<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SCANSOFT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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<PAGE> 2
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
SCANSOFT, INC.:
The Annual Meeting of Stockholders of ScanSoft, Inc. (the "Company") will
be held at the Company's headquarters, 9 Centennial Drive, Peabody,
Massachusetts, on June 29, 1999 at 10:00 a.m. for the purpose of considering and
acting upon the following proposals:
(1) To elect a Board of six (6) directors to hold office until the next
annual meeting of stockholders or until their respective successors
have been elected and qualified;
(2) To approve an amendment to the Company's 1995 Employee Stock Purchase
Plan (the "Amended 1995 Plan") to increase the number of shares
reserved for purchase under the Amended 1995 Plan;
(3) To ratify the appointment of PricewaterhouseCoopers LLP as the
independent public accountants for the period ending December 31, 1999;
and
(4) To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on May 28, 1999 as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting and at any postponements or adjournments thereof. A
list of stockholders entitled to vote will be available at 9 Centennial Drive,
Peabody, Massachusetts 01960 for ten days prior to the Annual Meeting.
The Company's 1999 Annual Report to Stockholders accompanies this Notice of
Annual Meeting of Stockholders and Proxy Statement.
By Order of the Board of Directors
/s/ KATHARINE A. MARTIN
Katharine A. Martin
Secretary
Peabody, Massachusetts
June 2, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED ENVELOPE.
<PAGE> 3
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 2, 1999
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ScanSoft, Inc. (the "Company") of proxies for use at
the Annual Meeting of Stockholders of the Company to be held on June 29, 1999 at
10:00 a.m. at 9 Centennial Drive, Peabody, Massachusetts. This proxy statement
and the accompanying form of proxy are being mailed to stockholders on or about
June 2, 1999.
VOTING RIGHTS
Each share of Common Stock entitles its holder to one vote on matters to be
acted upon at the meeting, including the election of directors. Votes cast in
person or by proxy at the Annual Meeting will be tabulated by U.S. Stock
Transfer Corporation, the Inspector of Elections. Any proxy that is returned
using the form of proxy enclosed and which is not marked as to a particular item
will be voted FOR the election of the director nominees, FOR approval of the
amendment to the Company's 1995 Employee Stock Purchase Plan, FOR ratification
of the appointment of PricewaterhouseCoopers LLP as the designated independent
public accountants and as the proxy holders deem advisable in their sole
discretion on other matters that may come before the meeting, as the case may be
with respect to the item not marked. A stockholder may indicate on the enclosed
Proxy or its substitute that it is abstaining from voting on a particular matter
(an "abstention"). A broker may indicate on the enclosed Proxy or its substitute
that it does not have discretionary authority as to certain shares to vote on a
particular matter (a "broker non-vote"). Abstentions and broker non-votes are
each tabulated separately.
The Inspector of Elections will determine whether or not a quorum is
present at the Annual Meeting. In general, Delaware law provides that a majority
of the shares entitled to vote present in person or represented by proxy
constitutes a quorum. Abstentions and broker non-votes of shares that are
entitled to vote are treated as shares that are present in person or represented
by proxy for purposes of determining the presence of a quorum. Except in
specific circumstances, the affirmative vote of the majority of shares entitled
to vote and present in person or represented by proxy at a duly held meeting at
which a quorum is present is required under Delaware law for approval of
proposals presented to stockholders.
In determining whether a proposal has been approved, abstentions of shares
that are entitled to vote are treated as present in person or represented by
proxy, but not as voting for such proposal, and hence have the same effect as
votes against such proposal, while broker non-votes of shares that are entitled
to vote are not treated as present in person or represented by proxy, and hence
have no effect on the vote for such proposal.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record of the Company as of the close of business on May
28, 1999 have the right to receive notice of and to vote at the Annual Meeting.
On May 28, 1999, the Company had issued and outstanding 26,431,417 shares of
Common Stock.
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Board of
Directors of the Company from its stockholders.
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<PAGE> 4
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise by (i) filing with the
Secretary of the Company a signed written statement revoking his or her proxy or
(ii) submitting an executed proxy bearing a date later than that of the proxy
being revoked. A proxy may also be revoked by attendance at the Annual Meeting
and the election to vote in person. Attendance at the Annual Meeting will not by
itself constitute the revocation of a proxy.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, a Board of six (6) directors will be elected. Except
as set forth below, unless otherwise instructed, the proxy holders will vote the
proxies received by them for Management's nominees named below. The nominees are
presently directors of the Company. In the event that any Management nominee
shall become unavailable, the proxy holders will vote in their discretion for a
substitute nominee. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders or until a successor has
been elected and qualified.
THE NAME, AGE AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE
DIRECTORS NOMINATED BY MANAGEMENT ARE:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
---- --- -----------------------------------------
<S> <C> <C>
Michael K. Tivnan 46 - 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.
