepted by XEROX IMAGING unless
XEROX IMAGING notifies Tech Data in writing within five (5) business
days after receiving the Purchase Order that XEROX IMAGING does not
accept the Purchase Order.
(d) XEROX IMAGING shall accept Purchase Orders on C.O.D. basis from
Tech Data for additional Products which Tech Data is contractually
obligated to furnish to its customers and does not have in its
inventory upon the termination of this Agreement; provided Tech Data
notifies XEROX IMAGING of any and all such transactions in writing
within sixty (60) days of the termination date.
(e) This agreement shall not obligate Tech Data to purchase any
Products or services except as specifically set forth in a written
Purchase Order.
2.3 PURCHASE ORDER ALTERATIONS OR CANCELLATIONS. Prior to shipment of
Products, XEROX IMAGING shall accept an alteration or cancellation of a
Purchase Order in order to: (i) change a location for delivery, (ii)
modify the quantity or type of Products to be delivered or (iii) correct
typographical or clerical errors.
2.4 EVALUATION OR DEMONSTRATION PURCHASE ORDERS. Tech Data may issue Purchase
Orders in order to evaluate a reasonable quantity of Products or for use
as demonstration Products at no charge. After evaluation or when such
Products are no longer needed for demonstration, Tech Data shall have the
option to purchase the Products or to return such Products to XEROX
IMAGING at Tech Data's expense.
ARTICLE ILL. DELIVERY AND
-------------------------
ACCEPTANCE OF PRODUCTS
----------------------
3.1 SUBSIDIARIES. XEROX IMAGING understands and acknowledges that Tech Data
may obtain Products in accordance with this Agreement for the benefit of
subsidiaries of Tech Data. Subsidiaries of Tech Data shall be entitled to
obtain Products directly from XEROX IMAGING pursuant to this Agreement.
3.2 ACCEPTANCE OF PRODUCTS. Tech Data shall, after a reasonable time to
inspect each shipment, accept each Product on the date (the "Acceptance
Date") when such Products and all necessary documentation are delivered to
Tech Data in accordance with the Purchase Order and the Product
specifications. Any Products not ordered or not otherwise in accordance
with the Purchase Order, such as mis-shipments or overshipments will be
returned to XEROX IMAGING at XEROX IMAGING Imagining's expense (including
without limitation costs of shipment or storage) and shall promptly refund
to Tech Data all monies paid in respect to such Products. Tech Data shall
not be required to accept partial shipment unless Tech Data agrees prior
to shipment.
TECH DATA: PKC XEROX IMAGING: WSC
----- -----
<PAGE>
Tech Data shall have the ability to return for credit products which have
boxes that are or become damaged, unless such damage was caused by Tech
Data or for which Tech Data can be reimbursed by their insurance carrier.
An offsetting Purchase Order will be placed for all bad box returns. In
addition, XEROX IMAGING will supply to Tech Data, at no charge, any and
all missing material(s).
3.3 DEFECTIVE PRODUCTS. In the event any Products are received in a defective
condition or not in accordance with XEROX IMAGING Imagining's applicable
Specifications or the Documentation relating to such Products, Tech Data
may return the Products for full credit. Products shall be deemed
defective if the Product, or any portion of the Product, fails to operate
properly on initial "burn in", boot, or use as applicable. Tech Data shall
have the right to return any such Products that are returned to Tech Data
from its customers or End Users within sixty (60) days of the Products'
initial delivery date to the End User.
3.4 TRANSPORTATION OF PRODUCTS. FOB Destination. XEROX IMAGING shall deliver
the Products to Tech Data at the location shown and on the delivery date
set forth in the applicable Purchase Order or as otherwise agreed upon by
the parties. Charges for transportation of the Products shall be paid by
Tech Data . XEROX IMAGING shall use only those common carriers preapproved
by Tech Data or listed in Tech Data's published routing instructions,
unless prior written approval of Tech Data is received.
Title to Products remains with XEROX IMAGING at all times. All risk of
loss or damage to the Products shall be borne by XEROX IMAGING until
delivery of such Products to the Tech Data warehouse or the location
specified in the appropriate Purchase Order.
XEROX IMAGING shall bear all costs of shipping and risk of loss of
in-warranty Products to XEROX IMAGING's location and back to Tech Data or
Tech Data's customer.
3.5 RESALE OF PRODUCTS BY TECH DATA. During the term of this Agreement, Tech
Data may market, promote, distribute and resell Products to customers of
Tech Data, either directly or through its subsidiaries, in accordance with
the following terms and conditions:
(a) XEROX IMAGING shall extend to Tech Data and each customer of Tech
Data the same warranties and indemnifications, with respect to
Products purchased and resold hereunder as XEROX IMAGING extends to
its End User customers. The term of warranties and indemnities
extended by XEROX IMAGING to an End User shall commence upon delivery
of the Product to the End User.
(b) XEROX IMAGING shall make available at no charge to Tech Data and
the customers of Tech Data all technical and sales training, technical
support, marketing support, advertising material and other services
related to the Products that are currently offered or that may be
offered by XEROX IMAGING. XEROX IMAGING also agrees to provide Tech
Data a telephone support representative at no charge during Tech
Data's normal business hours.
(c) Tech Data is hereby authorized to use trademarks and trade names
of XEROX IMAGING and third parties used in connection with the
Products, advertising, promoting or distributing the Products. Tech
Data recognizes XEROX IMAGING or other third parties may have rights
or ownership of certain trademarks, trade names and patents associated
with the Products. Tech Data will act consistently with such rights,
and Tech Data shall comply with any reasonable, written guidelines
when provided by XEROX IMAGING or third parties relating to such
trademark or trade name usage. Tech Data
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will notify XEROX IMAGING of any infringement of which Tech Data has
actual knowledge. Tech Data shall discontinue use of XEROX IMAGING
Imagines' trademarks or trade names upon termination of this
agreement, except as may be needed to sell or liquidate any final
inventories of Product.
(d) Tech Data is free to determine its own resales prices for the
Products. Although Vendor may publish suggested list prices, these are
suggestions only and Tech Data shall be free to determine the actual
resale prices at which Products will be distributed to its resellers.
No employee or representative of XEROX IMAGING or anyone else
associated or affiliated with XEROX IMAGING has any authority to
dictate to Tech Data what its resale prices for Products must be or to
inhibit in any way Tech Data's pricing discretion with respect to such
Products.
(e) XEROX IMAGING shall clearly mark each unit package with the serial
number, product description and machine readable bar code (employing
UPC or ABCD industry standard bar code). Failure to do so shall result
in Tech Data **** percent (****%) from invoice to offset the resultant
administrative costs to Tech Data.
3.6 INVENTORY ADIUSTMENT. Open ended inventory adjustment will be accepted
during the initial six (6) months of the Agreement. After the initial six
(6) month period XEROX IMAGING agrees to accept, on a monthly basis, a
shipment of Product in sealed cartons returned by Tech Data and to credit
Tech Data's account in the amount of the net price paid by Tech Data
therefore (the "Return Credit"), provided that Tech Data places an
offsetting Purchase Order.
In addition, Tech Data shall have the right to return for full credit,
without limitation as to the dollar amount, all Products that become
obsolete, that XEROX IMAGING discontinues or are removed from XEROX
IMAGING Imagining's current price list or are upgraded; provided Tech Data
returns such Products within sixty (60) days after Tech Data receives
written notice that such Products are obsolete, discontinued or are
removed from XEROX IMAGING Imagining's price list.
3.7 TIME OF PERFORMANCE. Time is hereby expressly made of the essence with
respect to each and every term and provision of this agreement.
ARTICLE IV. WARRANTIES.
-----------------------
INDEMNITIES AND LIABILITIES
---------------------------
4.1 Warranty. XEROX IMAGING hereby represents and warrants that it has not
entered into any agreements or commitments which are inconsistent with or
in conflict with the rights granted to Tech Data herein; the Products
shall be free and clear of all liens and encumbrances; Tech Data and its
customers and End Users shall be entitled to use the Products without
disturbance; XEROX IMAGING warrants that all Software media shall be free
from defects in material and workmanship for a period of ninety (90) days
from the date of first use or installation by an End-User. XEROX IMAGING
sole obligation to the END-User shall be to replace any Software media
that proves defective during the warranty period. If such Product is
returned directly to Tech Data by a Customer or End-User, Tech Data may
then return it to XEROX IMAGING for credit (the actual price paid, minus
any price protection adjustments). XEROX IMAGING shall supply Tech Data,
at no additional charge, all services, parts or replacement Products
necessary for XEROX IMAGING to comply with its Product warranties. XEROX
IMAGING agrees that Tech Data shall be entitled to pass through to
customers of Tech Data and End Users of the Products all warranties
granted by XEROX IMAGING. XEROX IMAGING
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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represents that the Product warranties shall also include those set forth
in literature, applicable specifications, documentation, advertising and
printed material distributed by XEROX IMAGING. XEROX IMAGING shall
indemnify and hold Tech Data, its subsidiaries, customers and their
respective successors, officers, directors, employees and agents harmless
from and against all third party actions, claims, losses, damages,
liabilities, awards, costs and expenses (including a reasonable attorney's
fee) resulting from or arising out of any breach or claimed breach of the
foregoing warranties.
The express warranties set forth above specifically exclude and do not
apply to defects caused: (i) through no fault of XEROX IMAGING during
shipment from Tech Data to Customer; (ii) by the use or operation of the
Software in an application or environment other than that intended or
recommended by XEROX IMAGING, (iii) by modifications or alterations made
to the Software by Distributor or any third party.
EXCEPT AS EXPRESSLY SET FORTH ABOVE, XEROX IMAGING MAKES NO OTHER
WARRANTIES TO DISTRIBUTOR AND DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR USE.
4.2 PROPRIETARY RIGHTS INDEMNIFICATION. XEROX IMAGING hereby represents and
warrants that XEROX IMAGING has all right, title, ownership interest
and/or marketing rights necessary to provide the Products to Tech Data,
and Products and their sale and use hereunder do not infringe upon any
copyright, patent, trade secret or other proprietary or intellectual
property right of any third party, and that there are no suits or
proceeding, pending or threatened alleging any such infringement. XEROX
IMAGING shall indemnify and hold Tech Data, Tech Data's related and/or
subsidiary companies, Tech Data's customers and their respective
successors, officers, directors, employees and agents harmless from and
against any and all actions, claims, losses, damages, liabilities, awards,
costs and expenses, including but not limited to XEROX IMAGING Imagining's
manufacture, sale, offering for sale, distribution, promotion or
advertising of the Products supplied under this Agreement (including
attorney's fees) which they or any of them incur or become obligated to
pay resulting from or arising out of any breach or claimed breach of the
foregoing warranty, or by reason of any acts that may be committed
suffered or permitted by XEROX IMAGING. XEROX IMAGING shall defend and
settle, at its expense, all suits or proceedings arising therefrom. Tech
Data shall inform XEROX IMAGING of any such suit or proceeding against
Tech Data and shall have the right to participate in the defense of any
such suit or proceeding at Tech Data's expense and through counsel of Tech
Data's choosing. In the event an injunction is sought or obtained against
the use of a Product , XEROX IMAGING shall within ninety (90) days of
receipt of notice, at its option and expense, either (i) procure for Tech
Data, its customers and Product End Users the right to continue to use the
infringing Product as set forth in this Agreement, or (ii) replace, to the
extent Products are available, or modify the infringing Product to make
its use non-infringing while being capable of performing the same function
without degradation of performance. XEROX IMAGING shall have no liability
under this Section for any infringement based on the use of any equipment
or software with any other equipment or software reasonably intended to be
used with the Product, if the equipment or software is used in a manner
for which it was not designed, or if the equipment or software is used in
an infringing process. XEROX IMAGING Imagines obligations hereunder shall
survive termination of this Agreement.
4.3 CROSS INDEMNIFICATION. In the event any act or omission of either party or
its employees, servants, agents or representatives causes or results in
(i) loss, damage to or destruction of property of the other party or third
parties, and/or (ii) death or injury to persons including, but not limited
to, employees or invitees of either party, then such party shall
indemnify, defend and hold
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the other party harmless from and against any and all claims, actions,
damages, demands, liabilities, costs and expenses, including reasonable
attorneys' fees and expenses, resulting therefrom. The indemnifying party
shall pay or reimburse the other party promptly for all such loss, damage,
destruction, death or injury.
4.4 INSURANCE.
(a) The parties shall be responsible for providing Workman's
Compensation insurance in the statutory amounts required by the
applicable state laws.
(b) Without in any way limiting XEROX IMAGING Imagining's
indemnification obligation as set forth in this Agreement, XEROX
IMAGING shall maintain Commercial General Liability and/or
Comprehensive General Liability Insurance in such amounts as is
reasonably satisfactory to Tech Data. Either policy form should
contain the following coverage's: Personal and Advertising Injury,
Broad Form Property Damage, Products and Completed Operations,
Contractual Liability, employees as Insured and Fire Legal Liability.
(c) XEROX IMAGING will provide evidence of the existence of insurance
coverage's referred to in this Section by certificates of insurance
which should also provide for at least thirty (30) days notice of
cancellation, non-renewal or material change of coverage to Tech Data.
4.5 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING LOSS OF PROFITS, LOSS
OF BUSINESS OR INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF THE OTHER
PARTY.
4.6 UNAUTHORIZED REPRESENTATIONS. Tech Data shall have no authority to alter
or extend any of the warranties of XEROX IMAGING expressly contained or
referred to in this Agreement without prior approval of XEROX IMAGING.
4.7 XEROX IMAGING agrees to provide Tech Data, upon signing this Agreement and
at any time thereafter that XEROX IMAGING modifies or adds products
distributed by Tech Data, with the Export Control Classification Number
(ECCN) for each of XEROX IMAGING Imagining's Products, and information as
to whether or not any of such Products are classified under the U.S.
Munitions List.
4.8 DISCLAIMER OF WARRANTIES. XEROX IMAGING has made expressed warranties in
this Agreement and in documentation, promotional and advertising
materials. EXCEPT AS SET FORTH HEREIN OR THEREIN, XEROX IMAGING DISCLAIMS
ALL WARRANTIES WITH REGARD TO THE PRODUCTS.
ARTICLE V. PAYMENT TO XEROX IMAGING
-----------------------------------
5.1 CHARGES. PRICES AND FEES FOR PRODUCTS. Charges, prices, quantities and
discounts, if any, for Products shall be determined as set forth in
Exhibit A, or as otherwise agreed upon by the parties, and may be
confirmed at the time or order. In no event shall charges exceed XEROX
IMAGING Imagining's then current established Charges. XEROX IMAGING shall
have the right to increase prices from time to time, upon written notice
to Tech Data not less than sixty (60) days prior to the effective date of
such increase. All orders placed prior to the effective date of the
increase, for shipment within sixty (60) days after the effective date,
shall be at the old price. Tech Data shall not be bound by any of XEROX
IMAGING Imagining's suggested prices.
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5.2 MOST FAVORED PRICING AND TERMS. XEROX IMAGING represents that the prices
charged and the terms offered to Tech Data are and will be at least as low
as those charged or offered by XEROX IMAGING to any of its other like
distributors. If XEROX IMAGING offers price discounts, promotional
discounts or other special prices to its other like distributors, Tech
Data shall also be entitled to participate and receive notice of the same
no later than other like distributors.
5.3 PAYMENT. Except as otherwise set forth herein, any undisputed sum due to
XEROX IMAGING pursuant to this Agreement shall be payable as follows:
****% prepay, ****%-**** (****) days after the invoice receipt. XEROX
IMAGING shall invoice Tech Data no earlier than the applicable shipping
date for the Products covered by such invoice. The due date for payment
shall be extended during any time the parties have a bona tide dispute
concerning such payment. Notwithstanding anything herein to the contrary,
for the initial order only, payment terms shall be net 90 days and Tech
Data may return any of the initial order for credit.
5.4 TAXES. Tech Data shall be responsible for franchise taxes, sales or use
taxes or shall provide XEROX IMAGING with an appropriate exemption
certificate. XEROX IMAGING shall be responsible for all other taxes,
assessments, permits and fees, however designated which are levied upon
this Agreement or the Products, except for taxes based upon Tech Data's
income. No taxes of any type shall be added to invoices without the prior
written approval of Tech Data.
5.5 PRICE PROTECTION. XEROX IMAGING shall grant to Tech Data a retroactive
price credit for the full amount of any XEROX IMAGING price decrease on
all Products on order, in transit and in its inventory on the effective
date of such price decrease. Tech Data shall, within thirty (30) days
after receiving written notice of the effective date of the price
decrease, provide a list of all Products for which it claims a credit.
XEROX IMAGING shall have the right to a reasonable audit at XEROX IMAGING
Imagining's expense. All orders scheduled for shipment or in transit to
Tech Data at the time of notice of the price decrease shall be adjusted to
the decreased price.
5.6 INVOICES. A "correct" invoice shall contain (i) XEROX IMAGING Imagining's
name and invoice date, (ii) the Purchase Order or other authorizing
document, (iii) separate descriptions, unit prices and quantities of the
Products actually delivered, (iv) credits (if applicable), (v) shipping
charges (vi) name (where applicable), title, phone number and complete
mailing address of responsible official to whom payment is to be sent, and
(vii) other substantiating documentation or information as may reasonably
be required by Tech Data from time to time
5.7 ADVERTISING CREDIT. XEROX IMAGING shall offer a **** percent (****%) co-op
program and advertising credits and other promotional programs or
incentives to Tech Data as it offers its other distributors or customers.
Tech Data shall have the right at Tech Data's option, to participate in
such programs. XEROX IMAGING shall attach a copy of its co-op program
hereto. Tech Data shall provide XEROX IMAGING invoices for the costs
actually incurred by Tech Data for advertising and other activities.
Invoices provided hereunder shall be paid by XEROX IMAGING within thirty
(30) days after receipt or, at Tech Data's option, Tech Data may deduct
such amounts from any amounts due XEROX IMAGING hereunder.
5.8 VENDOR REPORTS. XEROX IMAGING shall, if requested, render monthly reports
to Tech Data setting forth the separate Products, dollars invoiced for
each Product, and total dollars invoiced to Tech Data for the month, and
such other information as Tech Data may reasonably request.
S.9 TECH DATA REPORTS. Tech Data shall, if requested, render monthly sales out
reports on diskette, in ASCII Comma Delimited Format. Information provided
will include: month and year sales activity occurred, internal product
number (assigned by Tech Data), written description, country,
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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State and zip code of resellers location, unit cost (distributors cost at
quantity 1), quantity and extended cost (cost times quantity). A monthly
inventory report, will be provided on a paper format once a month. The
reports will be delivered to the XEROX IMAGING at different times in the
month.
5.10 XEROX IMAGING agrees that for the term of this Agreement, XEROX IMAGING
shall provide upon Tech Data's request an annual report
ARTICLE VI. TERMINATION
-----------------------
6.1 TERMINATION. Either party may terminate this agreement, with or without
cause, upon giving the other party sixty (60) days prior written notice.
In the event that either party materially or repeatedly defaults in the
performance of any of its duties or obligations set forth in this
Agreement, and such default is not substantially cured within thirty (30)
days after written notice is given to the defaulting party specifying the
default, then the party not in default may, by giving written notice
thereof to the defaulting party, terminate this Agreement or the
applicable Purchase Order relating to such default as of the date
specified in such notice of termination.
6.2 TERMINATION FOR INSOLVENCY OR BANKRUPTCY. Either party may immediately
terminate this Agreement and any Purchase Order by giving written notice
to the other party in the event of (i) the liquidation or insolvency of
the other party, (ii) the appointment of a receiver or similar officer for
the other party, (iii) an assignment by the other party for the benefit of
all or substantially all of its creditors, (iv) entry by the other party
into an agreement for the composition, extension, or readjustment of all
or substantially all of its obligations, or (v) the filing of a
meritorious petition in bankruptcy by or against the other party under any
bankruptcy or debtors' law for its relief or reorganization
6.3 RIGHTS UPON TERMINATION. Termination of any Purchase Order or this
Agreement shall not affect XEROX IMAGING Imagining's right to be paid for
undisputed invoices for Products already shipped. The termination of this
Agreement shall not affect any of XEROX IMAGING Imagining's warranties,
indemnifications or obligations relating to returns, credits or any other
matters set forth in this agreement that are to survive termination in
order to carry out their intended purpose, all of which shall survive this
Agreement. Upon termination of this Agreement, Tech Data shall discontinue
holding itself out as a distributor of XEROX IMAGING Imagining's Products.
The expiration of the term of this Agreement shall not affect the
obligations of either party to the other party pursuant to any Purchase
Order previously forwarded to XEROX IMAGING.
6.4 REPURCHASE OF PRODUCTS UPON TERMINATION. Upon the effective date of
termination of this Agreement for any reason, XEROX IMAGING agrees to
repurchase the Products in Tech Data's inventory which have been purchased
within the previous 150 days. XEROX IMAGING will repurchase the Products
at the original net purchase price; provided that the Products have been
unopened and are in their original factory sealed packages. Tech Data
shall submit to XEROX IMAGING, within sixty (60) days after termination,
the quantity of Product that Tech Data wishes XEROX IMAGING to repurchase.
In such event XEROX IMAGING shall issue a Return Material Authorization to
Tech Data for all such Products; provided, however, that XEROX IMAGING
shall accept returned Products in accordance with this Section absent a
Return Material Authorization if XEROX IMAGING fails to issue said Return
Material Authorization within two (2) business days of Tech Data's
request. XEROX IMAGING shall credit any outstanding balances owed to Tech
Data and remit in the form of a check to Tech Data the remaining dollar
amount of the Product returned within thirty (30) days of receipt of the
Product.
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ARTICLE VII. MISCELLANEOUS
--------------------------
7.1 BINDING NATURE, ASSIGNMENT, AND SUBCONTRACTING. This Agreement shall be
binding on the parties and their respective successors and assigns, but
neither party shall have the power to assign this Agreement without the
prior written consent of the other party.
7.2 COUNTERPARTS. This Agreement may be executed in several counterparts, all
of which taken together shall constitute one single agreement between the
parties.
7.3 HEADINGS. The Article and Section headings used in this Agreement are for
reference and convenience only and shall not enter into the interpretation
hereof.
7.4 RELATIONSHIP OF PARTIES. Tech Data is performing pursuant to this
Agreement only as an independent contractor. Nothing set forth in this
Agreement shall be construed to create the relationship of principal and
agent between Tech Data and XEROX IMAGING. Neither party shall act or
represent itself, directly or by implication, as an agent of the other
party.
7.5 CONFIDENTIALITY. Each party acknowledges that in the course of performance
of its obligations pursuant to this Agreement, it may obtain certain
confidential and/or proprietary information. Each party hereby agrees that
all such information communicated to it by the other party, and identified
as confidential, whether before or after the effective date, shall be and
was received in strict confidence, shall be used only for purposes of this
Agreement, and shall not be disclosed without the prior written consent of
the other party, except as may be necessary by reason of legal, accounting
or regulatory requirements beyond either party's reasonable control. The
provisions of this Section shall survive the term or termination of this
Agreement for any reason.
7.6 ARBITRATION. Any disputes arising under this Agreement shall be submitted
to arbitration in accordance with such rules as the parties jointly agree.
If the parties are unable to agree on arbitration procedures, arbitration
shall be conducted where the respondent party is headquartered, in
accordance with the rules of the American Arbitration Association. Any
such award shall be final and binding upon both parties.
7.7 NOTICES. Wherever one party is required or permitted to give notice to the
other pursuant to this Agreement, such notice shall be deemed given when
delivered in hand, by telex or cable, or when mailed by registered or
certified mail, return receipt requested, postage prepaid, and addressed
as follows:
IN THE CASE OF XEROX IMAGING: IN THE CASE OF TECH DATA:
---------------------------- ------------------------
Xerox Corporation Tech Data Corporation
9 Centennial Drive 5350 Tech Data Drive
Peabody, MA 01960 Clearwater, FL 34620
Attn: Tom D'Errico Attn: Tamra Muir
Contracts Administrator Director of Operations
cc: Debi A. Schwatka
Lead Contracts Administrator
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address and
the date upon which it will become effective.