Paul A. Ricci 42 - 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 Division 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.
J. Larry Smart 51 - 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
---- --- -----------------------------------------
<S> <C> <C>
- 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.
William J. Harding 51 - 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.
David F. Marquardt 50 - Served as a director of the Company since November 1992.
- From April 1989 to October 1998, Mr. Marquardt served as a
director of Auspex Systems, Inc., a provider of network
server hardware and software.
- 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
Microsoft Corporation, a developer of software for
personal computers and Netopia, Inc., a provider of
networking hardware and software.
Mark B. Myers 59 - 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.
</TABLE>
REQUIRED VOTE
The six (6) nominees receiving the highest number of affirmative votes of
the shares of the Company's Common Stock present at the Annual Meeting in person
or by proxy and entitled to vote shall be elected as directors. Unless marked to
the contrary, proxies received will be voted "FOR" management's nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" MANAGEMENT'S
NOMINEES.
BOARD OF DIRECTORS 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
3
<PAGE> 6
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 the Directors' Option Plan, each 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 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 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 the Company's Executive Officers
Two executive officers of the Company prior to the merger with ScanSoft,
Inc., 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
received a lump sum payment of six months salary by the Company in March 1999.
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, Richard Brenner served as the Company's Chief
Financial Officer until March 31, 1999. Visioneer paid The Brenner Group LLC
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.
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.
4
<PAGE> 7
In April 1999, ScanSoft's Board of Directors approved acceleration of
vesting of options for all officers of the Company in the event of a change in
control. A change in control includes a merger or consolidation of the Company
not approved by the Board of Directors, certain changes in the Board of Director
composition, and certain changes in the ownership of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's executive officers, directors and
certain stockholders to file reports of ownership and changes in ownership of
the Common Stock with the Commission. Based upon a review of such reports, the
Company believes that all reports required by section 16(a) of the Exchange Act
to be filed by its executive officers and directors during the last fiscal year
were filed on time.
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 May 1, 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 officers 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 45.5%
800 Long Ridge Road
Stamford, CT 06904
Technology Venture Investors -- IV.......................... 917,001 3.6%
2480 Sand Hill Road
Menlo Park, CA 94025
Morgan Stanley Venture Capital Fund II, L.P.(4)............. 734,036 2.9%
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Michael K. Tivnan(5)........................................ 156,423 *
Paul A. Ricci(6)............................................ 130,000 *
Wayne S. Crandall(7)........................................ 84,324 *
Steven C. Ricketts(8)....................................... 47,158 *
Stanley E. Swiniarski(9).................................... 58,202 *
William J. Harding(10)...................................... 759,036 2.9%
David F. Marquardt(11)...................................... 945,451 3.6%
Mark B. Myers............................................... -- --
J. Larry Smart(12).......................................... 10,429 *
All directors and executive officers as a group
(9 persons)(13)........................................... 2,192,023 8.3%
</TABLE>
- ---------------
* 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 26,364,235 shares of common
stock outstanding as of May 1, 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 May 1, 1999 are deemed outstanding.
5
<PAGE> 8
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.
(5) Includes 146,423 shares subject to options exercisable within 60 days of
May 1, 1999.
(6) Excludes 11,853,602 shares of common stock held by Xerox Imaging Systems,
Inc.
(7) Includes 74,324 shares subject to options exercisable within 60 days of May
1, 1999.
(8) Includes 47,158 shares subject to options exercisable within 60 days of May
1, 1999.
(9) Includes 58,202 shares subject to options exercisable within 60 days of May
1, 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 May 1, 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 May 1, 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 8,333 shares subject to options exercisable within 60 days of May
1, 1999.
(13) Includes 384,440 shares subject to options exercisable within 60 days of
May 1, 1999.
6
<PAGE> 9
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>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#)
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
J. Larry Smart(2).......................... 1998 $314,357 $114,500 $ -- 698,574
President and Chief Executive Officer 1997 190,500 98,429 21,500 815,000
1996 -- -- -- --
Rudolph E. Burger.......................... 1998 193,269 15,000 -- 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 Chief 1997 159,346 17,498 -- 10,000
Financial Officer 1996 156,000 20,000 -- 30,000
Murray Dennis(4)........................... 1998 193,817 82,175 -- 222,577
Vice President of Sales and Marketing 1997 175,000 80,045 -- 75,000
1996 87,500 51,023 -- 150,000
Michael T. Burt(5)......................... 1998 136,254 15,000 -- 130,715
Vice President of Operations 1997 83,077 21,522 -- 100,000
1996 -- -- -- --
</TABLE>
- ---------------
(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.
7
<PAGE> 10
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 TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM($)(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(#) YEAR(%)(1) ($/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. Burger...... 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
</TABLE>
- ---------------
(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.
8
<PAGE> 11
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.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(1)
<TABLE>
<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 $0/0
Rudolph E. Burger................ 86,825/138,303 863/6,038
Geoffrey C. Darby................ 0/0 0/0
Murray Dennis.................... 91,136/121,723 0/0
Michael T. Burt.................. 42,901/87,814 0/0
</TABLE>
- ---------------
(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.
In January 1998, the Company allowed all holders of outstanding options to
exchange higher priced options for new options at $1.75 per share, the fair
market value at the time of the exchange. The repricing terms provided that for
each seven shares of options exchanged, six new options would be granted. The
repriced options maintained the same vesting schedule. Options for 2,656,449
shares were exchanged for new options for 2,276,956 shares.
TEN-YEAR OPTION/SAR REPRICINGS
(AS OF MARCH 26, 1999)
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF OPTION TERM
SECURITIES REMAINING
UNDERLYING NUMBER OF MARKET PRICE OF EXERCISE PRICE AT DATE OF
OPTIONS/SARS SHARES STOCK AT TIME OF AT TIME OF NEW REPRICING OR
DATE OF REPRICED OR REISSUED REPRICING OR REPRICING OR EXERCISE AMENDMENT
EXECUTIVE OFFICER REPRICING AMENDED(#) 7:6 RATIO(#) AMENDMENT($) AMENDMENT($) PRICE($) (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
VP Engineering 1/12/98 10,000 8,572 1.75 4.25 1.75 7.67
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
VP Marketing
Rudolph E. Burger.... 1/12/98 40,000 32,812 1.75 7.00 1.75 7.75
Sr. VP 1/12/98 200,000 156,556 1.75 2.69 1.75 9.42
Business 1/12/98 5,000 4,286 1.75 3.88 1.76 9.75
Development
Michael T. Burt...... 1/12/98 100,000 85,715 1.75 2.81 1.75 9.33
VP of Operations
Geoffrey C. Darby.... 1/12/98 20,000 17,143 1.75 4.25 1.75 7.66
VP Finance 1/12/98 30,000 25,715 1.75 6.50 1.75 8.58
1/12/98 10,000 8,572 1.75 3.88 1.75 9.75
Murray L. Dennis..... 7/25/98 150,000 150,000 6.50 10.75 6.50 9.83
VP Sales and 1/12/98 150,000 128,572 1.75 6.50 1.75 8.58
Marketing 1/12/98 50,000 42,858 1.75 3.50 1.75 9.08
1/12/98 25,000 21,429 1.75 3.88 1.75 9.75
</TABLE>
9
<PAGE> 12
OPTION CANCELLATIONS AND REISSUANCES
The following table provides information regarding the cancellation and
reissuance of certain options held by the Company's executive officers during
the last ten completed fiscal years.
<TABLE>
<CAPTION>
EXERCISE
DATE OF EXPIRATION MARKET PRICE PRICE AT
CANCELLATION NUMBER OF NUMBER OF DATE OF AT CANCELLATION CANCELLATION
AND SHARES SHARES REISSUED AND AND
NAME TITLE REISSUANCE CANCELLED REISSUED OPTIONS REISSUANCE REISSUANCE
---- ----- ------------ --------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Larry Smart........... President and Chief 01/09/98 135,000 115,715 04/01/98 $1.75 $ 3.75
Executive Officer 01/09/98 180,000 154,287 07/07/07 $1.75 $ 3.4375
01/09/98 500,000 428,572 10/06/07 $1.75 $ 3.875
Rudolph E. Burger........ Senior Vice 01/09/98 40,000 34,286 09/27/05 $1.75 $ 7.00
President of 01/09/98 182,648 156,536 05/20/07 $1.75 $ 2.69
Business 01/09/98 5,000 4,286 10/06/07 $1.75 $ 3.875
Development
Geoffrey C. Darby........ Vice President of 01/09/98 20,000 17,143 08/16/05 $1.75 $ 4.25
Finance and 01/09/98 30,000 25,715 07/25/06 $1.75 $ 6.50
Administration and 01/09/98 10,000 8,572 10/06/07 $1.75 $ 3.875
Chief Financial
Officer
Murray Dennis............ Vice President of 01/09/98 150,000 128,572 07/25/06 $1.75 $ 6.50
Sales and 01/09/98 50,000 41,968 02/04/07 $1.75 $ 3.50
Marketing 01/09/98 25,000 21,429 10/06/07 $1.75 $ 3.875
07/25/96 150,000 150,000 07/25/96 $6.50 $10.75
Michael T. Burt.......... Vice President of 01/09/98 100,000 85,715 05/08/07 $1.75 $ 2.81
Operations
Jay Hanson............... Vice President of 01/09/98 14,375 8,572 08/16/05 $1.75 $ 4.25
Engineering 01/09/98 10,000 4,286 07/25/06 $1.75 $ 6.50
01/09/98 10,000 8,572 02/04/07 $1.75 $ 3.50
01/09/98 8,000 6,858 05/21/07 $1.75 $ 2.625
01/09/98 3,300 2,829 08/12/07 $1.75 $ 3.625
01/09/98 30,000 25,715 10/06/07 $1.75 $ 3.875
07/25/96 5,000 5,000 07/25/06 $6.50 $10.75
Bruce Mowery............. Vice President of 07/25/96 150,000 150,000 07/25/06 $6.50 $10.75
Marketing
<CAPTION>
NEW
EXERCISE
PRICE OF
REISSUED
NAME OPTIONS
---- --------
<S> <C>
J. Larry Smart........... $1.75
$1.75
$1.75
Rudolph E. Burger........ $1.75
$1.75
$1.75
Geoffrey C. Darby........ $1.75
$1.75
$1.75
Murray Dennis............ $1.75
$1.75
$1.75
$6.50
Michael T. Burt.......... $1.75
Jay Hanson............... $1.75
$1.75
$1.75
$1.75
$1.75
$1.75
$6.50
Bruce Mowery............. $6.50
</TABLE>
COMPENSATION COMMITTEE REPORT ON COMPENSATION
The Company's compensation policies for its executive officers and Chief
Executive Officer are determined by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee sets the base salary and bonus
programs to be in effect for executive officers each fiscal year. In addition,
the Committee administers the Company's 1993 Incentive Stock Option Plan under
which option grants may be made to such officers and other key employees as an
inducement essential to such officers and employees joining the Company. The
Committee was established in August 1995. Prior to such date, the Company's
compensation policies for its executive officers were determined by the Board of