7.8 FORCE MAJEURE. The term "Force Majeure" shall be defined to include fires
or other casualties or accidents, acts of God, severe weather conditions,
strikes or labor disputes, war or other violence, or any law, order,
proclamation, regulation, ordinance, demand or requirement of any
governmental agency.
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<PAGE>
(a) A party whose performance is prevented, restricted or interfered
with by reason of a Force Majeure condition shall be excused from such
performance to the extent of such Force Majeure condition so long as
such party provides the other party with prompt written notice
describing the Force Majeure condition and takes causes of
nonperformance and immediately continues performance whenever and to
the extent such causes are removed.
(b) If, due to a Force Majeure condition, the scheduled time of
delivery or performance is or will be delayed for more than thirty
(30) days after the scheduled date, the party not relying upon the
Force Majeure condition may terminate, without liability to the other
party, any Purchase Order or portion thereof covering the delayed
Products.
7.9 RETURN MATERIAL AUTHORIZATION NUMBERS. XEROX IMAGING is required to issue
a Return Material Authorization Number (RMA) to Tech Data within
forty-eight (48) hours of Tech Data's request; however, if the Return
Material Authorization is not received within two (2) business days, XEROX
IMAGING shall accept retumed Products absent a Return Material
Authorization Number. The net purchase price, minus any adjustments of
such Products returned to XEROX IMAGING shall be credited to Tech Data's
account.
7.10 CREDITS TO TECH DATA. In the event any provisions of this Agreement or any
other agreement between Tech Data and XEROX IMAGING require that XEROX
IMAGING grant credits to Tech Data's account, and such credits are not
received within thirty (30) days then, all such credits shall become
effective immediately upon notice to XEROX IMAGING. In such event, Tech
Data shall be entitled to deduct any such credits from the next monies
owed to XEROX IMAGING. In the event credits exceed any balances owed by
Tech Data to XEROX IMAGING, then, upon Tech Data's request, XEROX IMAGING
shall issue a check payable to Tech Data within thirty (30) days of such
notice.
7.11 SEVERABILITY. If, but only to the extent that, any provision of this
Agreement is declared or found to be illegal, unenforceable or void, then
both parties shall be relieved of all obligations arising under such
provision, it being the intent and agreement of the parties that this
Agreement shall be deemed amended by modifying such provision, to the
extent necessary to make it legal and enforceable while preserving its
intent.
7.12 WAIVER. A waiver by either of the parties of any covenants, conditions or
agreements to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant, condition or agreement herein contained.
7.13 REMEDIES. All remedies set forth in this Agreement shall be cumulative and
in addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise, and may be enforced concurrently or
from time to time.
7.14 SURVIVAL OF TERMS. Termination or expiration of this Agreement for any
reason shall not release either party from any liabilities or obligations
set forth in this Agreement which (i) the parties have expressly agreed
shall survive any such termination or expiration, or (ii) remain to be
performed or by their nature would be intended to be applicable following
any such termination or expiration.
7.15 NONEXCLUSIVE MARKET AND PURCHASE RIGHTS. It is expressly understood and
agreed that this Agreement does not grant to XEROX IMAGING or Tech Data an
exclusive right to purchase or sell Products and shall not prevent either
party from developing or acquiring other vendors or customers or competing
Products.
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<PAGE>
7.16 SPECIFICATIONS AND DRAWING. XEROX IMAGING agrees to provide upon Tech
Data's request, at no charge to Tech Data, reasonable quantities as
requested by Tech Data of the following: (1) the specifications, (2)
published user instructions, manuals and other training materials, and (3)
current manuals covering installation, operation and complete maintenance
of the Products. Tech Data shall have the right to copy or reproduce the
foregoing materials for use in connection with Tech Data's use or sale of
the Products.
7.17 ENTIRE AGREEMENT. This Agreement, including any Exhibits and documents
referred to in this Agreement or attached hereto, constitutes the entire
and exclusive statement of Agreement between the parties with respect to
its subject matter and there are no oral or written representations,
understandings or agreements relating to this Agreement which are not
fully expressed herein.
7.18 GOVERNING LAW. This Agreement shall have Florida as its situs and shall be
governed by and construed in accordance with the laws of the State of
Florida.
7.19 INTERNATIONAL BUSINESS. XEROX IMAGING acknowledges that Tech Data may
desire to obtain Products or Systems for use in countries outside the
United States and its territories. The parties acknowledge that in such
case it may be necessary to enter into additional agreements between XEROX
IMAGING and Tech Data and/or the respective subsidiaries, agents,
distributors or subsidiaries authorized to conduct business in such
countries or to negotiate further terms and conditions to provide for such
right. The parties intend that any further agreements or terms and
conditions will be consistent with and based upon the applicable terms and
conditions of this Agreement, subject, however, to requirements of local
law and local business practice. All Products obtained pursuant to this
Section shall be deemed for purposes of calculating accumulated purchases
and any discounts set forth in this Agreement, to have been obtained
pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
Effective Date.
XEROX IMAGING SYSTEMS, INC. TECH DATA CORPORATION
By: /S/ WAYNE CRANDALL By: /S/ PEGGY K. CALDWELL
------------------------------- --------------------------------
Printed Name: Wayne Crandall Printed Name: Peggy K. Caldwell
Title: Vice President, Sales Title: Senior Vice President
Product Marketing
Date: April 26, 1995 Date: May 11, 1995
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CO-OP GUIDELINES
XEROX IMAGING SOFTWARE, INC.
To increase the effectiveness of advertising and sales promotions Tech Data has
developed the following advertising requirements:
HOW CO-OP IS EARNED:
- - Co-op dollars will be at least ****% of the purchases made by Tech Data,
net of returns.
- - Co-op dollars will be accrued on a monthly basis.
HOW CO-OP IS SPENT:
- - Tech Data will be reimbursed for 100% of the cost for ads or promotions that
feature vendor products.
- - Co-op dollars will be used within the 12 months immediately following the
month in which they are earned.
HOW CO-OP IS CLAIMED:
- - Claims for co-op will be submitted to vendor within 60 days of the event date.
- - Claims for co-op will be submitted with a copy of vendor prior approval and
proof of performance. - Payment must be remitted within 30 days of the claim
date, or Tech Data reserves the right to deduct from the next invoice.
CO-OP REPORTING:
- - Vendor will submit a monthly co-op statement outlining (i) co-op earned,
(ii) co-op used and (iii) co-op claims paid.
Accepted:
/S/ WAYNE CRANDALL
-------------------------
Name: Wayne Crandall
Title: Vice President, Sales
Date: April 26, 1995
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT A
PRODUCT PRICE LIST
------------------
<TABLE>
UNITED STATES AND CANADA ONLY - ENGLISH
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Product Part Number List **** Order Price **** from Net
price **** payment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TextBridge for Windows 31-08205-00 $**** ****% $**** ****% $****
TextBridge for Mac and PowerMac 31-08094-00 $**** ****% $**** ****% $****
TextBridge Professional Edition 31-08135-00 $**** ****% $**** ****% $****
for Windows
TextBridge Professional Ed. 31-08204-00 $**** ****% $**** ****% $****
Competitive Upgrade
</TABLE>
<TABLE>
CANADA - FRENCH SOFTWARE AND DOCUMENTATION ARE LOCALISED
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Product Part Number List **** Order Price **** from Net
price **** payment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TextBridge for Windows* 31-08205-01 $**** ****% $**** ****% $****
TextBridge for Mac and 31-08094-01 $**** ****% $**** ****% $****
PowerMac *
TextBridge Professional 31-08135-01 $**** ****% $**** ****% $****
Edition for Windows*
TextBridge Professional Ed. 31-08204-01 $**** ****% $**** ****% $****
Competitive Upgrade
</TABLE>
<TABLE>
lATIN AMERICA - ENGLISH
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Product Part Number List **** Order Price **** from Net
price **** payment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TextBridge for Windows* 31-08205-05 $**** ****% $**** ****% $****
TextBridge for Mac and 31-08094-05 $**** ****% $**** ****% $****
PowerMac*
TextBridge Professional 31-08135-05 $**** ****% $**** ****% $****
Edition for Windows*
TextBridge Professional Ed. 31-08204-05 $**** ****% $**** ****% $****
Competitive Upgrade
</TABLE>
<TABLE>
LATIN AMERICA - SPANISH SOFTWARE AND DOCUMENTATION ARE LOCALISED
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Product Part Number List **** Order Price **** from Net
price **** payment
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TextBridge for Windows* 31-08205-04 $**** ****% $**** ****% $****
TextBridge for Mac and 31-08094-04 $**** ****% $**** ****% $****
PowerMac *
TextBridge Professional 31-08135-04 $**** ****% $**** ****% $****
Edition for Windows*
TextBridge Professional Ed. 31-08204-04 $**** ****% $**** ****% $****
Competitive Upgrade
</TABLE>
NOTES:
* These packages contain language packages for Spanish, Portuguese,
French, German, Italian, Dutch, Danish, Swedish, Norwegian, and Finnish.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASSIGNMENT, ASSUMPTION, RENEWAL, AND MODIFICATION AGREEMENT
BETWEEN XEROX IMAGING SYSTEMS, INC., SCANSOFT, INC.,
AND TECH DATA PRODUCT MANAGEMENT, INC.
THIS ASSIGNMENT. ASSUMPTION, RENEWAL AND MODIFICATION AGREEMENT (hereinafter the
"Assignment) by and between XEROX IMAGING SYSTEMS, INC., a Delaware corporation,
(hereinafter the "Xerox") with its principal corporate address at 9 Centennial
Drive, Peabody, Massachusetts 01960, SCANSOFT, INC., a DELAWARE corporation.
(hereinafter the "ScanSoft") with its principal corporation, address at 9
Centennial Drive, Peabody, Massachusetts 01960 and TECH DATA PRODUCT MANAGEMENT,
INC., a Florida corporation (hereinafter the Distributor) with its principal
corporate address at 5350 Tech Data Drive, Clearwater, Florida 34620.
RECITALS
A. Xerox and Tech Data Corporation entered into a Software Distribution
Agreement on August 26, 1995, a copy of which is attached as Exhibit
A, which was assigned to Distributor an January 1, 1997 (the
"Distribution Agreement").
B. ScanSoft is a wholly owned subsidiary of Xerox.
C. Xerox desires to assign all of its rights, title, interest and
obligations In the Distribution Agreement to ScanSoft and ScanSoft
desires to assume all of the rights, title, interest and obligations
from Xerox and to modify the Distribution Agreement at provided in
this Assignment.
D. As consideration for Distributor's agreeing to assign the Distribution
Agreement. Distributor is requiring Xerox to guarantee the performance
of ScanSoft under the Distribution Agreement, and Xerox has agreed to
guarantee said performance.
E. Distributor is willing to consent to the Assignment by Xerox and the
assumption by ScanSoft and modify the Distribution Agreement pursuant
to the terms this Assignment.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals, the mutual convenants
contained herein and other good and valuable consideration, the parties agree as
follows:
1. RECITALS:
--------
The Recitals are true and correct and are hereby incorporated into
this Assignment.
2. ASSIGNMENT:
----------
Xerox does hereby sell, assign, and transfer to ScanSoft all of
Xerox's rights, title, interest and obligations In and to the
Distribution Agreement and ScanSoft hereby assumes all of the rights,
title, interest and obligations under the Distribution Agreement.
3. PAYABLE:
-------
Xerox and ScanSoft hereby direct Distributor to make payment of all
outstanding amounts due to ScanSoft, Inc., g Centennial Drive.
Peabody. MA 01960 subject to any offsets, credits or other amounts due
to Distributor from Xerox or ScanSoft.
4. RENEWAL:
-------
<PAGE>
This Assignment renews and brings current the Distribution Agreement
dated August 26. 1995 which shall remain in full force and effect as
amended and modified herein.
5. MODIFICATION:
------------
Pursuant to this Assignment, the Distribution Agreement is hereby
amended and modified as follows:
a. All references to Xerox Imaging Systems, Inc. ("XEROX IMAGING) in
the Distribution Agreement shall be construed to be a reference to
ScanSoft, Inc. ("ScanSoft");
b. Section 1.1 of the Distribution Agreement Is hereby revised in its
entirety to read as follows:
TERM OF THE AGREEMENT The term of this Agreement shall
commence on August 26, 1995 and, unless terminated by either
party as set forth in this Agreement, shall remain in full
force and effect for a term of one (1) year from Effective
Date, and will automatically renew for successive one (1) year
terms unless prior written notification of termination Is
delivered by one of the parties to the other in accordance
with the notice provision of this Agreement.
c. Section 1.4 Is hereby added to read as follows:
1.4 APPOINTMENT AS DISTRIBUTOR. ScanSoft hereby grants to Tech
Data the non-exclusive right to distribute Products within the
Territory during the term of this Agreement. This Agreement
does not grant ScanSoft or Tech Data an exclusive right to
purchase or sell Products and shall not prevent either party
from developing or acquiring other vendors or customers or
competing Products. Tech Data will use commercially reasonable
efforts to promote sales of the Products. ScanSoft agrees that
Tech Date may obtain Products in accordance with this
Agreement for the benefit of its parent, affiliates and
subsidiaries of Tech Data. Said parent, affiliates and
subsidiaries of Tech Data shall be entitled to order Products
directly from ScanSoft pursuant to this Agreement.
d. The second paragraph of Section 3.8 of the Distribution Agreement
is hereby revised in its entirety to read as follows:
In addition. Tech Data shall have the right to return for
Return Credit, without limitation as to the dollar amount, all
Products that become obsolete or ScanSoft discontinues or are
removed from ScanSoft's current price list; provided Tech Data
returns such Products within sixty (60) days after Tech Data
receives written notice from ScanSoft that such Products are
obsolete, superseded by a newer version, discontinued or are
removed from ScanSoft's price list. Tech Data shall also be
entitled to return any such obsolete or discontinued Products
to ScanSoft which are returned to Tech Data by its Customers
within one-hundred-eighty (180) days of receipt of ScanSoft's
written notice.
e. Section 5.5 of the Distribution Agreement is hereby revised in its
entirety to read as follows:
PRICE DECREASES ScanSoft shell have the right to decrease
prices from time to time, upon prior written notice to Tech
Data. ScanSoft shall grant to Tech Data, its parent,
affiliates and subsidiaries and Tech Data's Customers s price
credit for the full amount of any ScanSoft price decrease on
all Products on order. In transit and In their Inventory on
the effective date of such price decrease. Tech Data shall,
within sixty (60) days after receiving written notice of the
effective date of the price decrease, provide a list of all
Products for which they claim a credit, and within
one-hundred-twenty (120) days, will provide a list of all
Products
<PAGE>
which its Customer, claim price protection credits.
ScanSoft shall have the right to a reasonable audit at
ScanSoft's expense.
f. Section 6.4 of the Distribution Agreement is hereby revised in its
entirety to read as follows;
REPURCHASE OF PRODUCTS UPON TERMINATION OR EXPIRATION. Upon
the effective date of termination or expiration of this
Agreement for any reason, ScanSoft agrees to repurchase all
Products in Tech Data's inventory (the value of which may not
exceed the dollar volume of purchases during the previous
one-hundred-eighty (180) days) and Products which are returned
to Tech Data by its Customers within one hundred eighty (180)
days following the effective date of termination or
expiration. ScanSoft will repurchase such Products at the
original purchase price, less any deductions for price
protection. The repurchase price shall not be reduced by any
deductions or offsets for early pay or prepay discounts. Such
returns shall not reduce or offset any co-op payments or
obligations owed to Tech Data. Within sixty (60) days
following the effective date of termination or expiration,
Tech Data shall return to ScanSoft for repurchase all Product
held in Tech Data's inventory as of the effective date of
termination or expiration. Additional returns shall be sent at
reasonable intervals thereafter, provided all returns of
Product by Tech Data under this Section 7.3 shall be shipped
within one hundred eighty five (185) days following the
effective date of termination or expiration. ScanSoft will
issue an RMA to Tech Data for all such Products; provided,
however, that ScanSoft shall accept returned Products in
accordance with this Section absent an RMA if ScanSoft fails
to issue said RMA within five (5) business days of Tech Data's
request. ScanSoft shall credit any outstanding balances owed
to Tech Data. If such credit exceeds amounts due from Tech
Data, ScanSoft shall remit in the form of a check to Tech Data
the excess within ten (10) business days of receipt of the
Product. Customized Products shall not be eligible for
repurchase pursuant to this Section.
g. Section 7.7 of the Distribution Agreement is hereby revised in its
entirety to read as follows:
7.7 Notices. Wherever one party is required or permitted to give
notice to the other pursuant to this Agreement, such notice
shall be deemed given when actually delivered by hand, by
telecopier, via overnight courier or when mailed by registered
or certified mall, return receipt requested, postage prepaid.
and addressed as follows:
IN THE CASE OF SCANSOFT: IN THE CASE OF TECH DATA:
---------------------------------------------------
ScanSoft, Inc. Tech Data Product Management, Inc.
9 Centennial Drive 5350 Tech Data Drive
Peabody, MA 01960 Clearwater, FL 34620
Attn: Tom D'Errico Attn: Tamra Muir
Contracts Manager Vice President of Marketing
Operations
cc: Contracts Administration
Either party may from time to time change its address for
notification purposes by giving the other party written notice
of the new address and the date upon which it will become
effective.
8. GUARANTEE.
---------
Xerox hereby gives Distributor its continuing, absolute and
unconditional guaranty of the payment In full when due, by
acceleration or otherwise, of all of payment obligations under the
Distribution Agreement, and the performance of any and all present or
future obligations of ScanSoft to Distributor to the same extent as if
Xerox were the principal obilgor of such obligations. Xerox agrees to
so pay and perform in accordance with the terms of the Distribution
Agreement without requiring Distributor to exercise, pursue or enforce
any
<PAGE>
right or remedy Distributor has against ScanSoft, it being the
intention hereof that Xerox pay or perform as a primary obligation
directly from Xerox to Distributor all obligations which ScanSoft shall
fail to faithfully and properly pay or perform when due.
Notwithstanding any implication to the contrary herein. Xerox shall
have all of ScanSoft's defenses to, and all of ScanSoft's rights of
set-off with respect to, any claim made or action brought by
Distributor with respect to the Distribution Agreement and this
AssIgnment. Xerox's obligations hereunder are binding upon Xerox and
Xerox's successor, and assigns and shall inure to the benefit of
Distributor's successors and assigns. All of Distributors rights and
remedies hereunder are cumulative and not alternative. Xerox hereby
represents and warrants that the modifications to the Distribution
Agreement set forth herein will be to the direct benefit of Xerox; and
that the person executing this Assignment on behalf of Xerox is duly
authorized and has the power and authority to bind Xerox under this
Assignment.
7. CONSENT TO ASSIGN:
-----------------
Distributor hereby consents to the assignment of the Distribution
Agreement pursuant to the terms and conditions of this Assignment.
8. RATIFICATION:
------------
Except as modified by this Assignment. the parties hereby ratify and
confirm all terms and conditions of the Distribution Agreement.
9. MISCELLANEOUS:
-------------
This Assignment, including any Exhibits and documents referred to in
this Assignment or attached hereto, constitutes the entire and
exclusive statement of agreement between the parties with respect to
its subject matter and there are no oral or written representations,
understandings or agreements relating to this Assignment which are not
fully expressed herein.
IN WITNESS WHEREOF. each party has signed this Assignment on the day and
year written below and shall be effective upon signing by Distributor.
"ASSIGNOR" "ASSIGNEE"
XEROX IMAGING SYSTEMS, INC. SCANSOFT, INC.
a Delaware corporation a DELAWARE corporation
By: /S/ MICHAEL K. TIVNAN By: /S/ WAYNE CRANDALL
----------------------------------- -----------------------------
Printed Name: Michael K. Tivnan Printed Name: Wayne Crandall
Title: General Manager Title: VP Sales
Date: 6/18/97 Date: 6/18/97
"DISTRIBUTOR"
TECH DATA PRODUCT MANAGEMENT. INC.
a Florida corporation
By: /S/ PEGGY CALDWELL JULY 1, 1997
----------------------------------
Printed Name: PEGGY K. CALDWELL
Title: SENIOR VICE PRESIDENT MARKETING
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
---------------------------------------------------------
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION
--------------------------------------------------
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT (the "Agreement") is made and entered into as of September 22,
1993 by and between INGRAM MICRO INC., a California corporation (hereinafter
"Ingram") and XEROX IMAGING SYSTEMS, INC., a Delaware corporation (hereinafter
"Vendor").
RECITALS
Vendor manufactures, produces, and/or supplies microcomputer products and
desires to grant to Ingram the right to sell and distribute certain of those
products, as hereinafter defined, upon the terms and conditions set forth below.
Ingram is engaged in the sale and distribution of microcomputer products and
desires to have the right to sell and distribute Vendor's products upon said
terms and conditions.
In consideration of the mutual covenants and agreements set forth below, the
hereto below agree as follows:
1. GRANT OF DISTRIBUTION RIGHTS.
1.1 Vendor hereby appoints Ingram as a non-exclusive, authorized distributor of
the Vendor software products listed in Exhibit A ("the Software") to Ingram's
customers within the United States and Canada. Vendor grants to Ingram, and
Ingram accepts,. the right to use for demonstration and its own purposes, upon
payment of any applicable license fees, the Software under the terms and
conditions of the license agreement contained in the packaging thereof. Further,
Vendor grants to Ingram the right to distribute as agent on behalf of Vendor the
Software to Ingram's customers within the United States and Canada provided that
Ingram shall market the Software in the unopened shrink-wrapped package as
delivered to Ingram, containing the Vendor Software License Agreement included
therein.
1.2 Vendor agrees to make available and to sell to Ingram such Software as
Ingram shall order from Vendor at the prices and subject to the terms set forth
in this Agreement.
1.3 Vendor may appoint other distributors to distribute its Software. Ingram
shall have the right to obtain and/or retain the rights to distribute any other
products, including products which may compete with the Software.
1.4 The party's sole relationship with each other shall be that of an
independent contractor. Neither party shall make any warranties or
representations, or assume or create any obligations, on the other's behalf
without that other's written approval. Each party shall be solely responsible
for the actions of all their respective employees, agents and representatives.
<PAGE>
2. TERM.
2.1 The term of this Agreement shall be for a period of one (1) year, beginning
on the date first above written. Thereafter, this Agreement shall be renewed for
successive one (1) year terms without further notice, unless terminated sooner
as provided under the provisions of this Agreement.
2.2 Either party may terminate this Agreement, with or without cause, by giving
ninety (90) days' written notice to the other party.
3. OBLIGATIONS OF VENDOR.
3.1 Vendor shall use its best efforts to fill orders promptly. However, Vendor
shall not be liable for any loss occasioned by a delay in delivery. Upon
twenty-four (24) hour notification to Ingram, Vendor may make partial shipments
of pending orders, each of which shall be separately invoiced and which shall be
paid according to the payment terms set forth herein.
3.2 At no charge to Ingram, Vendor shall support the Software and any efforts to
sell the Software by Ingram, and provide sales literature, advertising materials
and reasonable training and support in the sale and use of the Software to
Ingram's employees and customers, if requested by Ingram.
3.3 Vendor shall use reasonable efforts to give Ingram at least thirty (30)
days' notice prior to the release of software which is directly associated with
the Software listed in Exhibit A and may, in its sole discretion, make such
Software available for distribution by Ingram. Addition of software to Exhibit A
shall be mutually agreed upon by the parties.
3.4 Vendor agrees to maintain sufficient Software inventory to permit it to fill
Ingam's orders as required herein. If a shortage of any Software in Vendor's
inventory exists in spite of Vendor's good faith efforts, Vendor agrees to
allocate its available inventory of such Software to Ingram in proportion to
Ingram's percentage of all of Vendor's customer orders for such Software during
the previous sixty (60) days.