Directors.
GENERAL COMPENSATION POLICY
The Company's executive compensation program consists of three main
components: (1) base salary which reflects individual performance and Company
performance and is designed generally to be competitive with salary levels in
the Company's industry and geographical area, (2) potential for a quarterly or
annual bonus payable in cash and based on individual performance and Company
performance, and (3) long-term stock option awards that provide executive
officers with the opportunity to build a meaningful stake in the Company, with
the objective of aligning executive officers' long-range interests with those of
the stockholders and encouraging the achievement of superior results over time.
10
<PAGE> 13
FACTORS
Several of the more important factors which were considered in establishing
the components of each executive officer's compensation package for the 1998
fiscal year are summarized below. Additional factors were also taken into
account to a lesser degree. The Committee may at its discretion apply entirely
different factors, particularly different measures of financial performance, in
setting executive compensation for future fiscal years.
- Base Salary. The base salary for each executive officer is set on the
basis of personal performance, internal comparability standards, and the
salary levels in effect for comparable positions with companies in the
Company's industry and at high technology companies generally in Silicon
Valley that are of comparable size to the Company and with which the
Company competes for executive personnel. External salary data is
obtained by reviewing data from specific companies in Silicon Valley in
the Company's industry and a variety of compensation surveys. The
Committee believes that the Company's most direct competitors for
executive talent are not necessarily all of the companies that the
Company would use in a comparison for stockholder returns. Therefore, the
compensation comparison group is not the same as the industry group index
in the "Performance Graph" included below.
- Annual Incentive Compensation. Bonuses were paid to executive officers
for fiscal 1998. The Company had adopted a Management Incentive Program
in December 1995 pursuant to which bonuses were payable to eligible
employees for fiscal 1998 upon achievement of individual goals
established for each employee and Company performance goals. The
individual performance portion of the bonus varied, depending on the
individual, and the Company performance portion of the bonus was a
function of net profit before taxes. Individual goals and Company
performance goals were generally targeted at 40% and 60%, respectively,
of the total bonus amount to be paid to any particular executive officer.
- Long-term Incentive Compensation. The Committee periodically approves
grants of stock options to each of the Company's executive officers under
the Company's 1993 Incentive Stock Option Plan. The grants are designed
to give executive officers the opportunity to build a meaningful stake in
the Company, with the objective of aligning executive officers'
long-range interests with those of the stockholders and encouraging the
achievement of superior results over time. Each grant generally allows
the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the fair market value on the grant date) over a
specified period of time (up to 10 years), thus providing a return to the
executive officer only if the market price of the shares appreciates over
the option term. During the 1998 fiscal year, the Committee approved
grants to officers with vesting commencing on the date of grant, after
taking into account the option holdings and direct stock holdings of such
individuals. The size of such grants was set to achieve a potential
percentage ownership stake in the Company that the Committee deemed
appropriate to create a meaningful opportunity for stock ownership based
upon such individuals' current position with the Company, but also taking
into account the individual's potential for future responsibility and
promotion over the option term and the individual's personal performance
in recent periods.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee meets without the Chief Executive Officer's presence to
evaluate his performance and reports on that evaluation to the independent
members of the Board of Directors. The compensation payable to J. Larry Smart in
his capacity as the Company's Chief Executive Officer for fiscal 1998 was based
on a number of factors, including comparative salaries of chief executive
officers of similar companies of comparable sales and capitalization in the
Company's industry and geographical area. Mr. Smart was awarded quarterly
bonuses totaling $114,500 based on Mr. Smart's fulfillment of certain Company
performance objectives agreed to between Mr. Smart and the Company's Board of
Directors for fiscal 1998. Furthermore, the Company entered into certain Letter
Agreements with Mr. Smart setting forth his employment terms. The Letter
Agreements are described in "Change in Control and Employment Agreements." In
connection with
11
<PAGE> 14
the merger between the Company and ScanSoft, Inc., Mr. Smart resigned as
President and Chief Executive Officer of the Company and was replaced by Mr.
Michael K. Tivnan.
REPORT ON REPRICED OPTIONS
In January 1998, the Committee determined that it was in the best interests
of the Company to reprice then-existing stock option grants under the Company's
1993 Incentive Stock Option Plan and 1997 Employee Stock Option Plan with
exercise prices in excess of the then-current fair market value of the Company's
Common Stock.
The objectives of the Company's stock option plans (the "Stock Option
Plans") are to promote the interests of the Company by providing employees and
certain consultants or independent contractors an incentive to acquire a
proprietary interest in the Company and to continue to render services to the
Company. It was the view of the Committee that stock options with exercise
prices substantially above the current market price of the Company's Common
Stock were viewed negatively by most employees of the Company, and provided
little, if any, equity incentive to the optionees. The Committee thus concluded
that such option grants seriously undermined the specific objectives of the
Stock Option Plans and should properly be repriced. In making this decision, the
Committee also considered the fairness of such a determination in relation to
other stockholders. In the opinion of the Committee, the stockholders' long-term
best interests were clearly served by the retention and motivation of optionees.
In this context, the Committee decided that effective January 9, 1998, all
Company employees (including executive officers) holding stock options with
exercise prices in excess of the fair market value of the Company's Common Stock
could receive a repricing of their then-existing unexercised stock options with
a new exercise price set at $1.75, the fair market value of the Company's Common
Stock on January 9, 1998. The repricing permitted employees to exchange options
to acquire seven shares of the Company's Common Stock for each new option to
acquire six shares of the Company's Common Stock.
None of the Company's non-employee members of the Board of Directors
received any repriced stock options. It is the opinion of the Committee that
this program succeeded in its objectives of building employee morale and
providing new incentives for the Company's employees and management.
OTHER
The Company generally intends to qualify compensation under Section 162(m)
of the Internal Revenue Code of 1986, as amended. However, the Company reserves
the right to pay compensation that may not be deductible.
COMPENSATION COMMITTEE
PAUL A. RICCI
WILLIAM J. HARDING
DAVID F. MARQUARDT
May 24, 1999
12
<PAGE> 15
PERFORMANCE GRAPH
The following graph compares, for the period of time since the Company's
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934 (December 11, 1995), the cumulative total stockholder return for the
Company with the cumulative total return of the Standard & Poor's 500 Stock
Index, and the Nasdaq Computer Manufacturer Index assuming $100 was invested on
December 11, 1995 in the Company's Common Stock and both of the indices. The
stock price performance on the following graph is not necessarily indicative of
future stock price performance.
COMPARISON OF 36 MONTH CUMULATIVE TOTAL RETURN*
AMONG SCANSOFT, INC., S & P 500 INDEX AND THE NASDAQ
COMPUTER MANUFACTURER INDEX
<TABLE>
<CAPTION>
NASDAQ COMPUTER
SCANSOFT, INC. S & P 500 MANUFACTURER
-------------- --------- ---------------
<S> <C> <C> <C>
'12/11/95' 100.00 100.00 100.00
'12/95' 185.00 99.00 95.00
'12/96' 38.00 122.00 127.00
'12/97' 14.00 163.00 154.00
'12/98' 10.00 210.00 333.00
</TABLE>
* $100 invested on December 11, 1995 in stock or index, including reinvestment
of dividends, fiscal year ending December 31.
13
<PAGE> 16
PROPOSAL NUMBER 2
AN AMENDMENT TO THE COMPANY'S 1995 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's 1995 Employee Stock Purchase Plan (the "1995 Plan")
that will increase the number of shares of Common Stock available for issuance
under the 1995 Plan by three hundred thousand (300,000) shares. The Board
believes the amendment is necessary in order to provide the Company with a
sufficient reserve of Common Stock in order to continue the Company's policy of
equity ownership by employees as an incentive for employees to exert maximum
efforts.
The principal terms and provisions of the 1995 Plan are summarized below.