3.5 For each Software shipment to Ingram, Vendor shall issue to Ingram an
invoice showing lngram's order number and the Software part number, description,
price and any discount. At least monthly, Vendor shall provide Ingram with a
current statement of account, listing all invoices outstanding and any payments
made and credits given since the date of the previous statement, if any.
<PAGE>
4. OBLIGATIONS OF INGRAM.
4.1 Ingram will list the Software in one or more of its catalogs and make the
Software available to its customers.
4.2 Ingram will advertise and/or promote the Software in a commercially
reasonable manner and will transmit Software information and promotional
materials to its customers, as reasonably necessary.
4.3 As reasonably necessary, Ingram will make its facilities available for, and
will assist Vendor in providing, Software training and support required under
Section 3.2 hereof.
4.4 Ingram will provide Software technical assistance to its customers as it is
reasonably able to do so, and will refer all other technical matters directly to
Vendor.
4.5 On or before the effective date of this Agreement, Ingram shall issue to
Vendor a noncancelable initial order for the minimum number of units of Software
required in Exhibit A of this Agreement. Any subsequent orders made by Ingram to
Vendor will require an order for the minimum number of units stated in Exhibit
A.
4.6 Units of Software returned to Ingram by its dealer customers under the
Vendor's Money Back Guarantee shall in turn be returned by Ingram to Vendor for
credit against future orders not more than once per calendar month, with costs
of shipping to be borne by Vendor. Before shipping any Software to Vendor
pursuant to this Section, Ingram shall first obtain a return authorization
number from Vendor by contacting Vendor's corporate headquarters in Peabody, MA.
Once the returned Software has been received by Vendor, Vendor shall credit
Ingram's account with such credit to be used by Ingram against future orders.
The terms of Vendor's Money Back Guarantee are subject to change by Vendor upon
thirty (30) days written notice to Ingram.
4.7 Ingram shall use commercially reasonable efforts to maintain complete
customer records for five (5) years after each sale. Ingram shall also provide
to Vendor reasonable assistance to investigate any health, safety, or other
legitimate concern relating to the Software. This obligations shall survive the
termination of this Agreement.
4.8 Ingram shall provide to Vendor, within ten (10) days after the end of each
calendar month (i) a detailed report by Software type of sale made during the
previous calendar month within territories predefined by Vendor; and (ii) a
detailed report of all Software in Ingram's inventory by location as of the end
of the previous calendar month.
5. PRICE AND TERMS.
5.1 Thc price and applicable discount, if any, for the Software shall be as set
forth in Exhibit A. Ingram shall not be bound to sell Software to its customers
at any prices suggested by Vendor.
<PAGE>
5.2 Vendor shall have the right to change the list price of any Software upon
giving thirty (30) days' prior written notice to Ingram. In the event that
Vendor shall raise the list price of a Software, all orders for such Software
placed prior to the effective date of the price increase shall be invoiced at
the lower price.
5.3 In the event of a decrease in the price of the Software, Vendor shall grant
to Ingram a credit with respect to those units of such Software purchased by
Ingram within the one hundred eighty (180) day period preceding the effective
date of the price decrease and which remain in Ingram's inventory on the
effective date of the price decrease. Such credit shall be equal to the
difference between the price paid by Ingram and the adjusted price provided that
Ingram applies for such price protection credit within thirty (30) days from the
date of Vendor's public announcement of the price revision. This price
protection credit may only be applied towards future purchases of Vendor
Software.
5.4 Payment in full for Ingram's initial order shall be made within ninety (90)
days after the date of the Vendor invoice. Payment in full for each subsequent
order shipped to Ingram shall be made within sixty (60) days after the date of
the Vendor invoice. Should Vendor reasonably determine at any time that it
should no longer extend credit to Ingram for orders, then Vendor may require
Ingram to pay cash in advance or upon delivery or present an irrevocable letter
of credit. If payment in full is made within ten (10) days of the invoice, ****
percent (****%) of the invoice amount (not including freight) may be deducted by
Ingram from the amount due on that invoice. If payment in full is made prior to
shipment, **** percent (****%) of the invoice amount (not including freight) may
be deducted by Ingram from the amount due on that invoice.
5.5 Notwithstanding any other provision in this Agreement to the contrary,
Ingram shall not be deemed in default under this Agreement if it withholds any
payment to Vendor because of a legitimate dispute between the parties. If
invoices are not paid in a timely manner, Vendor may refuse further shipments
until Ingram's account is paid in full. *
5.6 Ingram shall pay any and all sales, property, use, or excise taxes, duties
or similar charges relating to the Software assessed by any government authority
or regulatory agency unless Ingram presents Vendor with a valid certificate of
exemption.. Personal property taxes assessable on Software after delivery to the
carrier are also Ingram's responsibility.
6. SHIPPING.
6.1 Vendor shall ship Software only pursuant to Ingram purchase orders received
by Vendor. Delivery shall be effective when Software is placed in the possession
of a carrier designated by Ingram on its standard freight routing instructions
attached as Exhibit C and as may be amended by Ingram, packed with Vendor's
standard commercial packing or other special packing materials requested by
Ingram, F.O.B. point of origin. Title to the Software remains with Vendor (or
its licensor) at all times, but risk of loss or damage passes to Ingram upon
delivery to Ingram's carrier. Ingram shall be responsible for all costs of
delivery.
* Stopping shipment shall not constitute a termination of this Agreement.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
7. COOPERATIVE ADVERTISING AND MARKETING FUNDS.
7.1 Ingram may advertise and promote the Software and/or Vendor in a
commercially reasonable manner and may use Vendor's trademarks, service marks
and trade names in connection therewith; provided that, Ingram shall submit the
advertisement or promotion to Vendor for review and approval prior to initial
release, which approval shall not be unreasonably withheld or delayed.
7.2 Vendor agrees to cooperate with Ingram in advertising and promoting the
Software and/or Vendor and hereby grants Ingram a cooperative advertising
allowance of up to **** percent (****%) of invoice amounts for Software
purchased by Ingram from Vendor to the extent that Ingram or customer/dealers
use the allowance for any advertising and promoting which features Software
and/or Vendor. Upon receipt of reasonable evidence of advertising expenditures,
Vendor agrees to credit the amount of any such expenditures against future
purchases by Ingram.
7.3 Vendor agrees to participate in the **** marketing program currently in
effect. The cooperative advertising allowance granted under Section 7.2 above
shall be reduced by **** percent (****%) as specified in Exhibit B attached
hereto. This program is subject to the terms and conditions set forth on Exhibit
B attached hereto and made a part hereof.
7.4 Vendor understands that additional marketing programs may be offered by
Ingram to Vendor. Such programs may include a launch program that requires
additional funds in addition to the cooperative advertising funds specified in
Section 7.2. Participation in such additional marketing programs shall be at the
sole discretion of Vendor.
8. DEMONSTRATION UNITS.
8.1 At the request of Ingram, Vendor shall consign to Ingram a reasonable
number, as determined by Vendor, of demonstration units of the Software to aid
Ingram and its sales staff in the support and promotion of the Software. All
units consigned will be returned to Vendor in good condition, reasonable wear
and tear excepted, when requested by Vendor at any time eleven (11) months after
delivery to Ingram.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
9. STOCK BALANCING.
9.1 GENERAL STOCK BALANCING. Ingram may return unused, unopened units of
Software which are contained in Vendor's then-current price list no more often
than once per calendar month, for purposes of stock rebalancing or product
exchange. Returns shall be shipped at Ingram's expense and must be accompanied
by an order for Software of an equivalent dollar value.
9.2 RETURNS AFTER TERMINATION. Upon termination, Vendor shall, at Ingram's
request, repurchase one hundred percent (100%) of Ingram's purchases from Vendor
during the calendar quarter preceding such termination. All Software must be new
and unopened. Each party shall bear fifty percent (50%) of the cost of returning
the Software to Vendor.
9.3 RETURNS AFTER PRODUCT DISCONTINUATION. Vendor shall use its best efforts to
provide Ingram with thirty (30) days written notice prior to Vendor's
discontinuation of any Software. Upon receipt of such notice, Ingram may return
all unused, unopened units of discontinued Software which remain in Ingram's
inventory on the date such notice is received.
10. PRODUCT WARRANTIES.
10.1 Vendor provides a warranty to the initial End-User of each unit of Software
which covers the media upon which the Software is embedded for a period of
ninety (90) days from the date of purchase by such End-User. Vendor expressly
excludes any other warranties in relation to the Software, whether express,
implied by statute, or otherwise, including, and without limitation, any
warranty of merchantability or fitness for a particular purpose.
10.2 Vendor's sole obligation shall be to issue a credit to be used against
future purchases to Ingram for any media that proves to be defective during the
warranty period. Units of Software returned to Ingram by its dealer customers
under this warranty shall in turn be returned by Ingram to Vendor for credit to
be used against future purchases, with such returns to take place not more than
once per calendar month, with shipping costs to be borne by Vendor. Before
shipping any Software to Vendor pursuant to this Section, Ingram shall first
obtain a return authorization number from Vendor by contacting Vendor's
corporate headquarters in Peabody, MA. Once the returned Software has been
received by Vendor, Vendor shall issue a credit to Ingram for use against future
purchases. Neither Ingram or its dealer customers may expand or alter this
warranty.
10.3 In the event Vendor recalls any or all of the Software due to defects,
revisions, or upgrades, Ingram shall provide reasonable assistance in such
recall; provided that, Vendor shall pay all of Ingram's expenses in connection
with such recall, including handling charges per unit of Software of not less
than **** and **** (****%) of the Product's list price.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
11. INDEMNITY.
11.1 Vendor shall defend Ingram from, and pay any judgment for direct
infringement of any United States patent, trademark or copyright by any of the
Software if Ingram promptly notifies Vendor in writing of any infringement
assertion, and allows and assists Vendor to defend any infringement suit. Vendor
shall not be liable for litigation expenses or settlements by other parties
unless Vendor agrees in writing. If any infringement is asserted against Vendor
or Ingram, Vendor, at its option, may obtain a license at no cost to Ingram, or
modify or remove the Software, or substitute software. Vendor is not liable for
any infringement due to the Software being made or modified to Ingram
specifications or designs, modified other than by Vendor; used or sold in
combination with any equipment, software or supplies not provided by Vendor; or
used to produce images in violation of the proprietary rights of third parties.
The liability of Vendor under this Section shall be limited in all instances to
**** dollars ($****.). VENDOR MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY OF
NONINFRINGEMENT AND HAS NO OTHER LIABILITY FOR INFRINGEMENT OR ANY DAMAGES
THEREON.
11.2 The foregoing indemnity does not apply, and Ingram agrees to indemnify
Vendor (including all costs and attorneys' fees), with respect to any claim
brought against Vendor concerning patent or copyright infringement allegedly
from (1) the combination or utilization by Ingram of any Software with equipment
not made or provided by Vendor; (2) the unauthorized modification of any
Software by Ingram; (3) any Software manufactured by Vendor to Ingram's
specifications; or (4) the production of images by Ingram in violation of the
proprietary rights of third parties. If any claim of patent infringement is made
under the foregoing circumstances, Vendor may refuse to make further shipments
to Ingram. The liability of Ingram under this Section shall be limited in all
instances to **** dollars ($****.). INGRAM MAKES NO OTHER EXPRESS OR IMPLIED
WARRANTY OF NONINFRINGEMENT AND HAS NO OTHER LIABILITY FOR INFRINGEMENT OR ANY
DAMAGES THEREON.
11.3 Vendor is named as a party in any suit commenced on a claim under the
circumstances set forth in Section 11.2, Ingram shall defend such suit, and
Vendor shall assist Ingram (at Ingram's expense) in any reasonable manner.
Ingram shall have sole control over the defense and settlement negotiations.
11.4 Each party (the "indemnifying party") agrees, if promptly notified by the
other and given the right to control the defense and approve any settlements
thereof, to indemnify and hold harmless the other party hereto (the "indemnified
party") from and against all claims or liabilities of third parties arising out
of this Agreement and (1) attributable to personal injury (including death) or
damage to tangible property and (2) proximately caused by the intentional.,
reckless, or negligent act or omission of the indemnifying party. Such
indemnification shall include the payment of reasonable attorneys' fees and
other costs incurred by the indemnified party in defending against such claims.
The indemnifying party shall no liability under the foregoing indemnity for
incidental, consequential, indirect, or special damages, including but not
limited to loss of profits. The indemnifying party shall have no obligation
hereunder with respect to any claim or cause of action or portion thereof for
damages to persons (including death) or damage to tangible property proximately
caused by the fault, culpability or negligence of any person other than the
indemnifying party.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
11.5 EXCEPT FOR INDEMNIFICATION CLAIMS ARISING UNDER THIS AGREEMENT, THE MAXIMUM
LIABILITY OF VENDOR TO INGRAM, ITS EMPLOYEES, DEALERS, AGENTS AND END-USERS, OR
ANY OTHER PERSON CLAIMING UNDER INGRAM FOR DIRECT DAMAGES ARISING OUT OF OR
RELATING TO THIS AGREEMENT, WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED
UPON CONTRACT, WARRANTY, TORT OR OTHERWISE, SHALL IN NO EVENT EXCEED THE TOTAL
AMOUNT PAID BY TO VENDOR BY INGRAM FOR THE SOFTWARE GIVING RISE TO THE CLAIM. IN
NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOST PROFITS, ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, EVEN IN THE EVENT SUCH PARTY HAS BEEN ADVISED AS TO THE
POSSIBILITY OF SUCH DAMAGES.
12. PRODUCT MARKINGS.
12.1 Vendor shall clearly mark on the packaging of each unit of Software the
Software's name and computer compatibility. Such packaging shall also bear a
machine-readable bar code identifier scannable in standard ABCD format which
identifies the Software and its serial number and fully complies with all
conditions regarding standard product labeling set forth in "Ingram Micro's
Guide To Bar Code: The Product Label," as amended from time to time.
13. REPRESENTATIONS AND WARRANTIES.
Vendor warrants and represents that:
13.1 The Software or its use does not infringe upon any United States patents,
copyrights, trademarks, trade secrets, or other proprietary rights of others,
and that there are not any suits or proceedings pending or threatened which
allege that any Software or the use thereof infringes upon such proprietary
rights;
13.2 The Software prices offered herein are equal to the prices available to any
like distributor within the United States to whom Vendor sells the Software. In
the future all prices for Software made available to Ingram shall be at least
equal to the prices available to any like distributor in the United States of
the Software;
13.3 Sales to Ingram of the Software at the listed prices and/or discounts do
not in any way constitute violations of federal, state, or local laws,
ordinances, rules or regulations, including any antitrust laws or trade
regulations;
<PAGE>
14. DEFAULTS.
14,1 For purposes of this Agreement, a party shall be in default if (a) it
materially breaches a term of this Agreement and such breach continues for a
period of ten (10) business days after it has been notified of the breach, or
(b) it shall cease conducting business in the normal course, become insolvent,
make a general assignment for the benefit of creditors, suffer or permit the
appointment of a receiver for its business or assets, or shall avail itself of
or become subject to any proceeding under the Federal Bankruptcy Act or any
other federal or state statute relating to insolvency or the protection of
rights of creditors.
14.2 Upon the occurrence of an event of default as described in Section 14.1,
the party not in default may immediately terminate this Agreement by giving
written notice to the party in default.
14.3 The rights and remedies provided to the parties in this Section 14 shall
not be exclusive and are in addition to any other rights and remedies provided
by this Agreement or by law or in equity.
15. INSURANCE.
15.1 Each party shall maintain during the life of this Agreement insurance with
an insurance company reasonably acceptable to the other to include liability
coverage sufficient to cover its obligations under this Agreement.
16. OTHER PROVISIONS.
16.1 CONSTRUCTION. This Agreement shall be construed and enforced in accordance
with the laws of the State of California, except that body of law concerning
conflicts of law.
16.2 NOTICES. All notices, requests, demands and other communications called for
or contemplated hereunder shall by in writing and shall be deemed to have been
duly given when (i) personally delivered; (ii) two (2) days after mailing by
U.S. certified or registered first-class mail, prepaid; or (iii) one (1) day
after deposit with any nationally recognized overnight courier, with written
verification of receipt, and addressed to the parties at the addresses set forth
at the end of this Agreement or at such other addresses as the parties may
designate by written notice.
16.3 ATTORNEY'S FEES. In the event suit is commenced to enforce this Agreement
or otherwise relating to this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees and costs incurred in connection therewith.
16.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument; however, this Agreement shall be of no
force or effect until executed by both parties.
<PAGE>
16.5 CONFIDENTIAL INFORMATION. Subject to the exceptions listed below, all
information of one party ("the disclosing party") which is marked proprietary,
confidential or "private date" and is made available to the other ("the
receiving party") will be held in confidence by the receiving party and will not
be disclosed by it to third parties, or used by it, except to the extent
authorized by this Agreement. If the informations is provided orally or
visually, the disclosing party will identify the disclosure as being proprietary
or confidential at the time of disclosure and, within thirty (30) days
thereafter, reduce it to writing and provide it to the receiving party. The
receiving party may release such confidential information within its own
organization on a need-to-know basis only. The receiving party's obligations
under this Section shall survive the termination or expiration of this
Agreement.
The receiving party's obligation hereof shall terminate with respect to any
particular portion of the disclosing party's information, other than software
source code, (i) when the receiving party can document that:
(a) it was in the public domain at the time of the disclosing party's
communication thereof to the receiving party,
(b) it entered the public domain through no fault of the receiving party
subsequent to the time of the disclosing party's communication thereof to the
receiving party,
(c) it was in the receiving party's possession free of any obligation of
confidence at the time of the disclosing party's communication thereof to the
receiving party, or
(d) it was rightfully communicated to the receiving party free of any obligation
of confidence subsequent to the time of the disclosing party's communication
thereof to the receiving party;
or (ii) when it is communicated by the disclosing party to a third party free of
any obligation of confidence; or (iii) in any event, five (5) years after the
disclosing party's communication thereof to the receiving party.
All materials furnished to the receiving party by the disclosing party that are
designated in writing to be the property of the disclosing party shall remain
the property of the disclosing party and shall be returned to the disclosing
party promptly at its request or upon termination of this Agreement, with all
copies made thereof.
16.6 NO IMPLIED WAIVERS. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the full rights to require such performance at any time thereafter. The
waiver by either party of a breach of any provision hereof shall not be taken,
construed, or held to be a waiver of the provision itself or a waiver of any
breach thereafter or any other provision hereof.
16.7 CAPTIONS AND SECTION HEADINGS. Captions and section headings used herein
are for convenience only, are not a part of This Agreement, and shall not be
used in construing it.
16.8 COVENANT OF FURTHER COOPERATION. Each of the parties agrees to execute and
deliver such further documents and to cooperate in such manner as may be
necessary to implement and give effect to the agreements contained herein.
<PAGE>
16.9 BINDING ON HEIRS AND SUCCESSORS. This Agreement shall be binding upon and
shall inure to the benefit of each party, its successors and assigns.
16.10 ASSIGNMENT. Neither party may assign, transfer, or sell any of its rights,
or delegate any of its responsibilities under this Agreement without the prior
written consent of the other. Such consent shall not be unreasonably withheld.
16.11 DISPUTES. The parties agree that, before initiating any litigation
involving a dispute, controversy, or claim arising out of or relating to this
Agreement (including, but not limited to, any claim concerning the entry into,
performance under or termination of this Agreement), they will attempt in good
faith to resolve their dispute through nonbinding mediation. Any action under or
arising out of this Agreement or the breach, termination or invalidity thereof,
must be commenced within one (1) year after the cause of action accrued, except
that actions for nonpayment must be commenced within three (3) years after the
date the payment was due.
16.12 EXPORT CONTROL. Ingram shall not export any Software obtained from Vendor
hereunder to any country for which the United States or any agency thereof
requires, at the time of export, an export license or any other governmental
approval without first obtaining such license or approval.
16.13 SEVERABILITY. A judicial determination that any provision of this
Agreement is invalid in whole or in part shall not affect the enforceability of
those provisions found not to be invalid.
16.14 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof, superseding any and
all previous proposals, representations or statements, oral or written. Any
previous agreements between the parties pertaining to the subject matter of this
Agreement are hereby expressly canceled and terminated. The terms and conditions
of each party's purchase orders, invoices, acknowledgments/confirmations or
similar documentation shall not apply to any order hereunder, and any such terms
and conditions thereon shall be deemed to be objected to without need of further
notice or objection. Any modifications of this Agreement must be in writing and
signed by authorized representatives of both parties hereto.
<PAGE>
16.12 PARTIES EXECUTING. The parties executing this Agreement warrant that they
have the requisite authority to do so.
IN WITNESS WHEREOF, the parties hereunto have executed this Agreement.
"Ingram" "Vendor"
Ingram Micro Inc. Xerox Imaging Systems, Inc.
1600 E. St. Andrew Place 9 Centennial Drive
Santa Ana, CA 92705 Peabody, MA 01960
By: /S/ SANAT K. DUTTA By: /S/ MICHAEL K. TIVNAN
---------------------------- --------------------------------
Sanat K. Dutta Name: Michael K. Tivnan
Senior Vice President (print or type)
Operations
Title:* General Manager
Date: 9/22/93 Date: 9/22/93
*AGREEMENT MUST BE SIGNED BY A DULY AUTHORIZED VICE PRESIDENT OR PARTNER.
<PAGE>
EXHIBIT A
---------
PRODUCT PRICE LIST
------------------
The prices for the Software offered under this Agreement shall be (check one):
_____As shown on Vendor's price list dated __________.
X As shown below.
- -----
Software List Price Discount
- -------- ---------- --------
TextBridge $**** ****%
AccuText $**** ****%
Minimum order quantity is **** units.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT B
---------
**** MARKETING PROGRAM
----------------------
Vendor agrees to participate in the **** marketing program (hereinafter the
"Program") subject to the following terms and conditions:
1. Vendor hereby grants to Ingram a Program allowance equal to **** percent
(****%) of invoice amounts for Software purchased by Ingram. Upon receipt of
reasonable evidence of advertising expenditures, Vendor agrees to credit the
amount of any such expenditures against future purchases by Ingram. The
cooperative advertising allowance granted under Section 7.2 of the Agreement
shall be reduced by an amount equal to the Program allowance granted hereunder,
it being the understanding of the parties that the Program allowance is to be a
part of the cooperative advertising allowance and not an addition thereto.
Ingram agrees to reconcile and adjust the Program allowance quarterly to account
for any Software returns.
2. The Program allowance will be used by Ingram to fund Software promotions and
advertising, to provide general sales incentives throughout its distribution
channels, and to administer the Program.
3. The term of the Program shall end on June 30 following the commencement date
of this Agreement, and shall be renewed for successive one (1) year terms
without further notice, subject to Ingram's right to terminate the Program, or
Vendor's right to terminate its participation therein, at the end of a term by
giving the other party at least ninety (90) days' written notice prior to the
end of the term.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AMENDMENT NO. 1 JANUARY 23, 1995
DISTRIBUTION AGREEMENT PAGE ONE
Ingram Micro Inc. ("Ingram") and Xerox Imaging Systems, Inc. ("Vendor")
hereby agree to amend their mutual Distribution Agreement, dated September 23,
1993 as follows:
1. Ingram and Vendor agree to incorporate the addition of Software Products
listed in the attached Exhibit A-1.
2. This amendment shall remain in effect for the current and any renewal term
of the Agreement.
Notwithstanding the foregoing, all other provisions of the Agreement remain
unchanged. The signer has read this Amendment, agrees hereto, and is an
authorized representative of its respective party.
INGRAM MICRO INC. XEROX IMAGING SYSTEMS, INC.
By: /s/ Sanat K. Dutta By: /s/ Michael K. Tivnan
--------------------------------- -----------------------------
Name: Sanat K. Dutta Name: Michael K. Tivnan
Title: Executive Vice President Title: General Manager
Date: 1/23/95 Date: 1/30/95
<PAGE>
EXHIBIT A-1
-----------
PRODUCT PRICE LIST
------------------
The prices for the Products offered under this Agreement shall be (check one):
_____ As shown on Vendor's price list dated __________________.
X As shown below.
- -----
Software List Price Discount
- -------- ---------- --------
TabWorks $**** ****%
Minimum order quantity is **** units.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AMENDMENT NO. 2 MARCH 16, 1995
DISTRIBUTION AGREEMENT PAGE ONE
Ingram Micro Inc. ("Ingram") and Xerox Imaging Systems, Inc. ("Vendor")
hereby agree to amend their mutual Distribution Agreement, dated September 23,
1993 as follows:
1. Ingram and Vendor agree to incorporate the pricing changes of
Software Products listed in the attached Exhibit A-2.
2. This amendment shall remain in effect for the current and any
renewal term of the Agreement.
Notwithstanding the foregoing, all other provisions of the Agreement remain
unchanged. The signer has read this Amendment, agrees hereto, and is an
authorized representative of its respective party.
INGRAM MICRO INC. XEROX IMAGING SYSTEMS, INC.
BY: /S/ SANAT K. DUTTA BY: /S/ WAYNE CRANDALL
----------------------------- ----------------------------
NAME: SANAT K. DUTTA NAME: WAYNE CRANDALL
TITLE:EXECUTIVE VICE PRESIDENT TITLE: VP, SALES
DATE: 4 APRIL 1995 DATE: 22 MARCH 1995
<PAGE>
EXHIBIT A-2
PRODUCT PRICE LIST
This Amendment supersedes Exhibit A and A-l Product Price Lists
SOFTWARE LIST PRICE **** ON **** FROM
**** ****
TextBridge for Windows $**** ****% ****%
TextBridge for Macintosh $**** ****% ****%
TextBridge Professional Edition $**** ****% ****%
(Windows)
TextBridge Professional Edition $**** ****% ****%
(Competitive Upgrade)
TabWorks $**** ****% ****%
The price after the **** From **** (****) has been taken shall be the price that
Ingram Micro will pay Vendor for product.
Ingram will only offer the TextBridge Professional Competitive Upgrade software
to those resellers that are specified by Vendor.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AMENDMENT NO. 3 AUGUST 1, 1996
DISTRIBUTION AGREEMENT PAGE ONE OF ONE
Ingram Micro Inc. ("Ingram") and Xerox Imaging Systems, Inc. ("Vendor")
hereby agree to amend their mutual Distribution Agreement, dated September 23,
1993 as follows:
1. Vendor authorizes Ingram on a non-exclusive basis to distribute Products in
the educational market ("Academic"). Academic Products and prices are specified
as listed in the attached Exhibit A-2.
2. This amendment shall remain in effect for the current and any renewal term of
the Agreement.
Notwithstanding the foregoing, all other provisions of the Agreement remain
unchanged. The signer has read this Amendment, agrees hereto, and is an
authorized representative of its respective party.
INGRAM MICRO INC. XEROX IMAGING SYSTEMS, INC.
By: /S/ SANAT K. DUTTA By:
------------------------------- ------------------------------
Name: Sanat K. Dutta Name: Wayne Crandall
Title: Executive Vice President Title: Vice President Sales
Date: 8/20/96 Date:____________________________
<PAGE>
EXHIBIT A-2
-----------
ACADEMIC PRODUCT PRICE LIST
---------------------------
The prices for the Products offered under this Agreement shall be (check one):
_____As shown on Vendor's price list dated ____________.
_____As shown below.
Software List Price Discount
- -------- ---------- --------
<PAGE>
AMENDMENT 4 TO THE
DISTRIBUTION AGREEMENT
THIS AMENDMENT (the "Amendment") is entered into this 15th day of May, 1997, by
and between INGRAM MICRO INC. ("Ingram") and Xerox Imaging Systems, Inc.
("Vendor").
The parties have agreed to amend the Distribution Agreement ("Agreement")
between Ingram and Vendor dated September 22, 1993.
1. SECTION 1.1 - GRANT OF DISTRIBUTION RIGHTS
Revise the first sentence to read: "Vendor hereby appoints Ingram as a
non-exclusive, authorized distributor of the Vendor software products listed
in Exhibit A ("the software") to Ingram's customers within the United
States, Canada and all of Asia Pacific."
2. This amendment shall remain in effect for the current and any renewal term
of the Agreement.
Notwithstanding the foregoing, all other provisions of the Agreement remained
unchanged. The signed has read this Amendment, agrees hereto, and is an
authorized representative of its respective party.
INGRAM MICRO INC. XEROX IMAGING SYSTEMS, INC.
BY: /S/ V L COTTEN BY: /S/ WAYNE CRANDALL
----------------------------- --------------------------
NAME: VICTORIA L. COTTEN NAME: WAYNE CRANDALL
TITLE: SR. VP PURCHASING TITLE: VP SALES
DATE: 7-8-97 DATE: 6-26-97
<PAGE>
INGRAM
MICRO
AMENDMENT #5 TO THE
DISTRIBUTION AGREEMENT
THIS AMENDMENT (the "Amendment") is entered into this 26th day of March, 1998,
by and between INGRAM MICRO INC. ("Ingram") and SCANSOFT, INC. ("Vendor")
The parties have agreed to amend their Distribution Agreement ("Agreement")
dated September 23, 1993.
1. Replace the existing **** percent (****%) **** with "**** pay **** terms of
**** percent (****%) **** (****) days net sixty one (61) days and on an
ongoing quarterly sales out rebate of **** percent (***%) which includes a
reporting feature."
2. This Amendment shall remain in effect for the current term and any renewal
term of the Agreement.
Notwithstanding the foregoing, all other provisions of the Agreement remain
unchanged. The undersigned has read this Amendment, agrees hereto, and is an
authorized representative of its respective party.
INGRAM MICRO INC. SCANSOFT, INC.
1600 East St. Andrew Place 9 Centennial Drive
Santa Ana, CA 92705 Peabody, MA 01960
By: /s/ V L Cotten By: /S/ WAYNE S. CRANDALL
--------------------------------- --------------------------------
Name: Victoria L. Cotton Name: Wayne S. Crandall
Title: Sr. Vice President Purchasing Title: Vice President
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
---------------------------------------------------------
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION
--------------------------------------------------
SCANSOFT, INC.
A XEROX COMPANY
GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
This Agreement is between XEROX CORPORATION, THROUGH ITS CHANNELS GROUP
("BUYER"), a having its principal offices at East Rochester, New York and
SCANSOFT, INC. ("SCANSOFT"), a Delaware corporation, having offices at 9
Centennial Drive, Peabody, MA 01960.
1.0 PREMISES
1.1 This Agreement applies only to the ScanSoft-brand software product(s)
listed in Exhibit A (referred to collectively as the "SOFTWARE").
1.2 Buyer wishes to acquire a master copy of the Software and its
documentation on disk (the "GOLD DISK"), produce copies of the Software
and its associated documentation, combine such Software with other
Products to create Bundled Solutions and to distribute such Bundled
Solutions to Resellers and to End-Users.
1.3 DEFINITIONS:
(a) "AGREEMENT" means this Gold Disk Bundling Agreement, including any
exhibits or schedules attached hereto.
(b) "PRODUCTS" means the Buyers products (hardware and/or other
software) which are intended to be bundled with the Software as
described in Exhibit B.
(c) "RESELLER" means a customer who sublicenses the Software from
Buyer solely for further sublicense, without modification, to
End-User customers as part of one or more of the Bundled
Solutions.
(d) "END-USER" means a third-party customer to whom Buyer or its
Reseller shall sublicense the Software as part of one or more of
the Bundled Solutions for use other than further sublicense.
(e) "MARKS" means any ScanSoft trademarks, logos, trade names, and
identifying slogans which are licensed to Buyer under this
Agreement. All Marks whether registered or not, are the
exclusive or licensed property of ScanSoft.
(f) "BUNDLED SOLUTIONS" means the integrated systems consisting of
the Software as combined with Buyer's Products specified in
Exhibit B.
1.4 It is a fundamental premise of this Agreement, that Buyer shall use the
Software licensed hereunder with the Products to produce one or more of
the Bundled Solutions. Buyer reserves the right to sell Products
without the Software. Buyer shall not distribute the Software except as
part of the Bundled Solutions.
2.0 LIMITATIONS
2.1 Buyer's sole relationship with ScanSoft shall be that of an independent
contractor. Buyer shall make no warranties or representations, or
assume or create any obligations, on ScanSoft's behalf except as may be
Page 1
<PAGE>
expressly permitted in writing by ScanSoft. Each party shall be solely
responsible for the actions of all their respective employees, agents
and representatives.
2.2 Buyer has no distribution or other right to any ScanSoft-brand
products, accessories, or supplies, either presently available or that
become available, other than the Software listed in Exhibit A.
2.3 ScanSoft' right to sell through other channels. Buyer understands that
ScanSoft presently markets its products, including the Software,
throughout the world through various channels in addition to other OEM
licensors and that ScanSoft may continue to market and license any or
all of the Software and any associated services without any
restrictions whatsoever. Nothing in this Agreement prohibits ScanSoft
from entering into an agreement directly with distributees of the
Buyer's Bundled Solutions, including End-Users.
3.0 ADDITIONAL RESPONSIBILITIES OF BUYER
3.1 MARKETING. Buyer shall advertise the Software as used in the Bundled
Solutions in a commercially acceptable manner, conforming to all legal
requirements and proper trademark usage (specified in Exhibit F). Each
party agrees to participate, to the extent such participation is
commercially reasonable, in product announcements and introductions
sponsored by the other party in connection with the transactions
contemplated hereby and in accordance with the joint marketing plan.
3.1.1 "Pagis by ScanSoft" and/or the ScanSoft Software logo must be
prominently displayed in all advertising, product literature,
and in a conspicuous location on the Bundled Solutions
packaging. ScanSoft will provide the artwork for the logo. Buyer
will conform to the ScanSoft logo usage guidelines listed in
Exhibit E.
3.1.2 ScanSoft shall be included in the review and approval cycles for
advertisements and brochures to ensure that Buyer is compliant
with the logo and trademark usage guidelines.
3.1.3 ScanSoft reserves the option to include on-screen or Try-n-Buy
upgrade offers for other ScanSoft software products. 3.1.4 Buyer
agrees to provide ScanSoft with access to all registered
customers of Buyers Bundled Solutions at reasonable intervals
not to exceed four (4) times per year, for direct mail upgrade
purposes.
3.1.5 Buyer will, if commercially practicable, issue a press release
to coincide with the Bundled Solutions announcement that
announces the inclusion of the ScanSoft Software in the Bundled
Solution.
3.1.6 Buyer shall provide ScanSoft, at no charge, at least two (2)
units of the Bundled Solutions to be used for promotional
activities.
3.1.7 WEB SITES. Cross links between ScanSoft' and Buyer's web pages
will, to the extent practicable, be created to further promote
our strategic partnership.
3.2 Buyer shall not cause any advertising to be published, or make any
representation (oral or written), which might mislead the public or
which is detrimental to the goodwill of ScanSoft or the Software.
3.3 Buyer shall ensure that the Software will be sublicensed to a Reseller
or End-User only under a written "shrink-wrapped" sublicense provided
in Exhibit C.
3.4 ROYALTY FEES AND REPORTS. The Software shall be licensed at the fee(s)
set forth in Exhibit A, subject to change by written agreement of the
parties from time to time. All payments shall be made in United States
dollars. The fee is payable to ScanSoft on each copy of Software made
by Buyer regardless of how Buyer uses such copy, except that Buyer may
use a reasonable agreed number of copies for demonstration purposes
without paying a license fee.
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3.5.1 Buyer shall provide to ScanSoft, as specified in Exhibit A, a
detailed statement, certified by an authorized representative of
Buyer, setting forth the number of units of the Bundled
Solutions on or in which copies of the Software were
incorporated (regardless of whether any unit of Bundled Solution
is actually placed into use) during the previously completed
calendar quarter. The statement shall be accompanied by payment
in full of the fees shown in Exhibit A to be payable.
3.5.2 In the event that the Buyer fails to make any payment on or
before the payment date, ScanSoft may require the Buyer to pay
interest at a rate equal to the lesser of (i) ****% per month,
compounded monthly, or (ii) the maximum rate permitted by
applicable law. ScanSoft shall be entitled to recover all costs
and expenses, including reasonable attorney's fees, incurred by
it in connection with the enforcement of the terms of this
agreement.
3.5.3 In addition to the fee for any Software used by Buyer, Buyer
shall be responsible for the payment of all sales, property,
use, or excise taxes, duties or similar charges relating to the
Software assessed by any government authority or regulatory
agency. Upon execution of this Agreement, Buyer shall provide
ScanSoft with copies of its resale exemption certificate(s).
Personal property taxes assessable on the Software after
delivery to the shipper are Buyer's responsibility.
3.6 AUDIT. ScanSoft shall have the right to inspect the records of Buyer on
reasonable notice and during regular business hours to verify the
reports and payments required to be made hereunder. Such records shall
be maintained for a period of at least three (3) years from the date of
creation of such record. The cost of such audit shall be borne by
ScanSoft unless such audit reveals an error rate of five percent (5%)
or more in favor of ScanSoft. Payment of any amount determined to be
due as a result of such audit shall be made within thirty (30) days of
receipt of ScanSoft' invoice therefor.
4.0 TECHNICAL SUPPORT
4.1 ScanSoft shall provide Buyer with technical support including, one
initial product training session to be administered at ScanSoft
facilities. Buyer shall then assume responsibility for such ongoing
support and training as it requested by Buyer's customers with respect
to the Software.
4.2 ScanSoft will provide technical support to Buyer's Customer Support, as
it may be reasonably requested by Buyer, to fulfill its maintenance
obligations to its Resellers and End-Users. Technical support shall
include telephone support to Buyer's engineering staff on the
operation, integration and utilization of the Software, and maintenance
modifications and bug corrections for the Software to bring them into
conformance with the specifications. There will be no charge to Buyer
for this level of support, however for the purposes of providing
support, Buyer shall furnish ScanSoft with two (2) units of each Buyer
Product listed in Exhibit B. When a customer problem is determined by
Buyer's Customer Support to be associated directly with the Software
listed in Exhibit A, and resolution of the problem is not within the
range of training received or knowledge accrued by Buyers Customer
Support, Buyer's Customer Support may either contact ScanSoft's
telephone support for assistance or refer the End-User directly to
ScanSoft's Customer Support.
4.3 If customer problem is determined to be caused by a defect in media,
Buyer shall issue a replacement media to the customer and Buyer agrees
to pay for all associated costs incurred by such replacement, and
ScanSoft shall have no liability arising out of or related to such
customer problem.
5.0 END-USER REFERENCE MATERIALS
ScanSoft hereby grants Buyer the right to draft End-User reference
materials for its End-Users. Buyer shall have the right to incorporate
portions of ScanSoft's copyrighted documentation regarding the Software
into Buyer's materials, as long as all ScanSoft copyrights are
preserved and ScanSoft copyright notices reproduced.
6.0 TITLE
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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Title and all rights of ownership to the Software, and all copies of
all or any part thereof, are and remain with ScanSoft at all times.
Buyer agrees to place ScanSoft's copyright notice (using the
international copyright symbol) on each copy of Software made by Buyer.
ScanSoft' copyright notice must be displayed on the packaging of the
media containing the Software.
7.0 WARRANTIES
7.1 ScanSoft warrants that title to all Software shall be free and clear of
all interests or claims of third parties.
7.2 The Software provided to Buyer herein is licensed "AS IS". ScanSoft
shall warrant the Gold Disk to be free from known viruses and defects
in materials and workmanship for a period of thirty (30) days from the
date of acceptance. ScanSoft agrees to employ reasonable efforts and
use commercially available virus checking means in the effort to detect
and remove a virus from the Software. Buyer also agrees to employ
reasonable efforts and use commercially available virus checking
software to detect for a virus. If Buyer detects a virus then, ScanSoft
must receive notice of any such known viruses or defects in media
within thirty (30) days after delivery to Buyer. Buyer's failure to
notify ScanSoft within thirty (30) days after delivery shall constitute
final acceptance by Buyer. Under such warranty, ScanSoft' sole
obligation shall be to replace the media which is defective or contains
a known virus.
7.3 EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 7.1 -7.2, SCANSOFT MAKES NO
OTHER WARRANTIES TO BUYER AND DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
7.4 End-User Warranty. At the time of licensing to the first End-User of
each unit of the Software, Buyer, or its Reseller customers as Buyer's
agreements with them shall require, shall offer as a minimum warranty,
the then-current ScanSoft End-User Warranty for the Software set forth
in Exhibit C herein (the "Software License Agreement") as the same may
be modified by ScanSoft from time to time.
7.4.1 All ScanSoft End-User Warranties are subject to change by
ScanSoft upon thirty (30) days written notice to Buyer. Such
changes shall only apply to all Software marketed after the
expiration of the notice period.
8.0 LICENSE
8.1 LICENSE GRANT. ScanSoft hereby grants to Buyer, under ScanSoft'
applicable patents, copyrights and other intellectual property rights,
a nonexclusive, worldwide license to use the Software and reproduce
copies in object code format only, onto the media form contained within
a Bundled Solution and to distribute such copies with the Bundled
Solutions sold, leased and/or licensed by Buyer. Each use of any given
Software within any Bundled Solution must be identified separately in
Exhibit B.
8.2 Buyer shall ensure that each copy of the Software is marketed with (1)
the Software's user documentation, (2) the ScanSoft Software License
Agreement, and (3) ScanSoft' Warranty Card. Buyer shall adhere to
ScanSoft' specifications for the Software's user documentation when
manufacturing such documentation. Any deviations from such
specifications will require advance written approval from ScanSoft.
8.3 In association with the manufacture of the Bundled Solutions, Buyer may
sublicense its right to reproduce copies of the Software and/or related
documentation under the same Buyer terms and conditions established in
this Agreement. In association with distribution of the Bundled
Solutions, Buyer may sublicense its right to distribute copies, to its
subsidiaries and Resellers. Buyer shall take appropriate measures to
ensure that any software media containing the Software is free from
viruses or media defects.
8.4 No other rights to the Software are granted by ScanSoft to Buyer under
this Agreement. In particular, but not by way of limitation, Buyer
shall have no right to create derivative works of the Software.
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8.5 Buyer shall not modify the Software supplied hereunder in any way
without the prior written consent of ScanSoft.
9.0 INFRINGEMENT INDEMNITY
9.1 ScanSoft will defend Buyer from, and pay any judgment for, direct
infringement of any United States patent, trademark or copyright by any
of the Software if Buyer promptly notifies ScanSoft in writing of any
infringement assertion, and allows and assists ScanSoft to defend any
infringement suit. ScanSoft shall not be liable for litigation expenses
or settlements by other parties unless ScanSoft agrees in writing. If
any infringement is asserted against ScanSoft or Buyer, ScanSoft, at
its option, may obtain a license at no cost to Buyer, or modify or
remove the Software, or substitute software. ScanSoft is not liable for
any infringement due to the Software being made or modified to Buyer
specifications or designs; modified other than by ScanSoft; used or
sold in combination with any equipment, software or supplies not
provided by ScanSoft; or used to produce images in violation of the
proprietary rights of third parties. The liability of ScanSoft under
this Section shall be limited in all instances to the total price of
infringing Software acquired by Buyer. SCANSOFT MAKES NO OTHER EXPRESS
OR IMPLIED WARRANTY OF NONINFRINGEMENT AND HAS NO OTHER LIABILITY FOR
INFRINGEMENT OR ANY DAMAGES THEREON.
9.2 The foregoing indemnity does not apply, and Buyer agrees to indemnify
ScanSoft (including all costs and attorneys' fees), with respect to any
claim brought against ScanSoft concerning patent or copyright
infringement allegedly arising from: (1) the unauthorized combination
or utilization by Buyer of any Software or (2) the unauthorized
modification of any Software by Buyer; (3) any Software manufactured by
ScanSoft to Buyer's specifications; (4) the production of images in
violation of the proprietary rights of third parties.
9.2.1 If ScanSoft is named as a party in any suit commenced on a
claim under the circumstances set forth in Section 9.2, Buyer
shall defend such suit, and ScanSoft shall assist Buyer (at
Buyer's expense) in any reasonable manner. Buyer shall have
sole control over the defense and all settlement negotiations.
10.0 GENERAL INDEMNITY
Each party (the "indemnifying party") agrees, if promptly notified by
the other and given the right to control the defense and approve any
settlements thereof, to indemnify and hold harmless the other party
hereto (the "indemnified party") from and against all claims or
liabilities of third parties arising out of this Agreement and (1)
attributable to personal injury (including death) or damage to tangible
property and (2) proximately caused by the intentional, reckless, or
negligent act or omission of the indemnifying party. Such
indemnification shall include the payment of reasonable attorneys' fees
and other costs incurred by the indemnified party in defending against
such claims. The indemnifying party shall have no liability under the
foregoing indemnity for incidental, consequential, indirect, or special
damages, including but not limited to loss of profits.
11.0 LIMITATION OF REMEDIES
THE MAXIMUM LIABILITY OF SCANSOFT TO BUYER, ITS EMPLOYEES, RESELLERS,
AGENTS AND END-USERS, OR ANY OTHER PERSON CLAIMING UNDER BUYER FOR
DIRECT DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT, WHETHER
SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY,
TORT OR OTHERWISE, SHALL IN NO EVENT EXCEED THE TOTAL AMOUNT PAID TO
SCANSOFT BY BUYER FOR THE SOFTWARE GIVING RISE TO THE CLAIM. IN NO
EVENT SHALL SCANSOFT BE LIABLE FOR LOST PROFITS, ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, EVEN IN THE EVENT SCANSOFT HAS BEEN ADVISED
AS TO THE POSSIBILITY OF SUCH DAMAGES.
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12.0 CONFIDENTIAL INFORMATION
12.1 CONFIDENTIALITY. Subject to Section 12.2 below, all ScanSoft
information which is marked proprietary, confidential or "ScanSoft or
Xerox private data" and is made available to Buyer will be held in
confidence by Buyer and will not be disclosed by it to third parties,
or used by it, except to the extent authorized by this Agreement. If
the information is provided orally or visually, ScanSoft will identify
the disclosure as being proprietary or confidential at the time of
disclosure and, within thirty (30) days thereafter, reduce it to
writing and provide it to Buyer. Buyer may release such confidential
information within its own organization on a need-to-know basis only.
Buyer's obligations under this section shall survive the termination or
expiration of this Agreement.
12.2 EXCEPTIONS. Buyer's obligation hereof shall terminate with respect to
any particular portion of the ScanSoft information, other than software
source code, (i) when Buyer can document that:
(a) it was in the public domain at the time of ScanSoft'
communication thereof to Buyer,
(b) it entered the public domain through no fault of Buyer
subsequent to the time of ScanSoft communication thereof to
Buyer,
(c) it was in Buyer's possession free of any obligation of
confidence at the time of ScanSoft' communication thereof to
Buyer, or
(d) it was rightfully communicated to Buyer free of any obligation
of confidence subsequent to the time of ScanSoft' communication
thereof to Buyer;
(e) it was developed by employees or agents of Buyer independently
of and without reference to any ScanSoft information or other
information that ScanSoft has disclosed in confidence to any
third party;
or (ii) when it is communicated by ScanSoft to a third party free of
any obligation of confidence.
12.3 All materials furnished to Buyer by ScanSoft that are designated in
writing to be the property of ScanSoft shall remain the property of
ScanSoft and shall be returned to ScanSoft promptly at its request or
upon the termination or expiration of this Agreement, with all copies
made thereof.
12.4 All software object code delivered under this Agreement, whether marked
to indicate confidentiality or not, shall be deemed confidential
information. Reverse engineering, disassembly or reverse translation of
the object code is not permitted. Further, reverse engineering,
disassembly or reverse translation of the object code by Buyer, its
employees or agents does not constitute independent development under
Section 12.2(e).