The following summary however, is not intended to be a complete description of
all the terms of the 1995 Plan and is qualified in its entirety by the specific
language of the 1995 Plan. A copy of the 1995 Plan will be furnished by the
Company to any stockholder upon written request to the Secretary of the Company.
SHARES SUBJECT TO THE 1995 PLAN
Prior to the amendment of the 1995 Plan, 700,000 shares of Common Stock had
been authorized for issuance under the Plan. Upon approval of this amendment by
the stockholders, a total of 1,000,000 shares will be authorized under the Plan.
The authorized shares issuable in connection with the 1995 Plan are subject to
adjustment in the event of stock splits, stock dividends and other situations.
The 1995 Plan was adopted by the Board of Directors in October 1995 and was
approved by the Company's stockholders in November 1995. The 1995 Plan, and the
right of participants to make purchases thereunder, is intended to qualify under
the provisions of section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The 1995 Plan is not a qualified deferred compensation plan under
section 401(a) of the Code, and is not subject to the provisions of ERISA.
As of May 1, 1999, a total of 458,355 shares had been issued to the
Company's employees under the 1995 Plan and 241,645 shares remain available for
future issuance. The average per share issuance price for shares purchased by
employees under the 1995 Plan to date was approximately $3.27 and the total net
value realized by employees as a group from the purchase of such shares was
$264,252. As of May 1, 1999, approximately 118 employees were eligible to
participate in the 1995 Plan.
PURPOSE
The purpose of the 1995 Plan is to provide employees of the Company (and
any of its subsidiaries designated by the Board of Directors) who participate in
the 1995 Plan with an opportunity to purchase Common Stock of the Company
through accumulated payroll deductions. Employees make such purchases by
participation in regular offering periods from which they may withdraw at any
time.
ADMINISTRATION
The 1995 Plan may be administered by the Board of Directors or a committee
appointed by the Board of Directors. The 1995 Plan is currently being
administered by the Board. The Board of Directors or its committee has full
power to adopt, amend and rescind any rules deemed desirable and appropriate for
the administration of the 1995 Plan and not inconsistent with the 1995 Plan, to
construe and interpret the 1995 Plan, and to make all other determinations
necessary or advisable for the administration of the 1995 Plan.
ELIGIBILITY
Any person who, on the first day of an offering period, is customarily
employed by the Company (or any of its designated subsidiaries) for at least 20
hours per week and more than five months in any calendar year is eligible to
participate in the 1995 Plan.
14
<PAGE> 17
OFFERING DATES
In general, the 1995 Plan is implemented by a series of offering periods of
twelve months duration, with new offering periods commencing on or about
February 16 and August 16 of each year. Each offering period consists of two
consecutive purchase periods of six months duration, with the last day of such
period being designated a purchase date. The Board of Directors has the power to
change the duration and/or frequency of the offering and purchase periods with
respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first offering or purchase period to be affected.
PARTICIPATION IN THE PLAN
Eligible employees may participate in the Plan by completing a subscription
agreement on the form provided by the Company and filing it with the Company
prior to the applicable offering date, unless a later time for filing the
subscription agreement is set by the Board for all eligible employees with
respect to a given offering. The subscription agreement currently authorizes
payroll deductions of up to 20% of the participant's eligible compensation on
the date of the purchase.
PURCHASE PRICE
The purchase price per share at which shares are sold under the 1995 Plan
is a price equal to the lower of 85% of the fair market value of the Common
Stock at the beginning of the offering period or the purchase date. If the fair
market value of the Common Stock on a purchase date is less than the fair market
value at the beginning of the offering period, a new twelve month offering
period will automatically begin on the first business day following the purchase
date with a new fair market value. The fair market value is the per share
closing price of the Common Stock on the Nasdaq National Market as of such date
reported by Nasdaq.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
during the offering period. The deductions may be up to 20% of a participant's
eligible compensation received on each payday during the offering period.
Eligible compensation is defined in the 1995 Plan to include the regular
straight time gross earnings excluding payments for overtime, shift premium,
incentive compensation, bonuses and commissions. A participant may discontinue
his or her participation in the 1995 Plan at any time during the offering period
prior to a purchase date, and may decrease the rate of his or her payroll
deductions once during the offering period by completing and filing a new
subscription agreement. Payroll deductions shall commence on the first payroll
following the offering date and shall continue until his or her participation is
terminated as provided in the 1995 Plan. No interest accrues on the payroll
deductions of a participant in the 1995 Plan.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the 1995 Plan, the
participant is entitled to have shares placed under option. The maximum number
of shares placed under option to a participant in an offering period is 5,000
shares. Within this limit, the number of shares purchased by a participant will
be determined by dividing the amount of the participant's total payroll
deductions accumulated during each offering period by the lower of (i) 85% of
the fair market value of the Common Stock on the offering date, or (ii) 85% of
the fair market value of the Common Stock on the applicable purchase date.