13.0 TERM AND TERMINATION
13.1 TERM AND RENEWAL. This Agreement is effective upon the date of
execution by ScanSoft and Buyer. Subject to the termination provisions
set forth in this Agreement, the initial term shall run through
December 31 of the first full calendar year following the Agreement
execution date. This Agreement may be renewed for successive one-year
periods by mutual consent of the parties. Silence shall be interpreted
as consent to renew.
13.2 NONRENEWAL. Either party may decline to renew this Agreement at its
sole discretion by written notification to the other party at least
ninety (90) days prior to the effective date of expiration.
13.3 TERMINATION FOR BUSINESS REASONS. Either party may terminate this
Agreement based upon its own business reasons and objectives
notwithstanding that the other party is not then in default of its
obligations hereunder. In this circumstance, the termination party
shall give the other party written notice of termination at least
ninety (90) days in advance.
13.4 TERMINATION FOR BREACH. Either party may terminate this Agreement if a
breach (other than one under Section 13.5 below) by the other party
remains uncured thirty (30) days after written notice of such breach.
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13.5 BREACHES PROVIDING GROUNDS FOR IMMEDIATE TERMINATION. ScanSoft shall
have the right to immediately terminate this Agreement if Buyer
breaches the provisions of this Agreement regarding: (1) ScanSoft
confidential information; (2) the unauthorized license or marketing of
ScanSoft Software, or (3) the assignment by Buyer of any rights under
this Agreement.
14.0 EFFECT OF TERMINATION
14.1 Termination or nonrenewal by either party shall not relieve the other
party of its obligation to make any and all payments due under this
Agreement. All monies due to ScanSoft from Buyer shall become
immediately due and payable upon any termination.
14.2 Termination or nonrenewal shall not relieve either party of obligations
incurred prior to termination or expiration or of obligations which by
their nature or term survive termination or expiration.
14.3 Upon termination or expiration, Buyer shall (1) immediately stop
production and distribution of the Software (2) cease using the name
"ScanSoft, Inc." or "ScanSoft" and any Marks; (3) inform ScanSoft of
all technical, advertising, promotional, and marketing materials, and
all confidential ScanSoft information, that were supplied to Buyer by
ScanSoft and that then remain in Buyer's possession and return that
portion of these materials that is requested by ScanSoft in writing;
and (4) take appropriate steps to remove or correct all materials that
identify Buyer as a OEM licensor of ScanSoft Software.
14.3.1 Upon termination or expiration, Buyer shall destroy any
ScanSoft software contained in all types of computer memory
and all relevant materials and shall so warrant in writing to
ScanSoft within thirty (30) days of termination or expiration,
except that Buyer may retain one (1) copy of the Software only
for the purposes of providing its customers with ongoing
support. Buyer may distribute any paid-for Software in its
possession after termination or expiration.
15.0 GENERAL
15.1 NOTICES. All notices or demands required under this Agreement shall be
in writing and made by personal service, sent via certified mail return
receipt requested, by electronic mail via the Xerox intranet or by
facsimile with confirmation of transmission to the address of the
receiving party as set forth in this Agreement (or such different
address as either party may designate by notifying the other party in
writing).
15.2 ASSIGNMENT. Buyer shall not assign, transfer, or sell any of its
rights, or delegate any of its responsibilities under this Agreement
without ScanSoft' prior written consent. ScanSoft may assign this
Agreement only to a third party in connection with a merger,
consolidation or joint venture, or to a third party upon a sale or
transfer of substantially all of ScanSoft' business assets or
substantially all of the assets of a division or group responsible for
the Software.
15.3 GOVERNING LAW. This Agreement shall be interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
15.4 DISPUTES. The parties will first endeavor to informally resolve all
disputes between them prior to resorting to arbitration under this
Section. In any event that the parties are unable to informally resolve
any material dispute, it will be submitted to a Senior Xerox Executive
who has operational management responsibility for both ScanSoft and
Buyer.
15.5 NO IMPLIED WAIVERS. Failure of either party to require strict
performance by the other party of any provision shall not affect the
first party's right to require strict performance thereafter. Waiver by
either party of a breach of any provision shall not waive either the
provision itself or any subsequent breach.
15.6 SEVERABILITY. A judicial determination that any provision of this
Agreement is invalid in whole or part shall not affect the
enforceability of other provisions.
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15.7 EXPORT CONTROL. Buyer shall not export any Software or technical data
obtained from ScanSoft hereunder to any country for which the United
States of America or any agency thereof requires, at the time of
export, an export license or any other governmental approval without
first obtaining such license or approval.
15.8 ENTIRE AGREEMENT. This Agreement, along with those documents
incorporated by reference, constitute the entire agreement between the
parties concerning the subject matter hereof, superseding all previous
agreements, proposals, representations, or understandings, whether oral
or written. Modifications of this Agreement must be in writing and
signed by authorized representatives of both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates shown
below.
SCANSOFT, INC. BUYER: XEROX CORP. - CHANNELS GROUP
By: /S/ WAYNE CRANDALL By: /S/ SUSAN BYRD
--------------------------- ------------------------------
Name: WAYNE CRANDALL Name: SUSAN BYRD
--------------------------- ------------------------------
Title: V. P. SALES Title: V.P.G.M.
--------------------------- ------------------------------
Date: JUNE 29, 1998 Date: JUNE 24, 1998
--------------------------- ------------------------------
Address: 9 CENTENNIAL DRIVE Address:
--------------------------- ------------------------------
PEABODY, MA 01960
--------------------------- ------------------------------
USA
--------------------------- ------------------------------
Phone: 508-977-2000 Phone: 716-264-2558
--------------------------- ------------------------------
Fax: 508-977-2425 Fax: 716-383-9320
--------------------------- ------------------------------
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SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT A
SOFTWARE AND PRICING
**** ROYALTIES:
- --------------
Upon the execution of this Agreement, Buyer shall pay to ScanSoft a **** in
the amount of $****, as **** royalties according to the Royalty Schedule
set forth below.
ROYALTY SCHEDULE:
- ----------------
Buyer shall pay a per-copy royalty on each copy of the Software made by
Buyer according to the following schedule:
- ------------------------------------------------------------------------------
SOFTWARE PLATFORM ANNUAL QUANTITY UNIT FEE
($US)
- ------------------------------------------------------------------------------
Pagis SE/ TextBridge Pro 3.0 PC **** units $****
Pagis SE/TextBridge Pro 3.0 PC **** units $****
Pagis PRO N/A $****
- ------------------------------------------------------------------------------
QUARTERLY PAYMENT SCHEDULE:
--------------------------
Buyer shall provide to ScanSoft within fifteen (15) days after the end of
each calendar quarter a detailed statement setting forth the number of
units of the Bundled Solutions on or in which copies of the Software were
incorporated (regardless of whether any unit of Bundled Solution is
actually placed into use) during the previously completed calendar quarter.
This statement must be accompanied by payment in full of the fees shown
above. Buyer shall use its best efforts to meet the Expected Quantity
listed above.
PLEASE REMIT PAYMENT FOR INVOICES TO: OR FOR PAYMENT VIA ELECTRONIC FUNDS
TRANSFER TO:
ScanSoft, Inc. ScanSoft, Inc.
Attn: Accounts Receivable C/O Bank of Boston
9 Centennial Drive 100 Federal Street
Peabody, MA 01960 USA Boston, MA 02110 USA
Account Number: 522-89765
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT B
BUYER'S PRODUCTS
BUYER'S PRODUCT:
DESCRIPTION:
EXPECTED FCS:
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SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT C
STANDARD END-USER SOFTWARE LICENSE AGREEMENT
SCANSOFT, INC.
A SCANSOFT COMPANY
END-USER LICENSE AGREEMENT
- -------------------------------------------------------------------------------
THE SOFTWARE IS LICENSED, NOT SOLD, AND AVAILABLE FOR USE ONLY UNDER THE TERMS
OF THIS LICENSE AGREEMENT. PLEASE READ THIS AGREEMENT CAREFULLY. BY INSTALLING,
COPYING, OR OTHERWISE USING THE SOFTWARE, YOU AGREE TO BE BOUND BY THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
- -------------------------------------------------------------------------------
This ScanSoft, Inc. ("SCANSOFT") End User License Agreement accompanies a
ScanSoft software product and related explanatory written materials
("SOFTWARE"). The term "Software" shall also include any modified versions or
updates of the Software licensed to you by ScanSoft, but does not include source
code for the ScanSoft software product. This copy of the Software is licensed to
you as the end user.
1. LICENSE GRANT. Provided that you agree to the following terms and
conditions, ScanSoft grants to you a nonexclusive license to:
Install and use one copy of the Software on a single computer;
Store or install a copy of the Software on a storage device such as a
network server, used only to install or run the Software on your other
computers over an internal network, however, you must acquire and dedicate
a license for each separate computer on which the Software is installed or
run from the storage device. A license for the Software may not be shared
or used concurrently on different computers; and
Make a single copy of the Software solely for archival purposes.
MULTIPLE LICENSE PACK. If you have paid for a Multiple License Pack, you
may make additional copies of the Software up to the number of licenses
purchased, and you may use each copy in the manner specified above.
2. TERMINATION. Without prejudice to any other rights, ScanSoft may terminate
this Agreement if you fail to comply with the terms and conditions of this
Agreement. In such event, you must destroy all copies of the Software.
3. RENT/TRANSFER. You may not rent, lease, or sublicense the Software. You
may, however, transfer all your rights to use the Software to another
person or entity, provided (1) the third party receives a copy of this
Agreement and agrees to be bound by its terms and conditions, and (2) you
erase or destroy all other copies of the Software, (3) you at all times
comply with all applicable United States export control laws and
regulations, and (4) if the Software is an upgrade, any transfer must
include all prior versions of the Software.
4. COPYRIGHT. The Software is owned by ScanSoft and its suppliers, and the
Software structure, organization and code are the valuable assets of
ScanSoft and its suppliers. The Software is also protected by United States
Copyright Law (Title 17, U.S. Code) and certain International Treaty
provisions. You agree not to modify, adapt, translate, reverse engineer,
decompile, disassemble or otherwise attempt to discover the source code of
the Software. Except as stated in Section 1 above, this Agreement does not
grant you any intellectual property rights in the Software. Therefore, you
must treat the Software like any other copyrighted material. You may not
copy the printed materials accompanying the Software.
5. NO WARRANTY. The Software is being delivered to you "AS IS". SCANSOFT AND
ITS SUPPLIERS DO NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS YOU MAY
OBTAIN BY USING THE SOFTWARE OR DOCUMENTATION. SCANSOFT AND ITS SUPPLIERS
MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AS TO NONINFRINGEMENT OF THIRD
PARTY RIGHTS, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. IN NO
EVENT WILL SCANSOFT OR ITS SUPPLIERS BE LIABLE TO YOU FOR ANY
CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR
LOST SAVINGS, EVEN IF A SCANSOFT REPRESENTATIVE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY. Some
states or jurisdictions do not allow the exclusion or limitation of
incidental, consequential or special damages, or the exclusion of implied
warranties or limitations on how long an implied warranty may last, so the
above limitations may not apply to you.
6. GOVERNING LAW AND GENERAL PROVISIONS. This Agreement will be governed by
the laws of the State of Massachusetts U.S.A., excluding the application of
its conflicts of law rules. This Agreement will not be governed by the
United Nations Convention on Contracts for the International Sale of Goods,
the application of which is expressly excluded. If any part of this
Agreement is found void and unenforceable, it will not affect the validity
of the balance of the Agreement, which shall remain valid and enforceable
according to its terms. You agree that the Software will not be shipped,
transferred or exported into any country or used in any manner prohibited
by the United States Export Administration Act or any other export laws,
restrictions or regulations. This Agreement shall automatically terminate
upon failure by you to comply with its terms. This Agreement may only be
modified in writing signed by an authorized officer of ScanSoft.
7. U.S. GOVERNMENT RESTRICTED RIGHTS. The Software and documentation are
provided with RESTRICTED RIGHTS. If this product is acquired under the
terms of a: GSA contract- Use, reproduction or disclosure is subject to the
restrictions set forth in the applicable ADP Schedule contract; DoD
contract- Use, duplication or disclosure by the Government is subject to
restrictions as set forth in subparagraph (c) (1) (ii) of 252.227-7013;
Civilian agency contract- Use, reproduction, or disclosure is subject to
52.227-19 (a) through (d) and restrictions set forth in the accompanying
end user agreement. Unpublished-rights reserved under the copyright laws of
the United States.
ScanSoft, Inc., 9 Centennial Drive, Peabody, MA 01960 USA
ScanSoft, , TextBridge and Pagis are trademarks of either ScanSoft, Inc.
or Xerox Corporation and may be registered in certain jurisdictions.
<TABLE>
<S> <C> <C>
(c) 1997 ScanSoft, Inc. All rights reserved. 0697-td-license\scansoft_lics1.
</TABLE>
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<PAGE>
SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT D
LABEL INFORMATION & MATERIALS SPECIFICATIONS FOR CD VERSION
(TO BE PROVIDED)
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SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT E
LOGO USAGE GUIDELINES
(TO BE PROVIDED)
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<PAGE>
SCANSOFT
GOLD DISK BUNDLING AGREEMENT
EXHIBIT F
TRADEMARK USAGE GUIDELINES
The following footnote should appear on all material which bear ScanSoft
Trademarks.
Pagis(TM) is a Trademark of the ScanSoft Corporation.
<PAGE>
AMENDMENT #1
TO THE
GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
AMENDMENT NO. 1 to the GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
("THE AGREEMENT"), dated, July 10, 1997 between Xerox Corporation through its
Channels Group ("XEROX"), having offices at East Rochester, New York, and
SCANSOFT, INC. ("SCANSOFT"), having offices at 9 Centennial Drive, Peabody, MA,
01960. Terms not otherwise defined herein are used herein as defined in the GOLD
DISK BUNDLING AGREEMENT: PAGIS (TM) SE & PAGIS PRO.
WHEREAS, ScanSoft and Xerox desire to provide certain modification to the
Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1.0 PREMISES. ScanSoft and Xerox agree to incorporate into the Agreement
the addition of new licensed software (TextBridge Pro 98) and its
corresponding royalty schedule listed below. The TextBridge Pro 98
software shall be bound by the same terms and conditions and will be
collectively referred to as the ("SOFTWARE") in both the Agreement and
this Amendment unless specifically called out. Xerox may bundle
TextBridge Pro with any Xerox's scanners models.
2.0 TERM. This Amendment is effective upon the date of execution by
ScanSoft and Xerox. The term covered by License Grant in this Amendment
shall be consistent with, and subject to, the Term and Termination
provisions outlined in the Agreement.
3.0 LICENSE GRANT. During the term of this Amendment, ScanSoft hereby
grants to Xerox, under ScanSoft's applicable patents, copyrights and
other intellectual property rights, a nonexclusive worldwide license to
use the Software and reproduce copies in object code format only, onto
the media upon which a Product is distributed and to distribute such
copy within the Products sold, leased and/or licensed by Xerox.
4.0 ROYALTY FEES. Prepaid Royalties: In consideration of the above License
Grant and upon the execution of this Amendment, Xerox shall pay to
ScanSoft a **** in the amount of $****, for **** units, as prepaid
royalties according to the Royalty Schedule set forth below.
ROYALTY SCHEDULE:
Xerox shall pay a per-copy royalty on each copy of the Software made by
Xerox according to the following schedule:
- ------------------------------------------------------------------------------
SOFTWARE PLATFORM EXPECTED ANNUAL QUANTITY UNIT FEE
($US)
- ------------------------------------------------------------------------------
TextBridge Pro 98 PC **** $****
- ------------------------------------------------------------------------------
Except as specified herein, the Agreement shall remain as stated. In the event
of a conflict between the terms and conditions of the Agreement and this
Amendment, the Amendment shall control.
IN WITNESS WHEREOF, duly authorized representatives of ScanSoft and Xerox have
executed this Amendment.
SCANSOFT, INC. XEROX CORPORATION
By: /S/ WAYNE CRANDALL By: /S/ SUSAN BYRD
---------------------------- ---------------------------------
Name: WAYNE CRANDALL Name: SUSAN BYRD
-------------------------- -------------------------------
Title: VICE PRESIDENT Title: V.P./G.M.
------------------------- ------------------------------
Date: OCTOBER 23, 1998 Date: OCTOBER 22, 1998
-------------------------- -------------------------------
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 15
<PAGE>
AMENDMENT #2
TO THE
GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
AMENDMENT NO. 2 to the GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
("THE AGREEMENT"), dated, July 10, 1997 between Xerox Corporation through its
Channels Group ("XEROX"), having offices at East Rochester, New York, and
SCANSOFT, INC. ("SCANSOFT"), having offices at 9 Centennial Drive, Peabody, MA,
01960. Terms not otherwise defined herein are used herein as defined in the GOLD
DISK BUNDLING AGREEMENT: PAGIS (TM) SE & PAGIS PRO.
WHEREAS, ScanSoft and Xerox desire to provide certain modification to the
Agreement and Amendment No. 1 dated October 23, 1998. NOW, THEREFORE, in
consideration of the foregoing and the mutual promises hereinafter set forth,
the parties hereto agree as follows:
1.0 PREMISES. ScanSoft and Xerox agree to incorporate into the Agreement
the addition of new Xerox Products and their corresponding royalty
schedule listed below. For purposes of this Amendment, ("PRODUCTS")
shall be specifically defined as the Xerox models ****. Xerox may add
other hardware devise models to the Products listed upon prior written
notice to ScanSoft.
2.0 TERM. This Amendment is effective upon the date of execution by
ScanSoft and Xerox. The term covered by License Grant in this Amendment
shall be consistent with, and subject to, the Term and Termination
provisions outlined in the Agreement.
3.0 LICENSE GRANT. During the term of this Amendment, ScanSoft hereby
grants to Xerox, under ScanSoft's applicable patents, copyrights and
other intellectual property rights, a nonexclusive worldwide license to
use the Software and reproduce copies in object code format only, onto
the media upon which a Product is distributed and to distribute such
copy within the Products sold, leased and/or licensed by Xerox.
4.0 ROYALTY FEES. In consideration of the above License Grant and upon the
execution of this Amendment, Xerox shall pay to ScanSoft a **** in the
amount of $****, as prepaid royalties according to the Royalty Schedule
set forth below.
ROYALTY SCHEDULE:
- ----------------
Xerox shall pay a per-copy royalty on each copy of the Software made by
Xerox according to the following schedule:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SOFTWARE PLATFORM EXPECTED ANNUAL QUANTITY UNIT FEE ($US)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pagis Pro 2.0 and TextBridge Pro 3.0 PC **** $****
for Win 3.x users (see detail below)
- ----------------------------------------------------------------------------------------------
</TABLE>
SOFTWARE DESCRIPTION: **** shall contain: **** and **** for ****
and **** and **** and ****.
**** shall contain: ****
**** shall contain: **** in **** (**** per ****.
DELIVERY: ****
PAYMENT TERMS: ****
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 16
<PAGE>
NOTE: Unit Fee royalty rates stated above are applicable to the specific product
models listed in section 1.0. For all other models the royalty shall remain as
stated in the Agreement.
Except as specified herein, the Agreement shall remain as stated. In the event
of a conflict between the terms and conditions of the Agreement or Amendment No.
1 and this Amendment, this Amendment (Amendment No. 2) shall control.
IN WITNESS WHEREOF, duly authorized representatives of ScanSoft and Xerox have
executed this Amendment.
SCANSOFT, INC. XEROX CORPORATION
By: /S/ WAYNE CRANDALL By: /S/ GEORGE HERBERT
---------------------------- --------------------------------
Name: WAYNE CRANDALL Name: GEORGE D. HERBERT
-------------------------- ------------------------------
Title: V.P. SALES Title: V.P./G.M.
------------------------- -----------------------------
Date: DECEMBER 22, 1998 Date: DECEMBER 22, 1998
-------------------------- ------------------------------
Page 17
<PAGE>
AMENDMENT #3
TO THE
GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
AMENDMENT NO. 3 to the GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
("THE AGREEMENT"), dated, July 10, 1997 between Xerox Corporation through its
Channels Group ("XEROX"), having offices at East Rochester, New York, and
SCANSOFT, INC. ("SCANSOFT"), having offices at 9 Centennial Drive, Peabody, MA,
01960. Terms not otherwise defined herein are used herein as defined in the GOLD
DISK BUNDLING AGREEMENT: PAGIS (TM) SE & PAGIS PRO.
WHEREAS, ScanSoft and Xerox desire to provide certain modification to the
Agreement, Amendment No. 1 dated October 23, 1998, Amendment No. 2 dated
December 22, 1998. NOW, THEREFORE, in consideration of the foregoing and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1.0 PREMISES. ScanSoft and Xerox agree to incorporate into the Agreement
the addition of new Xerox Products and their corresponding royalty
schedule listed below. For purposes of this Amendment, ("PRODUCTS")
shall be specifically defined as the Xerox model: ****. Xerox may add
other hardware devise models to the Products listed upon prior written
notice to ScanSoft.
2.0 TERM. This Amendment is effective upon the date of execution by
ScanSoft and Xerox. The term covered by License Grant in this Amendment
shall be consistent with, and subject to, the Term and Termination
provisions outlined in the Agreement.
3.0 LICENSE GRANT. During the term of this Amendment, ScanSoft hereby
grants to Xerox, under ScanSoft's applicable patents, copyrights and
other intellectual property rights, a nonexclusive worldwide license to
use the Software and reproduce copies in object code format only, onto
the media upon which a Product is distributed and to distribute such
copy within the Products sold, leased and/or licensed by Xerox.
4.0 ROYALTY FEES. In consideration of the above License Grant and upon the
execution of this Amendment, Xerox shall pay to ScanSoft a **** in the
amount of $****, as prepaid royalties according to the Royalty Schedule
set forth below.
ROYALTY SCHEDULE:
- ----------------
Xerox shall pay a per-copy royalty on each copy of the Software made by
Xerox according to the following schedule:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SOFTWARE PLATFORM EXPECTED ANNUAL QUANTITY UNIT FEE ($US)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pagis Pro 2.0 and TextBridge Pro 3.0 PC **** $****
for Win 3.x users (see detail below)
- -----------------------------------------------------------------------------------------------------
</TABLE>
SOFTWARE DESCRIPTION: **** shall contain: **** and **** for ****
and **** and **** and **.
**** shall contain: ****
**** shall contain: **** in **** (**** per ****.
DELIVERY: ****
PAYMENT TERMS: ****
NOTE: Unit Fee royalty rates stated above are applicable to the specific product
models listed in section 1.0. For all other models the royalty shall remain as
stated in the Agreement.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 18
<PAGE>
Except as specified herein, the Agreement shall remain as stated. In the event
of a conflict between the terms and conditions of the Agreement, Amendment No. 1
or Amendment No. 2 and this Amendment, then this Amendment (Amendment No. 3)
shall control.
IN WITNESS WHEREOF, duly authorized representatives of ScanSoft and Xerox have
executed this Amendment.
SCANSOFT, INC. XEROX CORPORATION
By: /S/ WAYNE CRANDALL By: /S/ SUSAN BYRD
----------------------------------- -------------------------------
Name: WAYNE CRANDALL Name: SUSAN BYRD
--------------------------------- -----------------------------
Title: V.P. SALES Title:
-------------------------------- ----------------------------
Date: JANUARY 5, 1998 Date: DECEMBER 18, 1998
--------------------------------- -----------------------------
Page 19
<PAGE>
AMENDMENT #4
TO THE
GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
AMENDMENT NO. 4 to the GOLD DISK BUNDLING AGREEMENT: PAGIS(TM) SE & PAGIS PRO
("THE AGREEMENT"), dated, July 10, 1997 between Xerox Corporation through its
Channels Group ("XEROX"), having offices at East Rochester, New York, and
SCANSOFT, INC. ("SCANSOFT"), having offices at 9 Centennial Drive, Peabody, MA,
01960. Terms not otherwise defined herein are used herein as defined in the GOLD
DISK BUNDLING AGREEMENT: PAGIS (TM) SE & PAGIS PRO.
WHEREAS, ScanSoft and Xerox desire to provide certain modification to the
Agreement, Amendment No. 1 dated October 23, 1998, Amendment No. 2 dated
December 22, 1998, and Amendment No.3 dated January 5, 1999. NOW, THEREFORE, in
consideration of the foregoing and the mutual promises hereinafter set forth,
the parties hereto agree as follows:
1.0 PREMISES. ScanSoft and Xerox agree to incorporate into the Agreement
the addition of new ScanSoft licensed Software (**** as an **** of ****
software) and its corresponding royalty schedule listed below. For
purposes of this Amendment, ("PRODUCTS") shall be specifically defined
as the Xerox model: ****. Xerox may add other hardware devise models to
the Products listed upon prior written notice to ScanSoft. Xerox ****
the **** except as **** of **** software combined with the Product.
2.0 TERM. This Amendment is effective upon the date of execution by
ScanSoft and Xerox. The term covered by License Grant in this Amendment
shall be consistent with, and subject to, the Term and Termination
provisions outlined in the Agreement.
3.0 LICENSE GRANT. During the term of this Amendment, ScanSoft hereby
grants to Xerox, under ScanSoft's applicable patents, copyrights and
other intellectual property rights, a nonexclusive worldwide license to
use the Software and reproduce copies in object code format only, onto
the media upon which a Product is distributed and to distribute such
copy within the Products sold, leased and/or licensed by Xerox.
4.0 ROYALTY FEES. In consideration of the above License Grant and upon the
execution of this Amendment, Xerox shall pay to ScanSoft a **** in the
amount of $****, as prepaid royalties according to the Royalty Schedule
set forth below.
ROYALTY SCHEDULE:
- ----------------
Xerox shall pay a per-copy royalty on each copy of the Software made by
Xerox according to the following schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE PLATFORM EXPECTED ANNUAL QUANTITY UNIT FEE ($US)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TextBridge API as provided within the PC **** $****
WordCraft Fax Software Application
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PAYMENT TERMS: ****
Except as specified herein, the Agreement shall remain as stated. In the event
of a conflict between the terms and conditions of the Agreement, Amendment No.
1, Amendment No. 2 and Amendment No. 3 and this Amendment, then this Amendment
(Amendment No. 4) shall control.
IN WITNESS WHEREOF, duly authorized representatives of ScanSoft and Xerox have
executed this Amendment.
SCANSOFT, INC. XEROX CORPORATION
By: /S/ WAYNE CRANDALL By: /S/ SUSAN P. BYRD
---------------------------- ---------------------------------
Name: WAYNE CRANDALL Name: SUSAN P. BYRD
-------------------------- -------------------------------
Title: VICE PRESIDENT SALES Title: VPMG, XCG
------------------------- ------------------------------
Date: JANUARY 12, 1999 Date: JANUARY 12, 1999
-------------------------- -------------------------------
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 20
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
---------------------------------------------------------
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION
--------------------------------------------------
SCANSOFT - XEROX
GOLD DISK BUNDLING AGREEMENT
This Agreement is between XEROX CORPORATION, OFFICE DOCUMENT PRODUCTS GROUP and
such Xerox Affiliates as defined below ("XEROX"), and SCANSOFT, INC.
("SCANSOFT") a Xerox company as agreed in writing to be bound by the terms and
conditions hereof, and shall be effective as of March __, 1998 ("Effective
Date"), upon the terms and conditions set forth below.
1.0 PREMISES & DEFINITIONS
1.1 This Agreement applies only to the ScanSoft-brand software product(s)
listed in Section 3.2 (referred to collectively as the "SOFTWARE").
1.2 "XEROX AFFILIATES" shall mean Xerox Canada Inc., Xerox Limited, and
Fuji Xerox Co. Ltd., and any entity, which is 50% or more, owned
directly or indirectly by Xerox Corporation or Xerox Limited but shall
not include ScanSoft, Inc.
1.3 Xerox wishes to acquire a master copy of the Software and its
documentation on disk (the "GOLD DISK"), to produce copies of the
Software and its associated documentation, combine such Software with
multi-function devices ("DOCUMENT CENTRE SYSTEMS" AND SIMILAR HARDWARE)
to create "BUNDLED SOLUTIONS" and to distribute such Bundled Solutions
to Xerox Affiliates, resellers and end users. Xerox shall not
distribute the Software except as part of the Bundled Solutions.
1.4 A Bundled Solution will include **** (****) Software licenses for each
Document Centre System sold, **** (****) Software licenses for
individual users and one (1) license for a server based OCR
application. Customers that require more than **** per multi-function
device installation may order additional copies of Software directly
from ScanSoft.
2.0 ADDITIONAL RESPONSIBILITIES OF XEROX
2.1 MARKETING. "TextBridge Pro" and/or the ScanSoft Software logo, provided
to Xerox upon signing of this Agreement, may be displayed in all
advertising, product literature, and in a conspicuous location on the
Bundled Solutions packaging.
ScanSoft will provide the artwork for the logo.
2.1.1 Xerox agrees to provide ScanSoft with access to all registered
customers of Xerox' Bundled Solution through the ScanSoft
software support registration process if a registration process
is used and database is available
2.1.2 Xerox shall provide ScanSoft, at no charge, one (1) unit each of
the Bundled Solutions to be used for support training, QA
testing and promotional activities.
3.0 ROYALTIES
3.1 The Software shall be licensed at the Bundled Solution license fee set
forth below. A Bundled Solution license fee is payable to ScanSoft
based on the calculated number of Bundled Solutions. The parties agree
that in order to calculate the Bundled Solution royalty payable to
ScanSoft, Xerox shall not less than quarterly, submit to ScanSoft a
statement showing the net number of royalty bearing units of Software
licensed to third parties which shall be calculated by subtracting the
number of units of Software returned by third parties in conjunction
with the return of a unit of the multi-function device from the total
number of units of the Software licensed to a third party during such
period. Xerox may use a reasonable number of copies for demonstration
and promotion purposes without paying a license fee. The TextBridge Pro
component of the Software shall be distributed by Xerox with ****, in
an earlier version if possible. Xerox may license additional units of
Software at the Unit License Fee below for customers who
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 1
<PAGE>
request additional Software units. Such Software license shall not
exceed **** (****) licenses per sale of each Document Centre Systems
and/or similar hardware.
3.2 Upon the execution of this Agreement, Xerox shall pay to ScanSoft
royalties according to the schedule set forth below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SOFTWARE PLATFORMS PRE-PAID UNIT LICENSE FEE BUNDLED SOLUTION
(FOR ****) SUPPORTED LICENSES ($US) LICENSE FEE
(EXTENDED SYSTEM
FEE)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXTBRIDGE PRO
(TEXTBRIDGE PRO FOR WINDOWS 3.1) PC-Win95, WinNT **** $**** $****
(TEXTBRIDGE PRO 98 FOR WINDOWS and Win 3.11
95/NT 4.0)
See ATTACHMENT II - TEXTBRIDGE
PRO LANGUAGE SPECIFICATIONS for
complete list of User Interfaces
and Recognized Languages
supported.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
3.3 Xerox shall provide to ScanSoft, within **** (****) days after the end
of each calendar quarter, a detailed statement setting forth the net
number of the Bundled Solutions on which copies of the Software were
licensed or sublicensed to third parties during the previously
completed calendar quarter. The statement shall be accompanied by
payment in full for license fees due to ScanSoft.
4.0 SECOND LEVEL TECHNICAL SUPPORT
4.1 The details of training delivery by ScanSoft and the TextBridge Pro
training material are listed in Attachment III - TEXTBRIDGE PRO
TECHNICAL SUPPORT AND TRAINING.
4.2 ScanSoft will provide Second and Third Level Support to Xerox' Customer
Support, as it may be reasonably requested by Xerox, to fulfill its
maintenance obligations to its resellers and end users. The details of
technical support responsibilities of ScanSoft and Xerox are listed in
Attachment III - TEXTBRIDGE PRO TECHNICAL SUPPORT AND TRAINING.
4.3 If customer problem was determined to be caused by a defect in media,
Xerox shall issue a replacement media to a customer and Xerox agrees to
pay for all associated costs incurred by such replacement.
5.0 TITLE
Title and all rights of ownership to the Software, and all copies of
all or any part thereof, are and remain with ScanSoft at all times.
Xerox agrees to place Xerox-ScanSoft's copyright notice (using the
international copyright symbol) on each copy of Software made by Xerox.
6.0 LICENSE
6.1 LICENSE GRANT. ScanSoft hereby grants to Xerox, under ScanSoft's
applicable patents, copyrights and other intellectual property rights,
a perpetual, nonexclusive, worldwide right and license to use, market,
maintain, reproduce, (in any medium including firmware) translate,
prepare, display, lease, and sub-license the Software and reproduce
copies in object code format only, onto the media form contained within
a Bundled Solution and to distribute such copies with the Bundled
Solutions sold, leased and/or licensed by Xerox.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 2
<PAGE>
6.2 Xerox shall ensure that each copy of the Software is marketed with (1)
the Software's user documentation, (2) the Software License Agreement,
and (3) Electronic Warranty Registration Process. Xerox shall adhere to
ScanSoft's specifications (in Attachment I) for the Software's user
documentation when manufacturing such documentation. Any deviations
from such specifications will require advance written approval from
ScanSoft. ScanSoft may require samples reflecting such deviations for
review prior to issuing its approval.
6.3 ScanSoft shall ensure compatibly between the Software and Xerox'
Products. Xerox shall test such Software compatibility in their
standard end-user configuration. If the Software and Xerox' Products
are not compatible then Xerox may use the options stated in 7.03 as a
remedy.
7.0 WARRANTY AFTER APPROVAL
7.01 The Software provided to Xerox herein is licensed without any
modification or customization. ScanSoft shall warrant the Gold Disk to
be free from known viruses and material program defects for a period of
thirty (30) days from the date of delivery of the master Gold Disk.
7.02 If any material program errors with the Software are discovered by
Xerox, ScanSoft shall use reasonable efforts to correct such errors at
no charge to Xerox within a correction period of thirty (30) days
following receipt of written notice from Xerox of such errors.
7.03 If the program errors of 7.02 cannot be eliminated by ScanSoft in the
thirty (30) day correction period, then as Xerox' remedy and at its
option Xerox may:
(a) extend the correction period by an amount of time as may be determined
by Xerox; or
(b) approve the Software with an equitable reduction in any Fee as
materially determined by the parties; or
(c) reject the Software by notifying ScanSoft of such in writing and
promptly returning all Software to ScanSoft with all copies made
thereof and ScanSoft shall refund the License Fee paid by Xerox for
such units of Software returned to Xerox by its customers within the
warranty period stated in section 7.01.
7.04 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH HEREIN, SCANSOFT HEREBY
DISCLAIMS AND XEROX HEREBY EXPRESSLY WAIVES ANY AND ALL OTHER EXPRESS
WARRANTIES OR REPRESENTATIONS OF ANY KIND OR NATURE, AND ANY AND ALL
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.05 END-USER WARRANTY. In the event any end user makes a warranty claim
against ScanSoft or which is outside of the warranty set forth in
Section 7.01, ScanSoft shall honor such warranty but Xerox shall hold
ScanSoft harmless from and against such warranty claims and Xerox shall
pay ScanSoft the actual costs incurred by ScanSoft in honoring such
warranty claim.
8. 0 TERMINATION
8.01 This Agreement is effective upon the date of execution by ScanSoft and
Xerox ODPG. Subject to the termination provisions set forth in this
Agreement, the initial term shall commence on the Effective Date and
run for an eighteen (18) month period. This Agreement may be renewed
for successive one-year periods by mutual written consent of the
parties. Upon termination or expiration, Xerox shall stop production
and distribution of the Software.
8.02 Either ScanSoft or Xerox may terminate this Agreement by written notice
of termination to the other party upon a material breach by ScanSoft or
Xerox which has not been cured within thirty (30) days of written
notice of such breach. Confidential Obligations (the obligations as to
Confidential Information) herein shall not be waived and shall survive
termination.
8.03 BREACHES PROVIDING GROUNDS FOR IMMEDIATE TERMINATION. ScanSoft shall
have the right to immediately terminate this Agreement if Xerox
breaches the provisions of this Agreement regarding: (1) ScanSoft
confidential information; (2) the unauthorized license or marketing of
ScanSoft Software.
Page 3
<PAGE>
8.04 Xerox reserves the right, in whole or in part, in the exercise of its
discretion, to terminate this Agreement upon not less than thirty (30)
days written notice to ScanSoft. In the event of termination or upon
expiration of this Agreement, ScanSoft shall return to Xerox any and
all documents, materials, work product and all copies made thereof,
which were obtained by ScanSoft from Xerox.
9.0 EFFECT OF TERMINATION
9.01 Termination or nonrenewal shall not relieve either party of obligations
incurred prior to termination or expiration or of obligations which by
their nature or term survive termination or expiration. All monies due
to ScanSoft from Xerox shall become immediately due and payable upon
any termination.
9.02 Upon termination or expiration, Xerox shall (1) immediately stop
production and distribution of the Software and (2) cease using the
name "ScanSoft" or "TextBridge Pro". Xerox shall destroy any ScanSoft
software contained in all types of computer memory and all relevant
materials and shall so warrant in writing to ScanSoft within thirty
(30) days of termination or expiration, except that Xerox may retain a
reasonable quantity of the Software only for the purposes of providing
its customers with ongoing support. Xerox may distribute any paid-for
Software in its possession after termination or expiration.
9.03 Additionally, each party shall return to the other party any and all
confidential documents or materials.
10.0 INDEMNIFICATION
10.01 ScanSoft represents and warrants that it has sufficient right, title
and interest in and to the Software to enter into this Agreement and
further warrants that it is not aware that Software infringes any
patent, copyright or other proprietary right of a third party and that
it has not been notified by a third party of a possibility that the
Software might infringe any patent, copyright or other proprietary
right of a third party.
10.02 ScanSoft shall defend Xerox and Xerox Affiliates from, and pay any
judgment for, any claim, action or other proceeding brought against
Xerox or Xerox Affiliates arising from the use of the Software,
providing that such Xerox or Xerox Affiliates promptly notifies
ScanSoft in writing of any action or claim, allows ScanSoft, at
ScanSoft's expense, to direct the defense, gives ScanSoft full
information and reasonable assistance required to defend such suit,
claim or proceeding, at no out-of-pocket expense to Xerox, and allows
ScanSoft to pay any judgment, provided further that ScanSoft shall have
no liability for any claim, action or other proceeding based upon acts
or omissions by Xerox, the combination of the Software with hardware or
software not provided by ScanSoft if the claim relates to such
combination, or for settlements or costs incurred without the knowledge
of ScanSoft. To avoid infringement, ScanSoft may, at its option, and at
no charge to Xerox, obtain a license or right to continue the use of
the Software, or modify the Software so it no longer infringes, but is
still a functional equivalent of the Software, or substitute a
functional equivalent of the Software. If none of the foregoing are
commercially practicable, ScanSoft may, as Xerox' remedy under this
Section 10.02 accept the return of all infringing Software and refund
to Xerox all applicable License Fees therefore.
10.03 The foregoing indemnity does not apply, and Xerox agrees to indemnify
ScanSoft (including reasonable costs and attorneys' fees), with respect
to any claim brought against ScanSoft concerning patent or copyright
infringement allegedly arising from: (1) the unauthorized combination
or utilization by Xerox of any Software or (2) the unauthorized
modification of any Software by Xerox; (3) any Software manufactured by
ScanSoft to Xerox' specifications; (4) the production of images in
violation of the proprietary rights of third parties.
11.0 DISCLAIMER
11.01 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST
CONTRACTS OR LOST PROFITS OR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF THE USE OF THE SOFTWARE
OR RELATING TO THIS AGREEMENT HOWEVER CAUSED UNDER A CLAIM
Page 4
<PAGE>
OF ANY TYPE OR NATURE BASED ON ANY THEORY OF LIABILITY (INCLUDING
CONTRACT, TORT OR WARRANTY) EVEN IF THE POSSIBILITY OF SUCH DAMAGES HAS
BEEN COMMUNICATED. THIS DISCLAIMER DOES NOT APPLY TO THE AFORESAID
INDEMNIFICATION.
12.0 FORCE MAJEURE
12.01 Neither party shall be liable to the other for its failure to perform
any of its obligations hereunder during any period in which such
performance is delayed by circumstances beyond its reasonable control,
provided that the party experiencing such delay promptly notifies the
other party of the delay.
13.0 CONFIDENTIAL INFORMATION
13.01 This Agreement supersedes any prior agreement with Office Document
Products as to the Software (with respect to Confidential Information).
13.02 Each party agrees not to intentionally disclose or intentionally make
available to any third party information received from the other party
(hereinafter referred to as "Information" or "Confidential
Information") in any form without the express written approval of the
disclosing party.
13.03 Receiving party shall not use such Information except to the extent
necessary to perform under this Agreement and shall not intentionally
circulate the Information within its own organization except to those
with a specific need to know such Information. If written approval by
disclosing party is given to receiving party to disclose Information to
a third party, receiving party shall impose similar confidential
restrictions on such third party to whom it discloses such Information.
13.04 The obligations on receiving party recited herein shall terminate with
respect to any particular portion of such Information when and to the
extent that it is or becomes:
(a) part of the public domain through no fault of receiving party;
(b) communicated by disclosing party to a third party free of any
obligation of confidence;
(c) independently developed by receiving party with-out any reference
to the Information;
(d) known to receiving party free of any obligation of confidence.
13.05 In no event shall the obligation of receiving party with respect to the
Information extend beyond three (3)years from the date of disclosure.
13.06 Upon request by disclosing party or termination of this Agreement,
whichever occurs first, receiving party agrees to promptly return the
Information to the disclosing party.
14.0 ASSIGNMENT
14.01 This Agreement may not be assigned or transferred by either party
without the prior written approval of the other party; provided that
ScanSoft may assign its rights to any purchaser of all or substantially
all of its business, and Xerox may assign its rights hereunder, or any
portion thereof, to any subsidiary or affiliate of Xerox or to any
purchaser of all or substantially all of its equipment business for
which the Software is then licensed. Further, Xerox' or Xerox
Affiliates' rights and obligations under this Agreement may be
exercised and performed in whole or in part by any subsidiary or
affiliate of Xerox, provided that Xerox shall continue to be
responsible to ScanSoft for the performance of its obligations under
this Agreement. Subject to the limitations heretofore expressed, this
Agreement shall inure to the benefit of and be binding upon the
parties, their successors, administrators, heirs and assigns.
15.0 MODIFICATION
15.01 This Agreement constitutes the entire Agreement of the parties as to
the subject matter hereof and supersedes all prior and contemporaneous
communications. This Agreement shall not be modified, except by a
written Agreement signed by duly authorized representatives of ScanSoft
and Xerox.
Page 5
<PAGE>
16.0 BANKRUPTCY OF SCANSOFT OR XEROX
16.01 To the extent permitted by applicable law (including II U.S.C. Section
365) the non-defaulting party may terminate this Agreement immediately
by written notice to the other in the event the other party makes an
assignment for the benefit of its creditors, admits in writing an
inability to pay debts as they mature, a trustee or receiver is
appointed respecting all or a substantial part of the other party's
assets, or a proceeding is instituted by or against the other party
under any provision of the Federal Bankruptcy Act and is acquiesced in
or is not dismissed within sixty (60) days, or results in an
adjudication of bankruptcy. To the extent applicable law prevents the
non-defaulting party from terminating this Agreement, if it should wish
to do so as described above, then the parties shall have only those
rights and remedies permitted by applicable law, including the United
States Bankruptcy Act, including but not limited to II U.S.C. Section
365.
17.0 COMPLIANCE WITH THE LAW
17.01 Each party represents and warrants compliance with all Federal, State
and local laws, ordinances and regulations applicable to this Agreement
including, but not limited to, (a) applicable requirements of (a)of the
Fair Labor Standards Act, (b) Executive Order 11246(c) the Vietnam Era
Veterans Readjustment Assistance Act and the Rehabilitation Act.
18.0 NONPUBLICITY
18.01 Without prior written consent of the other Party, a party shall not (a)
make any news release, public announcement, denial or confirmation of
this Agreement or its subject matter, or (b) advertise or publish any
facts relating to this Agreement.
19.0 CONTROLLING LAW
19.01 This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
20.0 GENERAL PROVISIONS
20.01 Waiver Failure of either party to require strict performance by the
other party of any provision shall not affect the first party's right
to require strict performance thereafter. Waiver by either party of a
breach of any provision shall not waive either the provision itself or
any subsequent breach.
20.02 No Agency It is agreed and understood that neither Xerox nor ScanSoft
has any authority to bind the other with respect to any matter
hereunder. Under no circumstances shall either Xerox or ScanSoft have
the right to act or make any commitment of any kind to any third party
on behalf of the other or to represent the other in any way as an
agent.
20.03 Survival The provisions of this Agreement shall, to the extent
applicable, survive the expiration or any termination hereof including,
but without limitation, any perpetual license herein granted.
20.04 Headings The headings and titles of the Sections of the Agreement are
inserted for convenience only, and shall not affect the construction or
interpretation of any provision.
20.05 Severability If any provision of the Agreement is held invalid by any
law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity shall not
affect the enforceability of any other provisions not held to be
invalid.
20.06 Entire Agreement This Agreement constitutes the entire Agreement of the
parties as to the subject matter hereof and supersedes any and all
prior oral or written memoranda, understandings and Agreements as to
such subject matter.
21.0 YEAR 2000 WARRANTY
------------------
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<PAGE>
21.01 ScanSoft represents and warrants that the Software and Third Party
Software delivered under this Agreement is Year 2000 performance compliant and
thus shall be able to accurately process date data (including, but not limited
to, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, including leap year calculations. The
remedies available to Xerox for breach of this warranty shall include prompt
repair or replacement of any Software and Third Party Software or part thereof
whose non-compliance is discovered and made known to ScanSoft in writing.
Nothing in this warranty shall be construed to limit any rights or other
remedies Xerox may otherwise have under this Agreement with respect to
uncorrected program errors or defects.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates shown
below.
SCANSOFT, INC. XEROX CORPORATION, ODP
By: /S/ WAYNE CRANDALL By: /S/ RAY VALUKONIS
-------------------------- ----------------------------
Name: WAYNE CRANDALL Name: RAY VALUKONIS
-------------------------- ----------------------------
Title: V.P. Title: V.P. FINANCE
-------------------------- ----------------------------
Date: MARCH 25, 1998 Date: MARCH 19, 1998
-------------------------- ----------------------------
Address: 9 CENTENNIAL DRIVE Address: 200 CANAL VIEW BLVD, MS 831
--------------------------- ----------------------------
PEABODY, MA 01960 ROCHESTER, NY 14623
--------------------------- ----------------------------
USA USA
--------------------------- ----------------------------
Phone: 978-977-2000 Phone:
--------------------------- ----------------------------
Fax: 978-977-2425 Fax:
--------------------------- ----------------------------
Page 7
<PAGE>
SCANSOFT - XEROX
GOLD DISK BUNDLING AGREEMENT
ATTACHMENT I
TEXTBRIDGE PRO MATERIALS SPECIFICATIONS
1) TEXTBRIDGE PRO SOFTWARE KIT (CD)
A) SOFTWARE SPECS
FORMAT CD-ROM
QUANTITY 1
MASTER Provided as CD-R
B) CD SCREENPRINT ARTWORK
PROCESS To be printed on each CD
COLOR Two color (red & black)
ARTWORK Master artwork provided by MarCom in specified format
C) TEXTBRIDGE CD TRAY INLAY
DESCRIPTION Includes serial number
PROCESS To included in rear cover of CD Jewel case
ARTWORK Master artwork provided by MarCom in specified format
SERIAL NUMBER Serial number scheme and range to be provided by
Manufacturing
D) TEXTBRIDGE CD JEWEL CASE
DESCRIPTION Standard clear plastic CD Jewel Case with black tray
2) TEXTBRIDGE PRO USER'S GUIDE
A) ELECTRONIC FOR ONLINE MANUAL
MASTER Provides as PDF file on Master CD-R
A) HARD COPY
I) INTERNAL PAGE SPECIFICATIONS
PAGE SIZE 7.25 x 8.375 inches - double-sided pages per provided
masters (except where otherwise
specified)
PAGE COUNT 123 pages plus cover (WINDOWS);
STOCK At least 50 lb. Opaque Smooth Paper (60 lb. preferred)
TYPE COLOR One-color (Black)
BINDING Perfectbind or equivalent
II) COVER PAGE SPECS
COLOR Two color with Clear Aqueous-based varnish finish
STOCK 10 pt. coated White Carolina Paper
BINDING Perfect Binding
4) TEXTBRIDGE WARRANTY REGISTRATION CARD
SIZE 6.875 x 4.875 inches
STOCK 10 pt. Coated
COLOR Two Color
FINISHING Scored and folded to finished size 5.5 x 4.25 inches
TYPE One-color (Black)
NOTE: ARTWORK WILL BE PROVIDED AS MACINTOSH POSTSCRIPT
FILES.