Unless the participant's participation is discontinued, each participant's
option for the purchase of shares will be exercised automatically at the end of
each purchase period at the applicable price. Notwithstanding the foregoing, no
participant shall be permitted to subscribe for shares under the 1995 Plan if
immediately after the grant of the option he or she would own 5% or more of the
voting power or value of all classes of stock of the Company or of any of its
subsidiaries (including stock which may be purchased under the 1995 Plan or
pursuant to any other options), nor shall any participant be granted an option
which would permit the participant to buy pursuant to all employee stock
purchase plans of the Company more than $25,000 worth of stock (determined at
the fair market value of the shares at the time the option is granted) in any
calendar year. Furthermore, if
15
<PAGE> 18
the number of shares which would otherwise be placed under option at the
beginning of an offering period exceeds the number of shares then available
under the 1995 Plan, a pro rata allocation of the available shares shall be made
in as equitable a manner as is practicable.
WITHDRAWAL
While each participant in the 1995 Plan is required to sign a subscription
agreement authorizing payroll deductions, the participant's interest may be
decreased once during any given offering period by completing and filing a new
subscription agreement with the Company. In addition, a participant's interest
may be terminated in whole, but not in part, by delivering written notice of
such withdrawal to the Company. Such withdrawal may be elected at any time prior
to the end of the applicable six-month purchase period under the 1995 Plan. Any
withdrawal by the participant of accumulated payroll deductions for a given
offering period automatically terminates the participant's interest in that
offering period.
A participant's withdrawal from an offering period does not have an effect
upon such participant's eligibility to participate in subsequent offering
periods under the 1995 Plan; however, the participant may not re-enroll in the
same offering period after withdrawal.
TERMINATION OF EMPLOYMENT
Upon termination of the participant's continuous status as an employee
prior to the exercise date of an offering period for any reason, including
retirement or death, the contributions credited to his or her account will be
returned to him or her, without interest, or, in the case of his or her death,
to the person or persons entitled thereto, and his or her option will be
automatically terminated.
In the event an employee fails to remain in continuous status as an
employee of the Company for at least twenty (20) hours per week during the
offering period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the 1995 Plan and the contributions credited to
his or her account will be returned to him or her, without interest, and his or
her option terminated.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or stock dividend, is made
in the Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, appropriate adjustments will be made in the shares subject to
purchase and in the purchase price per share, as well as in the number of shares
available for issuance under the 1995 Plan. In the event of the proposed
dissolution or liquidation of the Company, the offering period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board of Directors or its committee. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each option under the 1995 Plan
will be assumed or an equivalent option will be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the offering period then in progress by
setting a new purchase date.
NONTRANSFERABILITY
No rights or accumulated payroll deductions of a participant under the 1995
Plan may be pledged, assigned or transferred for any reason and any such attempt
may be treated by the Company as an election to withdraw from the 1995 Plan.
REPORTS
Individual accounts will be maintained for each participant in the 1995
Plan. Each participant shall receive promptly after each exercise date a report
of such participant's account setting forth the total amount
16
<PAGE> 19
of the participant's contributions, the per share purchase price and the number
of shares purchased and the remaining cash balance, if any, to be returned or
carried over to the next offering period.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the 1995 Plan,
except that such termination shall not affect options previously granted nor may
any amendment make any change in any option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
1995 Plan without prior stockholder approval with respect to any change for
which stockholder approval is required to comply with the rules regarding
"discretionary plans" under section 16 of the Exchange Act and Rule 16b-3 or
under section 423 of the Code (or any successor provisions thereto).
FEDERAL INCOME TAX ASPECTS OF THE 1995 PLAN
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the 1995 Plan based on federal income tax
laws in effect on the date of this Proxy Statement. This summary is not intended
to be exhaustive and does not address all matters which may be relevant to a
particular participant based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
laws.
General Tax Information. The 1995 Plan, and the right of participants to
make purchases thereunder, is intended to qualify for the federal income tax
treatment provided to employee stock purchase plans and their participants under
the provisions of sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
1995 Plan are sold or otherwise disposed. Upon sale or other disposition of the
shares, the participant will generally be subject to tax in an amount which
depends upon the holding period of the shares. If the shares are sold or
otherwise disposed of more than two years from the first day of the offering
period and one year from the date the shares are purchased, the participant will
recognize ordinary income measured as the lesser of (a) the excess of the fair
market value of the shares at the time of such sale or disposition over the
purchase price, or (b) an amount equal to 15% of the fair market value of the
shares as of the first day of the offering period. Any additional gain will be
treated as long-term capital gain. If the shares are sold or otherwise disposed
of before the expiration of either of these holding periods, the participant
will recognize ordinary income generally measured as the excess of the fair
market value of the shares on the date the shares are purchased over the
purchase price. Any additional gain or loss on such sale or disposition will be
long-term or short-term capital gain or loss, depending on whether or not the
disposition occurs more than one year after the date the shares are purchased.