Page 8
<PAGE>
SCANSOFT - XEROX
GOLD DISK BUNDLING AGREEMENT
ATTACHMENT II
TEXTBRIDGE PRO LANGUAGE SPECIFICATIONS
1.) TEXTBRIDGE PRO 3.0 FOR USE WITH MICROSOFT WINDOWS(R) 3.1
NORTH AMERICA/UK Version: Page size default = letter
Interface: English
Recognizes: English, French, German, Italian, and Spanish
FRENCH VersionPage size default = A4
Interface: French
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
GERMAN VersionPage size default = A4
Interface: German
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
ITALIAN Version Page size default = A4
Interface: Italian
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
SPANISH Version Page size default = A4
Interface: Spanish
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
BRAZILIAN PORTUGUESE Version Page size default = A4
Interface: Brazilian Portuguese
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
2.) TEXTBRIDGE PRO 98 FOR USE WITH MICROSOFT WINDOWS(R)95 AND NT
NORTH AMERICA/UK VERSION: Page size default = A4
Interface: English
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
FRENCH VersionPage size default = A4
Interface: French
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
GERMAN VersionPage size default = A4
Interface: German
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
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<PAGE>
ITALIAN Version Page size default = A4
Interface: Italian
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
SPANISH Version Page size default = A4
Interface: Spanish
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
BRAZILIAN PORTUGUESE Version Page size default = A4
Interface: Brazilian Portuguese
Recognizes: Danish, Dutch, English, Finnish, French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
Page 10
<PAGE>
SCANSOFT - XEROX
GOLD DISK BUNDLING AGREEMENT
ATTACHMENT III
TEXTBRIDGE PRO TECHNICAL SUPPORT AND TRAINING
1.) PRODUCT SUPPORT BY SCANSOFT AND XEROX
ScanSoft will provide technical support to Xerox' Customer Support, as it may be
reasonably requested by Xerox, to fulfill its maintenance obligations to its
resellers and end users. Technical support shall include telephone support to
Xerox' engineering staff on the operation, integration and utilization of the
Software, and maintenance modifications and bug corrections for the Software to
bring them into conformance with the specifications. There will be no charge to
Xerox for this level of support. When a customer problem is determined by Xerox'
Customer Support to be associated directly with the Software and resolution of
the problem is not within the range of training received or knowledge accrued by
Xerox' Customer Support, Xerox' Customer Support may either, contact ScanSoft's
telephone support for assistance or refer the end user directly to ScanSoft's
Customer Support.
2.) SUPPORT LEVELS
2.1 FIRST LEVEL SUPPORT Cases that can be immediately answered and require no
callback to the customer. No assistance from Second Level Support is
required.
2.2 SECOND LEVEL SUPPORT Cases that involve knowledge of the Software
program, problem isolation or investigation by technical support
technicians and may require a callback to the customer. Assistance from
Third Level Support may be required.
2.3 THIRD LEVEL SUPPORT Cases that involve detailed knowledge of the Software
program, problem isolation and investigation by Xerox engineers.
Assistance and resolution may be required from the other party.
3.) SCANSOFT RESPONSE TO PROBLEMS RANKED BY SEVERITY
3.1 SEVERITY 1 PROBLEMS. Means this Software has a problem, defect or
malfunction which renders the Software or a major component of the
Software inoperative. With a Severity l Problem there is a significant
and on-going interruption to the end user or customers business or there
is an unrecoverable loss or corruption of data. No circumvention is
available. ScanSoft agrees to commence an investigation of any "Severity
1 Problems" within **** (****) business day of notice by Xerox and
initiate the development of corrections immediately thereafter. ScanSoft
shall commit commercially reasonable efforts to provide Xerox with a fix,
workaround or permanent fix within **** (****) business days.
3.2 SEVERITY 2 PROBLEMS. Means the Software has a problem, defect or
malfunction where the Software or a major component or the Software is
not working or is malfunctioning in a manner which restricts the end user
or customers use of the Software. ScanSoft agrees to commence an
investigation of any "Severity 2 Problems" within **** (****) business
days of notice by Xerox and initiate the development of corrections
immediately thereafter. ScanSoft shall commit commercially reasonable
efforts to provide Xerox with a fix, workaround or permanent fix within
**** (****) weeks.
3.3 SEVERITY 3 PROBLEMS. Means the Software has a problem. defect or
malfunction where the Software or a component of the Software is not
functioning as specified in the documentation and caused a minor impact
on the end user or customers use of the Software. An acceptable
circumvention or workaround is available. ScanSoft agrees to commence an
investigation of any "Severity 3 Problems" within **** (****) business
days of notice by Xerox and shall be corrected in future releases of the
Software.
4.) SUPPORT CONTACTS
4.1 ScanSoft and Xerox will provide Warm Transfer (call forwarding)
capabilities between Xerox Third Level Support and ScanSoft for support
in the US, Canada and Europe. ScanSoft will make an OEM Hotline telephone
line available to the same Xerox locations for warm transfer calls. At a
minimum, this support will be provided by ScanSoft in the US during the
business hours of 08:30 to 17:30 Eastern Time, Monday through Friday
(ScanSoft holidays excluded).
4.2 ScanSoft will provide US-based OEM Hotline for calls from Xerox Customer
Support Centers in Latin and South America during the same business hours
as above.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 11
<PAGE>
4.3 ScanSoft will provide web and email based support
([email protected]) for Xerox Customer Support Centers on
a worldwide basis. 4.1
4.4 Second and Third Level local language support for calls in Europe (XL) is
provided by an office in the UK in German, French, and Italian; in Canada
(XCI) support is provided by an office in the US in English only; and in
Latin America (ACO) support is provided by an office in the US in English
only, or via email in English.
4.5 ScanSoft and Xerox will each designate a technical support contact person
responsible for overall communications between each company.
5.) SUPPORT RESPONSIBILITY
ScanSoft will provide all levels of support for any TextBridge Pro Software
scanner related questions other than those questions related directly to the
Document Centre Systems scanning. In cases where Xerox receives call on any
questions concerning TWAIN, or other scanner driver connectivity, it will be the
responsibility of ScanSoft and will be forwarded from Xerox to ScanSoft. The
customer may call the TextBridge support line at 800-880-8806 with in the USA,
978-977-0764 for outside of the USA and add UK phone numbers for European
support for assistance with such questions. Xerox Customer Support will be
responsible for all other calls related to the TextBridge Pro Software operation
and the Document Centre Systems scan to file capabilities. ScanSoft will forward
all calls related to the Document Centre Systems and the related scan to file
capabilities to Xerox Customer Support Centers. If both parties agree to
transfer responsibility for communicating with an individual customer to
ScanSoft, ScanSoft will assume all further responsibility for that customer's
support, including sending any pertinent bug fixes, if available, at ScanSoft's
own expense.
6.) SOFTWARE LICENSE FOR XEROX SUPPORT CENTERS
In order to address customer support issues, Xerox support centers or their
subcontractors are permitted to use the Software solely for support and/or
testing purposes for Xerox customers. Such installation is not licensed for
operational use, and is for support purposes only. The Software is for internal
use only and will not be distributed externally.
7.) SOFTWARE PROBLEM RESOLUTION PROCESS AND ESCALATION PROCESS The Software
Problem Report (SPR) process includes the following steps:
o SPR's are filed as needed.
o SPR's are prioritized.
o ScanSoft personnel are assigned to take direct responsibility for
handling the SPR.
o The timeline requirement is identified to resolve the SPR.
o The strategy that will be taken to resolve the issue is identified.
o Resolution to the problem or work-around is communicated.
o As appropriate and where applicable, "patches" are posted on the web
for download.
o At Scansoft's discretion fixes may be rolled into a point release
which can then be sent to customers experiencing a particular problem
addressed in that version.
o The patch or point release will be delivered to Xerox Third Level
Support for fix verification at the same time as ScanSoft performs QA
on the release.
o Communication of the progress against the action plan is made on a
daily basis for critical problems and on a weekly basis for normal
problems.
If this process is failing to satisfy either party, a review of the situation
and the process to date should be made by ScanSoft and Xerox.
8.) REGULAR REPORTING
8.1 ScanSoft will provide Xerox with a "Solutions" database of known problems
and solutions on a monthly basis in a format that is compatible with
Xerox' DB IV database. The database information is expected to be
available from ScanSoft beginning in June 1998, or sooner, and updates
will be provided within twenty (20) days after the last day of each
calendar month. The basis for this information is on the TextBridge Pro98
web page as FAQ's and technical information bulletins which Xerox has
access to.
8.2 Xerox and ScanSoft recognize and acknowledge the importance to each other
of Third Level technical support information regarding both individual
cases and aggregate support statistics, and commit to provide each other
with regular reports containing all pertinent technical support
information. These reports will be provided as they become available.
ScanSoft provides a comprehensive FAQ document and technical bulletins
for TextBridge Pro 98 via the TextBridge Pro98 web page (at
"www.textbridge.com"). Updates will be added to these on a regular basis
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<PAGE>
9.) TRAINING MATERIALS
ScanSoft and Xerox recognize and acknowledge the importance of providing
training to each other regarding the TextBridge Pro Software.
9.1 ScanSoft will develop training materials that cover the information
required to adequately support the TextBridge Pro Software. At a minimum,
ScanSoft will provide the same level of training that Xerox provides to
its own support staff and ScanSoft will provide the same level of product
training/materials to Xerox as they provide to other OEM's. The training
materials will include robust troubleshooting and escalation procedures
or guidelines.
9.2 Xerox will honor reasonable requests from ScanSoft to provide basic
training on Xerox DCS Products to facilitate ScanSoft's customer support
efforts. The scope and timing of such training will be mutually agreed
upon by both companies' support representatives.
10.) LOCATION AND TIMING OF TRAINING
To ensure adequate customer support, ScanSoft's training of Xerox personnel will
be provided prior to Xerox' product introduction date. The training will be held
in Rochester, NY at a Xerox location for a mutually agreeable period appropriate
to the training program.
11.) SCOPE OF TRAINING
11.1 This training will include, but not be limited to, all TextBridge Pro
Software features and functions, customer usability, and advanced
troubleshooting based on customer support history. ScanSoft will be
expected to train the trainers from each of the major Xerox Customer
Support Functions that is using or supporting the TextBridge Pro
Software.
11.2 Xerox may further request and ScanSoft shall provide additional training
as reasonably necessary to inform all personnel of new program versions
or enhancements.
11.3 ScanSoft will provide on-site training at their facility, when requested
by Xerox, in order to provide an in-depth, hands-on customer support
experience for a mutually agreed upon number of Xerox Third Level Support
technicians.
11.4 All initial and subsequent training shall be provided at no charge to
Xerox, however for any subsequent training sessions Xerox shall pay
ScanSoft for reasonable travel and lodging expenses.
11.5 In the event ScanSoft releases new version of TextBridge Pro, ScanSoft
shall provide Xerox with additional training at no additional charge.
12.) MATERIAL RIGHTS
12.1 ScanSoft grants Xerox the royalty-free rights to modify reproduce and use
all training classes, methods and materials supplied ScanSoft or
developed by Xerox pursuant to this Agreement.
12.2 ScanSoft restricts the use of such materials to training Xerox employees
or to agents contracted by Xerox for the purpose of selling or supporting
Xerox products.
13.) TRAINING DELIVERY PROCESS AND CONTENT
13.1 ScanSoft will provide training sessions, with back-up documentation, to
Xerox Second Level support. The training will include robust
troubleshooting for topics (such as Installation, Software Upgrade,
Quality of OCR, OCR application interface, operability to optimize OCR),
escalation procedures/guidelines and relationship building for those
support personnel who will be involved in (bi-directional) escalation.
13.2 ScanSoft will provide training material (instructor notes,
transparencies, lab exercises/lab specifications, and hand-out
documentation) for training/customer demonstration/customer application
testing purposes to Xerox trainers responsible for training field support
people.
13.3 Training content (lecture, lab, and documentation) should focus on
supported environments, installation procedure, application verification
process, known issues/problems and troubleshooting procedures.
13.4 ScanSoft will provide pre-sales/installation support literature: customer
collaterals describing strengths, positioning, customer benefits, and
technical documentation (this information is available at the ScanSoft
web site).
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SCANSOFT - XEROX
GOLD DISK BUNDLING AGREEMENT
ATTACHMENT IV
TEXTBRIDGE ODP SPECIFICATION
Chuck Hudson
3/3/1998
1.1.1. Document Scope
This document will describe the features of the TextBridge release for the ODP
OEM client.
1.1.2. Project Scope
This project will consist of a master CD created to support both 16-bit
Windows(R) 3.x systems and 32-bit Windows 95(R) and NT(R) systems with the
current TextBridge 3.0 (16-bit) and TextBridge 98 (32-bit) products. It is fully
understood that the TextBridge 3.0 code base is at a "frozen" point and will not
be updated for this product.
1.1.3. Project Schedule
DATE 1st build delivered to QA (without updated help files)
**** Updated help files delivered to Release Engineering
**** 2nd build with updated help files and any necessary SPRs fixed
**** First build of beta to be delivered
**** Final build delivered to QA
**** Final Gold Master with all languages
**** Launch date for product
1.1.4. Code Base
For Win 3.x the code used will be the existing released TextBridge 3.0
with the following UI languages - English US, French, German, Italian,
Spanish, and Brazilian Portuguese. No changes will be made to this code
and it will be incorporated on the final CD as is. Thus it will be
copied on the project from the existing master cd.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
For Win NT and 95 the code base will be the TextBridge Pro 98 release
with the following UI languages - English US, English UK, French,
German, Italian, Spanish, and Brazilian Portuguese.
Note: The complete version of Brazilian Portuguese for TextBridge Pro
98 may not be included in the 1st build of the beta release to be
delivered, as localization may not be complete.
1.1.5. UI Languages and the corresponding recognition languages
TextBridge Pro 3.0 for use with Microsoft Windows(R) 3.1
<TABLE>
<CAPTION>
VERSION PAGE SIZE INTERFACE RECOGNIZED LANGUAGES
DEFAULT
<S> <C> <C> <C>
ENGLISH US Letter English English, French, German, Italian, Spanish
FRENCH A4 French Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
GERMAN A4 German Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
ITALIAN A4 Italian Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
SPANISH A4 Spanish Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
BRAZILIAN A4 Brazilian Danish, Dutch, English, Finnish, French, German, Italian,
PORTUGUESE Portuguese Norwegian, Portuguese, Spanish, Swedish
</TABLE>
TEXTBRIDGE PRO 98 FOR USE WITH MICROSOFT WINDOWS(R) 95 AND NT
<TABLE>
<CAPTION>
VERSION PAGE SIZE INTERFACE RECOGNIZED LANGUAGES
DEFAULT
<S> <C> <C> <C>
ENGLISH US Letter English English, French, German, Italian, Spanish
ENGLISH UK A4 English Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
FRENCH A4 French Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
GERMAN A4 German Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
ITALIAN A4 Italian Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
SPANISH A4 Spanish Danish, Dutch, English, Finnish, French, German, Italian,
Norwegian, Portuguese, Spanish, Swedish
BRAZILIAN A4 Brazilian Danish, Dutch, English, Finnish, French, German, Italian,
PORTUGUESE Portuguese Norwegian, Portuguese, Spanish, Swedish
</TABLE>
1.1.6. Installer
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<PAGE>
The autorun that automatically runs once the CD is placed in the user's
machine will launch a setup.exe (also found at the root level : see CD
Structure below). This executable will check the system for which
operating system is installed (either Win 3.x or Win 95/NT). This `os
checker' will have to be written in 16-bit code so that it can be
launched on a Win 3.x system. Once it determines which operating system
is installed it will in turn launch the corresponding setup from either
the TextBridge 3.0 directory or the TextBridge Pro 98 directory (found
at the root of the CD). This os checker has been written and used on
the TextBridge Classic hybrid CD.
[GRAPHIC OMITTED]
TextBridge Pro 98 Issues
o The normal **** will be used for TextBridge Pro 98 as is currently
employed for the product. This includes all localized versions.
o Language selector - US English and Brazilian Portuguese must be
added to the selector which is launched in the TB Pro 98 setup.
o Billboard 3 during file installation must be removed. (see below)
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Page 4
<PAGE>
[GRAPHIC OMITTED]
o The dialog in English and all localized versions of TextBridge
Pro 98 that provides ScanSoft's toll free support number should
be removed as ODP will be supporting the product. (see below)
[GRAPHIC OMITTED]
o The Release Notes must be checked and updated to correspond with
all changes to TextBridge Pro 98. (see Appendix B)
o Since ODP will be the support for this product all phone numbers
must be changed to ODP's corresponding phone listings. (see
appendix A)
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<PAGE>
1.1.6.1.1. CD STRUCTURE
**** Structure of **** with **** then **** with the **** for ****
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Appendix A ODP Support Phone Numbers
TEXT BRIDGE PRO SUPPORT REQUIREMENTS
Monica Kraft
2/18/98
The following table lists the contact telephone numbers for Customer Support
within each TextBridge Pro Language.
Please provide a statement on the user interface in the appropriate location
with this information.
Language Xerox Support Telephone Number
- -------- ------------------------------
English US: 800-821-2797
UK/IRE: 01908 692 444
Canada: 800-939-3769
German
Berlin ++ 49 30 / 78788 - 222
Bochum ++ 49 2327 / 941 - 441
Dusseldorf ++49 211 / 990 - 2555
Hamburg ++49 40 / 85360 - 444
Munchen ++49 89 / 99644 - 122
Neu Isenburg ++49 6102 / 734 - 123
Stuttgart ++49 711 / 7254 - 111
French Canada: 800-939-3769
France: "Contact Your local Xerox Support"
Italian "Contact Your local Xerox Support"
Spanish "Contact Your local Xerox Support"
Brazilian Portuguese "Contact Your local Xerox Support"
- -------------------------------------------------------------------------------
NOTE:
THESE NUMBERS WILL ONLY EXIST IN THE HELP FILES OF TB PRO 98.
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Appendix B Current TB Pro 98 English US Release Notes
[GRAPHIC OMITTED]
RELEASE NOTES FOR VERSION 1.0
Copyright (C) 1995-1997 ScanSoft, Inc., a Xerox Company
Portions of this product copyright (C) 1990-1997 Pixel Translations, Inc.
Portions of this product copyright (C) 1993-1997 Mastersoft Corp.
Please read this document for up-to-date information about ScanSoft's TEXTBRIDGE
PRO 98, VERSION 1.0 for Windows 95 and Windows NT operating systems. These
release notes discuss the following topics:
o What's New in TextBridge Pro 98
o Registration Information
o Installation Instructions
o If You Have Other Versions of Textbridge
o Supported Scanners
o Scanner Notes
o Application Notes
o Integration with Pagis Pro 97
WHAT'S NEW IN TEXTBRIDGE PRO 98
o IMPROVED OCR ACCURACY -- Dramatically saves time retyping.
o INCREASED DOCUMENT RECOGNITION CAPABILITIES -- Easily and accurately
recognize complex document components such as tables, line art, drop caps,
insets, reverse text.
o ENHANCED PROOFREADING CAPABILITIES -- Proofread and edit document text
directly from within TextBridge Pro 98 for even more accurate output
results.
o INSTRUCTIONAL OCR WIZARD -- Assists you by stepping you through the OCR
process.
o ADVANCED ZONE EDITING -- Create, reshape, resize and renumber zones. Use
highlighter pens to edit or adjust OCR components such as text, pictures,
and tables enabling even greater control over the desired results.
o SUPPORT FOR ADOBE ACROBAT PDF FORMAT -- With TextBridge Pro 98 you can now
save the OCR results into PDF format.
o BETTER RECOGNITION OF TABLES -- Easily convert tables into spreadsheets as
well as word processing documents.
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REGISTRATION INFORMATION
Xerox provides unlimited, toll-free customer support to registered users of
TextBridge Pro. When you register, you are provided with a toll-free number to
call for support questions.
There are 4 easy ways to register:
o INTERNET - Go to the TextBridge web site at WWW.TEXTBRIDGE.COm. Select
TextBridge Pro98, go to Customer Support and select Product Registration.
You will receive the toll-free number by return e-mail.
o MODEM - Fill out the registration form during software installation. Click
on "TextBridge Pro98 Electronic Registration" in the TextBridge Pro98 Master
Setup window to bring up the TextBridge Product Registration form. Follow
the instructions to send your registration by modem. A dialog box appears
with the toll-free number. Be sure to write it down.
o FAX - Fill out the registration form during software installation. Click on
"TextBridge Pro98 Electronic Registration" in the TextBridge Pro98 Master
Setup window to bring up the TextBridge Product Registration form. When you
print the registration form, a dialog box appears with the toll-free number.
Be sure to write it down. Then FAX your registration to 888-979-7662 or
978-531-0675.
o U.S. MAIL - Return the postage-paid Registration Card included with
TextBridge Pro98. You will receive a postcard with the toll-free number.
INSTALLATION INSTRUCTIONS
Before you install or uninstall TextBridge Pro 98, exit from any open
applications so that only Windows is running. There should be no applications
listed in the task bar and no floating toolbars. For example, the Corel DAD and
Office shortcut bar should not be running. (CTRL+ALT+DELETE to display Task List
and 'End Task' on all applications except Explorer.)
TextBridge uses autorun for installation.
If autorun does not work on your system, use the following procedure to install
this version:
1. Put CD in CD-ROM drive (D: or the letter assigned to your CD-ROM).
2. From the Start menu, select Run.
3. Type d:\autorun.exe
4. Follow the on-screen instructions.
During installation, you select a type of installation. If you select Typical,
TextBridge will install the English, French, German, Italian, and Spanish
language packs. If you do not wish to install all five language packs, you must
select Custom.
IF YOU HAVE OTHER VERSIONS OF TEXTBRIDGE
TextBridge Pro 98 is designed to be self-contained. Thus, if you have another
version of TextBridge installed on your PC, you do not need to uninstall it
before installing TextBridge Pro Pro 98.
Note: You cannot run both versions of TextBridge simultaneously.
APPLICATION NOTES
This section discusses a number of points relating to using features in
TextBridge and Instant Access.
o The TEXTBRIDGE USER'S GUIDe is available in PDF format from the TextBridge
CD-ROM in the Tb98_Doc directory. You can read documents in PDF files in the
Adobe Acrobat Reader. A Readme file describes installing the Acrobat Reader
in the Tb98_Doc directory and using the Acrobat Reader to read or print the
TextBridge User's Guide. Another Readme file describes the Acrobat Reader.
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o QUATTRO PRo is not supported by Instant Access OCR.
o NETSCAPE NAVIGATOR 3.0 GOLd is not supported by Instant Access OCR.
o WORDPRO 97 with Instant Access OCR imports ASCII text. To retain font and
paragraph style information, use TextBridge as a standalone application.
o LOTUS 1-2-3 SMARTSUITE 97 with Instant Access OCR works best if you use the
Paste Special command in the Edit menu and select 1-2-3 format.
o With earlier versions of LOTUS 1-2-3, use TextBridge as a standalone
application for the best results. Save your results in the format for Lotus
1-2-3, and open the file in your Lotus 1-2-3 application.
o PAGE COLLATIOn is not automatically supported for PDF. To process
double-sided pages and output to PDF, select Process aScan Only, then select
Auto Process. After the front sides of the pages are scanned, select Other
Side from the Add Pages to Scanner dialog box. This will create a TIFF file
with all pages collated in the correct order. Once the pages are all
scanned, select Process aImage File, then select Auto Process or Get Page to
process the image file you created.
o While TextBridge is processing, if you click on any menu item, TextBridge
processing will pause until the drop down menu is closed.
INTEGRATION WITH PAGIS
Pagis includes an earlier version of TextBridge. If you already have Pagis
installed on your PC, installing TextBridge Pro 98 will update Pagis to use
TextBridge Pro 98. Pagis is updated as follows:
o INDEXING - Pagis will use TextBridge Pro 98 for indexing when pages are
scanned.
o SEND TO BAR - TextBridge Pro 98 is added to the Pagis Send To bar. The
earlier version of TextBridge is not automatically removed. To remove that
previous version of TextBridge, open the Send To folder in your Windows
folder and delete that TextBridge shortcut.
o IMAGE FILE CONTEXT MENU - TextBridge Pro 98 is added to the Send To options
when you right-click on an image file icon.
o DRAG AND DROP IMAGE FILES - When you drag an image file to a Pagis
registered text application, TextBridge Pro 98 will be used to convert the
image to text.
o PAGIS START MENU - TextBridge Pro 98 is NOT automatically added to the Pagis
group in the Windows Start menu. To add TextBridge Pro 98, in your Windows
folder copy the shortcut to TextBridge Pro 98 from the Start Menu a Programs
a TextBridge Pro 98 folder to the Start Menu a Programs a Pagis Pro 97
folder.
If you uninstall TextBridge Pro 98, Pagis will revert to using the bundled
TextBridge.
The first time you drag and drop a TIF or XIF file onto the WORDPERFECT 8.0
entry in the Pagis SendTo bar, the file will not be recognized. Simply repeat
the drag and drop process, and recognition will proceed as usual for this file
and for any subsequent files. In other words, this only happens once during the
first drag and drop activity.
SUPPORTED SCANNERS
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TextBridge Pro supports scanners that are controlled by ISIS and TWAIN scanner
drivers. For the most current list of all supported scanners by model number and
platform, please visit our web site at WWW.TEXTBRIDGE.COM.
TWAIN SOURCE DRIVERS (.DS FILES) MUST BE PROVIDED BY THE SCANNER MANUFACTURER.
When these are installed on your PC, they are located in Windows\TWAIN or
TWAIN_32. TextBridge Pro provides a TWAIN interface that communicates with these
TWAIN source drivers, supporting any fully TWAIN-compliant scanner or other
input device that can supply a binary (black and white) image in a supported
resolution (72 to 900 dots per inch).
SCANNER NOTES
This section discusses a number of points relating to using scanners with
TextBridge Pro.
o For most OCR jobs, scanning should be done at 300 DPi for best results. For
documents with type smaller than 8 point, scanning at 400 dpi may provide
improved recognition.
o TEXTBRIDGE SCANNER SETUp allows you to use the native TWAIN INTERFACe or the
TextBridge user interface. This option works well with some TWAIN drivers,
such as MICROTEK and EPSON. However, some scanners may not work with the
TextBridge user interface as well as with the native TWAIN interface. For
example, MUSTEK, ARTEC, and CANON will not perform correctly unless they use
their own native scanning settings dialogs. You can try each and decide
which works best for you.
o Some TWAIN SOURCE DRIVERs, when activated, display their user interface
window behind TextBridge Pro's main window. To access the TWAIN interface,
you need to ALT+TAB to the TWAIN screen.
o In order to select a TWAIN driver, you must know the name of the driver. The
NAME OF THE TWAIN DRIVEr may not be the same as the name or model of the
scanner. Refer to your scanner documentation to find the driver name. (For
example, if you want to choose the HP SCANJET 4C TWAIN driver, it is not
listed with the other HP scanners. It is listed alphabetically under
DESKSCAN.)
o If the wrong TWAIN DRIVEr is selected, TextBridge may lockup while starting.
In the event that TextBridge locks up, run the scnsetup program in the
TextBridge Bin folder. Select the appropriate scanner driver.
o Although TextBridge supports scanning BUSINESS CARDs through the scanner
ADF, it is recommended that you use the scanner flatbed.
o Many FLATBED SCANNERs do not have a platen large enough for a LEGAL PAGe.
These scanners will scan to their platen length if you select "Legal" page
size. To scan legal size pages on scanners whose platen's are smaller than
legal page size, you must use an ADF.
o TWAIN drivers may allow you to select LEGAL PAGe size in the Page Type tab
of the Settings dialog box. However, if the ISIS ASPI SCANNER is selected,
the legal size may not be available.
o If you are using an ISIS driver under NT 4.0, you need to make sure you have
an ASPI MANAGEr loaded and running so you can communicate with your scanner.
To check if you have an ASPI manager running, check Control Panel->Devices
for an ASPI32 device that has a status of "Started" and Startup of
"Automatic." If you do not see this, you will need to get an ASPI manager
from one of the following sources:
a) Adaptec's EZ-SCSI 4.0 or higher CD
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b) If you own an Adaptec SCSI card, download the ASPI32.EXE from Adaptec's
website at: http://www.adaptec.com/support/BBS_EZSCSI.html#EZSCSI
Follow Adaptec's instructions for installing this device. Your system
administrator may have to perform these steps.
o If you are using a SHEETFEd scanner, the Automatic Document Feeder (ADF)
selection may be available. Make sure the ADF OPTION IS NOT SELECTED.
ACERSCAN
Use the 16-bit TWAIN driver and the native TWAIN interface with the
ACERSCAN 300F.
AVISION
The AVISION AV360C TWAIN driver does not support scanning at 400 dpi or
higher.
CANON
If you receive a scanner failure message with the CANON IX-4015 scanner,
try removing the scanner driver \win95\pixtran\canon.pxw and reinstall
TextBridge.
EPSON
When you use the Scan Only command with an EPSON ES-1000C WITH ADF, if the
scanner jams, you do not get a message. The progress dialog box stays on
scanning. If you press CTRL+ALT+DELETE to bring up the Close Program dialog
box, you can see that Icrsrv32 is not responding. You must highlight
lcrsrv32 and press the End Task button and follow the same procedure for
TextBridge. Be sure to properly Shut Down your system and reboot your
computer, and also turn your scanner off and then on again to get the
scanner back.
This does not happen with the Epson ES-1200C.
HEWLETT-PACKARD
HP ACCUPAGE scanner drivers are not supported.
HP IIP AND IIC scanners will not work with certain host adapter/SCSI device
software combinations. For instance, with the AHA154x series adapters, you
need to be running the Adaptec version of AHA154x.mdp device driver (on the
Win95 CD ROM) because it will not work with the Microsoft version of
AHA154x.mdp that is installed by default when Win95 is installed on a
system. It is not known if there is an equivalent replacement for the
AHA294x.mdp driver. Check the Microsoft web page for device driver updates.
LOGITECH
The LOGITECH PAGESCAN incorporates the TextBridge OCR engine and also has
built-in page sensing technology. To use the PageScan scanner with
TextBridge Pro, and avoid conflicts with the PageScan software, you need to
operate in a particular sequence.
The key is to start up TextBridge Pro BEFORE putting a page in the scanner.
Otherwise, the page sensing feature will activate the PageScan software. If
you have not already set up the PageScan scanner as the TextBridge Pro
scanner, use the Select Scanner/Source command under the File menu. Select
TWAIN, then select PageScan in the TWAIN Select Source dialog.
From TextBridge Pro, click the Go button. This should display the Logitech
PageScan Color TWAIN interface should appear. From there, select Black Line
Drawing. (You can also go into the Advanced ... options to view or change
the scan resolution or scanner brightness settings.)
At this stage, you can put a page in the scanner and click the Scan Now
button. When you have finished scanning, TextBridge Pro recognizes the
document, and you can save the recognized text to the file format of
choice.
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MICROTEK
MICROTEK E3 scanner platen is short of the needed 14 inches for a LEGAL
PAGE scan. If you use the TWAIN Scanwizard 2.3 (16 or 32 bit) and scan a
legal size page with the document feeder, the preview image in TextBridge
cuts off the bottom 3 inches of the page. If you select the ISIS ASPI
scanner, the legal size is not available.
MUSTEK
When using a MUSTEK scanner, use the Mustek TWAIN user interface. Do not
configure the scanner to use the TextBridge user interface.
STORM EASY PHOTO SMARTPAGE
When scanning multiple page documents, an extra warning dialog box is
displayed after the last page has been scanned. Ignore the message and
click OK. No information will be lost.
VISIONEER PAPERPORT
No scanner driver is required for VISIONEER PAPERPORT scanners. TextBridge
does not drive the scanner; Visioneer's Paperport Software does. In the
Select Scanner dialog box, select No Scanner. TextBridge provides an
automatic link to the word processor icons on the Paperport desktop.
To access TextBridge Pro98 from within the Paperport desktop:
1. Go to the Link Preferences command in the Edit menu.
2. Select your word processor's icon.
3. Click on the OCR Application down arrow.
4. Choose TextBridge OCR.
5. Click on OCR Settings.
6. Select a page type and any other options you want to use.
7. Click on OK to save changes.
When you are done with settings, scan a document in PaperPort, as you
normally would. Then, drag it to your word processor icon, and TextBridge
Pro recognition will automatically be launched. When OCR is complete, the
recognized document is automatically opened in your word processor.
Please refer to the PAPERPORT USER'S GUIDE for complete information.
NOTE: The link between the TextBridge and the Visioneer Paperport software
will only work with Visioneer Paperport Version 4.0 or later.
ISIS DRIVERS
TextBridge Pro provides the following ISIS DRIVERS from Pixel Translations as a
standard part of the software.
WINDOWS 95 ISIS DRIVERS
Abaton 300S (no ADF)=ABATON2 Version 1.21
Abaton 300S (with ADF)=ABATON Version 1.21
Abaton Color (no ADF)=ABATON2 Version 1.21
Abaton Color (with ADF)=ABATON Version 1.21
Abaton GS (no ADF)=ABATON2 Version 1.21
Abaton GS (with ADF)=ABATON Version 1.21
Abaton Transcribe (no ADF)=ABATON2 Version 1.21
Abaton Transcribe (with ADF)=ABATON Version 1.21
Agfa Arcus Plus w/Adaptec=AGFA Version 1.29
Agfa Arcus w/Adaptec=AGFA Version 1.29
Agfa StudioScan II w/ASPI=AGFAASPI Version 1.35
Agfa StudioScan II w/PCZ SCSI=AGFAPCZ Version 1.35
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Agfa StudioScan II w/PNR SCSI=AGFAPNR Version 1.35
Agfa StudioScan w/ASPI=AGFAASPI Version 1.35
Agfa StudioScan w/PCZ SCSI=AGFAPCZ Version 1.35
Agfa StudioScan w/PNR SCSI=AGFAPNR Version 1.35
Agfa StudioStar w/ASPI=AGFAASPI Version 1.35
Apple Color One 1200/30=APPLEONE Version 1.31
Apple Color One 600/27=APPLEONE Version 1.31
Apple OneScanner=APPLE Version 1.8
AVision Scanner Series=AVISION
AVR scanner=AVR2 Version 1.30
Canofile 510=CANOFILE Version 1.9
Canofile 520=CANOFILE Version 1.9
Canon CanoScan 300 w/ASPI=CANON Version 1.32
Canon CanoScan 600 w/ASPI=CANON Version 1.32
Canon GP55F (w/Fax Board) w/SCSI=GP55 Version 1.3
Canon IX-12 Feeder=CAIX12FD Version 1.20
Canon IX-12 Flatbed (Adf Optional)=CAIX12FT Version 1.20
Canon IX-12=CAIX12 Version 1.20
Canon IX-12F=CAIX12 Version 1.20
Canon IX-3010 w/ASPI=CANON Version 1.32
Canon IX-3010 w/SI4=CANONSI Version 1.32
Canon IX-30F=CAIX30 Version 1.8
Canon IX-4015 w/ASPI=CANON Version 1.32
Canon IX-4015 w/SI4=CANONSI Version 1.32
Canon IX-4025 w/ASPI=CANON Version 1.32
Chinon DS-3000=CHINON Version 0.2
Complete PC Scanner (no detect)=CPCF Version 1.2
Complete PC Scanner=CPC Version 1.2
Envision 24 Pro=ENVISION Version 1.32
ENVISION 6600S w/ASPI=VISTASPI Version 1.29
ENVISION 6600S w/UMAX UDS-11=VISTA Version 1.29
ENVISION 8800S w/ASPI=VISTASPI Version 1.29
ENVISION 8800S w/UMAX UDS-11=VISTA Version 1.29
ENVISION Dynamic Pro 3.0 w/ASPI=VISTASPI Version 1.29
ENVISION Dynamic Pro 3.0 w/UMAX UDS-11=VISTA Version 1.29
Envision ENV 6100=ENVISION Version 1.32
Envision ENV 8100=ENVISION Version 1.32
Epson ES-1000C=EPSON Version 1.68
Epson ES-1200C=EPSON Version 1.68
Epson ES-1400C=EPSON Version 1.68
Epson ES-300C=EPSON Version 1.68
Epson ES-300GS=EPSON Version 1.68
Epson ES-600C=EPSON Version 1.68
Epson ES-800C=EPSON Version 1.68
Epson Expression 636=EPSON Version 1.68
Epson GT-4000=EPSON Version 1.68
Epson GT-6000=EPSON Version 1.68
Epson GT-6500=EPSON Version 1.68
Epson GT-8000=EPSON Version 1.68
Epson GT-8500=EPSON Version 1.68
Epson GT-9000=EPSON Version 1.68
Epson GT-9500=EPSON Version 1.68
Epson Scanner (Generic Model)=EPSON Version 1.68
Fujitsu M3093DG=FUJIGINE Version 1.141
Fujitsu M3093GX=FUJIGINE Version 1.141
Fujitsu M3096G=FUJIGINE Version 1.141
Fujitsu M3096GX=FUJIGINE Version 1.141
Fujitsu M3097G=FUJIGINE Version 1.141
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Fujitsu ScanPartner 10=FJSP Version 1.141
Fujitsu ScanPartner 10C=FJSP Version 1.141
Fujitsu ScanPartner 600C=FJSP Version 1.141
Fujitsu ScanPartner E.O.=FUJIGIN3 Version 1.141
Fujitsu ScanPartner Jr.=FJSP Version 1.141
Howtek Personal Color Scanner=HOWTEK Version 1.10
HP Scanjet 3c=SCANJET Version 1.40
HP Scanjet 4c=SCANJET Version 1.40
HP Scanjet 4p=SCANJET Version 1.40
HP Scanjet 5p=SCANJET Version 1.40
HP Scanjet IIc=SCANJET Version 1.40
HP Scanjet IIcx=SCANJET Version 1.40
HP Scanjet IIIp=SCANJET Version 1.40
HP Scanjet IIp=SCANJET Version 1.40
HP Scanjet Plus=SCANJET Version 1.40
HP Scanjet=SCANJET Version 1.40
IBM PageScanner, Adapter 3119/A=IBM_3119 Version 1.24
LeoScan Scanner=LEOSCAN Version 1.01
Microtek MS-II w/Page Detect=MSII Version 1.44
Microtek ScanMaker E3 w/ASPI=MKTKASPI Version 1.35
Microtek ScanMaker E3 w/Microtek PCZ SCSI=MKTKPZ Version 1.35
Microtek ScanMaker E3 w/Microtek PNR SCSI=MKTKPNR Version 1.35
Microtek ScanMaker E6 w/ASPI=MKTKASPI Version 1.35
Microtek ScanMaker E6 w/Microtek PCZ SCSI=MKTKPZ Version 1.35
Microtek ScanMaker E6 w/Microtek PNR SCSI=MKTKPNR Version 1.35
Microtek ScanMaker II=SCNMKRII Version 1.53
Microtek ScanMaker IIhr w/ASPI=MKTKASPI Version 1.35
Microtek ScanMaker IIhr w/Microtek PCZ SCSI=MKTKPZ Version 1.35
Microtek ScanMaker IIhr w/Microtek PNR SCSI=MKTKPNR Version 1.35
Microtek ScanMaker III w/ASPI=MKTKASPI Version 1.35
Microtek ScanMaker III w/Microtek PCZ SCSI=MKTKPZ Version 1.35
Microtek ScanMaker III w/Microtek PNR SCSI=MKTKPNR Version 1.35
Microtek Scanner=MKTK_AT Version 1.47
Nikon SCANTOUCH Scanner=NIKON Version 1.9
Okidata DOC-IT 3000=DOCIT Version 1.30
Okidata DOC-IT 4000=DOCIT Version 1.30
Panasonic FX-RS 505, 506, and 307=PANA Version 1.3
Panasonic KV-SS25 w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS50 w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS50EX w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS55 w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS55EX w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS60EX w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS60N w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS65EX w/SCSI=PANASCSI Version 1.47
Panasonic KV-SS65N w/SCSI=PANASCSI Version 1.47
Pentax IQ Scan (HP Emulation)=PENT Version 1.44
Photron w/ASPI=PHOTRON Version 1.10 Ricoh FS-2=RICOHFS2 Version 1.107
Ricoh IS-410 and IBM 2456 w/WINASPI=RICOH41W Version 1.105
Ricoh IS-410 and IBM 2456=RICOH410 Version 1.105
Ricoh IS-420=RICOH420 Version 1.133
Ricoh IS-430=RICOH420 Version 1.133
Ricoh IS-50=RICOH560 Version 1.107
Ricoh IS-510 and IS-520=RICOH520 Version 1.109
Ricoh IS-60=RICOH560 Version 1.107
Ricoh RS-2200=RS2200 Version 1.107
SAPHIR w/ASPI=VISTASPI Version 1.29
SAPHIR w/UMAX UDS-11=VISTA Version 1.29
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Sharp SCSI JX-300, JX-320, JX-325, JX-450, JX-610=SHRPSCSI Version 1.11
UMax Generic Scanner w/GSII-PC Card=UMAXGSII Version 1.29
UMax OA-I w/GSII-PC Card=UMAXGSII Version 1.29
UMAX Powerlook w/ASPI=VISTASPI Version 1.29
UMAX Powerlook w/UMAX UDS-11=VISTA Version 1.29
UMax UC1200S w/GSII-PC Card=UMAXGSII Version 1.29
UMax UC1200SE w/GSII-PC Card=UMAXGSII Version 1.29
UMax UC1260 w/GSII-PC Card=UMAXGSII Version 1.29
UMax UC300 w/GSII-PC Card=UMAXGSII Version 1.29
UMax UC630 w/GSII-PC Card=UMAXGSII Version 1.29
UMax UC840 w/GSII-PC Card=UMAXGSII Version 1.29
UMax UG630 w/GSII-PC Card=UMAXGSII Version 1.29
UMax UG80 w/GSII-PC Card=UMAXGSII Version 1.29
UMAX VISTA S-6 w/ASPI=VISTASPI Version 1.29
UMAX VISTA S-6 w/UMAX UDS-11=VISTA Version 1.29
UMAX VISTA S-8 w/ASPI=VISTASPI Version 1.29
UMAX VISTA S-8 w/UMAX UDS-11=VISTA Version 1.29
UMAX VISTA T-6 w/ASPI=VISTASPI Version 1.29
UMAX VISTA T-6 w/UMAX UDS-11=VISTA Version 1.29
Xerox 3002=X3002 Version 1.6 Xerox DocuImage 620S=DOCU620S Version 1.43
WINDOWS NT ISIS DRIVERS
Apple Color One 1200/30=APPLEONE Version 1.30
Apple Color One 600/27=APPLEONE Version 1.30
Canon DR-3020=CANON_DR Version 1.19
Canon IX-3010 w/ASPI=CANON Version 1.31
Canon IX-4015 w/ASPI=CANON Version 1.31
Canon IX-4025 w/ASPI=CANON Version 1.31
Epson ES-1000C=EPSON Version 1.68
Epson ES-1200C=EPSON Version 1.68
Epson ES-1400C=EPSON Version 1.68
Epson ES-300C=EPSON Version 1.68
Epson ES-300GS=EPSON Version 1.68
Epson ES-600C=EPSON Version 1.68
Epson ES-800C=EPSON Version 1.68
Epson Expression 636=EPSON Version 1.68
Epson GT-4000=EPSON Version 1.68
Epson GT-6000=EPSON Version 1.68
Epson GT-6500=EPSON Version 1.68
Epson GT-8000=EPSON Version 1.68
Epson GT-8500=EPSON Version 1.68
Epson GT-9000=EPSON Version 1.68
Epson GT-9500=EPSON Version 1.68
Epson Scanner (Generic Model)=EPSON Version 1.68
Fujitsu M3093GX=FUJIGINE Version 1.130
Fujitsu M3096G=FUJIGINE Version 1.130
Fujitsu M3096GX=FUJIGINE Version 1.130
Fujitsu M3097G=FUJIGINE Version 1.130
Fujitsu M3192B=FUJIGIN3 Version 1.130
Fujitsu ScanPartner 10=FJSP Version 1.130
Fujitsu ScanPartner 10C=FJSP Version 1.130
Fujitsu ScanPartner 600C=FJSP Version 1.130
Fujitsu ScanPartner E.O.=FUJIGIN3 Version 1.130
Fujitsu ScanPartner Jr.=FJSP Version 1.130
HP Scanjet 3c=SCANJET Version 1.40
HP Scanjet 4c=SCANJET Version 1.40
HP Scanjet 4p=SCANJET Version 1.40
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HP Scanjet 5p=SCANJET Version 1.40
HP Scanjet IIc=SCANJET Version 1.40
HP Scanjet IIcx=SCANJET Version 1.40
HP Scanjet IIIp=SCANJET Version 1.40
HP Scanjet IIp=SCANJET Version 1.40
HP Scanjet Plus=SCANJET Version 1.40
HP Scanjet=SCANJET Version 1.40
Nikon SCANTOUCH Scanner=NIKON Version 1.12
Panasonic KV-SS25 w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS50 w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS50EX w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS55 w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS55EX w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS60EX w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS60N w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS65EX w/SCSI=PANASCSI Version 1.42
Panasonic KV-SS65N w/SCSI=PANASCSI Version 1.42
Ricoh FS-2=RICOHFS2 Version 1.106
Ricoh IS-410 and IBM 2456=RICOH410 Version 1.58
Ricoh IS-420=RICOH420 Version 1.128
Ricoh IS-430=RICOH420 Version 1.128
Ricoh IS-50=RICOH560 Version 1.106
Ricoh IS-510 and IS-520=RICOH520 Version 1.109
Ricoh IS-60=RICOH560 Version 1.106
Ricoh RS-2200=RS2200 Version 1.107
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-45425 and No. 333-74343) of ScanSoft, Inc. of
our report dated January 27, 1999, except for Note 3, which is as of March 2,
1999, appearing on page 33 of ScanSoft, Inc.'s Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 50 of this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
April 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet, statement of operations and statement of cash flows included in the
Company's Form 10-K for the twelve month period ended December 31, 1998, and is
qualified in its entirety by reference to such financial statements and the
notes thereto.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,721
<SECURITIES> 402
<RECEIVABLES> 17,683
<ALLOWANCES> 4,171
<INVENTORY> 4,777
<CURRENT-ASSETS> 27,341
<PP&E> 5,560
<DEPRECIATION> 4,521
<TOTAL-ASSETS> 28,445
<CURRENT-LIABILITIES> 20,772
<BONDS> 0
<COMMON> 20
0
0
<OTHER-SE> 7,562
<TOTAL-LIABILITY-AND-EQUITY> 28,445
<SALES> 79,070
<TOTAL-REVENUES> 79,070
<CGS> 59,370
<TOTAL-COSTS> 59,370
<OTHER-EXPENSES> 23,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 454
<INCOME-PRETAX> (3,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,805)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