The Company is not entitled to a deduction for amounts taxed as ordinary income
or capital gain to a participant except to the extent of ordinary income
recognized by a participant upon a sale or disposition of shares prior to the
expiration of the holding periods described above.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1995 Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside.
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of shares of capital
stock represented and voting at a duly held meeting at which a quorum is present
is required to approve the amendment of the 1995 Plan as it relates to the three
hundred thousand (300,000) new shares available for issuance under the 1995
Plan. Unless marked to the contrary, proxies received will be voted "FOR"
approval of the amendment of the 1995 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE AMENDMENT OF THE 1995 PLAN.
17
<PAGE> 20
PROPOSAL NUMBER 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company until
revoked by further action. PricewaterhouseCoopers LLP has been the Company's
independent accountants since inception (March 10, 1992).
The stockholders are asked to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company for the
fiscal year ending December 31, 1999. A representative of PricewaterhouseCoopers
LLP is expected to be present at the Annual Meeting to make a statement if he or
she desires to do so, and such representative is expected to be available to
respond to appropriate questions.
Should the stockholders fail to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants, appointment of the firm
for the fiscal year ending December 31, 1999 will be reconsidered by the Board
of Directors.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of PricewaterhouseCoopers LLP as independent
accountants for the Company's fiscal year ending December 31, 1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF THE COMPANY'S INDEPENDENT ACCOUNTANTS.
OTHER MATTERS
Proposals Intended to be Presented at Next Annual Meeting. Proposals of
security holders intended to be presented at the Company's 2000 Annual Meeting
of Stockholders must be received by the Company for inclusion in the Company's
proxy statement and form of proxy no later than February 2, 2000.
Other Matters. Management knows of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
Proxy Solicitation. The expense of solicitation of proxies will be borne by
the Company. In addition to solicitation of proxies by mail, certain officers,
directors and Company employees who will receive no additional compensation for
their services may solicit proxies by telephone, telegraph or personal
interview. The Company is required to request brokers and nominees who hold
stock in their name to furnish this proxy material to beneficial owners of the
stock and will reimburse such brokers and nominees for their reasonable
out-of-pocket expenses in so doing.
Annual Report. The Company will provide a copy of its 1998 Annual Report to
stockholders, without charge, to any stockholder who makes a written request to
Katharine A. Martin, Secretary, Pillsbury Madison & Sutro LLP, 2550 Hanover
Street, Palo Alto, California 94304-1115.
By Order of the Board of Directors
/s/ KATHARINE A. MARTIN
Katharine A. Martin
Secretary
Peabody, Massachusetts
June 2, 1999
18
<PAGE> 21
PROXY
SCANSOFT, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING -- JUNE 29, 1999
The undersigned, revoking all previous proxies relating to its shares of
capital stock (the "Shares") of SCANSOFT, INC. (the "Company"), hereby
acknowledges receipt of the Notice of Annual Meeting and Proxy Statement in
connection with the Annual Meeting of Stockholders of the Company to be held at
10:00 a.m. on June 29, 1999 at SCANSOFT, INC., 9 Centennial Drive, Peabody, MA
01960 and hereby appoints MICHAEL TIVNAN and STEVE RICKETTS, and each of them,
the attorneys and proxies of the undersigned, each with the power of
substitution, to vote all the Shares which the undersigned is entitled to vote
at said Annual Meeting, and any adjournments or postponements thereof, upon all
matters that may properly come before the meeting with all the powers the
undersigned would have if personally present. Without otherwise limiting the
foregoing general authorization, the proxies are instructed to vote or act as
indicated herein.
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE
VOTED FOR THE MATTERS DESCRIBED HEREIN UNLESS THE STOCKHOLDER SPECIFIES
OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS TO COME
BEFORE THE ANNUAL MEETING:
1. To elect a Board of six (6) directors. NOMINEES: Michael K. Tivnan; Paul A.
Ricci; J. Larry Smart; William Harding; David Mardquart; and Mark B. Myers.
<TABLE>
<S> <C>
FOR ALL NOMINEES WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY) TO VOTE FOR NOMINEES LISTED
[ ] [ ]
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, write
name or names here
- --------------------------------------------------------------------------------
<PAGE> 22
2. To approve the amendment to the Company's 1995 Employee Stock Purchase Plan.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] N N
</TABLE>
3. To ratify the designation of PricewaterhouseCoopers LLP as independent
accountants of the Company for the period ending December 31, 1999.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] N N
</TABLE>
PLEASE SIGN AND RETURN IMMEDIATELY
Please sign exactly as your name appears on your stock certificate. When
shares are held by joint tenants, both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated:
- -------------------------------------------------------------------------------,
1999
----------------------------
Signature(s) of Stockholder
or Stockholders
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
